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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Chandrakant T. Goradia Income Tax Officer 502 Ruby Tower, Dadabhai X Rd Ward No. 25(2)(2) No. 3, Ville Parle (W) Vs. C-10 R. No. 507 Mumbai-50 Pratyakshakar Bhavan BKC 2 PAN No. AEIPG6213P Mumbai-50 Appellant .. Respondent .. Shri Dharmesh Shah, AR Assessee by Revenue by .. Shri Purushottam Kumar, DR .. Date of hearing 24-05-2017 Date of pronouncement .. 07-06-2017 O R D E R PER MAHAVIR SINGH, JM:
This appeal by the assessee is arising out of the order of CIT(A)-39, Mumbai, in appeal No. CIT(A)-39/IT-288/ITO-25(20(2)/15-16 dated 13-01-2017. The Assessment was framed by ITO Ward-25(2)(2), Mumbai for the A.Y. 2009- 10 vide order dated 11-03-2015 under section 143(3) read with section 147 of the Income Tax Act, 1961 (hereinafter ‘the Act’).
The only issue in this appeal of assessee is against the order of CIT(A) confirming the estimated profit rate of 12% of the bogus purchases. For this assessee has raised following grounds: -
“The lr. Commissioner of Income Tax (Appeal) 39 erred in confirming the action of the Lr. A.O. in estimating of 12.5% as profit embedded in impugned purchases, though the actual margin of profit was available on record.
The lr. Commission of I.T (Appeals) 39 also erred in making the additions where no additions at all are justified when the purchases have been held as Chandrakant T. Goradia A.Y:09-10 genuine though parties issuing the invoices may be hawala dealers.”
Briefly stated facts are that the assessee is a running propriety concern dealing in iron and steel. 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 as admitted by these hawala dealers in their deposition before the authorities. The following are details of bogus purchase: - “Sl Name of party Amount No.
R.K. Ispat 17,94,883 2. KRC Trading Co. Pvt. Ltd 3,72,767 3. CNS Trade Links Pvt. Ltd 4,13,288 4. Venus Steel 69,20,919 4. The AO issued noticed under section 133(6) to the parties which returned back as un-served 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 purchase and sale bills, delivery challans, ledger copies of the parties from whom purchases were made, bank statement etc. proof of the payments by cheque. It was also argued that the AO has not doubted the sales and it is not possible to effect sales without purchase but the CIT(A) confirmed the action of the AO after considering the various case laws including the decision of the Hon’ble Gujarat High court in the case of CIT vs. Smith P Seth 365 ITR 451(Guj) and he confirmed the addition by observing in Para 7.4. as under: -
“7.4 In this case too, the motive behind obtaining bogus bills thus, appears to be inflation of purchase so as to suppress true profits. This is a case where the purchases themselves are not bogus but the purchase parties shown in books are. Therefore, what needed to be taxed was the profit element embedded in such transactions. It has been held in the case of Page 2 of 4
Chandrakant T. Goradia A.Y:09-10 Simit P. Sheth that no uniform yardstick could be applied to estimate the rate of profit and it varies with the nature of business. Considering the facts and circumstances of the case, the Id. AO has estimated profit element embedded in such bogus purchase at 12.5% of the total purchase shown from the said eight parties. I am, therefore, of the view that considering the nature of business of the appellant and facts and circumstances of the case, estimation of 12.5% as profit embedded in impugned purchases from the said parties and adding the same to the total income, meets the end of justice. I, therefore, find no reason to interfere with the findings of the Ld. AO. Hence, ground raised by the appellant is dismissed.”
Now, before us, assessee contended that only profit element is higher as the assessee deals in iron and steel and assessee is disclosed profit at 2%. The learned Counsel before us, made submissions that this 2% has already been included in books of account on the sales of the bogus purchase. Accordingly, he requested for reduction in profit rate.
I have considered the issue and gone through the facts and circumstances of the case, I find reasonable profit rate of 10% will meet the end of justice for the reason that the assessee has already declared profit @ 2% on the sale made out of bogus purchases. Accordingly, I direct the AO to re-compute income after applying profit rate @ 10% of the bogus purchase and appeal of the assessee is partly allowed.
In the result, the appeal of assessee is partly allowed. Order pronounced in the open court on 07-06-2017.