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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SHRI PRASHANT MAHARISHI & SHRI SANDEEP SINGH KARHAIL
The present appeal has been filed by the Revenue challenging the impugned order dated 11/04/2023, passed under section 250 of the Income Tax Act, 1961 ("the Act") by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, [“learned CIT(A)”], for the assessment year 2010–11.
In its appeal, the Revenue has raised the following grounds:–
“1. Whether on the facts and in circumstances of the case and in law, the Ld. CIT(A) was correct in restricting the addition made on account of bogus purchase to 1.71% of total bogus purchases ignoring the fact that the Sales Tax Department has proved beyond doubt that the parties declared as hawala Saheb Ali Khan ITA no.2128/Mum./2023 traders were involved in providing accommodation entry of purchases and the assessee was one of the beneficiary of accepting accommodation entry for the purchases.
2. Whether on the facts and in circumstances of the case and in law, the Ld. CIT(A) has failed to appreciate that the assessee failed to produce the parties for verification, in spite of opportunity provided by the Assessing Officer.
3. Whether on the facts and in circumstances of the case and in law, the Ld. CIT(A) was correct in restricting the addition made by the Assessing Officer to 1.71% of the bogus purchase value without appreciating the judgment in the case of M/s. Vijay Proteins Limited (1996) reported in 25 ITD 428 (Ahd.Tribunal).
4. Whether on the facts and in circumstances of the case and in law, the Ld. CIT(A) has erred in restricting the addition even after acknowledging that appellant made cash purchase indicating the suspicious nature of transactions.
5. Whether on the facts and in circumstances of the case and in law, the Ld. CIT(A) has erred in ignoring the fact that neither notices were served on the parties not the appellant produced them for verification.
This appeal is being filed as it is covered under the exception provided in para 10(e) of the CBDT's Circular No. 3 of 2018 dated 11.07.2018 as amended vide F.No. 279/Misc. 142/2007-ITJ(Pt) dated 20.08.2018.
7. The appellant prays that the order of the National Faceless Appeal Centre (NFAC), Delhi on the above grounds be reversed and that of the AO be restored.
The appellant craves leave to amend or alter any ground or submit additional ground which may be necessary."
The only grievance of the Revenue, in the present appeal, is against restricting the addition on account of bogus purchases to 1.71% as against the addition of 12.5% made by the Assessing Officer (“AO”).
The brief facts of the case pertaining to this issue, as emanating from the record, are: The assessee is a trader in iron and steel. For the year under consideration, the assessee filed its return of income on 18/09/2010 declaring a total income of Rs. 5,10,567. The return filed by the assessee was processed under section 143(1) of the Act. Subsequently, on the basis of information received from the Sales Tax Department that the assessee is one of the Saheb Ali Khan ITA no.2128/Mum./2023 beneficiaries who has taken accommodation bills for purchases from hawala parties, proceedings under section 147 of the Act were initiated, and notice dated 31/03/2016 under section 148 of the Act was issued and served on the assessee. In response to the aforesaid notice, the assessee requested the AO to treat the return originally filed on 25/09/2010 as one filed in response to notice under section 148 of the Act. As per the information received from DGIT (Investigation), Mumbai, during the year under consideration, the assessee had entered into hawala transactions of Rs. 19,15,576 with various parties for purchases of goods/materials. In order to verify the correctness and genuineness of the transaction, notices under section 133(6) of the Act were issued to these parties at the address available on record and to submit documentary evidence in respect of transactions entered with the assessee. However, notices issued under section 133(6) of the Act were returned unserved by the postal authorities with the remark „not known/left/no such address‟ etc. Accordingly, the assessee was asked to furnish a copy of the ledger account, invoices, delivery challans, lorry receipts, bank statements, octroi receipts, goods receipts, and goods inward and outward details. In response thereto, the assessee furnished a copy of the ledger account along with copies of purchase invoices and bank statements highlighting the payments made. The assessee was also asked to produce the parties involved for verification to prove the genuineness of the transaction. However, the assessee failed to produce the parties for verification. The AO vide order dated 30/11/2016 passed under section 143(3) read with section 147 of the Act concluded that the hawala parties have not carried out any legitimate business from the premises and such parties have not delivered any material to the Saheb Ali Khan ITA no.2128/Mum./2023 assessee and that such parties had only given accommodation entries to the assessee to conceal the particulars of the income to evade the payment of taxes. Accordingly, the AO held that the assessee is the beneficiary of accommodation bills issued by the hawala operators and there was no actual delivery of the goods. The AO further held that since the sales are claimed to be genuine by the assessee, it is proved that the assessee was actually in possession of goods, as there cannot be any sales without purchases. It was further held that at the same time, the assessee purchased from another supplier, maybe without bills, from the grey market, and thus the assessee has benefited by providing margin of the grey market. Accordingly, the AO treated 12.5% of the total amount of Rs. 19,15,576, which comes to Rs. 2,39,447, as non-genuine purchases.
The learned CIT(A) vide impugned order granted partial relief to the assessee and restricted the addition to 1.71% of bogus purchases. The relevant findings of the learned CIT(A), in this regard, are as under:-
“5.1 This appeal is being preferred against the order u/s 143(3)/147 of the Act. I have considered the fact of the case, grounds of appeal and written submission made before me. The appellant is alleged to have made bogus purchase from three parties vis Siddhivinayak Steel Rs.6,85,854/-, Asian Steel Rs.2,05,634/-, Surat Tube Corporation Rs.10,24,088/-. The case was reopened on the basis of information received from DGIT(Inv), Mumbai that during the year under consideration the appellant had entered into hawala transaction of Rs.19,15,576/-. Thereafter, notice u/s 133(6) was issued to the above alleged parties. However, the notices could not be served and were returned by the postal authority with the remarks not known, no such addresses, left' etc. However, the AO on the basis of various ITAT as well as High Court order, disallowed @12.50% of such bogus purchase amounting to Rs.2.39.447/- to the income of the appellant. 5.2 During the appellate proceedings, the appellant reiterated the fact that the above disallowance was made on adhoc basis without perusing any documentary evidences. The appellant also submitted appellate order or a third assessee for the assessment year 2009- 10 where similar adhoc disallowances were restricted to average GP of last three preceding financial year. 5.3 I have carefully gone through the above submission and relevant attachment. I find that the AO has disallowed 12.5% of entire alleged bogus purchase made from three bogus suppliers. While doing so, the AO has lost sight of the fact that GP already Page | 4
Saheb Ali Khan ITA no.2128/Mum./2023 recorded in the books for the current year @1.71%. There has been increased in GP of the appellant and therefore further addition of 12.5% could result in a GP above 14% in the appellant's trading business 5.4 An identical issue came up before the Hon'ble High Court of Gujarat in the case of CIT vs Bholanath Polyfab Pvt Ltd reported in 355 ITR 290 (Guj): The assessee was engaged in the business of trading in finished fabrics. The AO disallowed purchase as bogus/unexplained. The CIT(A) confirmed the action of the AO. The issue was carried in appeal before the Hon'ble Tribunal which concurred with the finding of revenue authorities below that such purchase was made from bogus parties. After adverting to the facts and data placed before it, the Hon'ble Tribunal noted that the entire 1,02, 514/- metres of cloth was sold during the year and therefore accepted the assessee's contention that finished goods purchased by the appellant may not be from the parties shown in the accounts but from other parties. In view of this the Hon'ble ITAT was of the view-that only profit margin embedded in such purchases would be subjected to tax The Hon'ble Tribunal relied its earlier decision in the case of M/s Saket Steel Traders Vs. ITO (ITA No, 2801/Ahd/2008 dt.20/05/2008) and also made reference to the decision in the case of Vijaya Protein vs CIT 58 ITD 428(Ahd). 5.5 In the instant case, the appellant is not in a position to prove the existence of the suppliers. There are enough circumstantial evidences casting a doubt on the nature of the transaction. I am of the opinion that the appellant had made cash purchases from other parties which were not recorded in the books. The appellant took only bills from these three parties as accommodation entries to explain the purchases. The AO has disallowed 12.5% of entire bogus purchases. Given the fact that the appellant has already recorded a GP of 1.71% in his books and the sales have not been doubted, I am of the opinion that the disallowance on the issue of bogus purchase be restricted at recorded average GP in his books of account which is taken at 1.71% being higher of GP of the preceeding financial year. Therefore, I direct the AO to estimate profit of 1.71% on the total alleged bogus purchase which works out to Rs.32.756/-. The amount of Rs.32,756/- is sustained in appeal and balance amount of Rs.2,06,691/- is to be deleted in appeal. This ground of appeal is partly allowed.”
Being aggrieved, the Revenue is in appeal before us.
6. We have considered the rival submissions and perused the material available on record. In the present case, on the basis of the information received from the Sales Tax Department that the assessee is the beneficiary of bogus purchases, reassessment proceedings in the case of the assessee were initiated. Further, notices issued under section 133(6) by the AO to these entities were also returned unserved. The AO made an addition of 12.5% of the alleged bogus purchases made from these suppliers. It is evident from the record that apart from a copy of the ledger account along with copies of purchase invoices and bank statements highlighting the payments made, the Saheb Ali Khan ITA no.2128/Mum./2023 assessee could neither furnish any other document nor produce the parties from whom the goods were purchased before the lower authorities. Even before us, no such detail is available on record. Therefore, from the material available on record it is evident that the assessee has failed to prove the genuineness of the purchases made from these entities. However, at the same time, the Revenue has not doubted the sales declared by the assessee. Further, it cannot be doubted that without the purchase of goods, the assessee cannot make the sales. Therefore, it appears to be a case of bogus bills arranged from bogus entities and goods purchased from somewhere else at a lower cost. Thus, we are of the considered view that entire bogus purchases cannot be added in such a case. We are of the considered view that a reasonable disallowance of the purchases would meet the possibility of revenue leakage. Therefore, in view of the above findings, we find no infirmity in the addition of 1.71% of disputed purchases as sustained by the learned CIT(A) which is based on the gross profit shown by the assessee in his books. We find that the same is also in line with the judgments of the Hon‟ble jurisdictional High Court in PCIT v/s Paramshakti Distributors Ltd. (ITA No. 413 of 2017 decided on 15/07/2019) and in PCIT v/s M. Haji Adam & Co. (ITA No. 1004 of 2016 decided on 11/02/2019). As a result, the grounds raised by the Revenue are dismissed.
In the result, the appeal by the Revenue is dismissed. Order pronounced in the open Court on 09/10/2023