Income Tax Appellate Tribunal - Mumbai
Mangilal K. Doshi, Mumbai vs 2Nd Floor,Matru Mandir,Tardeo Road, ... on 7 February, 2019
Aayakr ApIlaIya AiQakrNa " SMC " nyaayapIz maM u b a[- mao .
IN THE INCOME TAX APPELLATE TRIBUNAL " SMC" BENCH, MUMBAI
श्री महावीर स हिं , न्याययक दस्य के मक्ष ।
BEFORE SRI MAHAVIR SINGH, JUDICIAL MEMBER
Aayakr ApIla saM . / ITA No. 3566/Mum/2018
(inaQa- a rNa baYa- / Assessment Year 2009-10)
Shri Mangilal K. Doshi The Income Tax Officer,
M/s Jayant Steel Shop No. W ard 19(2)(3), Matru
105, 101/109, Jeevan Bhavan, Vs. Mandir, Mumbai
Corner of 2 n d Parsiwada,
Mumbai-400 004
(ApIlaaqaI- / Appellant) .. (p`%yaqaaI- / Respondent)
स्थायी ले खा िं . / PAN No. AHNPD82778M
अपीलाथी की ओर े / Appellant by : Ms. Pooja Chawachharia, AR
प्रत्यथी की ओर े / Respondent by : Shri Satishchandra Rajore, DR
ुनवाई की तारीख / Date of hearing: 07.02.2019
घोषणा की तारीख / Date of pronouncement : 07.02.2019
AadoSa / O R D E R
महावीर स हिं , न्याययक दस्य/
PER MAHAVIR SINGH, JM:
This appeal by the assessee is arising out of the order of Commissioner of Income Tax (Appeals)-30, Mumbai [in short CIT(A)], in appeal No. CIT(A)-30/19(2)(3)/528/2015-16 vide dated 26.04.2018. The Assessment was framed by the Income Tax Officer, Ward 19(2)(3), Mumbai, (in short 'ITO/ AO') for the A.Y. 2009-10 vide dated 27.02.2015 under section 143(3) read with section 147 of the Income Tax Act, 1961 (hereinafter 'the Act').
2ITA n o .3 5 66 / Mum / 20 1 8
2. The only issue in this appeal of assessee is arising out of the order of CIT(A) confirming the addition made by the AO by estimating profit percentage at the rate of 12.5 % of bogus purchases.
3. Briefly stated facts are that the assessee is engaged in the business of dealer in ferrous and non-ferrous metals. 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. 92,12,937/- as admitted by these hawala dealers in their deposition before the authorities. The same reads as under: -
Sl. Name of party Amount
No.
1. Dimple metal Inds. 12,25,079
2. Varshman Trading Co. 18,55,601
3. Vidhi Metal Inds. 22,24,113
4. Hardik Metal Corpn. 3,43,088
5. Rajendra Metal Inds. 5,07,194
6. Bhagyalaxmi Steel Inds. 13,24,236
7. Kushal Steel Corpn. 17,33,626
Total 92,12,937
4. The AO issued notice under section 133(6) of the Act, to the above parties which is returned back unserved with the remark as 'not known' or 'no such address' 'left' etc. During the course of assessment proceedings and 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 ₹ 11,51,617/- to the returned income of the assessee. Aggrieved, assessee preferred the appeal before CIT(A), who confirmed the addition made by the AO of unproved purchases by observing in para 6.9 to 6.11 by 3 ITA n o .3 5 66 / Mum / 20 1 8 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: -
"6.9 Hon'ble Gujarat High Court in the case of CIT vs. Simit Sheth (2013) 38 Taxmann.com 385 (Guj), Hon'ble Court (which was relied by the AO for making the addition) was seized with a similar issue where the A.O. had found that some of the alleged suppliers of steel to the assessee had not supplied any goods but had only provided sale bills and hence, purchases from the said parties were held to be bogus. The AD. in that case added the entire amount of purchases to gross profit of the assessee. Ld. CIT(A) having found that the assessee had indeed purchased though not from named parties but other parties from grey market, partially sustained the addition as probable profit of the assessee. The Tribunal however, sustained the addition to the extent of 12.5%. Taking into account the above facts, the Hon'ble Gujarat High Court held that since the purchases were not bogus, but were made from parties other than those mentioned in books of accounts, only the profit element embedded in such purchases could be added to the assessee's income and as such no question of law arose in such estimation. While arriving at the above conclusion, the Hon'ble Court also relied on the decision in the case of Vijay M. Mistry Construction Ltd. 355 ITR 498 (Guj) and further approved the decision of Ahmedabad 4 ITA n o .3 5 66 / Mum / 20 1 8 Bench, FLAT in the case of Vijay Proteins 58 lTD
428.
6.10 As the AG concluded that the appellant has not purchased from those parties, but considering the facts of the case that the goods have been sold and the assessee offered the profit on sale for taxation, treated the purchases are from the grey market at a lower price which carries higher margin of profit than the one offered to tax. AG relied on the decision of Hon'ble Gujarat High Court in the case of CIT vs. Simit Sheth 356 ITR 451 (Gui) wherein also it is found that some of the alleged suppliers of steel to the assessee had not supplied any goods but had only provided sale bills and hence, purchases from the said parties were held to be bogus. The AO in that case added the entire amount of purchases to gross profit of the assessee. Ld. CIT(A) having found that the assessee had indeed purchased though not from named parties but other parties from grey market, partially sustained the addition as probable profit of the assessee. The Tribunal however, sustained the addition to the extent of 12.50%. Taking into account the above facts, the Hon'ble Gujarat High Court held that since the purchases were not bogus, but were made from parties other than those mentioned in books of accounts, only the profit element embedded in such purchases could be added to the 5 ITA n o .3 5 66 / Mum / 20 1 8 assessee's income and as such no question of law arose in such estimation.
6.11 The appellant made purchases from 7 parties who are said to be hawala operators, who is indulged in providing bogus bills without supply of any material. Independent inquiries conducted revealed that no such parties are existing in the given address. When asked to produce the parties during the assessment proceedings by the AG, appellant expressed his inability to do so. In the present case, A.G. estimated the profit percentage on bogus purchases as 12.5%. The simple issue to be decided is whether the percentage adopted by the AO is correct in the line of business i.e. dealer in ferrous and non- ferrous metals. As noticed above, in the similar circumstances of bogus purchases, Hon'ble Gujarat High Court estimated the additional advantage towards tax benefit. Taking all the facts into consideration and in view of the decision of Simit P. Sheth case, the addition made by the A.O. is confirmed. Appeal on Grounds No. 1 to 12, 14 & 15 are treated as 'Dismissed'."
5. I have considered the issue and gone through the facts and circumstances of the case. I find from the facts of the case and argument of both the sides that the CIT(A) has confirmed the profit rate at the rate of 12.5%, which according to me is on higher side going by the nature of business of the assessee i.e. Chemicals & Solvents. I am in full agreement with the contentions raised by the assessee before CIT(A) and 6 ITA n o .3 5 66 / Mum / 20 1 8 according to me a profit rate of 12.5% is on higher side as assessee has also paid the VAT element on these bogus purchases and moreover the assessee is dealing in the ferrous and non-ferrous metals, hence, a further deduction in estimation of profit to the extent of 7.5% can be allowed. Hence, I direct the AO to recompute the income after applying profit rate at the rate of 5% and compute the income accordingly. The appeal of the assessee is partly allowed.
6. In the result, the appeal of assessee is partly allowed.
Order pronounced in the open court on 07.02.2019. Aado S a kI Gaao Y aNaa Ku l ao mao idnaM k 07.02.2019 kao kI ga[- .
Sd/-
(महावीर स ह
िं /MAHAVIR SINGH)
(न्याययक दस्य/ JUDICIAL MEMBER)
मुिंबई, ददनािंक/ Mumbai, Dated: 07.02.2019. सुदीप सरकार, व.निजी सचिव / Sudip Sarkar, Sr.PS आदे श की प्रनिलिपप 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 प्रयतयनधि, आयकर अपीलीय अधिकरण, मिंब ु ई / DR, ITAT, Mumbai
6. गार्ड फाईल / Guard file.
आदे शािुसार/ BY ORDER, त्यावपत प्रयत //True Copy// उप/सहायक पंजीकार (Asstt. Registrar) आयकर अपीिीय अचिकरण, मुिंबई / ITAT, Mumbai