SALIM EBRAHIM PETIWALA,MUMBAI vs. ITO 15(1)(1), MUMBAI

The assessee is engaged in the business of trading in glass & mirrors. During the course of scrutiny assessment, the AO issued notices u/s 133(6) of the Act to five parties, from whom the assessee had purchased goods exceeding Rs.1.00 lakh. Notices issued to three parties were returned unserved. The AO also noticed that the names of the five dealers also finds place in the list of hawala dealers published by Sales tax department. Hence the assessing officer asked the assessee to prove the genuineness of purchases. The assessee submitted that it has sold all the goods to a single party and also correlated purchases with sales. However, the AO took the view that these suppliers are non-existent parties and accordingly took the view that the assessee should

The Ld A.R submitted that the assessee has correlated the purchases with sales and hence there is no reason to treat the purchases as unexplained expenditure and assess the peak credit amount. He submitted that the addition made by the AO gives rise to a Gross profit rate of almost 79%, which is extra- ordinary in this trade. He submitted that the division bench of Tribunal has sustained an addition of 2% of the value of purchases in the case of M/s Steel Line (India) in the order dated 29-08-2017 passed in to 1323/Mum/2016. On the contrary, the Ld A.R placed reliance on the decision rendered by Hon’ble Supreme Court in the case of N.K. Proteins (Civil Appeal No.769/2017).

I have heard rival submissions and perused the record. In my view the decision rendered in the case of N.K. Proteins (supra) by Hon’ble Supreme Court is not applicable, since the said decision was rendered on the basis of facts available in that case. I have gone through the facts available in the case of N.K. Proteins Ltd (supra) and notice that, in that case, the revenue conducted search in the hands of that assessee and found the blank signed cheque books and vouchers of number of concerns at its premises. This fact, in my view, shows that the assessee before the Hon’ble Supreme Court was operating all the 3 Salim Ebrahim Petiwala accounts of the concerns, which factor established bogus nature of the purchases. In any case, the issue agitated before me would depend upon the facts prevailing in each case and hence the assessee also, in my view, cannot take support of the decision rendered in other cases. There is no dispute with regard to the fact that the assessee has maintained stock register and has proved that the purchased goods have been sold. When the sales were accepted, in my view, it may not be correct to treat the purchases as unexplained expenditure. The AO himself has observed that the assessee might have purchased goods from some other sources, in which case, it may be proper to assess the profit element embedded in such purchases. Accordingly, I am of the view that the addition may be restricted to 12.50% of the value of impugned purchases and the same would meet the ends of justice. Accordingly, I set aside the order passed by Ld CIT(A) and direct the AO to restrict the addition to 12.50% of the value of impugned purchases.

In the result, the appeal of the assessee is partly allowed. Order has been pronounced in the Court on 20.9.2017.