Income Tax Appellate Tribunal - Mumbai
Shri Rameshkumar Daulatraj Mehta, ... vs Income Tax Officer-19(3)(1), Mumbai on 7 May, 2019
आयकर अपीलीय अधिकरण "SMC " न्यायपीठ मब
ुं ई में ।
IN THE INCOME TAX APPELLATE TRIBUNAL " SMC" BENCH, MUMBAI
श्री महावीर स हिं , न्याययक दस्य एविं श्री एन. के. प्रधान लेखा दस्य के मक्ष ।
BEFORE SRI MAHAVIR SINGH, JM AND SRI NK PRADHAN, AM
Aayakr ApIla saM . / ITA No. 4192/Mum/2018
(inaQa- a rNa baYa- / Assessment Year 2011-12)
Shri Rameshkumar Daulatraj The Income Tax Officer,
Mehta W ard-19(3)(1)
Room No. 6-A, 28/30, Dr. Vs. Room No. 219, 2 n d Floor,
W ilson Street, V.P. Road, Matru Mandir, Tardeo Ro ad,
Mumbai-400 004 Mumbai-400 007
(ApIlaaqaI- / Appellant) .. (p`%yaqaaI- / Respondent)
स्थायी ले खा िं . / PAN No. ABWPM8850F
अपीलाथी की ओर े / Appellant by : Shri Neelkanth Khandelwal, AR
प्रत्यथी की ओर े / Respondent by : Shri Chaitanya Anjaria, DR
ुनवाई की तारीख / Date of hearing: 07-05-2019
घोषणा की तारीख / Date of pronouncement : 07-05-2019
AadoSa / O R D E R
PER MAHAVIR SINGH, JM:
This appeal filed by the assessee is arising out of the order of Commissioner of Income Tax (Appeals)-53, Mumbai [in short CIT(A)], in appeal No. CIT(A)-53/IT-368/ITO-19(3)(1)/2017-18, dated 17.04.2018. The Assessment was framed by the Income Tax Officer, ward -19(3)(1), Mumbai (in short ITO/ AO') for the A.Y. 2011-12 vide order dated 13-11- 2016 under section 143(3) of the Income Tax Act, 1961 (hereinafter 'the Act').
2ITA No . 4 1 92 / Mu m /2 0 18
2. The first issue in this appeal of assessee is against the validity of reopening of assessment by the AO under section 147 of the Act. For this assessee has raised the following ground No.1: -
"1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the action of the AO in re-opening the assessment under section 147 of the Income Tax Act, 1961 as the prescribed conditions therein are not satisfied."
3. At the outset, the learned Counsel for the assessee stated that he has instructions from the assessee not to press this ground and accordingly, the same is not pressed. The learned Counsel for the assessee made this statement at Bar. Hence, this ground is dismissed as not pressed.
4. Now, the only issue in this appeal of assessee remains for adjudication is against the order of CIT(A) confirming the addition made by AO applying the profit rate at 12.5% of the bogus purchase.
5. Briefly stated facts are that the assessee is running proprietary firm by the name of M/s Vintex Steel & Engg. Co. which is engaged in the business of trading in steel rod, pipes, circle, ring and plates. 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 amounting to Rs. 72,6,946/- as admitted by these hawala dealers in their deposition before the authorities. The same reads as under: -
3ITA No . 4 1 92 / Mu m /2 0 18 Name of party Amount HarshilFerrome Pvt. Ltd. 18,91,730/-
MarutiImpex 25,51,212
Rehbar Enterprise 13,726
Subham Steel Impex 28,20,278/-
total 72,76,946
6. During the course of assessment proceedings and during appellate proceedings, the assessee submitted documentary evidences such as payment received against such sales, receipt of material purchases, account payee cheque. According to the AO, the assessee failed to establish the genuineness of the purchase and accordingly, he made addition of unproved purchase at 12.5% of ₹ 9,09,618/- to the returned income of the assessee. Aggrieved, assessee preferred the appeal before CIT(A), who confirmed the addition made by the AO by observing in para 5.7 by following the decision of Hon'ble Gujarat High court in the case of CIT vs. Smith P. Seth (2013) 356 ITR 451 (Guj) by observing as under: -
"5.7. Even if materials have been purchased, they are not purchased form these parties and may be in cash from un-disclosed parties. By purchasing from the grey market, the appellant would have benefitted by the savings of taxes. Therefore, in fact and circumstances of the case, in this particular case, it is considered most appropriate to adopt 12.5% profit which can take care of the rotation of capital utilised for such transaction. Hence in the light of finding of the Hon'ble Gujarat High Court in the case of CIT vs. Simit P. Sheth, 12.51/o profit is found to be appropriate for ascertainment of taxable income related to such transaction. It is noted from TAR that though the appellant is a trader, no stock records 4 ITA No . 4 1 92 / Mu m /2 0 18 are maintained. The assessing officer has made disallowance @ 12.5%. The same is reasonable and is sustained. Thus the Ground of appeal 3 is dismissed."
Aggrieved, assessee came in appeal before Tribunal.
7. We have heard the rival contentions and gone through the facts and circumstances of the case. Before us, the learned Counsel for the assessee admitted the above facts and requested that a reasonable profit rate can be applied. For this he filed statement of purchases made from bogus parties and consequent profit rate shown by the assessee on these bogus purchases and the details are as under: -
"Sale Excluding VAT 7137429.61
Purchase Excluding VAT/ CST 6965878.40
Gross Profit 171551.21
Gross Profit Rate 2.40"
From the above, the learned Counsel for the assessee also referred to the total statement of purchase, sales and consequent profit in regular business, which is at 5.48% and the relevant details are as under: -
Total purchase Total sale (Other Total purchase Total sale (From (Other than the than the sales as (From the purchase the purchase purchase from the regards the parties in dispute) parties in dispute) purchase parties in purchase parties in dispute) dispute) 1,62,81,879 1,72,26,692 69,65,879 71,37,430 Add: VAT 3,11,066 1,49,518
8. In view of the above, the learned Counsel for the assessee referred to the judgement of Hon'ble Bombay High Court in the case of PCIT vs. Mohammad Haji Adam & Co. and Ors. in Income Tax Appeal No. 1004 of 2016 and others, dated 11.02.2019, wherein Hon'ble Bombay High Court 5 ITA No . 4 1 92 / Mu m /2 0 18 has affirmed the findings of the Tribunal wherein the GP rate restricted on the additions limited to the extent of bogus purchases. The learned Counsel for the assessee referred to the following para 8 of the judgement which read as under: -
"8 In the present case, as noted above, the assessee was a trader of fabrics. The A.O. found three entities who were indulging in bogus billing activities. A.O. found that the purchases made by the assessee from these entities were bogus. This being a finding of fact, we have proceeded on such basis. Despite this, the question arises whether the Revenue is correct in contending that the entire purchase amount should be added by way of assessee's additional income or the assessee is correct in contending that such logic cannot be applied. The finding of the CIT(A) and the Tribunal would suggest that the department had not disputed the assessee's sales. There was no discrepancy between the purchases shown by the assessee and the sales declared. That being the position, the Tribunal was correct in coming to the conclusion that the purchases cannot be rejected without disturbing the sales in case of a trader. The Tribunal, therefore, correctly restricted the additions limited to the extent of bringing the G.P. rate on purchases at the same rate of other genuine purchases. The decision of the Gujarat High Court in the case of N.K. I (supra) cannot be applied without reference to the facts. In fact in paragraph 8 of the same Judgment the Court held and observed as under-6
ITA No . 4 1 92 / Mu m /2 0 18 " So far as the question regarding addition of Rs.3,70,78,125/- as gross profit on sales of Rs.37.08 Crores made by the Assessing Officer despite the fact that the said sales had admittedly been recorded in the regular books during Financial Year 1997-98 is concerned, we are of the view that the assessee cannot be punished since sale price is accepted by the revenue. Therefore, even if 6 % gross profit is taken into account, the corresponding cost price is required to be deducted and tax cannot be levied on the same price. We have to reduce the selling price accordingly as a result of which profit comes to 5.66 %. Therefore, considering 5.66 % of Rs.3,70,78,125/- which comes to Rs.20,98,621.88 we think it fit to direct the revenue to add Rs.20,98,621.88 as gross profit and make necessary deductions accordingly. Accordingly, the said question is answered partially in favour of the assessee and partially in favour of the revenue.
9. In these circumstances, no question of law, therefore, arises. All Income Tax Appeals are dismissed, accordingly. No order as to costs."
9. When these facts were confronted to the learned Sr. DR, he requested for application of reasonable profit rate and according to him the profit rate applied by the AO and confirmed by CIT(A) is quite reasonable in view of the decision of Hon'ble Gujarat High court in the case of Smith P. Seth (supra). We have considered the rival contentions 7 ITA No . 4 1 92 / Mu m /2 0 18 and are of the view that Hon'ble Bombay High Court in the case of Mohammad Haji Adam & Co. and Ors. (supra) has considered this issue and respectfully following the same, we direct the AO to restrict the profit rate only to the extent of differential percentage as declared on the bogus purchases and as declared on the regular purchases. Hence, we direct the AO accordingly.
10. In the result, the appeal of assessee is partly allowed.
Order pronounced in the open court on 07.05.2019.
Sd/- Sd/-
(एन. के. प्रधान/ NK PRADHAN) (महावीर स ह
िं /MAHAVIR SINGH)
(लेखा दस्य / ACCOUNTANT MEMBER) (न्याययक दस्य/ JUDICIAL MEMBER)
मिंब
ु ई, ददनािंक/ Mumbai, Dated: 07.05.2019.
सदीप सरकार, व.निजी सधिव / Sudip Sarkar, Sr.PS आदे श की प्रनिललपप अग्रेपिि/Copy of the Order forwarded to :
1. अपीलाथी / The Appellant
2. प्रत्यथी / The Respondent.
3. आयकर आयुक्त(अपील) / The CIT(A)
4. आयकर आयुक्त / CIT
5. ववभागीय प्रयतयनधध, आयकर अपीलीय अधधकरण, मुिंबई / DR, ITAT, Mumbai
6. गार्ड फाईल / Guard file.
आदे शािसार/ BY ORDER, त्यावपत प्रयत //True Copy// उप/सहायक पुंजीकार (Asstt. Registrar) आयकर अपीलीय अधिकरण, मुिंबई / ITAT, Mumbai