ASHOK KUMAR GHAMANDIRAM ARNAIYA,MUMBAI vs. ITO-WARD 19(1)(2), MUMBAI

The assessee has filed the present appeal with a delay of 6 days and had filed an Affidavit for condoning the said delay. On perusal of the said Affidavit, we deem it fit to condone the delay of 6 days in filing the present appeal for the reason that there is a sufficient cause for the said delay. Delay condoned. by taking as the lead case.

The assessee has challenged the order of the ld. CIT(A) in confirming the action of the ld. Assessing Officer ('A.O.' for short) in completing the reassessment proceedings without furnishing the copy of the reasons recorded for reopening and not giving the assessee an opportunity of cross examination of witnesses relied upon by the ld. A.O. The assessee has also challenged the addition of 12.5% on the alleged bogus purchases.

The brief facts are that the assessee is an individual engaged in the business of ferrous and non ferrous metal goods, being the sole proprietor of M/s. Kalpataru Metal and Steel Corporation. The assessee had filed his return of income dated 29.09.2008, declaring total income at Rs.5,76,713/- and the same was processed u/s. 143(1) of the Act. The assessee’s case was reopened based on the information from the Sales Tax Department and the DGIT (Investigation), Mumbai that the assessee was one of the beneficiaries of bogus purchase bills. The assessee was furnished with notice u/s. 148 of the Act dated 19.03.2015. The assessee submitted that his return of income shall be treated as return in response to notice u/s. 148 of the Act. The ld. A.O. passed the assessment order u/s. 143(3) r.w.s. 147 of the Act dated 28.01.2016 and determined the total income at Rs.27,64,145/- by making an addition of Rs.21,87,432/- being 12.5% of the alleged bogus purchase amounting to Rs.1,74,99,452/-. addition made by the ld. A.O.

The ld. CIT(A) dismissed the appeal filed by the assessee and upheld the addition made by the ld. A.O. on the alleged bogus purchase.

The assessee is in appeal before us, challenging the impugned addition.

The learned Authorised Representative ('ld. AR' for short) for the assessee stated that the legal ground raised by the assessee stating that the reasons recorded for reopening was not furnished to the assessee and opportunity to cross examination of witnesses were not given to the assessee were not pressed by the assessee. The ld. AR further stated that on the merits of the case the Tribunal in the case of sister concern has restricted the addition on bogus purchase to 2.5% of the alleged purchase where the assessee has declared a gross profit ratio to 5.63%. The ld. AR relied on the decision of the Tribunal in the case of Shri Ramesh R. Jain vs. ITO (in vide order dated 14.09.2021) and Shri Ketan Jaysukhlal Shah vs. ITO (in ITA No. 1657/Mum/2023 vide ordr dated 31.08.203), where the tribunal has upheld the addition on bogus purchase to 5%.

The learned Departmental Representative ('ld.DR' for short) on the other hand, controverted the said facts and stated that the ITAT in assessee’s case for A.Y. 2007-08 has not reversed the finding of the lower authorities at determining the bogus purchase @ 12.5% and that the Tribunal has merely remanded the matter back for adjudicating the authorities.

We have heard the rival submissions and perused the materials available on record. It is observed that the ld. A.O. has reopened the case of the assessee based on the information that the assessee was one of the beneficiary of accommodation entries amounting to Rs.1,74,99,458/- from the below mentioned parties during the year under consideration:

The assessee has contended that these purchases were duly recorded in the books of accounts and the item-wise sales of the goods purchased were furnished to the ld. A.O. and that the payments have been made by the account payee cheques. Further, the assessee was asked to produce the above mentioned parties for verification along with their books of accounts to the ld. A.O. The assessee was unable to produce the parties for verification. The ld. A.O. made an addition on the impugned bogus purchases @ 12.5% for the reason that the assessee has failed to discharge the initial onus casted upon him by of the Hon'ble Apex Court in the case of CIT v. Durga Prasad More [1971] 82 ITR 540 (SC) and Sumati Dayal v. CIT (1995) 214 ITR 801 (SC) held that the assessee has failed to prove the nexus of the purchase made by him from the alleged accommodation entry providers and further relied on the decision of Hon'ble High Court of Gujarat in the case of CIT vs. Simit P. Sheth 356 ITR 451 (Guj) wherein it was held that when the sales are not disputed, then only the profit element embedded in such purchase could be added to the total income of the assessee. The ld. CIT(A) further held that the rate on which addition to be made will depend upon the nature of the business.

From the above factual matrix, it is observed that the assessee has involved in receiving accommodation entries by way of bogus purchase bills from various hawala dealers without any actual delivery of goods. The ld. A.O. has not doubted the sales made by the assessee and has only alleged that the purchases made from these 23 parties are alleged to be bogus. The ld. AR placed his reliance on the decision of the Tribunal where on identical facts and circumstances and similar nature of business the Tribunal has made an addition @ 5% on the alleged bogus purchases. By taking a consistent view, we deem it fit to restrict the addition to 5% on the alleged bogus purchases made by the assessee.

As the facts are identical in these appeals, the finding in appeal applies mutatis mutandis to these appeals also.

In the result, all the appeals filed by the assessee are partly allowed.