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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Before: Shri Rajen R. Shah (HUF)
CO No. 215/Mum/2016 (In A.Y. 2009-10) Shri Rajen Shah (HUF) Income Tax Officer, 32(3)(1), Room No. 107, 1 st 604C, Sumer Nagar, S.V. Road, Borivali (W), Mumbai-92 Vs. Floor, C-11, Pratayakshakar Bhavan, BKC, Bandra, Mumbai-400051 .. Appellant Respondent Revenue by .. Shri Suman Kumar, DR .. Shri N.R. Agrawal, AR Assessee by Date of hearing .. 17-01-2017 .. Date of pronouncement 17-02-2017 O R D E R PER MAHAVIR SINGH, JM:
This appeal is filed by the Revenue and Cross Objection of assessee arising out of the order of CIT (A)-44, Mumbai in appeal No. CIT (A)-44/ITO 32(3)(1)/ITA 112/15-16 dated 08-06-2016. The Assessment was framed by the ITO 32(3)(1), Mumbai for the AY 2009-10 vide order dated 23-03-2015 under section 143(3) read with section 147 of the Income Tax Act, 1961 (hereinafter ‘the Act’).
The only common issue in this appeal of Revenue and that of CO of assessee is as regards to the estimation of gross profit on bogus purchases at the rate of 7.87%. For this Revenue has raised following two grounds: -
“1. On the facts and in the circumstance of the case, Ld. CIT(A) erred in deleting the addition of Rs. 34,95,000/- on account of bogus
Shri Rajen R. Shah (HUF) No. 215/Mum/2016 purchase as the assessee has failed to prove the genuineness, identity and creditworthiness said transaction and also the party by whom the alleged transaction made by the assessee was listed as Hawala entry provider who indulged in providing accommodation entry through eh bogus concerns floated by him.
2. The learned CIT(A) did not appreciate the facts that the assessee failed to prove the primary onus by neither giving current address nor providing the parties concern.”
The assessee in its CO has raised following ground: -
“1. The learned CIT(A) erred in confirming the addition of Rs. 2,98,571/- being @ 7.87 on bogus purchases Rs. 37,93,785/- particularly when whole of so called bogus purchase is not sold but appearing as a closing stock as on 31-03-2009, Hence profit and Loss is not at all affected by above purchases.
Briefly stated facts are that the investigation wing of Income Tax received information from sales tax department of Maharashtra state that the assessee has taken bogus bills of electrical lights, lamps and fitting accessories for an amount of Rs. 37,93,785/- from the following parties: -
“TIN Name of the Party Amount: 27200506372V Crystal Commercial Co. 2,43,000/- 27420502953V Bharat Industrial Corporation 5,03,438/- 27870653492V GM Impex 7,17,188/- 27400245526V Anikesh Trading Pvt. Ltd 3,37,500/- 27850669023V Magnum Enterprises 8,31,938/- 27620670168V Moksh Trading Company 4,91,346/- 27290553513V Liberty Traders 6,69,375/- Total 37,93,785/- The AO required the assessee to explain these purchases made from this Hawala dealers or entry provider of purchase. As the assessee could not produce stock statement tally or the transportation bills of these items, the AO required the assessee to produce these parties. The AO issued note sheets u/s 131 of the Act to these parties, which returned unserved. Therefore, the AO rejected the books of accounts by applying the provision of Section 145(3) of the Act and added the entire bogus Page 2 of 5
Shri Rajen R. Shah (HUF) No. 215/Mum/2016 purchases made from Hawala dealers amounting to Rs. 37,93,785/- by holding that these are accommodation entries introduced by assessee in his books of accounts to suppress the profit and to evade tax. Aggrieved assessee preferred the appeal before CIT(A).
The CIT(A) estimated the profit on this bogus purchases at 7.87% by observing in Para 3.5 as under: -
“3.5. It has been held in the case of M/s. Nikunj Enterprises" 372 ITR 619 (Born) by the Hon'ble Bombay High Court that merely because the suppliers have not appeared before the Assessing Officer or the CIT(A), one cannot conclude that the purchases were not made by the respondent-assessee. Further it has been held in the case of Saraswathi Oil Traders vs. CIT 254 ITR 259 (Supreme Court) that when the sales have not been doubted then there was no question to doubt the purchases and the addition should have been made only to the extent of gross profit. To this extent I am in agreement with the appellant that if the appellant has fulfilled his onus of submitting the details of purchases, stock statements and has supplied the address of the sellers, then it cannot be presumed that the sellers were bogus simply because the sellers were not found at the given addresses. However, at the same time it cannot be said that the information provided by the sales tax department should not be taken cognizance of by the A.O. Therefore, after considering the totality of facts and after following the ratio of Saraswathi Oil Traders vs. CIT(SC) cited supra, I am of an opinion that it is the profit element on the total component in dispute which needs to be added to the income of the appellant. The total amount which is being treated as bogus by the A.O. is Rs 37,93,785/-. The appellant has shown a gross profit rate of 7.87%. Thus 7.87% of Rs. 37,93,785/- which is Rs.2,98,571/- is taken as profit of the appellant on purchases that are not fully and properly explained. Addition of Rs. 2,98,571/- is accordingly confirmed out of an addition of Rs. 37,93,785/- and the balance is deleted. Grounds of appeal Nos. 1, 2, 3, 4 & 5 are therefore partly allowed.”
Shri Rajen R. Shah (HUF) No. 215/Mum/2016 Aggrieved, now assessee has filed CO and Revenue is in appeal.
We have heard the rival contentions and gone through the facts and circumstances of the case. When a query was put to learned Counsel for the assessee whether he has challenged the rejection of books of accounts before CIT(A) or before Tribunal, he conceded the position. Once the rejection of books of accounts are accepted by assessee, the CIT(A) has no option but to estimate profit because the Revenue has not doubted the sales. We also find that the assessee could file the details of purchase and sales i.e. bills and vouchers but could not submit stocks statements. Even parties are not verifiable being Hawala dealers. In such circumstances, only profit rate is to be estimated, which CIT(A) has rightly estimated. However, the rate of profit is a little on lower side reasons being the assessee himself declare profit on the disclosed purchases and sales at 7.87%. But assessee made purchases of these items from Grey market and for that he has saved sale tax, octori tax and other benefits. In that eventuality, we are of the view that a reasonable estimate should be made and according to us 10% of profit will made the end of justice. Accordingly, we are directed the AO to apply profit rate of 10% and accordingly assess the income. We directed the AO accordingly and appeal of Revenue is partly allowed. The CO of assessee is dismissed.
In the result, the appeal of Revenue is partly allowed and the Cross Objection of assessee is dismissed.
Order pronounced in the open court on 17-02-2017.