Magan Vadhaji Prajapati, Mumbai vs Income Tax Officer Wd 19(2) (3) , Mumbai on 19 September, 2022
12. Thus, from the above it is evident that the basis on which the
coordinate bench of the Tribunal restricted the addition to 12.5% is by
considering the percentage of sales tax tried to be saved by the parties
engaged in these hawala transactions and the profit margin of the industry.
Further, as noted above the said decision of the coordinate bench of the
Tribunal was upheld by the Hon‟ble Gujarat High Court in case cited supra.
Thus, we are of the considered view that in the present case, the lower
authorities though correctly agreed that only profit embedded in the sales
could be brought to tax, however, placed reliance upon the aforesaid decision
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Magan Vadhaji Prajapati
ITA No.559/Mum./2022
ITA no.560/Mum./2022
of Hon‟ble Gujarat High Court to restrict the disallowance to 12.5% without
appreciating the basis on which such percentage of addition was arrived at in
the facts of that case. In the present case, reliable industry data was also not
brought on record to prove the prevailing profit margin of the ferrous and
non-ferrous industry during the relevant assessment year. Therefore, in view
of the aforesaid findings, we deem it fit to modify the impugned order only to
the extent that the disallowance on account of bogus purchases should be
restricted to the total of rate of VAT applicable during the year under
consideration in the State of Maharashtra on the goods traded by the
assessee and gross profit earned by the assessee during the year under
consideration. We, accordingly, direct the AO to recomputed the
disallowance. With the above directions, the sole ground raised in assessee‟s
appeal is partly allowed.