IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH SMC, MUMBAI BEFORE SHRI G.S.PANNU, ACCOUNTANT MEMBER ITA NO.2335/MUM/2017 ( ASSESSMENT YEAR 2010-11) NIWAS IRON & STEEL CO. PVT. LTD., NEAR MAKHMALI TALAO, AGRA ROAD, THANE, MAHARASHTRA. PAN: AACCN0810A ...... APPE LLANT VS. THE INCOME TAX OFFICER 3(1), THANE. APPELLANT BY : SHRI RAHUL R. SARD A RESPONDENT BY : MS. N. HEMALATHA DATE OF HEARING : 03/08/2017 DATE OF PRONOUNCEMENT : 03/08/2017 ORDER THE CAPTIONED APPEAL FILED BY THE ASSESSEE PE RTAINING TO ASSESSMENT YEAR 2010-11 IS DIRECTED AGAINST AN ORDER PASSED BY CIT(A)-2, MUMBAI DATED 16/01/2017, WHICH IN TURN, ARISES OUT OF ORDER P ASSED BY THE ASSESSING OFFICER UNDER SECTION 143(3) R.W.S 147 OF THE I NCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 27/01/2015. 2. IN THIS APPEAL, ASSESSEE HAS ASSAILED ADDITIONS OF RS.2,07,090/- AND RS,12,302/- SUSTAINED BY THE CIT(A) ON ACCOUNT OF U NPROVED PURCHASES AND ADHOC DISALLOWANCES OUT OF EXPENSES RESPECTIVELY. 2 ITA NO.2335/MUM/2017 ( ASSESSMENT YEAR 2010-11) 3. IN BRIEF, THE RELEVANT FACTS ARE THAT THE ASSESS EE COMPANY IS ENGAGED IN THE BUSINESS OF TRADING IN IRON AND STEEL. IN THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT ASSES SEE HAS MADE PURCHASES OF RS.2,07,090/- FROM A CONCERN, WHICH WAS STATED T O BE INDULGING IN HAWALA TRANSACTIONS AS PER INFORMATION FROM THE SALES TAX DEPARTMENT OF GOVERNMENT OF MAHARASHTRA. THE ASSESSING OFFICER CO NSIDERED SUCH PURCHASES AS BOGUS AND ADDED BACK A SUM OF RS.2,07, 090/- TO THE RETURNED INCOME IN TERMS OF SECTION 69C OF THE ACT. WHEN TH E ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A), HE HAS UPHEL D THE ENTIRE ADDITION. HOWEVER, IN SUSTAINING THE ADDITION, THE CIT(A) CHA NGED THE BASIS AND COMPARED THE G.P OF EARLIER ASSESSMENT YEAR OF 200 8-09 OF 7.65% WITH THE G.P RATE OF 7.38%, DECLARED BY THE ASSESSEE IN THE INSTANT YEAR AND TREATED THE DIFFERENCE OF 0.27% AS THE GROSS PROFIT SUPPRES SED BY THE ASSESSEE ON ACCOUNT OF HAVING MADE BOGUS PURCHASES IN THIS YEA R. THE CIT(A) DETERMINED THE SUPPRESSED GROSS PROFIT IN THE YEAR AT RS. 4,08 ,626/-, BEING 0.27% OF THE TOTAL SALE OF YEAR OF RS.15,13,42,988/-. SINCE THE SUPPRESSED PROFIT CALCULATED BY THE CIT(A) OF RS. 4,08,626/- WAS MORE THAN THE ADDITION MADE BY THE ASSESSING OFFICER TOWARDS UNPROVED PURCHASES, HE SU STAINED THE ADDITION OF RS.2,07,090/- AS MADE BY THE ASSESSING OFFICER. 4. IN THIS BACKGROUND, THE LD. REPRESENTATIVE FOR T HE ASSESSEE POINTED OUT THAT EFFECTIVELY SPEAKING, THE ENTIRE AMOUNT OF UNP ROVED PURCHASES HAS BEEN ASSESSED TO TAX. ACCORDING TO HIM, IN SIMILAR CASES, THE TRIBUNAL IS UPHOLDING THE ADDITION OF ONLY THE PROFIT ELEMENT OF UNPROVED PURCHASES. 3 ITA NO.2335/MUM/2017 ( ASSESSMENT YEAR 2010-11) 5. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESEN TATIVE DID NOT ASSAIL THE PLEA THAT UNDER SIMILAR CIRCUMSTANCES ONLY PROF IT ELEMENT OF THE UNPROVED PURCHASES IS BEING TAXED, SO HOWEVER, ACCO RDING TO HER, THE BASIS ADOPTED BY THE CIT(A) IS ALSO JUSTIFIED. 6. I HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSION S AND FIND THAT IN SIMILAR CASES OF UNPROVED PURCHASES THE ADDITION WHICH IS BEING SUSTAINED IS ON ACCOUNT OF PROFIT ELEMENT IN THE PURCHASES, WHICH I S GENERALLY TAKEN AT 12.50%. ACCORDINGLY, IT IS DIRECTED THAT INSTEAD OF DISALLOWING THE ENTIRE AMOUNT OF PURCHASES, THE ASSESSING OFFICER SHALL S USTAIN THE ADDITION TO EXTENT OF 12.50% OF THE DISPUTED PURCHASES. IN FAC T, THE METHODOLOGY ADOPTED BY THE CIT(A) IS QUITE WRONG, INASMUCH AS, HE HAS ASSUMED THAT THERE IS SUPPRESSION OF PROFIT WITH REGARD TO THE E NTIRE SALE ACTIVITY CARRIED OUT BY THE ASSESSEE, WHEREAS FACTUALLY SPEAKING ONL Y PURCHASES TO THE EXTENT OF RS.2,07,090/- HAVE BEEN FOUND TO BE OF DOUBTFUL NATURE. THEREFORE, THE ADDITION, IF ANY, THAT IS TO BE SUSTAINED OUGHT TO BE ONLY WITH RESPECT TO SUCH PURCHASES AND NOT THE ENTIRE TRADING ACTIVITY OF TH E ASSESSEE. THEREFORE, IN MY CONSIDERED OPINION, THE CIT(A) HAS ERRED IN SUST AINING THE ADDITION OF RS.2,07,090/-. IN CONCLUSION, I, THEREFORE, DIRECT THE ASSESSING OFFICER TO RESTRICT THE DISALLOWANCE TO 12.50% OF THE DISPUTED PURCHASE AND DELETE THE BALANCE. THUS, ON THIS ASPECT ASSESSEE PARTLY SUCC EEDS. 7. THE NEXT GROUND IS WITH REGARD TO A DISALLOWANCE OF RS.12,303/- OUT OF EXPENSES. THE LD. REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE ENTIRE ADDITION HAS BEEN ON AN ADHOC BASIS, WHICH I S UNSUSTAINABLE. I FIND MERIT IN THE PLEA OF THE ASSESSEE, INASMUCH AS, THE ADDITION IS MADE PURELY ON 4 ITA NO.2335/MUM/2017 ( ASSESSMENT YEAR 2010-11) AN ADHOC BASIS AND IS NOT SUPPORTED BY SPECIFIC IN STANCES OF INFIRMITY. THUS, THE SAME IS DIRECTED TO BE DELETED. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. THE ABOVE DECISION WAS PRONOUNCED IN THE OPEN COUR T IN THE PRESENCE OF BOTH THE PARTIES AT THE CONCLUSION OF THE HEARIN G ON 03/08/2017 SD/- (G.S. PANNU) ACCOCUNTANT MEMBER MUMBAI, DATED 03/08/2017 VM , SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT , 2. THE RESPONDENT. 3. THE CIT(A)- 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI