MAGNUM STEELS,MUMBAI vs. ACIT 12(1), MUMBAI

Magnum Steels Asst. Commissioner of Income Tax, 3rd Floor, Snt Tukaram RD, Iron 1st Rom No.117, Floor, Vs. Market, Mumbai-400 009 Aayakar Bhavan Mumbai-20 .. Appellant Respondent PAN No. AAPFM9078F Assessee by .. Shri R. S. Sharma, AR Revenue by .. Shri Suman Kumar, DR Date of hearing .. 28-02-2017 Date of pronouncement .. 28-02-2017 O R D E R PER MAHAVIR SINGH, JM:

This appeal by the assessee is arising out of the order of CIT(A)-28, Mumbai, in appeal No. CIT(A)-23/ACIT-12(1)/IT-119/2013-14 dated 30-12- 2014. The Assessment was framed by ACIT Circle 12(1), Mumbai for the A.Y. 2010-11 vide order dated 20-03-2013 u/s 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).

2. The only issue in this appeal of assessee is against the order of CIT(A) against restricting the disallowance of 12.50% of bogus purchases being estimated profit rate. For this assessee has raised following 2 grounds: -

“1. IST appellate authority erred in disallowing 12.50% of the purchases made from the parties whose names are appearing in the list of suspicious dealers on the website of the Maharashtra Sales Tax Department.

Magnum Steels; AY.2010-11 has decided that purchases made from the parties whose names are appearing in the list of the suspicious dealers on the website of the Maharashtra Sales Tax Department cannot be disallowed.

Honourable Mumbai High Court in the case of CIT. V/s Nikunj Eximp Enterprises (P.) Ltd. (2013) has also decided Purchases made from these parties cannot be doubted. All these three case laws were decided after the case law of the Sanket Steel Traders V/s ITO- 5(a), Vadodara, ITA No.201/Ahd/2008. Accordingly, decisions of honourable Mumbai High court and Mumbai, ITAT supersede the case law based on which CIT (A) has passed the order.”

Magnum Steels; AY.2010-11 transportation charges for all these materials. The assessee also produced purchase bills, sale bills, challans and stated that in this line of trade i.e. iron and steel the profit margin is only 1 to 2%. The AO made enquiries with the relevant parties but there was no party available from whom the assessee made purchase or even the transporters were not available. Hence, he treated these bogus purchases of Rs. 3,48,41,491/- as bogus purchases and made disallowance of 25% of these bogus

“In the case of Sanket Steel Traders vs. ITO -5(1), Vadodra, for the A.Y. 2004-05 dated 20th May, 2011, the facts of the case were that the assessee derived income from trading in iron, angles, plates etc. During the course of investigation, it was found by the AO that the purchases claimed to have been made by the assessee from M/s Girnar

Sdies Lorporatlon and Shiv Metal Corporation were bogus. The total purchases made from the two parties during the year were as under: M/s.Girnar Sales Corporation Rs. 5,31,496/- fi) M/s.Shiv Metal Corporation Rs. 10,48,897/- Rs.1 5,82,393/-

The payment made'to these parties duringthe year under consideration was as under: M/s.Girnar Sates Corporation Rs.21,18,369/ii) M/s.Shiv Metal Corporation Rs. 5,58,190/ Rs.26,76,559

Magnum Steels; AY.2010-11 The AO disallowed the purchase as bogus purchases and also made the addition for payment made to these parties as unexplained paymeriL. Accordingly, the total addition made by him was Rs.42,58,952/- (Rs.15,82,393 plus Rs.26,76,559/-). On appeal, the CIT(A) following the decision of the STAT in the case of Vijay Proteins and Others, 'disaLlowed 30% of the total addition i.e. Rs.42,58,952/-. Both the assessee as well as the ITO aggrieved with the order of the Ld.CIT(A) filed an appeal before the Hon'ble ITAT. While the addition of Rs.26,76,559/- was deleted by the Hon'ble ITAT, with regard to the disallowance of 30% of the total addition by the Ld. CIT(A) following the decision of the Hon'ble Tribunal in the case of Vijay Proteins, the Hon'ble ITAT held as follows :- "9. So for as the bogus purchase is concerned, we find that the Assessing Officer recorded the detailed finding so as to establish that the purchases claimed to have been made from Girnar Sales Corporation and Shiv Metal Corporation was bogus. The learned counsel for the assessee was unable to controvert the factual finding recorded by the AO in this regard. However, there is no dispute that the assessee is only a trader in the it-on and steel and it has maintained quantitative details. The statement made by the learned counsel that the purchases claimed to have bee made by the assessee from Girnar Sales Corporation and Shiv Metal Corporation is duly recorded in the books of the assessee and has been reflected either in the sales or in the closing stock, is not controverted. On these facts, the decision in the case of Kulubi Steel (supra) would be squarely wherein the ITAT held as under: "8. From the above, it is evident that the assessee did not make any effort to controvert the finding Page 4 of 8

Magnum Steels; AY.2010-11 recorded by the DDIT (investigation) and it made no efforts to produce the seller parties on the other hand it claimed that it is not his responsibility to produce the seller. It is a settled law that onus is on the assessee to establish the genuineness of the purchase. The assessee has produced various evidence with regard to the receipt of the gooas Dy J, i.e. stock register, receipt of weigh- bridge for weighment of goods purchased by the assessee, octroi receipt for the payment of octroi duty etc. After considering the entire material, we are of the opinion that the assessee did not purchase the goods from the parties mentioned in the sales bill. At the some time, it did purchase the goods from some other suppliers, may be without bill. Therefore, purchase rate as mentioned in the alleged sales bill cannot be accepted. Any person indulging in the practice of purchasing goods from the grey market and obtaining bogus bills of some other parties, would do so for getting some benefit. But what would be the magnitude of the benefit would depend upon facts of each case. In the case of Vijay Proteins) /TAT held that such benefit to be 25% and therefore sustained the disallowance for bogus purchase at 25%. In the case of Sunsteel (supra), the ITAT deemed it fit to sustain the disallowance for a lumpsum amount of Rs.50,0001-. However, we find that in the case of Shri Anubhai Shivial (supra) the /TAT has considered both the decisions in L,,ecase of Vijay Proteins and Surteel (supra) and thereafter sustained the disallowance at 12.5%. Relevant findings of the ITAT in the case of Anubhai Shivalal reads are under: 3. At the time of hearing before us, it is submitted by the learned counsel that the addition sustained is excessive. In support of this contention he referred to Page 5 of 8

Magnum Steels; AY.2010-11 the decision of the Tribunal in the case of /TO Vs. Sun Steel 92 TTJ (Ahd) 1126 wherein the Tribunal has sustained the addition of rs.50,0001- on account of bogus purchases. However, we find that the facts in the above case were different. In the above case, the assessee has shown purchases of Rs.27,39,4101-, sale of Rs.28,17,2071- and GP at Rs.94,7401-. The Assessing Officer made the addition of Rs.27,39,4071- for bogus purchases. If the above sum is added to the GP, the GP works out Rs.28,34,12471- which was more than the sale itself. The Tribunal held that it is impossible that the GP is more than the sale itself. The Tribunal also found that the assessee has maintained the quantitative details in respect of materials purchased and sold. Considering peculiar facts of that case, the Tribunal arrived at the conclusion that it would be fair and reasonable to estimate the addition at Rs.50,0001- as against the addition of Rs.27,39,4071- made by the Assessing Officer. However, the learned Commissioner of Income Tax (Appeals) considering the facts of the assessee's case, has sustained the addition at 12.5%. While doing so, he has also relied upon the decision of the Tribunal in the case of M/s.Vijay Proteins Ltd., 55 7TJ (Ahd) 76. In the case of MIs. Vijay Proteins Ltd., the Tribunal has sustained the addition of 25% of the bogus purchases. However, considering the facts of the assessee's case the C!T(A) restricted the disallowance to 12.5% as against 25% made in the case of MIs. Vijay Proteins Ltd. From these facts it is evident that the CIT(A) has sustained the addition at 12.5% of the non-genuine purchases considering the facts of the assessee's case. We, therefore, do not find

Magnum Steels; AY.2010-11 any justification to interfere with the order of the CIT(A) in this regard. The some is sustained." After considering the facts and the arguments of both the sides, we are of the opinion that it would meet ends of justice, if the disallowance is sustained at 12.5% of the purchase from these two parties. The Assessing Officer is directed to work out the disallowance accordingly. Since the facts of the assessee’s case are identical, we respectfully following the above decision of the 1TAT, direct the Assessing Officer to disallow 12.5% of the purchases made during the year under consideration. 2.12 Considering the totality of the facts and circumstances; as also the decision of the Hon'ble Tribunal in the case of Sanket Steel Traders (supra) which is also lii the business of trading in steel items, in my opinion disallowance of 12.5% of the purchase price in respect of the goods purchased from the parties in question would be reasonable. The total disallowance and, the consequent addition to the total income would, therefore, work out to Rs.43,55,186/- as against the addition of Rs.87,10,372/- made by the Assessing Officer. The addition to the extent of Rs.43,55,186/- is, therefore, upheld. The ground of appeal filed by the assessee is partly allowed."."

Aggrieved, now assessee is in second appeal before Tribunal.

Magnum Steels; AY.2010-11 from whom the assessee has made bogus purchases are hawala dealers declared by sale tax department of Maharashtra. In such circumstances we are of the view that the CIT(A) has reasonably estimated profit rate on bogus purchases and rightly estimated at 12.5% of the bogus purchase. We confirm the order of CIT(A) and appeal of assessee is dismissed.