Case Law Details

Case Name : ITO Vs Gautam B. Bafna (ITAT Mumbai)
Appeal Number : ITA No. 3719/Mum/2018
Date of Judgement/Order : 11/11/2020
Related Assessment Year : 2011-12
Courts : All ITAT (7466) ITAT Mumbai (2139)

ITO Vs Gautam B. Bafna (ITAT Mumbai)

In the instant case, the corresponding sales made out of disputed purchases were not doubted by the Ld. AO before us. No contrary evidence to this effect was also produced by the Ld. DR before us. It is not in the dispute that the assesee had indeed made purchases from certain parties whose names appeared in the list of hawala bills maintained by the sales tax department, Government of Maharashtra, but however the assessee could not prove the genuineness of such purchases. At the same time, there could not be any sales without making purchases. Hence, it could be safely presumed that assessee could have made purchases from the grey market in order to saving indirect taxes and incidental profit element thereon. We find that the Ld.CIT(A) had reasonably estimated such profit element to be at 12.5% of the value of disputed purchases, which is prevalent rate adopted by this Tribunal in series of decisions considering the nature of industry in which the assessee is engaged in, which is also approved by the Hon’ble Gujarat High Court in the case CIT vs Simith P.Sheth (supra).Accordingly, we hold that there is no infirmity in the order of the Ld.CIT(A) in this regard. Accordingly, the grounds raised by the revenue are dismissed.

Income Tax Addition for Purchase from Grey Market

FULL TEXT OF THE ITAT JUDGEMENT

This appeal filed by revenue in ITA No.3719/Mum/2018 for Assessment Year (AY) 2011-12 arise out of the order by the ld. Commissioner of Income Tax (Appeals)-30, Mumbai in appeal No.CIT(A)-30/19(1)(3)/74/2014-15, dated 26/03/2018 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 13/03/2014 by the ld. Income Tax Officer-16(3)(4), Mumbai (hereinafter referred to as ld. AO).

2. The only issue to be decided in this appeal is as to whether the Ld.CIT(A) was justified in restricting the addition made on account of non genuine purchases at 12.5% of value of purchases as against 100% made by the Ld. AO in the facts and circumstances of the instant case.

3. None appeared on behalf of the assessee. We have heard the Ld. DR and perused the materials available on record, we find that assesee is an individual trader dealing in metal. Pursuant to the information received from Sales Tax Department of Government of Maharashtra by the Income Tax Department that assessee had made certain purchases from the following parties whose names appear as tainted dealers in the records of sales tax department of Government of Maharashtra, the Ld. AO in the course of regular assessment proceedings sought to verify the genuinity of such purchases:-

Sr.No. Name of the Party Amount
1 Jay Enterprises Rs. 78,60,231/-
2 Darshat Trading Pvt.Ltd Rs.63,18,543/-
3 N.R.Traders Rs.68,18,860/-
Total Rs.2,09,97,634/-

4. The Ld. AO directed the assessee to furnish the addresses of the aforesaid parties, which were duly furnished by the assessee. The Ld. AO issued notice u/s 133(6) of the Act to those parties which were returned back by the postal authorities and later the assesee was given due opportunity to prove the genuinity of purchases made from the aforesaid parties with supporting evidences. The Ld. AO also directed the assessee to produce those parties for examination. The Ld. AO observed that the assesee could not furnish the new address of these parties and was not able to produce the parties in person as directed and also could not prove the genuineness of purchases made from those parties. Accordingly, the Ld. AO concluded that the assessee had obtained accommodation bills for inflating purchases to the tune of Rs.2,09,97,634/- and treated the same as unexplained expenditure incurred by the assessee and made an addition u/s 69C of the Act thereon.

5. We find that the assessee had pleaded that all the payments were made by the account payee cheques to the aforesaid suppliers; that all the relevant purchase bills were duly produced before the Ld. AO; that affidavits and depositions and statements of alleged hawala operators which were relied upon by the Ld. AO were neither furnished to the assessee by the Ld. AO nor cross-examination of those parties provided to the assessee; that the corresponding sales made by the assessee out of such alleged purchases were not doubted by the revenue. Accordingly, the assessee had pleaded that only the profit element embedded in the said disputed purchases could be brought to tax. The Ld.CIT(A) by ultimately placing reliance on the decision of the Hon’ble Gujarat High court in the case of CIT vs Simit P.Sheth reported in 38 com 385 (Guj.) held that since the sales were not disputed by the Ld. AO, only the profit element embedded in the value of disputed purchases could be brought to tax, which was estimated at 12.5% thereon. Aggrieved by this order, only the revenue is in appeal before us.

6. We find that in the instant case, the corresponding sales made out of disputed purchases were not doubted by the Ld. AO before us. No contrary evidence to this effect was also produced by the Ld. DR before us. It is not in the dispute that the assesee had indeed made purchases from certain parties whose names appeared in the list of hawala bills maintained by the sales tax department, Government of Maharashtra, but however the assessee could not prove the genuineness of such purchases. At the same time, there could not be any sales without making purchases. Hence, it could be safely presumed that assessee could have made purchases from the grey market in order to saving indirect taxes and incidental profit element thereon. We find that the Ld.CIT(A) had reasonably estimated such profit element to be at 12.5% of the value of disputed purchases, which is prevalent rate adopted by this Tribunal in series of decisions considering the nature of industry in which the assessee is engaged in, which is also approved by the Hon’ble Gujarat High Court in the case CIT vs Simith P.Sheth (supra).Accordingly, we hold that there is no infirmity in the order of the Ld.CIT(A) in this regard. Accordingly, the grounds raised by the revenue are dismissed.

7. In the result, appeal of the revenue is dismissed.

Order pronounced in the open court on this 11/11/2020

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