Income Tax Appellate Tribunal - Mumbai
Vishnu Textiles Trade P. Ltd, Mumbai vs Acit Cen Cir 3(2), Mumbai on 30 June, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL " SMC" BENCH, MUMBAI
BEFORE SRI MAHAVIR SINGH, JM
ITA No.1911/Mum/2017
(A.Y:2007-08)
Vishnu Textiles Trade P. Ltd Asst. Commissioner of
65, Business Classic, Income Tax Cen Cir 3(2)
Chncholi Bunder Rd, Malad Vs. Mumbai
(W ) Mumbai-400064
P AN No. AABCK6554H
Appellant .. Respondent
Assessee by .. None
Revenue by .. Shri Rakesh Ranjan, DR
Date of hearing .. 05-06-2017
Date of pronouncement .. 30-06-2017
ORDER
PER MAHAVIR SINGH, JM:
This appeal by the assessee is arising out of the order of CIT(A)-51 Mumbai, in appeal No. CIT(A)-51/IT 59/2015-16 dated 15-12-2016. The Assessment was framed by ACIT CC-3(2), Mumbai for the A.Y. 2007-08 vide order dated 13-03-2015 under section 143(3) read with section 147 of the Income Tax Act, 1961 (hereinafter 'the Act').
2. Briefly stated facts are that the assessee is in the business of trading in fabrics. The AO received information from DGIT (Investigation) Mumbai, who in turn received information from Sales Tax Department of Maharashtra that there are bogus entry providers of purchase bills / hawala entry operators and assessee is one of the beneficiary of the transactions with hawala dealers by making purchases for an amount of Rs. 12.50 lacs i.e. two transactions with one concern M/s Kunal Gems control by one shri Praven kumar Jain and the transactions of Rs. 2,00,000/- on 21-11-2006 and another transaction of Rs. 10.50 lacs on 22-03-2007.
3. According to information received the name of this party was appearing in the list of hawala entry operators as supplied by sales Tax ITA No.1911/Mum/2017 Vishnu Textiles Trade P. Ltd (A.Y:2007-08) Department of Maharashtra. The hawala traders admitting before the sales tax authorities in their deposition that they were providing only accommodation purchase bills on commission basis without being actual purchase/ sale of goods. The AO during the course of scrutiny assessment proceedings required the assessee to file the details of purchase. The assessee filed copies of purchase bills from the above said parties, copies of ledger extract and copies of bank statements to prove the payments by cheque. The AO required the assessee to produce these parties for verification but assessee expressed his inability to do so. According to the AO, the assessee failed to establish the genuineness of the purchase and accordingly, he made addition of Rs. 12.50 lacs of unproved purchases by treating the same as accommodation entries. Aggrieved, assessee preferred the appeal before CIT(A).
4. The CIT(A) after going through the facts of the case and submissions of the assessee partly confirmed the action of the AO applying profit rate @ 25% of the bogus purchases by observing in para 15 as under: -
"15. From the perusal of the accounts of the assessee, it is gathered that they have made a turnover of around Rs. 25.11 Cr. However, income shown is only Rs. 4,31,991/- which gives a very low profit rate seeing the nature of business of the assessee. The ld.AR was accordingly asked for the reasons for such low profit and what connection did it have by issuing bogus accommodation bills to Kunal Gems etc..
However, the ld.AR failed to give any satisfactory reply. Thereafter, the ld.AR was asked as to what is the profit rate in sale transactions to Kunal Gems and at what rates Page 2 of 5 ITA No.1911/Mum/2017 Vishnu Textiles Trade P. Ltd (A.Y:2007-08) the corresponding purchases were made. The Id. AR was also asked as to what were the sale rates in respect of other similar transactions of sales carried out by the assessee during the year. But once again, the assessee failed to furnish any details or explanation in this regard. From the copy of account issued by Kunal Gems, it is gathered that assessee has received the payments in lieu of the accommodation sales vide cheques dated 21.11.2006 and 22.03.2007 However, the assessee has not furnished his bank statement to see whether any amount was withdrawn to settle this account. There is no concrete evidence against the assessee in this regard. In absence of complete details from the assessee, in this regard, it is not possible to work out the exact income of the assessee from the sale transaction. Therefore, considering the overall facts of the case and low G.P. rate disclosed by the assessee, from the overall trading transactions, it will be fair and reasonable if the income of the assessee from such bogus sale transaction is estimated at 25%. Therefore, out of the addition of Rs. 12,50,000/- made by the AO, addition to the extent of 25% which works out to Rs. 3,12,500/- is confirmed and balance amount of Rs. 9,37,500/- is directed to be deleted."
Aggrieved, now assessee is in second appeal before Tribunal.
Page 3 of 5 ITA No.1911/Mum/2017Vishnu Textiles Trade P. Ltd (A.Y:2007-08)
5. I have heard the rival contentions and gone through the facts and circumstances of the case. Now, before me, assessee contended that profit element applied by the CIT(A) is on higher side and he requested for reduction in profit rate. I find that the assessee is in the business of trading in fabrics and Gross Profit declared by assessee in normal course of business has already been declared by assessee in its books of accounts. Accordingly, the profit declared on bogus purchases cannot be estimated again. I have considered the issue and find that the purchases made from these hawala parties are not proved by the assessee and he admitted. In such situation the assessee might have made purchases from grey market and obtained these bogus bills from hawala parties by paying some commission. In these circumstances the assessee might have saved VAT and also purchased material from grey market at a lower price. For that the CIT(A) has estimated profit rate of 25% and according to me this is quite high and accordingly a reasonable profit rate is to be estimated. I find that the in the decision of the Hon'ble Gujarat High Court in the case of CIT vs. Smith P Seth 365 ITR 451(Guj), wherein the profit rate is estimated at 12.5%. Accordingly, I am of the view that profit rate at the rate of 12.5% will meet the end of justice only qua the bogus purchase. The assessee has also disclosed GP on bogus purchases and to give credit for the same, the estimation of profit @ 12.5% will be sufficient. I direct the AO accordingly. The appeal of assessee is partly allowed.
6. In the result, the appeal of assessee is partly allowed.
Order pronounced in the open court on 30-06-2017.
Sd/-
(MAHAVIR SINGH) JUDICIAL MEMBER Mumbai, Dated: 30-06-2017 Sudip Sarkar /Sr.PS Page 4 of 5 ITA No.1911/Mum/2017 Vishnu Textiles Trade P. Ltd (A.Y:2007-08) 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 Page 5 of 5