IN INCOME-TAX APPELLATE TRIBUNAL SMC BENCH MUMBAI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH JUDICIAL MEMBER ITA No. 5296/Mum/2018 (Assessment Year 2010-11) ITO 28(1)(1) Anil Narayan Lokre Room No. 329, 3rd Floor, (Prop. Anil Trading Co.), Tower No.6, Vashi Railway Vs. 205, Bhagtani Enclave, Behind Station Complex, Vashi, Asian Paints, Off. L.B.S.Marg, Navi Mumbai-400705. Bhandup (W), Mumbai-400078. PAN: AAPPL1426L Appellant Respondent Appellant by : Shri Akhtar A. Ansari (DR) Respondent by : Ms. Lazari Oswal with Shri Nimesh Chottani (AR) Date of Hearing : 01.10.2019 Date of Pronouncement : 01.10.2019 ORDERUNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER; 1. This appeal by revenue is directed against order of ld. CIT(A)-26, Mumbai dated 28.06.2018 for Assessment Year 2010-11 revenue has raised following grounds of appeal: (1) "On facts and in circumstances of case and in law, Ld. CIT(A) has erred in directing A.O. in restricting addition to 15% of Rs.15,30,070/- as against 25% addition of Rs.15,30,070/- made by Assessing Officer on account of bogus purchases, without appreciating fact that assessee had failed to discharge onus to establish genuineness of transactions and also failed to furnish corroborative evidences in support of his claim and without considering latest Apex Court decision in case of N.K. Proteins Ltd wherein it was held that ITA No. 5296 Mum 2018-Anil Narayan Lokre addition on basis of bogus purchase could not be restricted to certain percentage when entire transaction was found as bogus. (2) appellant prays that information with regard to bogus purchases has been received from external sources i.e from Sales Tax Department now known as Director General of GST Intelligence (DGGI) and issue is squarely covered under clause (e) of amended Para 10 of Circular No.3 of 2018 dated 11.07.2018 which was issued vide Notification / Circular F.No.279/Misc 142/2007-ITJ (Pt) dated 20.08.2018. (3) appellant prays that order of Ld. CIT (A) on above grounds be reversed and that of Assessing officer be restored. 2. Brief facts of case are that assessee is proprietor of M/s Anil Trading Company engaged in business of manufacturing of transformer, brushing parties for electricity power supply , filed its return of income for Assessment Year 2010-11 on 09.10.2010 declaring total income of Rs. 3,95,937/-. return of income was processed under section 143(1). assessment was re-opened under section 147 on basis of information received from Sale Tax Department, Government of Maharashtra that certain hawala operators are indulging in providing accommodation bills without actual delivery of goods. Sale Tax Department, Government of Maharashtra referred list of such hawala dealers and beneficiary to DGIT (Investigation), Mumbai. name of assessee appeared in list of beneficiary. On basis of information, Assessing Officer made belief that income of assessee escaped assessment, therefore, re- opened assessment under section 147. notice under section 148 2 ITA No. 5296 Mum 2018-Anil Narayan Lokre dated 25.03.2015 was served upon assessee. assessee in response to notice under section 148 filed its reply dated 01.06.2015 and requested for supply of reasons recorded. Assessing Officer after serving notice under section 143(2) proceeded for re-assessment. During assessment, Assessing Officer noted that assessee has shown purchases of Rs. 15,30,070/- from following parties, which were declared as hawala dealers by Sale Tax Department, Government of Maharashtra. Name of party Bill amount (Rs.) 1 M/s Prayosha Trading Co. 5,47,831/- 2 M/s Somnath International 2,67,956/- 3 M/s. G.R. Trade Link 2,55,058/- 4 M/s. Shraddha Trading Co. 2,07,454/- 5 M/s Shree Trading Corporation 1,51,847/- 6 M/s Varun Enterprises 99,924/- Total 15,30,070 3. Assessing Officer in order to verify transaction issued notice under section 133(6) to all parties. notice sent through registered post was returned back with remark Left . assessee was asked to show-cause as to why purchases shown from all parties should not be treated as non-genuine. assessee in order to substantiate purchases stated that goods were delivered by said parties and are reflected in books of account. payments were made through cheques only. After considering submission of 3 ITA No. 5296 Mum 2018-Anil Narayan Lokre assessee, Assessing Officer concluded that assessee not been able to furnish evidence of transportation details and delivery challans. assessee furnished Books of account, purchases bills. Assessing Officer after considering reply of assessee, copies of bills and on basis of report of Investigation Wing of Sale Tax Department disallowed 25% of aggregate of purchases shown from said hawala parties (i.e. Rs. 3,82,517/-, being 25% of Rs. 15,30,070/-) in assessment order dated 24.11.2015 passed under section 143(3) r.w.s 147. 4. On appeal before addition was restricted to extent of 15%. ld. CIT(A) while restricting disallowances relied upon decision of Hon ble Gujarat High Court in case of Simith P. Seth (356 ITR 451). ld. CIT(A) also concluded that assessee has shown GP ratio for last three years ranging from 6.01% to 12.63%, Assessing Officer estimated profit @ 25% which is on higher side. Thus, aggrieved by order of ld. CIT(A), revenue has filed present appeal before us. 5. We have heard submission of ld. Departmental Representative (DR) for revenue and ld. Authorized Representative (AR) of assessee and perused material available on record. ld. DR for revenue supported order of Assessing Officer. ld. DR further submits that Investigation Wing of Income-tax Department has 4 ITA No. 5296 Mum 2018-Anil Narayan Lokre made full-fledged investigation in respect of hawala traders. hawala traders were/are engaged in providing bogus bill without actual delivery of goods. assessee has shown bogus purchases only to inflate profit. ld. DR for revenue submits that Assessing Officer has brought sufficient material on record to prove that purchases shown by assessee were bogus. assessee is not entitled for any relief. ld. DR for revenue prayed for setting-aside order of ld. CIT(A) and to restore order of Assessing Officer. 6. On other hand, ld. AR of assessee submits that assessee furnished complete details of purchases and corresponding sales made against purchases. Assessing Officer has not rejected books of account. Assessing Officer made disallowance of 25% of alleged bogus purchases. Assessing Officer has not considered Gross Profit Ratio for earlier years as well as for year under consideration. additions made on account of alleged bogus purchases by Assessing Officer was unreasonable. ld. CIT(A) after considering Gross Profit declared in three earlier consecutive years restricted disallowance to 15%. Though, purchases of assessee are genuine, however, assessee accepted it to buy peace. ld. AR prayed for dismissal of present appeal. 7. We have considered submissions of both representatives and perused record. Assessing Officer made disallowance of 5 ITA No. 5296 Mum 2018-Anil Narayan Lokre 25% of alleged bogus purchases. Assessing Officer has not disputed sales of assessee. Assessing Officer solely relied upon report of Investigation Wing of Sale Tax Department. Assessing Officer has not rejected books of account of assessee. Before ld. CIT(A), assessee urged that purchases shown by assessee are genuine. payments of purchases were made through account payee cheques. goods were received by assessee and quantitative details and corresponding sales of shown. assessee also urged that Assessing Officer has not considered various documentary evidences furnished by assessee. assessee relied upon decision of Hon ble Gujarat High Court in Simith P. Seth (supra). ld. CIT(A) after considering material placed before him and ratio of decisions including decision of Simith P. Seth concluded that assessee has shown Gross Profit ratio in last three years ranging from 6.01% to 12.63% and that estimation of profit made by Assessing Officer @ 25% is on higher side. ld. CIT(A) directed Assessing Officer to scale down disallowance of bogus purchases to 15% of alleged purchases to cover up profit element embedded in impugned purchases. We are also of view that under Income Tax Act, revenue is entitled to tax profit element only and not transaction, therefore, we affirm order of ld. CIT(A). 6 ITA No. 5296 Mum 2018-Anil Narayan Lokre 8. In result, appeal of revenue is dismissed. Order pronounced in open court on 01/010/2019. Sd/- Sd/- SHAMIM YAHYA PAWAN SINGH ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Date: 01.10.2019 SK Copy of Order forwarded to : 1. Assessee 2. Respondent 3. concerned CIT(A) 4.The concerned CIT 5. DR SMC Bench, ITAT, Mumbai 6. Guard File BY ORDER, Dy./Asst. Registrar ITAT, Mumbai 7 ITO, 28(1)(1), Navi Mumbai v. Anil Narayan Lokre