METAL STAR,MUMBAI vs. ITO 19(2)(3), MUMBAI

These are the appeals filed by the two assessees against the order of CIT(A)-30 dated 27/09/2016 & 28/09/2016 respectively for the A.Y.2009-10 in the matter of order passed u/s.143(3) r.w.s.147 of the IT Act. 2. Grievance of assessee in both the appeals are similar wherein assessees have alleged addition confirmed by the CIT(A) @7% of the bogus purchases.

It was contended by learned AR that the assessee was not provided with the copies of confessional statements given before the Sales Tax Authorities on which AO relied for making addition and an opportunity to cross-examine the parties was also not provided. Copies of the letters and the notes of postal authorities recording reasons for non-service were not provided. Notice u/s 148 is issued by the AO and onus to prove that the 3 & Shri Pravinchandra P Shah M/s.Metal Star parties are bogus lies with the AO. The books of accounts were rejected by the AO though the books of accounts were maintained in the normal course of business and audited u/s 44AB of the IT Act. The assessee is engaged in Semi-Wholesale business of ferrous and non-ferrous metal, hence profit margins are not so high. Therefore, Hon'ble Gujarath High Court's decision in the case of Simit P. Sheth cannot be applied in the assessee’s case.

It was further contended by learned AR that addition is based on the information received from the DGIT(Inv.) based on inquiries carried out by the Sales Tax Department and there is no proof with the AO that the purchases made were non-genuine. All the details / documents were furnished to the AO but the AO has not dealt with the same while passing the impugned order. Though the evidences are used against the assessee, the same were not provided and third parties could not be confronted. The Ld. AO erred in not giving the copies of the letters and the notes of the postal authorities recording reasons for non-service of notices to these parties.

Learned AR relied on the following decisions:- a. ITO Vs Deepak Popatlal ala - ITA No.5920/Mum/2013 b. Rameshkumar& CO. Vs. ACIT - ITA No. 2959/Mum/2014 c. Ganpatraj A. Sanghvi Vs. ACIT - ITA No. 2826jMum/2013 4 ITA No.6765/Mum/2016 & Shri Pravinchandra P Shah M/s.Metal Star 7. On the other hand learned DR supported the order of CIT(A) and contended that he has dealt with the issue very elaborately and after recording his finding restricted the addition to the extent of 7% of the purchases.

I have considered rival contentions and carefully gone through the orders of the authorities below. I have also deliberated on the judicial pronouncements referred by lower authorities in their respective orders as well as cited by learned AR and DR during the course of hearing before us. I found that assessee has tried to reconcile the purchases with reference to the delivery challan as well as sales affected by it. Itemwise re-conciliation statement was also filed before the lower authorities. I found that assessee had shown GP rate in earlier years ranging from 3 – 3.5% and net profit at 1-1.5%. It was also contention of learned AR that these GP rates were accepted by the department even during scrutiny assessment. Keeping in view totality of facts and circumstances of the case, I restrict the addition to the extent of 3.5% of the bogus purchases, so as to compensate the leakage of Revenue. I direct accordingly.

The facts and circumstances in the case of Metal Star are similar, therefore, following the reasoning given hereinabove, I direct to restrict the addition to the extent of 3.5% of the bogus purchases.