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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
Before: SHRI KULDIP SINGH
Per : Kuldip Singh, Judicial Member:
The appellant, M/s. Creative Awards (hereinafter referred to as ‘the assessee’) by filing the present appeal, sought to set aside the impugned order dated 05.05.2016 passed by Commissioner of Income Tax (Appeals), Mumbai [hereinafter referred to as the CIT(A)] qua the assessment year 2010-11 on the grounds inter-alia that :- “The following grounds of appeal are without prejudice to one another.
1. Addition of Rs.17,25,549/- : 1.1 The Learned Commissioner of Income Tax (Appeal) erred in confirming the addition of Rs.17,25,549/- made by the learned Assessing Officer to the income of the Appellant.
2 M/s. Creative Awards 1.2 The Learned Commissioner of Income Tax (Appeal) failed to appreciate that the addition of Rs.17,25,549/- is patently illegal and unjust and hence invalid. 1.4 The learned Commissioner of Income Tax (Appeal) failed to appreciate that the addition of Rs.17,25,549/- is excessive and unreasonable.
2. Notice u/s. 148 dated 18/03/2015 is illegal and invalid: 2.1 Notice u/s. 148 of the Income-tax Act, 1961 dated 18/03/2015 is illegal and invalid. 2.2 There was no income chargeable to tax which had escaped assessment. 2.3 There was no valid reason to believe that the income chargeable to tax had escaped assessment. 2.4 There was no valid material to support any valid reasons to believe that any income chargeable to tax in the relevant year has escaped assessment. 2.5 There was no valid recording of valid reasons for reopening as required in section 148(2) of the Act.
3. Assessment order dated 18/03/2016 is illegal and invalid: 3.1 The learned Commissioner of Income Tax (Appeal) failed to appreciate that the assessment order dated 18/03/2016 is illegal and invalid being passed pursuant to notice u/s. 148 dated 18/03/2015 which is illegal and invalid.
4. The appellant craves leave to add, amend, alter and/or delete any of the grounds of appeal.”
Briefly stated facts necessary for consideration and adjudication of the issues at hand are : the assessee is into the business of reseller of awards, trophies, gift articles and novelties. On the basis of information received from Sales Tax Department through office of Dy. Commissioner of Income Tax (Investigation), Mumbai qua the bogus purchases it was noticed that the assessee company was one of such beneficiaries who had procured bogus purchase bills from hawala billers/dealers detailed as under: 3 M/s. Creative Awards Sr. TIN No. of the Hawala Party Amount No. Hawala Party 1 227610598830V M/s Sthapna Trade Impex Rs.25,26,346/- Pvt. Ltd 2 27660661998V M/s Ankur Sales Rs. 20,45,250/- Corporation 3 27680662278V M/s Marshal Enterprise Rs. 22,44,016/- 4 27520645197V M/s Unique Enterprises Rs. 3,45,949/- 5 27030198345V M/s Klyan Kirti Rs. 48,94,247/- International 6 27710551730V M/s M. R Corporation Rs. 6,76,800/- 7 27130556742V M/s Siddhivinayak Rs. 63,555/- Corporation 8 27950554896V M/s B. M. Sales Rs. 1,54,013/- Corporation 9 27150383064V M/s Kant Enterprises Rs. 8,54,213/ Total Rs.1,38,04,389/-
The Assessing Officer (AO) after recording reasons issued the notice under section 148 of the Income Tax Act, 1961 (for short ‘the Act’). The assessee opted to use his return of income filed on 14.10.2010 declaring total income at Rs.10,66,849/- as the return of income in response to the notice under section 148 of the Act. Necessary notices under section 143(2) & 142(1) of the Act were issued. The assessee filed necessary details during the course of assessment proceedings. The AO during the assessment proceedings called information under section 133(6) of the Act from aforesaid bogus dealers, which were received back unserved by the postal authority. The assessee was also called upon to produce the aforesaid purchase parties for verification of transactions. The assessee was also called upon to furnish the supporting evidence of these purchases, such as purchase bill along with challans, ledger account, bank statement, list of party wise disposal of goods along with sale bill with quantitative details, stock register, consumption register, toll receipts, gate pass, Lorry receipts, weight bridge receipts etc., payment mode, copy of bank statement etc. The assessee filed supporting documents. However, 4 M/s. Creative Awards declining the contentions raised by the assessee the AO proceeded to hold that since the assessee has also recorded purchases in the books of account and had not affected the corresponding sales or consumption of such quantity out of the books of account proceeded to estimate the profit @ 12.50% i.e. to the tune of Rs.17,25,549/- on the bogus purchases of Rs.1,38,04,389/- and thereby framed the assessment under section 143(3) read with section 147 of the Act.
The assessee carried the matter before the Ld. CIT(A) by way of filing appeal who has partly allowed the same. Feeling aggrieved with the impugned order passed by the Ld. CIT(A) the assessee has come up before the Tribunal by way of filing the present appeal.
I have heard the Ld. Authorised Representatives of the parties to the appeal, perused the orders passed by the Ld. Lower Revenue Authorities and documents available on record in the light of the facts and circumstances of the case and law applicable thereto.
The assessee by moving an application sought to raise additional ground no. 2.6 that; “There is no valid service of valid notice under section 148 of the Act, on the ground that this is a legal ground which goes to the roots of the case”. Keeping in view the fact that legal grounds can be raised by the parties to the litigation at any stage of the proceedings the additional ground raised
by the assessee is hereby allowed.
5. M/s. Creative Awards
At the very outset, the Ld. A.R. for the assessee contended that the additional ground raised by the assessee challenging the service of validity of notice under section 148(1) of the Act may be decided first. So I am taking the additional ground first. The Ld. A.R. for the assessee challenging the service and validity of the notice under section 148 of the Act stated to have been issued for 18.03.2015 contended that the notice was issued in incorrect name/PAN and as such has never been served upon the assessee and subsequent assessment proceedings are not sustainable in the eyes of law. 7a However, to repel this argument addressed by the Ld. A.R. for the assessee the Ld. D.R. for the Revenue on the basis of factual report called from the AO contended that no doubt the first notice issued on 18.03.2015 was in the incorrect name/PAN but the AO immediately after realizing the mistake issued another notice under section 148 of the Act dated 18.03.2015 bearing correct name/PAN of the assessee which has been duly served on 25.03.2015.
Initial notice issued against the incorrect name/PAN namely M/s. Creative Carve Pvt. Ltd. is available at page 1 of the paper book, to which the assessee has duly replied vide letter dated 07.04.2015 which is available at page 2 of the paper book. At the same time the Ld. D.R. for the Revenue drew our attention towards letter dated 12.10.2015 available at page 11 of the paper book wherein it is clarified as under: “2. In this regard this is to bring to your kind notice that the case of Creative Awards and Rewards Pvt. Ltd. is correctly reopened by recording there on 18.03.2013. Though the name and PAN were wrongly quoted in the said notice however, the address was correctly mentioned therein Further, name of the assessee is correctly quoted en port office acknowledgement also which is dily acknowledged by you. 6 M/s. Creative Awards
Thereafter this office noticed the mine and notice w/s 148 dated 18.03.2015 was immediately issued with correct name and PAN and was duly served on yourself on 21 03 2015 3. In view of above, yourself in informed that the case of Ms Cestive Awards and Rewards Pvt Lad. (PAN-AAACC 9859N) has been correctly reopened for A.Y. 2010-11 by recording the reasons and issuance of notice u's 148. It is therefore requestund so comply with the said reassessment proceedings within 7 days from the receipt of this letter.”
The Ld. D.R. also drew our attention towards the receipt of speed post for issuance of the notice under section 148 of the Act dated 18.03.2015 whereupon assessee’s name has been correctly recorded available at page 18 of the paper book.
The Ld. A.R. for the assessee challenging this notice stated to have been reissued vide speed post receipt available at page 18 of the paper book contended that writing on the receipt looks like signature and it cannot be a proof of service of notice alleged to have been served upon the assessee. However, I am unable to agree with the contentions raised by the Ld. A.R. for the assessee because speed post receipt available at page 18 is categoric enough bearing name and ward of the ITO, section 148 and assessment year in question and name of the addressee is duly recorded and no one has written signature in the name of the company.
The Ld. D.R. for the Revenue has also brought on record written submissions dated 05.09.2022 supported with Annexure-A, Annexure-B & Annexure-C. Vide Annexure-A, letter dated 12.10.2015 written by ITO concerned to the assessee wherein it is intimated to the assessee that after realizing the mistake as to issuing the notice under section 148 of the Act in wrong name and PAN, fresh notice with correct name and PAN dated 18.03.2015 7 M/s. Creative Awards was issued which was duly served upon the assessee on 25.03.2015 vide acknowledgment Annexure-C which is duly signed on behalf of the assessee. The Ld. D.R. also brought on record order sheet entry as Annexure-D which shows that in response to the notice issued under section 148 of the Act the assessee attended the proceedings on 16.03.2016 and stated that “the return of income originally filed on 14.10.2010 vide e-acknowledgment No.170842361141010 declaring total income of Rs.10,66,849/- to treat as return filed in response to notice under section 148 of the Act.
When the assessee during the assessment proceedings itself appeared before the AO and opted to treat the return of income already filed as reply to the notice under section 148 of the Act. It is proved that valid notice under section 148 of the Act was duly served upon the assessee and in response thereto he has appeared before the AO.
In view of what has been discussed above, I am of the considered view that notice under section 148 of the Act was duly served upon the assessee and in response thereto he has opted to get his return of income already filed to be treated as reply to the notice under section 148 of the Act. In view of the matter the additional ground raised by the assessee is hereby dismissed.
On merits, undisputedly when the assessee has failed to produce the 9 hawala parties who has provided bogus purchase bills to the tune of Rs.1,38,04,389/- to the assessee during the year under consideration and the supporting documents viz. copy of purchase invoices, ledger account of purchases etc. before the AO, the same 8 M/s. Creative Awards have not been accepted on the ground that the purchase rate mentioned on the alleged bogus purchase bills cannot be accepted. Moreover, during the assessment proceedings the assessee has failed to prove the genuineness of the transactions by producing the said parties for its confirmation and ultimately reached the conclusion that the assessee was a beneficiary of the accommodation bills issued by these parties wherein there was no actual delivery/physical delivery of the goods. Keeping in view these circumstances, the AO by following the decisions rendered by Hon’ble Gujarat High Court in case of CIT Vs. Simit P. Sheth reported as 356 ITR 451 and in the case of M/s. Bholenath Poly Fab P. Ltd. reported as 355 ITR 290 proceeded to estimate the profit element embedded in the bogus purchases @ 12.5% which has been accepted by the Ld. CIT(A).
In the identical facts and circumstances of the case where though the purchases found to be bogus by the Revenue Authorities but sales by the assessee have been accepted as genuine as against these bogus purchases, I am of the considered view that when sales have been accepted being genuine the entire purchases cannot be treated as non genuine to make addition of the entire bogus purchases amount. Hon’ble High Court of Bombay in the case of Pr. CIT vs. JK Surface Coatings Pvt. Ltd. in of 2017 order dated 28 October, 2021 upheld the view taken by the Tribunal that in such circumstances gross profit should be in the range of 5% to 12.5% as reasonable estimation of profit element embedded in the bogus purchases by returning following findings: “4. Having considered the memo of Appeal and the Orders passed by AO / CIT(A) and the Order of ITAT, the only issue that comes up for consideration is with respect to the extent of ad-hoc disallowance to be 9 M/s. Creative Awards sustained with respect to bogus purchases. The AO has observed 100% of the purchase value to be added to the income of Assessee, the CIT(A) has said it should be 15% and ITAT has said it should be 10%. First of all, this would be an issue which requires evidence to be led to determine what would be the actual profit margin in the business that Assessee was carrying on and the matter of calculations by the concerned authority. According to the Tribunal, in all such similar cases, it is ranged between 5% to 12.5% as reasonable estimation of profit element embedded in the bogus purchase when material consumption factor do not show abnormal deviation.
5. Whether the purchases were bogus or whether the parties from whom such purchases were allegedly made were bogus was essentially a question of fact. When the Tribunal has concluded that the assessee did make the purchase, as a natural corollary not the entire amount covered by such purchase but the profit element embedded therein would be subject to tax.”
I am of the considered view that in the given circumstances when the assessee has failed to prove the genuineness of the transactions the profit element is required to be estimated in the light of the decision rendered by Hon’ble Bombay High Court in case of Pr. CIT vs. M/s. Mohommad Haji Adam & Co. (2019) 104 CCH 0391.
However, on the other hand, the Ld. D.R. for the Revenue relied upon the impugned order passed by the Ld. CIT(A) and contended that in the given circumstances in which the assessee is habitual of taking bogus entries of purchase bills without taking any delivery, the addition has been rightly made @ 12.5% of the bogus purchases.
I am of the considered view that the issue in question in case of making addition in bogus purchases on estimation basis the Hon’ble Bombay High Court in case of M/s. Mohommad Haji Adam & Co. (supra) has held that when the Revenue Department has not disputed the assessee’s sales and there is no discrepancy 10 M/s. Creative Awards between the purchases shown by the assessee and the sales declared, addition should be restricted to the extent of bringing the GP rate on bogus purchases at the same rate of other genuine purchases. This view has been followed by the Tribunal in number of cases. So AO is directed to make the addition on bogus purchases at average rate of GP declared by the assessee on genuine purchases.
In view of what has been discussed above, the appeal filed by the assessee is partly allowed.
Order pronounced in the open court on 24.11.2023.