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Income Tax Appellate Tribunal, SMC Bench, Mumbai
Before: Shri G.S. PannuShri Dharmendra M. Parikh
This appeal by the assessee has been filed against the order of the CIT(A)-42, Mumbai dated 02.09.2016 for A.Y. 2010-11.
In this appeal the solitary grievance of the assessee is against the action of the income tax authorities in making an adhoc addition of 12.5% of the purchases found be ingenuine by the AO.
In brief the relevant facts are that the assessee is an individual who is carrying on the business as dealer in iron and steel and cranes and for the assessment year under consideration he filed the return of income declaring income of `8,35,610/-. The assessment was reopened by issuance of notice under section 147/148 of the Act on account of information received from the Sales Tax Department of Government of Maharashtra that the assessee had effected purchases of `1,67,89,448/- from three parties who were involved only in providing accommodation
Shri Dharmendra M. Parikh entries without doing any actual business. In the ensuing assessment proceedings the AO required the assessee to justify the purchases from the three parties by submitting the purchase bills, delivery challans, transport receipts, octroi receipts, weight receipts, stock register, inward and outward register, consumption register reflecting reconciliation of stock, purchases and sales, etc. The discussion in the assessment order reveals that the assessee was also required to produce the said parties for verification after the notice issued by the AO under section 133(6) of the Act to the parties came back with the remarks “Not known”/“Unclaimed” from the address given by the assessee himself. The assessment order also records that the assessee could not produce supporting documents like transport bills, octroi bills, consumption register, stock movement register, etc. Nevertheless, all that the assessee produced before the AO was the purchase invoices and the fact that the payments for purchases were made through banking channels. Be that as it may the AO inferred that the assessee was not able to prove the purchases and she concluded that the assessee did not purchase the material from the parties in question. The AO proceeded to observe that the purchases had been effected by the assessee in gray market from other sources. Therefore, considering the judgement of the Hon'ble Gujarat High Court in the case of CIT vs. Simit P. Sheth 356 ITR 451 she has considered it appropriate to make an addition of 12.5% of the total purchase of `1,67,89,448/- being `20,98,681/-. Thus, in this manner the AO assessed the total income at `29,34,2900/- as against the returned income of `8,35,l610/-.
Before the CIT(A) the assessee contended that the purchases could not be considered as ingenuine and that in the absence of rejection of books of account no summary addition could have been made by the AO. The CIT(A) has affirmed the action of the AO relying on the judgement the Hon'ble Gujarat High Court in the case of CIT vs. Simit P. Sheth 356 ITR 451 for sustaining an addition at an estimated rate of profit in cases where the purchases had not been found to be adequately proved. Against such a decision of the CIT(A) the assessee is in further appeal before the Tribunal.
Shri Dharmendra M. Parikh 5. Before me the learned A.R. for the assessee pointed out that the assessee had discharged his basic onus of explaining the purchases and therefore when the sales are accepted along with the stock position, etc. the purchases could not have been treated as ingenuine.
On the other hand, the learned D.R. for Revenue has relied upon the orders of the authorities below and pointed out that the lower authorities have already computed the income in a manner which is generally being followed by different Benches of the Tribunal in the cases of unproved purchases from parties who have been listed as havala parties by the Sales Tax Department of Maharashtra. Therefore according to her no interference is called for in the orders of the authorities below.
I have carefully considered the rival submissions. At the outset I may refer to some of the findings of the AO which have remained unassailed. Notably the only plea of the assessee to substantiate the purchases was on the account of the fact that the amounts have been paid through cheques. So however in the light of the information from the Sales Tax Department it was imperative that the substantiation of the purchases had to be done with more evidences. Pertinently, the assessee has not laid down any evidence to substantiate the movement of goods in as much as there is no evidence of transportation bills, octroi bills or delivery challans. Even if the case of the assessee is that he has not taken physical delivery but the material has been sold back to back yet the factum of the movement of goods and accompanying liability of octroi, etc. were required to be brought on record by the assessee to substantiate the transactions in question. Therefore, in my view the AO made no mistake in coming to the conclusion that the assessee could not substantiate that the purchases have been made from the three parties in question. In this background the Assessing Officer has followed the ratio laid down by the Hon'ble Gujarat High Court in the case of CIT vs. Simit P. Sheth 356 ITR 451 in making the addition only on the element of profit embedded in making of the purchases from gray market, which has been estimated at 12.5% of the impugned
Shri Dharmendra M. Parikh purchases. Under the circumstance, in my view the orders of the authorities below deserve to be affirmed. I hold so.
In the result, the appeal filed by the assessee is dismissed as above.