Income Tax Appellate Tribunal - Mumbai
Nikhil Kishore Gandhi, Mumbai vs Acit 32(2)(4), Mumbai on 4 August, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL " A" BENCH, MUMBAI
BEFORE SRI MAHAVIR SINGH, JM AND SRI G. MANJUNATHA, AM
ITA No.315/Mum/2016
(A.Y:2009-10)
Nikhil Kishore Gandhi Asst. Commissioner of
E-721, Ekta W ood II CHS Ltd, Income Tax -32(2)(4)
Raheja Estate, Kulupwadi, Vs. R. No.108, 1 s t Floor,
Borivali (E), Mumbai: 400 066 Pratyakskar Bhavan, BKC,
P AN No. AABPG8349P Mumbai-400 051
Appellant .. Respondent
Assessee by .. Miss Ruchi M. Rathod, AR
Revenue by .. Shri Rajesh Kumar Yadav, DR
Date of hearing .. 25-07-2017
Date of pronouncement .. 04-08-2017
ORDER
PER MAHAVIR SINGH, JM:
This appeal by the assessee is arising out of the order of CIT(A)-44, Mumbai, in appeal No. CIT(A)-44/ITO32(2)(4)/ITA-133/2014-15 dated 15- 12-2015. The assessment was framed by ITO 32(2)(4), Mumbai for the A.Y. 2009-10 vide order dated 27-02-2015 under section 143(3) read with section 147 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) confirming the addition made by applying the profit rate at 12.5% of the bogus purchase. For this assessee has raised following two grounds: -
"1. Learned CIT (Appeal) erred in confirming the entire additions made by the AO for an amount of Rs 29,63,527/- and erred in treating the same as bogus purchase.
2. The learned assessing officer erred in rejecting the books of account on summarize and ITA No . 31 5 / Mu m / 2 01 6 Ni khi l Ki sh or e G a ndh i ( A. Y : 09- 1 0) conjecture basis and learned CIT (Appeal) erred in confirming the same.."
3. Briefly stated facts are that the assessee is a running propriety concern dealing in iron and steel in the name & Style of M/s SAI Steel. The AO received information from DGIT (Investigation), who in turn received information from Sales Tax Department, Mumbai that the assessee has made purchases from hawala parties, as listed in hawala dealers by the Maharashtra Sales Tax Department who are providing bogus bills of purchase as admitted by these hawala dealers in their deposition before the authorities. The following are details of bogus purchase: -
"Sl Name of party Amount
No.
1. RK ISTAP 85,17.525/-
2. SHREE NAKODAJI 14,90,727/-
IMPEX
3. BHAVANI TRADE LINK 67,60,936/-
4. ENTECH ENTERPRISES 10,34,894/-
5. GM INTERNATIONAL 15,17,354/-
6. GHATALIA 43,87,237/-
STEEL/DIVINE
ENTERPRISES
7. TOTAL 2,37,08,218/-
4. The AO issued noticed under section 133(6) to the parties which returned back with the remark as "left" and assessee failed to produce these parties. During the course of assessment proceedings and during appellate proceedings, the assessee submitted all the documentary evidences such as inward register, stock register, payment received against such sales, receipt of material purchases, account payee cheque. It was also argued that the AO has not doubted the sales and it is not possible to effect sales without purchase but the CIT(A) confirmed the action of the AO after considering the various case laws including the decision of the Hon'ble Rajasthan High court in the case of CIT vs. Mangilal Choudhary 229 Taxman 378 (Raj) (2015) and he confirmed the addition by observing in Para 6.1 as under: -
Page 2 of 4ITA No . 31 5 / Mu m / 2 01 6 Ni khi l Ki sh or e G a ndh i ( A. Y : 09- 1 0) "6.1 It is seen from record that the A.O. has not mechanically disallowed the entire purchases amounting to Rs. 2,37,08,218/-. Further he has pointed out the apparent deficiencies in the books of the assessee and had thereafter rejected the books of the appellant by invoking the provision of section 145(3) of the Income Tax Act. When the basic details like purchases remain unverifiable, it is open for the A.O. to reject the books of the assessee. In a recent judgement, the Hon'ble Rajasthan High Court has remarked in the case of CIT Vs. Mangilal Choudhary 229 Taxmann 378 (Raj)(2015) that "the rejection of accounts will always be justified when the accounts books are found unreliable, incorrect or incomplete for valid reasons." Thus it is held that the A.O. was right in rejecting the books of the assessee. Furthermore, as stated above, the A.O. has himself estimated the profit rate which should have arisen because of the bogus purchase rather than disallowing the entire purchases. The A.O. also fairly conceded in para 9.6 of his order that there cannot be any sales without purchases. Therefore, the A.O. has mentioned that the assessee did make purchases, but at a lower price so as to increase his overall profits. Since the A.O. has himself given substantial relief to the assessee by a speaking order I do not see any reason to interfere in the order of the A.O. The grounds of appeal No.1 and 2 are dismissed and accordingly addition of Rs.29,63,527/- is confirmed."
5. Now, before us, assessee contended that only profit element is higher as the assessee deals in iron and steel and assessee is disclosed profit at 2%. The learned Counsel before us, made submissions that this 2% has already been included in books of account on the sales of the Page 3 of 4 ITA No . 31 5 / Mu m / 2 01 6 Ni khi l Ki sh or e G a ndh i ( A. Y : 09- 1 0) bogus purchase. Accordingly, he requested for reduction in profit rate and also in view of the fact that profit margins in the nature of trade of iron and steel is very low.
6. We have considered the issue and gone through the facts and circumstances of the case. We find reasonable profit rate of 5% will meet the end of justice for the reason that the assessee has already declared profit @ 2% on the sale made out of bogus purchases and assessee also filed the proofs of payments of sales tax/ VAT to the Maharashtra Sales Tax Department and once the assessee has paid the Sales Tax/ VAT to the Government, the profit will automatically decline. In view of these reasons, we direct the AO to re-compute income after applying profit rate @ 5% of the bogus purchase and appeal of the assessee is partly allowed.
7. In the result, the appeal of assessee is partly allowed.
Order pronounced in the open court on 04-08-2017.
Sd/- Sd/-
(G. MANJUNATHA) (MAHAVIR SINGH)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated:04-08-2017
Sudip Sarkar /Sr.PS
Copy of the Order forwarded to:
1. The Appellant
2. The Respondent.
3. The CIT (A), Mumbai.
4. CIT
5. DR, ITAT, Mumbai
6. Guard file. //True Copy//
BY ORDER,
Assistant Registrar
ITAT, MUMBAI
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