SHRI KAMLESHKUMAR G SANGHVI, MUMBAI V. INCOME TAX OFFICER WARD-19(2)(2), MUMBAI

ITA 5127/MUM/2018

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 9922 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-09-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 05-09-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AKHTAR HANSARI
• Keywords: Bogus purchase
• Section: 147

Judgement Text

SMC IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, MUMBAI , BEFORE SRI MAHAVIR SINGH, JM AND SRI SHAMIM YAHYA, AM / I TA NO. 512 7 / MUM/ 2018 ( / ASSESSMENT YEAR 2009 - 10 ) SHRI KAMLESHKUMAR G SANGHVI M/S KAMLESH STEEL & ENGG. CO. ROOM NO. 11, MAPKAR BUILDING, 1 ST FLOOR, 1 ST PANJARAPOLE LAND, MUMBAI - 400 004 / PAN ACAPS 6537 N . APPELLANT / V/S THE INCOME TAX OFFICER WARD 19 (2)(2) MATRU MANDIR, NANA CHOWK MUMBAI - 400 007 , .RESPONDENT / / APPELLANT BY : SHRI VIMAL PUNAMIYA, A R / RESPONDENT BY : SHRI AKHTAR H ANSARI, DR / DATE OF HEARING: 19 .0 9 .2019 / DATE OF PRONOUNCEMENT : 19 .09 .2019 AADOSA / O R D E R , / PER MAHAVIR SINGH, JM : THIS APPEAL OF ASSESSEE IS ARISING OUT OF TH E ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) - 5 3 , MUMBAI IN APPEAL NO. CIT(A) - 53/IT - 306/ITO - 19(2)(2)/2017 - 18 DATED 16.05.2018 . ITA NO. 5127 /MUM/2018 2 | P A G E THE ASSESSMENT WAS FRAMED BY THE INCOME TAX OFFICER - WARD 19 (2)(2) , MUMBAI (IN SHORT ITO / AO) FOR AY 2009 - 10 VI DE DATED 26.02.2 015 , UNDER SECTION 147 OF THE INCOME - TAX ACT, 1961 (HEREINAFTER THE ACT). 2. THE ONLY ISSUE IN ON MERITS, IN THIS APPEAL OF ASSESSEE IS AGAINST THE ORDER OF CIT(A) CONFIRMING THE ACTION OF THE AO IN ESTIMATING THE PROFIT RATE AT 12.5% OF THE BOGUS PURCHASES . 3. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE ENGAGED IN THE BUSINESS OF TRADING IN FERROUS & FERROUS METALS. THE AO RECEIVED INFORMATION FROM DGIT (INVESTIGATION), WHO IN TURN RECEIVED INFORMATION FROM SALES TAX DEPARTMENT, MUMBAI THAT THE ASSESSEE HAS MAD E 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. 53,12,159 / - AS ADMITTED BY THESE HAWALA DEALERS IN THEIR DEPOSITION BEFORE THE AUTHORITIES. THE SAME READS AS UNDER: - SL NO. NAME OF THE HAWALA PARTY AMOUNT 1. RJ METAL INDUSTRIES 11,54,611 2. SUBH LABH METAL AND ALLOYS / BRIGHT ENTERPRISES 2,14,592 3. ROLEX TRADING COMPANY 3,93,120 4. VICTORIA TRADING CO 67,757 5. KANAK STEEL (INDIA) 36,457 6. WEL STEEL (INDIA) 2,45,107 7. RAJRATAN METAL INDIA 7,51,936 8. PRIYA STEL CORPORATION 2,87,164 9. RAJENDRA METAL INDUSTRIES 3,42,026 10. PRAKASH STEEL & ENGINEERING CO. 3,78,449 11. MONAL METAL ALLOYS PVT. LTD. 14,24,109 TOTAL 53,12,159 ITA NO. 5127 /MUM/2018 3 | P A G E 4. DURING THE COURSE OF ASSESSMENT P ROCEEDINGS 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 GENUINENES S OF THE PURCHASE AND ACCORDINGLY, HE MADE ADDITION OF UNPROVED PURCHASE AT 12.5 % OF 6,64,020 / - TO THE RETURNED INCOME OF THE ASSESSEE AGGRIEVED, ASSESSEE PREFERRED THE APPEAL BEFORE CIT(A), WHO SUSTAINED THE DISALLOWANCE AT 12.5% OF THE BOGUS PURCHASES BY OBSERVING IN PARA 5.7 & 5.8 AND BY FOLLOWING THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. SMITH P. SETH (2013) 356 ITR 451 (GUJ) BY OBSERVING AS UNDER : - 5.7 I AM GUIDED BY THE RATIO OF DECISION OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS SIMIT P. SHETH PRONOUNCED ON 16.1.2013 IN TAX APPEAL NO.5531 OF 2012 WHEREIN THE HON'BLE COURT HAVE HELD THAT WHEN THE TOTAL SALE IS ACCEPTED BY THE AO, THEN THE ENTIRE PURCHASES CANNOT BE ADDED TO THE INCOME OF THE APPELLANT. THE HON'BLE COURT HAVE, THEREFORE, HELD THAT FAIR PROFIT RATIO WOULD BE NEEDED TO BE ADDE D BACK TO THE INCOME OF THE ASSESSEE. 5.8 EVEN IF MATERIALS HAVE BEEN PURCHASED, THEY ARE NOT PURCHASED FORM ITA NO. 5127 /MUM/2018 4 | P A G E 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 C ASE. IT IS CONSIDERED MOST APPROPRIATE TO ADOPT 12.5% PROFIT WHICH CAN TAKE CARE OF THE ROTATION OF CAPITAL UTILIZED FOR SUCH TRANSACTION. HENCE IN THE LIGHT OF FINDING OF THE 1 - LONBIE GUJARAT HIGH COURT IN THE CASE OF CIT VS. SIMIT P. SHETH, 12.5% PROFIT IS FOUND TO BE APPROPRIATE FOR ASCERTAINMENT OF TAXABLE INCOME RELATED TO SUCH TRANSACTION. THIS IS EXACTLY WHAT THE ASSESSING OFFICER HAS DONE IN THIS CASE. THUS, THE GROUND O F APPEAL NO. 1 IS DISMISSED . 5. WE HAVE CONSIDERED THE ISSUE AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND FROM THE FACTS OF THE CASE AND ARGUMENT OF BOTH THE SIDES, THAT THE CIT(A) HAS APPLIED 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. FERROUS AND NON - FERROUS . I AM IN FULL AGREEMENT WITH THE ARGUMENT OF THE LEARNED COUNSEL FOR THE ASSESSEE AND ACCORDING TO ME A PROFIT RATE OF 12.5% WILL MEET THE END O F JUSTICE IN VIEW OF THE DECISION OF HONBLE GUJARAT HIGH COURT IN ITA NO. 5127 /MUM/2018 5 | P A G E THE CASE OF CIT VS. SMITH P. SETH (2013) 356 ITR 451 (GUJ) BUT ASSESSEE HAS ALSO PAID THE VAT ELEMENT ON THESE BOGUS PURCHASES, 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 AT THE RATE OF 5 % AND COMPUTE THE INCOME ACCORDINGLY. THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 6. IN THE RESULT, ALL THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. O RDER PRONOUNCED IN THE OPEN COURT ON 19 .09 .2019. SD/ - SD/ - ( / SHAMIM YAHYA ) ( /MAHAVIR SINGH) ( / ACCOUNTANT MEMBER) ( / JUDICIAL MEMBER) ( / SHAMIM YAHYA ) ( / ACCOUNTANT MEMBER) , / MUMBAI, DATED: 19 .09 .2019 , . / SUDIP SARKAR, 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 / ( ASSTT. REGISTRAR) , / ITAT, MUMBAI