REAFIQULLA NIAMAT KHAN,MUMBAI vs. ITO 20(3)(1), MUMBAI

I first take up the appeal filed by Shri Rafiquallah Niamat Khan. I heard the parties and perused the record. The assessee is a dealer in M.S pipes. Consequent to the information received from Sales tax department that certain parties (called hawala parties) are indulging in providing only accommodation bills without actually supplying the materials, the revenue examined those details. It was noticed that the assessee herein have purchased goods during the year under consideration from the parties listed as hawala parties aggregating to Rs.2,00,04,965/-. Hence the AO reopened the assessment of the year under consideration.

Before AO, the assessee only furnished copies of purchase bills and bank statement to prove the genuineness of purchases. When the AO asked the assessee to produce the parties, the assessee expressed his inability. Hence the AO was not satisfied with the genuineness of purchases. However, by following the decision rendered by Hon’ble Gujarat High Court in the case of Simit P Shah (356 ITR 451) and also some other decisions, the AO took the view that profit element involved in the purchases should be brought to tax. Accordingly he assessed 12.50% of the value of suspicious purchases as income of the assessee. The Ld CIT(A) noticed that the assessee has declared G.P at the rate of 5.77%. Accordingly he took the view that the addition should be restricted to the G.P rate declared by the assessee. Accordingly he directed the AO restrict the addition to 5.77% of the value of purchases. Still aggrieved, the assessee has filed this appeal.

In the similar manner, the AO had made the addition at 12.50% of the value of alleged bogus purchases in the other two cases also. The Ld CIT(A), in the similar manner, restricted the addition to the extent of the amount calculated by applying respective G.P rate on the value of alleged bogus purchases.

The Ld A.R submitted that the turnover and net profit of the assessee has increased during the year under consideration. He further submitted that the division bench of Mumbai ITAT has estimated the profit @ 2% in the case of CIT Vs. Ashok Industrial Corporation (ITA No.647/Mum/2017 dated 12-05-2017). Accordingly he contended that the addition should be restricted to 2% of the value of impugned purchases.

On the contrary, the Ld D.R submitted that the suppliers have admitted that they have provided only accommodation bills without actually supplying materials. Since the assessee has correlated purchases and sales, the assessee should have purchased goods from some other channel. In that process, the assessee should have saved taxes and should have also earned discount. If one takes into account these factors, the addition sustained by Ld CIT(A) would be reasonable, even though the revenue has not contested the decision of Ld CIT(A) on account of monetary effect.

Having heard rival submissions, I am of the view that there is no merit in the claim of the assessee. Since the assessee could correlate purchases with sales, the tax authorities have estimated the profit that would have been made by the assessee on the value of alleged bogus purchases. The said profit is estimated at Gross profit level. In our view, the ld D.R rightly pointed out that that the assessee would have saved VAT portion of tax and also purchased goods at discount. In the case of Simit P Shah (supra), the Hon’ble Gujarat High

In the case of Zaheer Ahmed Aneed Ahmed Khan, the ld CIT(A) has sustained addition to the extent of 4.52% of the value of suspicious purchases and in the case of Dilipkumar Jaiswar, the Ld CIT(A) has sustained addition to the extent of 4.17% of the value of suspicious purchases. For the reasoning given in the preceding paragraph, I uphold the orders passed by Ld CIT(A) in their hands.

In the result, the appeals filed by these assessees are dismissed. Order has been pronounced in the Court on 19.9.2017.