VINIPUL INORGANICS FOODS PVT LTD,CHEMBUR, MUMBAI vs. INCOME TAX OFFICER WARD 14 (3) (2), MUMBAI, MAHARSHI KARVE ROAD, MUMBAI

1 ITAs 2509 & 2510/Mum/2023 Vinipul Inorganics Foods Pvt Ltd IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “F”, MUMBAI

BEFORE SH.NARENDRA KUMAR CHOUDHRY (JUDICIAL MEMBER) AND SHRI S RIFAUR RAHMAN (ACCOUNTANT MEMBER)

I.T.A. No.2509/Mum/2023 - A.Y. 2009-10 I.T.A. No.2510/Mum/2023 - A.Y. 2010-11

Vinipul Inorganics Pvt Ltd vs Income-tax Officer, Wqard 1/3 Kandhari Colony, 2nd Road 14(3)(2), Mumbai Chembur, Mumbai-400 071 432, Aayakar Bhavan, M.K. PAN : AACCA9261A Road Mumbai-400 020 APPLICANT RESPONDENT

Present for the Assessee Shri Rahul Hakani, Ld. Adv. Present for the Department Shri Ujjawal Kumar Chavan Ld. SR. DR

Date of hearing 19/10/2023 Date of pronouncement 21/12/2023

O R D E R Per N.K. Choudhry (JM): These appeals have been preferred by the Assessee against the independent orders even dated 02/06/2023 impugned herein passed by the National Faceless Appeal Centre (NFAC) Delhi/ Ld. Commissioner of Income tax (Appeals) [in short, Ld. Commissioner (Appeals] under section 250 of the Income-tax Act, 1961 (in short, the Act) for the A.Ys.2009-10 & 2010-11.

2 ITAs 2509 & 2510/Mum/2023 Vinipul Inorganics Foods Pvt Ltd 2. Since both the appeals carry identical addition under section 69C of the Act, hence we heard both the appeals together and the same are being disposed of by this common order. ITA No.2510/Mum/2023 for A.Y. 2010-11 is being treated as the lead case.

3 ITAs 2509 & 2510/Mum/2023 Vinipul Inorganics Foods Pvt Ltd the profit element embedded in such purchases and subsequent manufacturing and sales. The appellant’s grounds of appeal on this issue are partly allowed.”

4 ITAs 2509 & 2510/Mum/2023 Vinipul Inorganics Foods Pvt Ltd the Assessee Company, therefore the Assessing Officer considering the facts and circumstances in totality repeated the addition of the entire bogus purchases to the tune of Rs.4,59,83,257/- u/s 69C of the Act, by passing the Assessment order dated 07-12-2019 under section 143(3) read with section 254 of the I.T. Act, 1961.

5 ITAs 2509 & 2510/Mum/2023 Vinipul Inorganics Foods Pvt Ltd Assessee had allegedly made the purchases. However, notices were returned un-served as the parties were not available at the addresses given by the Assessee. Since the summons issued to the parties were return un-served, therefore, the AO requested the Assessee to furnish the latest addresses of such parties or to produce the parties in person in order to provide the opportunity of cross examination to the Assessee. However, the Assessee blindly expressed its inability to produce the said parties and, therefore, in the constrained circumstances, the Assessing Officer passed the assessment order. As the notices issued to the parties from whom the Assessee had made alleged purchases, in fact returned un-served, which goes to show that the alleged suppliers were not available at the addresses given by the Assessee and even the Assessee has also failed to produce the latest addresses of the parties and shown its inability, therefore, the question of cross examination does not arise at all. The Assessee is also under the obligation to substantiate its claim by producing the relevant documents and by producing the relevant parties with whom the transactions have been made and until and unless the Assessee discharges its onus, the transactions remained un-substantiated. Unless and until the Assessee discharges its obligations, it cannot claim its right. Hence, in our considered view, in the constrained circumstances, the Assessing Officer was unable to afford the opportunity of cross examination of the witnesses/alleged sellers unless and until they appear before the Assessing Officer. It is also an admitted fact that during the survey proceedings, the statement of the director of the Assessee company was recorded on oath, wherein he clearly stated that no records for purchase of goods such as inward register, stock delivery register, stock inventory

6 ITAs 2509 & 2510/Mum/2023 Vinipul Inorganics Foods Pvt Ltd register, etc. were maintained on account of non affordability to maintain regular staff. It is also a fact that auditor has also in the audit report clearly mentioned that no stock register was maintained during financial year 2010-11 and 2011-12. The Assessee also failed to produce evidence of delivery of goods such as transporter receipt with delivery challans, lorry Nos. etc. to establish that goods from those parties were actually physically delivered to the Assessee Company. Therefore, on the aforesaid analyzations, we are in concurrence with the determination made by the authorities below that the Assessee has defaulted in discharging the primary onus of proving the genuineness of the alleged bogus purchases and consequently the alleged purchases are correctly held as bogus by the authorities below. However, coming to the addition made by the authorities below wherein they have considered entire amount of the alleged bogus purchases to the tune of Rs.4,59,83,257/- as unexplained expenses and added the same to the alleged bogus purchases under section 69C of the Act, we observe that various courts have dealt with the identical issue and wherein the sale has been accepted then the entire bogus purchases cannot be subjected to the disallowance /addition. In fact, the profit element embedded in the alleged bogus purchases can be considered for disallowance/addition. The Assessee, in support of aforesaid dictum relied upon various judgments including by the Hon’ble co-ordinate bench of the Tribunal in the case of M/s Ratnagiri Stainless Pvt Ltd vs ITO, Mumbai (ITA No.4463/Mum/2016 decided on 4th April, 2017, which in our considered opinion seems to be most relevant, in the facts and circumstances of this case. In the said case, the Hon’ble co-ordinate bench dealt with the identical issue, wherein the notices under section 133(6) of the Act issued by the Assessing

7 ITAs 2509 & 2510/Mum/2023 Vinipul Inorganics Foods Pvt Ltd Officer to the alleged bogus parties were either returned unserved or were not replied to and the assesses also on being specifically asked, failed to file the documents for showing the evidence qua movements of goods from supplier to the Assessee and from Assessee to the customers. Therefore, the Hon’ble Bench came to the conclusion that primary onus cast on the Assessee itself did not discharge by the Assessee. Though the Hon’ble Bench affirmed the action of the Assessing Officer in determining the bogus purchases, however, ultimately adopted the GP rate on alleged bogus purchases @12.5% of the alleged bogus purchases and granted the credit of GP ratio declared on the bogus purchases in the return of income filed with the revenue. For clarity and ready reference, we extract below the relevant portion of the order of the co-ordinate bench:- “11. Now, coming to the merits of the case, we have observed that the assessee is dealing in the business as supplier in ferrous and non-ferrous. The genesis of the case is the Information which was received by the A.O. from DGIT (Inv.), Mumbai that there are some parties who are engaged in hawala transactions and are involved in issuing bogus bills for sale of material without delivery of goods, which information was based on information received from Maharashtra Sales Tax Authorities that the assessee is beneficiary of hawala/accommodation entries for bogus purchases from 28 entry providers to the tune of Rs. 2,39,83,261/- from these accommodation entry providers . The accommodation entry providers had deposed and admitted before the Maharashtra Sales Tax Authorities vide their statement/affidavits that they were engaged in providing bogus accommodation entries where in bogus sale bills were issued without delivery of goods , in consideration for commission. These accommodation entry providers , on receipt of cheques from the parties against bogus bills for sale of material , later on withdrew cash from their bank accounts which was returned to beneficiaries of bogus bills after deduction of their agreed commission . The assessee was stated to be one of the beneficiaries of these bogus entries of

8 ITAs 2509 & 2510/Mum/2023 Vinipul Inorganics Foods Pvt Ltd sale of material by these 28 hawala entry operators in favour of the assessee to the tune of Rs.2,39,83,261/- , wherein the assessee made alleged bogus purchases to the tune of Rs.2,39,83,261/- through these bogus bills issued by hawala entry providers in favour of the assessee. These dealers were surveyed by the Sales Tax Investigation Department whereby the directors of these dealers have admitted in a deposition vide statements/affidavits made before the Sales Tax Department that they were involved in issuing bogus purchase bills without delivery of any material. There is a list of 28 such parties wherein the assessee is stated to be beneficiary of bogus purchase bills to the tune of Rs.2,39,83,261/-. It was observed by AO that these parties just issue bogus bills in lieu for earning commission without actual supply of goods. In an sworn Affidavit Cum Declaration filed before Sales Tax Investigation Branch, Mumbai and in deposition before the Assistant Commissioner of Sales tax, Investigation Branch, Mumbai ,the directors of the said 28 entities have admitted of issuing only invoices for sake of entry without delivery of goods. The Directors of the said 28 entities stated in their sworn affidavit that they had only supplied bills on receipt of cheques and later on cash was withdrawn from banks and after deduction of agreed commission, balance money was returned in cash to the assessee. The details of the aforesaid bogus parties from whom the assessee is stated to have purchased material are as under:- ASHTAVIYAK SALES AFWPN2169J 2008-09 21,194 AGENCY STELCO STEEL AFYPJ0025K 2008-09 371,948 INDUSTRIES RELIANT METAL ALAPR6303A 2008-09 468,667 CORPORATION PADMAVATI METAL & AFSPJ4124P 2008-09 556,674 ALLOYS JINESH METAL ARDPK1291P 2008-09 48,140 CORPORATION RATNAJYOTI METAL & AADCR3441A 2008-09 135,742 TUBES PVT. LTD ANIKET STEEL PVT. LTD AAGCA0417J 2008-09 779,845 RELIABLE METAL (INDIA) AJNPD6596Q 2008-09 957,436 TYSON STEEL AND AACCT9481B 2008-09 1,131,749 TUBES PRIVATE LIMITED VIGNESHWAR IMPEX ARDPK1294J 2008-09 1,133,295 RISHAB METAL (INDIA) AACPJ6417C 2008-09 115,2573 RAMANI METAL AIRPD5688A 2009-09 115,573

9 ITAs 2509 & 2510/Mum/2023 Vinipul Inorganics Foods Pvt Ltd CORPORATION POOJA METAL & ALLOYS ACYPC4975E 2008-09 793,199 MAZDA STEEL TRADE AAECM1196L 2008-09 49,462 PVT. LTD ARIHANT TRADE LINAK BDRPS0342C 2008-09 320,881 TAMAS STEEL & ALLOYS AACCT1556F 2008-09 1,122,116 PVT LTD KANK STEEL (INDIA) AFYPB6058G 2008-09 1,351,280 WEL STEEL (INDIA) AHZPD3657L 2008-09 2,651,855 TAKSHIL TRADING PVT. AABCT5406H 2008-09 112,829 LTD RAJESHWARI TRADING AACCR7829M 2008-09 2,569,340 PVT. LTD RANAKPUR SALES BABPS6817D 2008-09 198,640 CORPORATION RAJESHWARI TRADING AACCR7829M 2008-09 2,569,340 PVT. LTD RANAKPUR SALES BABPS6817D 2008-09 198,640 CORPORATION ELECON IMPEX PVT LTD AABCE233E 2008-09 246,395 NAVRATAN METAL IMPEX AABCE6233E 2008-09 246,395 PRIYA STEEL CORPN AKCPD1838M 2008-09 530,244 VANDNA METAL AEWPJ3208B 2008-09 833,173 SYNDICATE POOJA STEEL & ALLOYS ACSPC2231P 2008-09 1,369,290 NAVODAY TRADE IMPEX AACCN3641F 2008-09 2,024,972 PVT LTD VISHESH STEEL AXVPS3398H 2008-09 3,586,202 SUPPLIERS

Notices u/s.133(6) of the Act were issued by the AO to all the above 28 parties. All these notices except one notice were either returned un-served or were not replied to. Only one party namely M/s Ranakpur Sales Corporation, categorically stated that they have not supplied any material to the assessee concern. The A.O. asked the assessee to produce the parties but the assessee failed to produce the parties. The parties were not produce even before learned CIT(A) . The assessee also failed to produce suppliers, transporters or brokers before the AO for verification and enquiry. The assessee did not ask for the cross examination of Ranakpur Sales Corporation. The assessee was specifically asked to produce original bills and vouchers, all original documentary evidence of movement of goods for verification, details and documentary evidence of delivery challans,

10 ITAs 2509 & 2510/Mum/2023 Vinipul Inorganics Foods Pvt Ltd vehicle numbers, weighment slips, details of godowns, details of octroi payment etc. . However, the assessee did not produce the original documents before the A.O. . The assessee also did not file documents for showing movement of goods from supplier to assessee and from assessee to customer as evidence although it stated in its reply that said documents are being filed. The assesee did not submitted documentary evidence to show that there was movement of goods. The AO observed that the assessee filed delivery challan in one case only and that too there was no mention of transportation details. It was observed that the assessee has not submitted confirmations from these parties nor transportation details of the material purported to be purchased from these suppliers were furnished . Statement of purchase and sales showing name of the supplier and customers, date of purchase and sales , quantity purchased and sold to show one to one co- relation between purchases and sales were submitted by the assessee before the AO. The assessee also submitted VAT audit report. It was submitted that sales are fully vouched and without purchases, there cannot be sales and hence all purchases are genuine. The stock register for full year and ledger copy of the suppliers were also submitted and the assessee was able to quantitatively reconcile the sale and purchase of material. The assessee has also made the payments for these purchases through cheque for which evidence has been produced. It was submitted that there was no cash deposit in the bank and the payments have been made by the assessee to selling parties by account payee cheques. . It was held by authorities below that since the assessee had made sales which were duly quantitatively reconciled by the assessee with purchases , the purchases were made by the assessee but the same were made at low price from grey market and to cover deficiencies in documents, invoices were obtained from these 28 suppliers who issued bogus bills to the assessee without supplying any material. Thus, the AO held that the assessee failed to prove the onus cast upon it to prove that purchases to the tune of Rs. 2,39,83,261/- made by the assessee were genuine purchases , which were held by the authorities below to be bogus purchases as no material was supplied to the assessee by these suppliers which material in-fact was purchased from grey market at lower price which led to higher margin of profits which need to be estimated and added to the income of the assessee . The learned CIT(A) confirmed the additions.

11 ITAs 2509 & 2510/Mum/2023 Vinipul Inorganics Foods Pvt Ltd These are information which are especially in the knowledge of the assessee and the onus is on the assessee to prove that purchases are genuine as these purchases are recorded in the books of accounts of the assessee. Section 106 of Indian Evidence Act ,1872 clearly stipulates as under: “106. Burden of proving fact especially within knowledge When any fact is especially within the knowledge of any person, the burden of proving that fact is upon him. Illustrations (a)**** (b) A is charged with traveling on a railway without a ticket. The burden of proving that he had a ticket is on him.” The assessee was not able to discharge burden cast u/s 106 of 1872 Act as the assessee did not produce the original documents before the A.O. . The assessee also did not file documents for showing movement of goods from supplier to assessee and from assessee to customer as evidence although it stated in its reply that said documents are being filed. The assesee did not submitted documentary evidence to show that there was movement of goods. The assessee filed delivery challan in one case only and that too there was no mention of transportation details. The assessee did not file confirmations from these parties nor transportation details of the material purported to be purchased from these suppliers were furnished . The parties were also not produced before the authorities below. The only party who responded to notice u/s 133(6) of 1961 Act issued by the AO namely Ranakpur Sales Corporation deposed against the assessee. The assessee did not ask for cross examination of Ranakpur Sales Corporation who appeared before the AO in response to notice u/s 133(6) of 1961 Act and deposed against the assessee by confirming that bogus bills were issued by them in lieu of commission while no material was supplied against bogus invoices raised by them. The right of cross examination is not absolute. The assessee has to first discharge its primary onus cast under law and if the same stood duly discharged which is not rebutted by authorities , but despite that then also the authorities proceed to put assessee to prejudice solely relying on the basis of incriminating statement recorded of third party at the back of the assessee, then certainly the right to cross examination the said third party whose incriminating statement recorded at the back of the assessee is relied upon by authorities to prejudice the assessee will become absolute. But in the instant case , primary onus cast on the assessee itself did not stood discharged by the assessee as discussed above. The A.O. made gross profit additions @ 12.5% over the

12 ITAs 2509 & 2510/Mum/2023 Vinipul Inorganics Foods Pvt Ltd total bogus purchases of Rs. 2,39,83,261/- , which were held to be non-genuine by the authorities below, which addition came to Rs. 29,97,908/- which addition was confirmed by the learned CIT(A). . In such circumstances ,GP ratio needs to be estimated which definitely involved some estimation/guess work but the said estimation/guess work should be fair , honest and rational keeping in view factual matrix of the case and cannot be arbitrarily applied at the discretion of authorities . We have gone through the case laws relied upon by the assessee. Reference is drawn to decision of Hon’ble Supreme Court in the case of Kachwala Gems v. JCIT (2007) 288 ITR 10(SC) , wherein Hon’ble Lordships held as under : “4. The facts of the case are in a short compass. The appellant- assessee deals in precious and semi-precious stones. In the course of assessment, the Assessing Officer noticed the following defects in the books of account of the assessee : "1. The assessee has not maintained and kept any quantitative details/stock register for the goods traded in by the assessee. 2. There is no evidence on record or document to verify the basis of the valuation of the closing stock shown by the assessee. The assessee is not able to prepare such details even with the help of books of account maintained, purchase bills & Sale Invoices. 3. Provisions of section 145(3) are clearly attracted in this case. 4. The genuineness of purchases to the extent of Rs. 42 lakhs (approx.) is not proved without any doubt. 5. The GP rate declared by the assessee at 13.49 per cent during the assessment year is not a match to the result declared by the itself in the previous assessment years. 6. M/s. Gem Plaza, engaged in local sales of similar goods declared voluntarily rate of 35 per cent in its assessment for the assessment year 1997-98.

13 ITAs 2509 & 2510/Mum/2023 Vinipul Inorganics Foods Pvt Ltd

14 ITAs 2509 & 2510/Mum/2023 Vinipul Inorganics Foods Pvt Ltd is necessarily some amount of guess work involved in a best judgment assessment, and it is the assessee himself who is to blame as he did not submit proper accounts. In our opinion, there was no arbitrariness in the present case on the part of the income-tax authorities. Thus, there is no force in this appeal, and it is dismissed accordingly. No costs.” The authorities below in the instant case did not made any industry comparisons to arrive at fair , honest and rational estimation of GP ratio , rather applied GP ratio of 12.5% on alleged bogus purchases which estimation was in addition to the normal GP ratio declared by the assessee in return of income filed with Revenue. The Revenue made aforesaid additions relying on the presumption that the material was in- fact purchased from grey market at a lower rate and to cover deficiencies in record, the invoices were procured from these entry operators to reduce the profit. It was also considered that there will be savings on account of taxes while procuring material from grey market. The authorities below relied upon decision of Hon’ble Gujarat High Court in the case of Simit P Sheth (2013) 356 ITR 451(Guj. HC) , which has estimated disallowance @12.5% of the disputed bogus purchases to meet the end of justice. The authorities below has not brought on record industry comparables nor any rational comparability vis-à-vis preceding years GP ratio are brought on record. There is no allegation brought on record by learned DR that similar additions were also made in the immediately preceding year . The assessee earned GP ratio as detailed hereunder for last three years : Financial Year % GP 2007-08 4.3% 2008-09 5.45% 2009-10 4.9% The books of accounts were not rejected u/s 145(3) of 1961 Act by the Revenue. In the immediately preceding year i.e. assessment year 2008-09, the assessee earned GP ratio of 4.3% on total turnover , while for the year under consideration GP ratio earned was 5.45%. In our considered view and based on facts and circumstances of the case as discussed by us in details above, end of justice will be met in this case if GP ratio

15 ITAs 2509 & 2510/Mum/2023 Vinipul Inorganics Foods Pvt Ltd of 12.5% on alleged bogus purchases is added to income of the assessee against which credit for the declared GP ratio on the alleged bogus purchases will be granted by the AO after verification by the AO because of failure of the assessee to come forward to discharge primary onus cast upon him as detailed above for which assessee is to be blamed and in the midst of afore-stated un-rebutted allegation against the assessee and non discharge of primary onus, the declared lower GP ratio of 5.45% in the instant previous year under appeal cannot be accepted. Thus, in nut-shell we are inclined to adopt GP ratio of 12.5% on alleged bogus purchases in the instant case which in our considered view is fair, reasonable and rational keeping in view factual matrix of the case , while the assessee shall be granted credit of GP ratio declared on these bogus purchases in the return of income filed with the Revenue. The assessee gets part relief. We order accordingly.” 10.1 Coming to the instant case, we observe that the Assessee has shown the GP ratio @ 8:84% and claimed that it has already accounted the sale of alleged bogus purchases, hence considering the peculiar facts and circumstances of the instant case, as in the first round of litigation the addition @ 100% of bogus / unproved purchases was made by the AO, which was restricted to 12.5% of the total alleged bogus purchases but without subtracting the GP already shown by the Assessee, by the then LD. CIT(A) by considering peculiar facts and circumstances of the case. Therefore in our considered view it would be appropriate to apply the Gross profit rate @ 12.5% of the total bogus purchases as profit element and add the same in the income of the Assessee by subtracting the GP ratio @ 8:84% already been offered on the said amount of alleged bogus purchases if any. The Assessing officer is therefore directed to verify the claim of the Assessee and recompute the addition accordingly. Consequently appeal filed by the Assessee is partly allowed.

16 ITAs 2509 & 2510/Mum/2023 Vinipul Inorganics Foods Pvt Ltd 11. In view of our decision in ITA No. 2510/Mum/2023, the appeal pertaining to AY 2009-10 i.e. I.T.A. No.2509/Mum/2023 is also partly allowed in the same terms.

Sd/- sd/- (S. RIFAUR RAHMAN) (NARENDRA KUMAR CHOUDHRY) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dt : November, 2023 Pavanan प्रतितिति अग्रेतििCopy of the Order forwarded to : 1. अिीिार्थी/The Appellant , प्रतिवादी/ The Respondent. 2. 3. आयकर आयुक्त CIT 4. तवभागीय प्रतितिति, आय.अिी.अति., मुबंई/DR, ITAT, Mumbai 6. गार्ड फाइि/Guard file. BY ORDER, //True Copy// Asstt. Registrar, ITAT, Mumbai