IN INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH SMC , MUMBAI BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND SHRI G MANJUNATHA, ACCOUNTANT MEMBER ITA Nos. 5272 & 5273/Mum/2018 (AYs : 2010-11 & 2011-12) Shri Pratap N Rajgor Vs ITO, Ward.19(2)(5), 2nd Floor, Room No.94 Matrumandir, Badrika Ashram Bldg Mumbai 1st Khetwadi Lane, Mumbai-4 PAN: AAAPR7926C APPELLANT RESPONDEDNT Appellant by Shri Prakash Pandit Respondent by Shri Akhtar H Ansari Date of hearing 26-09-2019 Date of pronouncement 01-10-2019 ORDER Per Pawan Singh, Judicial Member: 1. These are two appeals by assessee are directed against order of Commissioner of Income tax (Appeals)-2 hereinafter called ld CIT(A) dated 14.05.2018 for assessment years 2010-11 & 2011- 12. In both appeals assessee has challenged confirmation of disallowance of alleged bogus purchases @ 12.5% on impugned/ bogus purchases made from so-called hawala dealers. In both appeals assessee has raised identical grounds of appeals; hence, both appeals were taken up hearing together and are decided by common order. For appreciation of fact appeals for AY 2011-12 is treated as lead case. 2 ITA 5272 & 5273/Mum/2018 Pratap N. Rajgor 2. brief facts of case as taken from appeal for AY 2011-12 are that case of assessee was reopened u/s 147 by issue of notice u/s 148 on basis of information received from DGIT Inv) wherein it was informed that sales-tax department, Maharashtra has identified certain dealers, who were indulging in providing accommodation entries in form of bogus bills without actual supply of any goods. list of beneficiaries was also forwarded by DGIT(Inv). assessee was one of beneficiaries of such bogus bills. After supplying reasons for reopening, AO proceeded for re- assessment. During re-assessment, assessing officer noted that assessee has shown purchases from following 8 parties:- Sr.No Name of Hawala party Amount Rs. 1 Champion Steel (India) 33,154 2 Shubham Metal Corp 18,80,817 3 Chirag Steel Centre 32,69,098 4 Hans Enterprises 11,26,917 5 Reliable Metal (India) 37,63,500 6 Pushpak Metal Inds 5,86,768 7 Neelam Industries 9,66,318 8 Hirani Metal Inds 14,86,800 Total 1,31,13,372 3. In order to verify genuineness of purchases, AO issued notice u/s 133(6) to all parties, through registered post at address provided by assessee. Notices could not be served on all parties and were returned back by postal authorities with remark, not known / no such address / left . assessee was given opportunity to establish genuineness of purchases by furnishing 3 ITA 5272 & 5273/Mum/2018 Pratap N. Rajgor supporting evidences and to produce parties. assessee failed to produce parties. However, assessee furnished copy of ledger account, purchase bills, bank statement showing that payments were made through banking channel. Thereafter, assessing officer asked assessee to furnish details of invoices, bills, ledger account and transportation of goods / lorry receipts. assessee filed quantitative details of purchases and corresponding sales. After examining evidences furnished by assessee, AO took his view that assessee has provided stock statement and entries of alleged purchases, thus, inevitable conclusion are that assessee may have purchases from open market. AO after taking in account all facts and comparative position of trade concluded that assessee obtained accommodation bills for introducing unaccounted goods in accounted stream. AO also rejected books of account of assessee. AO, by making reliance on decision of Gujarat High Court in case of CIT vs Simit P Sheth ITA No.553 of 2012 order dated16-01-2013 and CIT vs Bholanath Poly Fab (P) Ltd 355 ITR 290 (Guj) took view that only profit element embedded in such purchases is to be taken from said purchases shown by hawala / nonexistent parties. assessee has obtained accommodation entries of Rs.131.13 lakhs. Therefore, AO, considering margin of profit on such purchases disallowed 12.5% 4 ITA 5272 & 5273/Mum/2018 Pratap N. Rajgor of aggregate of purchases which came to Rs.16,39,171/-. On appeal before CIT(A), action of AO in making addition of 12.5% of total alleged bogus purchases was confirmed. Thus, further aggrieved by order of CIT(A), assessee has filed present appeal before us. 3. We have heard submissions of learned authorised resperentative (AR) for assessee and learned departmental representative (DR for revenue and also gone through record carefully. Ld.AR of assessee submitted that lower authorities were not justified in making addition @12.5% of alleged hawala purchases. ld. AR for assessee submits that assessee has established that purchases are genuine. lower authorities have not disputed sale of assessee. books of account were rejected in mechanical way. If sale of assessee was not doubted purchases cannot be treated as bogus. ld AR for assessee submits that margin profit in bossiness of trade of ferrous and nonferrous trade is 2 to 2.5% only. assessee has already declared gross profit @ 3.66%. ld. AR for assessee submits that entire disallowance is liable to be deleted. ld AR for assessee relied on decision of Hon ble Gujarat High Court in case of Principal CIT v. Tejua Rohitkumar Kapadia 94 taxman.com 324 (Guj). He further submitted that SLP filed against this judgement was dismissed by 5 ITA 5272 & 5273/Mum/2018 Pratap N. Rajgor Hon ble Apex Court reported in PCIT VS Tejua Rohit Kumar Kapadia (2018) 94 taxman.com 325 (SC). Ld.AR also relied upon judgement of Hon ble jurisdictional High Court in case of Babulal C Borana vs Third Income Tax Officer [(282 ITR 251) (Bom)]. In alternative submissions learned AR for assessee submits that in recent decision Hon ble Bombay High Court in CIT Versus M Haji Adam & Co in ITA No. 1004 of 2016 dated 11th February 2019 held that addition in respect of bogus purchases is to be limited to extent of bringing gross profit rate on such purchases at same rate as of other genuine purchases. 4. Ld. DR, on other hand, submitted that Investigation Wing of Income-tax department made full-fledged enquiry. parties from whom assessee has shown purchases are bogus hawala dealers. hawala dealers were indulging in issuing bogus bills without delivery of any material or goods. assessee obtained accommodation bills in order to inflate expenses to bring down profit in order to avoid payment of genuine tax. lower authorities have already given substantial relief to assessee. 5. We have considered rival submissions of parties and have gone through orders of lower authorities carefully. Perusal of records reveals that assessee has not challenged validity of re-opening 6 ITA 5272 & 5273/Mum/2018 Pratap N. Rajgor before Ld. CIT(A) hence, issue of reopening attained finality. assessee has only challenged quantum of addition made by AO. We have further noted that on basis of information and examining list of beneficiaries, AO identified that assessee has shown purchases from 10 parties mentioned above. In order to verify genuineness of purchases, AO issued notices to parties. However, none of parties could be served with notice and notices were returned by postal authorities. assessee was given opportunity to establish genuineness of purchases by furnishing supporting evidences and to produce parties. assessee failed to produce parties. However, assessee furnished copy of ledger account, purchase bills, bank statement showing that payments were made through banking channel. assessing officer asked assessee to furnish details of invoices, bills, ledger account and transportation of goods / lorry receipts. assessee filed quantitative details of purchases and corresponding sales only no receipt of transportation or delivery of goods was furnished. After examining evidences furnished by assessee, AO took his view that assessee has provided stock statement and entries of alleged purchases, thus, inevitable conclusion are that assessee may have purchases from open market. AO after taking in account all facts and comparative position of trade concluded 7 ITA 5272 & 5273/Mum/2018 Pratap N. Rajgor that assessee obtained accommodation bills for introducing unaccounted goods in accounted stream. AO also rejected books of account of assessee. AO, by making reliance on decision of Gujarat High Court in case of CIT vs Simit P Sheth ITA No.553 of 2012 order dated16-01-2013 and CIT vs Bholanath Poly Fab (P) Ltd 355 ITR 290 (Guj) took view that only profit element embedded in such purchases is to be taken from said purchases shown by hawala / nonexistent parties. assessee has obtained accommodation entries of Rs.131.13 lakhs. Therefore, AO, considering margin of profit on such purchases disallowed 12.5% of aggregate of purchases which came to Rs.16,39,171/-. On appeal before CIT(A), action of AO in making addition of 12.5% of total alleged bogus purchases was confirmed by holding AO has done fair and just estimation on alleged bogus purchases. 6. Recently High Hon ble Bombay High Court in CIT versus Mohd. Haji Adam & Co. (supra) held addition in respect of bogus purchases to be limited to extent of bringing gross profit rate on such purchases at same rate as of other genuine purchase. Respectfully following decision of Hon ble Bombay High Court as refereed above, we set aside matter to file of assessing officer with direction to restrict addition with regard to bogus purchases by bringing gross profit rate on such bogus 8 ITA 5272 & 5273/Mum/2018 Pratap N. Rajgor purchases as same rate as that of other genuine purchases. Needless to order that before passing order on our direction assessing officer said Grant opportunity of hearing to assessee and would pass order in accordance with law. In result appeal of assessee is partly allowed. ITA No. 5273/Mum/2018 for Ay 2010-11 7. facts and circumstances being pari material, decision arrived at against appeal in ITA No.5272/Mum/2018 applies mutatis mutandis to this appeal also. 8. In result, both appeals of assessee are partly allowed Order pronounced in open court on 01-10.2019. Sd/- Sd/- (G.Manjunatha) (Pawan Singh) ACCOUNTANT MEMBER JUDICIALMEMBER Mumbai, Dt : 1st October, 2019 Pk/- sCopy to : 1. Appellant 2. Respondent 3. CIT(A) 4. CIT 5. DR By order Asstt. Registrar, ITAT, Mumbai Pratap N Rajgor v. ITO, Ward- 19(2)(5), Mumbai