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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Assessee by .. Anant Pai, AR Revenue by .. V. Jenardhanan,DR Date of hearing .. 11-05-2018 Date of pronouncement .. 25-05-2018 O R D E R PER MAHAVIR SINGH, JM:
When this misc. application was called for hearing, the learned Counsel for the assessee stated that the tribunal has passed ex-parte order qua the assessee and hence, the appeal order is recalled and assessee should be heard. When pointed out to the learned Counsel that yes, this is an ex-parte order and it is to be recalled. The learned Sr.
MA No. 836/Mum/2017 Departmental Representative has not objected to recalling of the order. Accordingly, the Tribunal’s order is recalled.
At this point, when the learned Counsel for the assessee pointed out that the issue is simply on bogus purchase, he fairly stated that he is ready to argue the matter even today. The learned Sr. Departmental Representative also agree that yes, the matter is very simple and can be argued and finished quickly. Accordingly, we have heard the appeal.
3. This appeal by the assessee is arising out of the same order of CIT(A)-36, Mumbai, in appeal No. CIT(A)-31/IT-33/ACIT-24(2)/15-16 dated 05-10-2016. The Assessments were framed by ACIT Circle 24(2), Mumbai for the A.Y. 2009-10 vide order dated 26-03-2015 under section 143(3) read with section 147 of the Income Tax Act, 1961(hereinafter ‘the Act’).
4. We find that the Tribunal in earlier round passed ex-parte order and consider the issue of bogus purchases vide Para 2 to 4 as under:-
“2. The only issue in this appeal of assessee is arising out of the order of CIT(A) directing the AO to restrict the addition by estimating profit percentage at the rate of 25% on bogus purchases. For this assessee has raised following grounds: - On facts and circumstances of the case and in law, the learned Commissioner (Appeals) erred in sustaining in part @ 94,93,779/- in his appellate order, the disallowance of purchases made by the learned Assessing Officer.
The learned Commissioner (appeals here has wrongly sustained 25% of the disallowance of the purchases totaling Rs MA No. 836/Mum/2017 3,79,75,116/- as made by the learned assessing officer – despite giving a categorical finding in his appellate order that the disputed purchase had ben factually effected by the appellant.
The disallowance of Rs. 94,93,779/- sustained by the learned Commissioner (Appeals) is therefore clearly misconceived and deserved to be deleted in appeal.
2. Briefly stated facts are that the assessee engaged in the business of Civil Engineering & Contractors. The AO received information from DGIT (Investigation), who in turn received information from Sales Tax Department, Mumbai that the assessee has made purchases from hawala parties, as listed in hawala dealers by the Maharashtra Sales Tax Department who are providing bogus bills of purchase amounting to Rs. 3,79,75,116/- for as admitted by these hawala dealers in their deposition before the authorities. The same reads as under: - “Sl Name of party Amount (in No. Rs.) 1. Om Corporation 30,90,124 2. ISK Trading Company Pvt. Ltd 22,83,871 3. KRC Trading Co. Pvt. Ltd 76,59,121 4. Padmalaxmi Steel and Alloys Pvt. Ltd 1,17,00,367 5. Leo Impex 6,01,175 Daksha Impex 34,14,070 6. 7. Entech Enterprise 4,93,441 8. G.M. International 5,10,796 9. Om Enterprises 30,10,263 10. Jindal Metal Corporation 10,37,635 11. Khush Impex Pvt. Ltd. 11,43,563 MA No. 836/Mum/2017 Shivam Trading Co. 15,00,288 12. 13. Balaji Trading Co. 15,30,402 Total 3,79,75,116 14. The AO issued noticed under section 133(6) to the parties which returned back with the remark as “left” and assessee failed to produce these parties. During the course of assessment proceedings and during appellate proceedings, the assessee submitted all the documentary evidences such as inward register, stock register, payment received against such sales, receipt of material purchases, account payee cheque. According to the AO, the assessee failed to establish the genuineness of the purchase and accordingly, he made addition of unproved purchase at Rs. 3,79,75,116/- to the return income of the assessee. Aggrieved, assessee preferred the appeal before CIT(A), who restricted the disallowance at 25% to Rs. 94,93,779/- of the bogus purchases by observing in para 5.3 as under: - “5.13 Keeping in mind the totality of circumstances as discussed above and the fact that AR of appellant has not brought on record any evidence to corroborate his arguments during appellate proceedings, it is adequate to meet the ends of justice, whets the disallowance has been restricted to 25 percent of the bogus purchases of Rs.3,79,75,116/- which amounts to Rs.94,93,7791-. Appellant get relief of Rs.2,84,81,3371-. The AO is therefore directed to restrict the disallowance as above. The grounds of appeal are partly allowed.
MA No. 836/Mum/2017 This ensures that only the real income gets subjected to tax and not a notional income or an exaggerated amount determined in an arbitrary manner.”
We have considered the issue and gone through the facts and circumstances of the case. We find from the facts of the case that the CIT(A) has applied the profit rate at the rate of 25%, which according to us is on higher side going by the nature of business of the assessee i.e. Civil Engineering & Contractor. We are of the view that the profit rate of 12.5% will meet the end of justice in view of the decision of Hon’ble Gujarat High Court in the case of CIT vs. Smith P. Seth (2013) 356 ITR 451 (Guj). Hence, we direct the AO to recompute the income after applying profit rate at the rate of 12.5% and compute the income accordingly. The appeal of the assessee is partly allowed.
In the result, the appeal of assessee is party allowed.”
The learned Counsel for the assessee now before us only requested that the similar issue was raised before the settlement commission for AY 2010-11 and 2011-12 and settlement commission vide order No.MH/MUC-2012-2013/IT order dated 02.04.2014 has considered the issue of bogus purchases and restricted the profit rate at 8% vide para 9.1 of the settlement commission order which reads as under: - “9.1 The non-availability of the sellers/suppliers or their denial regarding these transactions cannot lead to the conclusion that these purchases were not at all required to be made for the purpose of the MA No. 836/Mum/2017 applicant's business, as there could not have been the corresponding sales/ receipts by way of execution of the contract works by the applicant, without utilization of these materials. The decision of the jurisdictional Bombay High Court in the case of CIT Vs. M/s Nikunj Eximp Enterprises Pvt. Ltd., is found to be applicable to the facts of the present case. As regards the different rate of net profit adopted by the applicant in respect of its total turnover/gross receipts as mentioned above, we are of the considered opinion that it is quite reasonable and fair on the facts and circumstances of the case. As argued by the Leaned AR, we can draw an analogy in this regard from the provisions contained in section 44AD of the Act wherein the net profit at the rate of 8% is adopted on a presumptive basis in in the case for the eligible assessee engaged in eligible business, wherein the total turnover/gross receipts do not exceed Rs.60 lacs (applicable up to the Assessment year 2012-13). It is also a well known fad that the profit rate usually goes down as the turnover increases. After taking into account the aforesaid facts and circumstances of the case, the rival submissions of the parties and the various judicial pronouncements relied upon by the learned AR, we are of the opinion that the total income offered by the applicant in the settlement application for the Assessment Years 2010-11 and 2011-12 under consideration on the basis of the net profit rate adopted by it on the total turnover/ gross receipts as mentioned above, is quite fair and reasonable. Further, the applicant has come forward with an additional offer, of Rs.10 Lakhs voluntarily in the spirit of settlement and hence the offer made in MA No. 836/Mum/2017 the application is accepted. Accordingly, the above issue gets settled.”
We have gone through the order of settlement commission and noticed that a fair and reasonable estimate has been made, which we also adopt. We direct the AO to compute the profit by estimating the profit rate at the rate of 8% on the bogus purchases. This appeal of assessee is partly allowed.
In the result, the MA of the assessee is recalled and the appeal of assessee is partly allowed.