KAUSHIK S. VAKHARIA,MUMBAI vs. ITO 25(3)(2), MUMBAI

The first issue in the appeal of the assessee is that the assessee is challenging the order of the CIT(A) in estimating the gross profit of the assessee at 4% as against 2.77% declared by the assessee on its turnover.

Briefly stated the facts are that the Assessing Officer while completing the assessment noticed that assessee has reported low gross profit from the trading business of assessee in non-ferrous metals. The Assessing Officer also noticed that assessee made purchases from four parties referred to in the assessment order who have provided accommodation entries to various parties as per the information received from the Sales Tax Department. The Assessing Officer noticed that the assessee has claimed to have made purchased of Rs.8.21 crores of materials from the four parties and TIN number provided by the assesse in the above mentioned cases are exactly same as in the information available with the Assessing Officer. The Assessing Officer noticed that the Sales Tax Department has conducted independent enquiries in each of the hawala parties and conclusively proved that these parties are engaged in the business of providing accommodation entries only. Statements recorded from the proprietors / operators of the above said four concerns along with affidavits given by them were provided to the assessee and the Assessing Officer based on the above documents concluded that beyond doubt these four parties did not supply any goods to the assessee and they have issued only accommodation bills. Show cause notice was issued to the assessee along with the said documents. Assessee seems to have given reply on 20.02.2013 stating that all the suspicious dealers as per show cause list have paid VAT and copy of tax paid challans were already submitted. Not 2 A.Y.2010-11 convinced with the reply furnished by the assessee the Assessing Officer rejected the books of account and estimated the gross profit of the assessee at 6% of the turnover observing that the case records of the other assessees of a similar business i.e. trading in ferrous and non-ferrous metals is in the range of 4 to 6%. Since the assessee is a trader, Assessing Officer estimated the gross profit at 6% as against 2.77% shown by the assessee. The difference in gross profit was added as income of the assessee which resulted into the addition of Rs.28,30,574/-. The CIT(A) reduced the estimation of gross profit to 4% considering the submissions of the assessee.

The learned counsel for the assessee before us retreated the submissions made before the lower authorities and the learned DR supported the orders of the authorities below.

We have heard the rival submissions and perused the orders of the authorities below. The Assessing Officer estimated the gross profit from the trading business of the assessee in respect of non-ferrous metals, rejecting the books of accounts for the reason that assessee has claimed to have made purchases from certain parties who have provided only accommodation entries. The Assessing Officer confronted with the assessee with the evidences obtained by him from the Sales Tax Department i.e. the statements and affidavits given by the suppliers stating that they have provided only accommodation entries. It appears that the assessee explained that the purchases made from the above parties were supported by all documentary evidences, the payments were made through account payee cheques. They have explained the corresponding sales from 3 A.Y.2010-11 the purchases made. It was also contended that the books of accounts were produced including the stock register. Books were audited. Auditors have not pointed out any defects in the books of accounts. It was also contended that the assessee has produced stock register entering day to day movements of stock. Therefore, it was contended that none of the purchases are bogus. The CIT(A) considered the submissions of the assessee and restricted the gross profit on trading to 4% observing as under:-

On going through the finding of the CIT(A) we do not find any valid reason to interfere with the decision of the CIT(A) in estimating the gross profit for rejecting the books of account. At the same time taking the totality of facts and circumstances into the consideration we are of the view that the gross profit if estimated @ 3.25% would be reasonable as the lower authorities have not brought on record any specific justice where the gross profit rate ranging between 4 to 6%. This ground is admitted accordingly.

The next issue in the appeal of the assessee is regarding confirmation of addition of Rs.1,15,000/- on account of disallowance of deduction under Chapter VI-A of the Income Tax Act, 1961 ( in short 5 A.Y.2010-11 “the Act”). The Assessing Officer while completing the assessment disallowed the said amount for want of details in respect of deductions claimed under chapter VI of the Act along with documentary evidences. It is the finding of the Assessing Officer that the assessee has not filed any documentary evidence in support of said claim. The CIT(A) did not adjudicate on this issue though a ground was raised before him. Even before us the learned counsel did not agitate this ground. Nothing has been submitted before us and no arguments were advanced on this ground. Thus this ground is dismissed as not argued.

The last ground is regarding charging of interest u/s.234B, 234C and 234D of the Act. Since this ground is only consequential the same is dismissed.

In the result, the appeal filed by the assessee is hereby Partly Allowed.