MAGAN VADHAJI PRAJAPATI, MUMBAI V. INCOME TAX OFFICER WD 19(2) 93) , MUMBAI

MA 94/MUM/2023

AI Insights

The case involves Magan Vadhaji Prajapat, the assessee, who filed miscellaneous applications under section 254(2) of the Income Tax Act, 1961, seeking rectification of a common order regarding disallowances made on account of bogus purchases for the assessment years 2009-10 and 2010-11. The original order directed the Assessing Officer to compute disallowances by adding the gross profit and the rate of VAT applicable, which the assessee argued would lead to double taxation as VAT had already been paid. The Tribunal acknowledged the mistake and modified the order to prevent double addition and directed a re-evaluation of the purchase amounts considered from Paras Steel India.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 300175 (ITAT-MUMBAI)
• Duration Of Justice: 5 month(s) 25 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 18-07-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 20-04-2023
• Assessment Year: 2010-2011
• Appeal Filed On: 23-01-2023
• Other Referred Cases: CIT vs Simit P. Sheth, (2013) 356 ITR 451 (Guj)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANNE VERGHESE
• Keywords: Bogus purchase; Reassessment proceedings
• Section: 254(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, MUMBAI BEFORE SHRI OM PRAKASH KANT, ACCOUNTANT MEMBER, AND SHRI SANDEEP SINGH KARHAIL, JUDICIAL MEMBER M.A. no.94/Mum./2023 (Arising out of ITA No.560/Mum./2022 (Assessment Year : 2010–11) M.A. no.95/Mum./2023 (Arising out of ITA No.559/Mum./2022) (Assessment Year : 2009–10) Magan Vadhaji Prajapat Room no.15, 2 nd Floor 39/41, Kamal Niwas, Bhandari Street Mumbai 400 004 PAN – ANWPP7146B ................ Applicant (Original Appellant) v/s Income Tax Officer Ward–19(2)(3), Mumbai ................Respondent (Original Respondent) Assessee by : Shri Bharat Kumar Revenue by : Shri Anne Verghese Date of Hearing – 21/04/2023 Date of Order – 19/07/2023 O R D E R PER SANDEEP SINGH KARHAIL, J.M. The present miscellaneous applications have been filed by the assessee under section 254(2) of the Income Tax Act, 1961 (“the Act”) seeking rectification of the common order dated 19/09/2022, passed by the Co- ordinate Bench of the Tribunal in assessee’s appeals being ITAs No. 559/Mum./2022, and 560/Mum./2022, for the assessment years 2009-10 and 2010-11. 2. The common grievance of the assessee in both the miscellaneous applications is that the Co-ordinate Bench directed the AO to compute the Magan Vadhaji Prajapat M.As. no.94 & 95/Mum./2023 Page | 2 disallowance on account of bogus purchase by adding the gross profit earned by the assessee and the rate of VAT applicable during the year in the State of Maharashtra, however, the assessee has already paid the VAT and therefore, the aforesaid directions will result in double addition in the hands of the assessee. Apart from the aforesaid grievance, as per the assessee in the assessment year 2009-10, the AO has not considered the correct amount of total purchase from Paras Steel India, which was highlighted in the written submission filed during the hearing, however, no direction has been given for considering the correct amount in the common order dated 19/09/2022. 3. From the record we find that on the basis of information received from the investigation wing, Mumbai the assessee is one of the beneficiaries of bogus purchases from parties who were found by the Sales Tax Department of Maharashtra to be indulged in the practice of providing bogus sales/purchase bills without supplying any goods, reassessment proceedings in the case of the assessee were initiated. The AO, vide assessment order passed under section 143(3) r/w 147 of the Act, restricted the addition on account of non-genuine purchases to 12.5% following the decision of Hon’ble Gujarat High Court in CIT vs Simit P. Sheth, (2013) 356 ITR 451 (Guj). The learned CIT(A) upheld the conclusion reached by the AO. The Co–ordinate Bench, vide aforesaid common order, noted that in Simit P. Sheth, the Tribunal restricted the addition to 12.5% 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, which was upheld by the Hon’ble Gujarat High Court. Accordingly, the Co–ordinate Bench vide aforesaid common order directed the AO to restrict the disallowance on account of bogus purchases to the total rate of VAT Magan Vadhaji Prajapat M.As. no.94 & 95/Mum./2023 Page | 3 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. As per the assessee, he has already paid the VAT and submissions were made in this regard during the hearing, which are duly noted in para 7 of the aforesaid common order. Therefore, the aforesaid direction will result in double addition in the hands of the assessee to the extent of the amount of VAT that has already been paid. 4. In view of the aforesaid circumstances, we are of the view that there is a mistake apparent from the record, which requires rectification under section 254(2) of the Act. Accordingly, we deem it appropriate to modify para 12 of the aforesaid common order dated 19/09/2022, as under:- “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 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 direct the AO to verify if in case, the VAT applicable during the year under consideration in the State of Maharashtra on the goods traded by the assessee has already been paid by the assessee, then to that extent, the said amount be not added for computation of disallowance as directed above. Otherwise, it will result in double addition of the same amount in the hands of the assessee. We, accordingly, direct the AO to recompute the disallowance after necessary verification. With the above directions, the sole ground raised in assessee’s appeal is partly allowed. Magan Vadhaji Prajapat M.As. no.94 & 95/Mum./2023 Page | 4 5. As regards the incorrect amount of purchase considered by the AO in respect of Paras Steel India, we direct the AO to consider the correct amount after necessary verification of the details as may be submitted by the assessee. 6. Accordingly, the present miscellaneous applications filed by the assessee for the assessment years 2009-10 and 2010-11 are allowed. Order pronounced in the open Court on 19/07/2023 Sd/- OM PRAKASH KANT ACCOUNTANT MEMBER Sd/- SANDEEP SINGH KARHAIL JUDICIAL MEMBER MUMBAI, DATED: 19/07/2023 Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The PCIT / CIT (Judicial); (4) The DR, ITAT, Mumbai; and (5) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary Assistant Registrar ITAT, Mumbai