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Income Tax Appellate Tribunal, MUMBAI BENCHES “SMC, MUMBAI
Before: Shri R P Tolani
O R D E R Per R P Tolani, Judicial Member
This is assessee’s appeal. The first ground about challenging the validity of invoking section 147 is not pressed and is dismissed. Apropos the remaining grounds of appeal, read as under:
“2. Unlawful estimation of profit margin The learned CIT(A) erred in law and on facts and circumstances of the case in confirming the additions of Rs.98,103/- and Rs.8,20,300/- being 20% of various allegedly bogus purchases referred to in the assessment order.”
The brief facts of the case are that the assessee deals in body building of vehicles. On the information of DIG (Investigation) and Maharashtra VAT Authorities, the AO found that the assessee was indulging in accommodation purchases. The assessment was reopened by issue of notice u/s. 148. The learned AO found that the assessee has purchased MS sheets from Ganesh Trading Co. at Rs.4,90,516/- and other parties of Rs.25,89,359/- and Rs.15,12,394/-. These parties were found to be non-existing. The AO was of the view that matching the manufacturing and processing, the assessee has purchased M S Sheets but the bills/details produced were found to be bogus and on estimate basis 20% of element thereon was disallowed u/s. 69 amounting to Rs.98,103/-. Aggrieved, the assessee preferred first appeal and learned CIT(A) upheld the order of the AO by following observation:
As narrated earlier, the Ld. A.O. in this case has held that the parties from whom the purchases were made by the appellant were found to be bogus and that is the reason for which it was not produced during the assessment proceedings. Not having doubted the consumption/sales, the motive behind obtaining bogus bills thus, appears to be inflation of purchase price so as to suppress true profits. As mentioned above, the AO had never disputed or examined the sales. Once sales are accepted, corresponding purchases have to be considered and cannot be disregarded in totality. Looking to the market trend, the appellant may have made purchases from other parties which were not recorded in the books, and took only bills from these parties as accommodation, to explain purchases. The purchases themselves are not bogus but the purchases parties shown in books are. Therefore, the entire purchase from these parties cannot be added as bogus and what needs to be taxed is the profit element embedded in such transactions. Estimations ranging from 12.5% to 25% have been upheld by the Hon’ble Gujarat High Court, depending upon the nature of the business. As held in the case of Simit P Sheth (supra), no uniform yardstick could be applied to estimate the rate of profit and it varies with the nature of business. Taking all facts into consideration as also the findings of the Hon’ble Courts on this issue and the fact that direct one to one relationship between purchases and sales have not been established, I am of the view that the Ld. AO was justified in estimating 20% as the profit embedded in impugned purchases shown from these tainted parties. Therefore, I find no infirmity in the order of the Ld. AO, and therefore addition made by the Ld. AO is confirmed, and Ground No.2 of the appellant are dismissed.
Aggrieved, the assessee is in appeal. The learned counsel for the assessee contended that :
i) The disallowance has been made only on presumption, therefore same deserves to be deleted. ii) Only 5% VAT is leviable on MS Sheets in Maharashtra, which is clear from iii) The learned CIT(A) has indicated that estimation of such profits ranges from 12.5% to 25%
However, in this case the VAT element charged being 5% disallowance is excessive, it may be suitably reduced.
The learned DR on the other hand, contends that:
i) The disallowance has not been made on presumption but on finding that the assessee was procuring bogus bills as the sellers mentioned in the invoices were non-existent. ii) The bills of Ganesh Trading Co. itself is bogus, therefore, mentioning of VAT @5% does not inspire any confidence. iii) The estimation is justified and reasonable.
I have heard the parties and have gone through the material available on record. In my considered view the disallowance in question has been made based on appropriate information from DG (Investigation) and Maharashtra VAT Authorities. Therefore, there is no merit in the plea that the disallowance is based only on presumption. I am of the opinion that interest of justice would be served if disallowance of 20% is reduced to 15%. Thus, the assessee gets part relied.
In the result, the assessee’s appeal is partly allowed.
Order pronounced in the open court on this day of 3rd February, 2017.