Loading judgment…
Facts
The assessee, engaged in trading ferrous and non-ferrous metals, had his assessment reopened based on information about accommodation entries for purchases. The Assessing Officer (AO) made an addition of 12.5% of purchases from 16 parties deemed hawala traders. The CIT(A) dismissed the assessee's appeal.
Held
The Tribunal held that while the assessee did not fully discharge the onus of proving purchases, the AO also did not conduct independent investigation. Considering previous judicial precedents, the Tribunal directed that the estimated addition of 12.5% be retained but allowed deduction for the gross profit already declared.
Key Issues
Whether the addition of 12.5% on alleged bogus purchases is sustainable without independent investigation by the AO, and if so, whether credit for declared gross profit should be allowed.
Sections Cited
143(1), 148, 250, 144
AI-generated summary — verify with the full judgment below
Detected automatically from the text. The count shows how many other judgments on BharatTax rely on the same authority.
PER PAWAN SINGH, JUDICIAL MEMBER;
This appeal by assessee is directed against the order of ld. CIT(A) dated 30.09.2024 for A.Y. 2010-11.The assessee has raised the following grounds of appeal:
1. On the facts and circumstances of the case and in law, the learned CIT(A) erred in dismissing the appeal w.r.t. Net Profit of Rs. 19,19,531/- computed at 12.5% of purchase of Rs. 1,53,56,245/- without considering the facts of case.
The appellant craves, leave to add, alters, amends or deletes any grounds of appeal
at the time of hearing.”
2. Brief facts of the case are that assessee is an individual,running a proprietary concern in the name of Bharat Steel Industries, engaged in the business of trading in ferrous and non-ferrous metal, iron and steel alloys. The assessee filed his return of income for A.Y. 2010-11 on 28.09.2010 declaring total income at Rs. 3,01,880/-. Initially, the return was processed under section 143(1). Subsequently, the case of assessee was reopened on the basis of information from Sales Tax Department and DGIT (Investigation), Mumbai that some businessmen are indulging in providing accommodation entry of purchase bills without actual delivery of goods. Assessee is also one of the beneficiariesfrom the persons who have availed such accommodation entry from fictious / bogus entry provider. The name of such bogus entry provider was also provided to the assessing officer. The assessing officer on the basis of such information recorded reasons, issue notice under section 148 and proceeded for reassessment. As reopening is not under challenged, therefore, the basis of reopening is not discussed in detail. The assessing officer in para 6 of assessment order recorded the name of various entities / persons from whom the assessee has shown certain purchased. The assessing officer also recorded the quantum of transaction of purchases from such parties and noted that assessee has shown aggregate purchases of Rs.
1.53 crore from such 16 parties. The assessing officer during assessment asked the assessee to furnish supporting evidence to prove the purchases and show caused as to why all such purchases should not be treated as unproved purchases. The assessee was also asked to produce all such parties. In para 6.2 of assessment order, the assessing officer recorded that assessee expressed his inability to produce such parties for verification.
However, the assessee provided documentary evidence in the name of purchase bills. The assessing officer also recorded that assessee vide order dated 01.02.2016 submitted that to avoid the prolonged litigation, by following the decision of Gujarat High Court in CIT vs Simit P. Sheth in Tax Appeal No. 553 of 2016 and CIT Vs Bholanath Poly Fab (P) Ltd. in of 2012, profit suppressed in such transaction may be added. The assessing officer on recording relevant part of both the case laws accepted the contention of assessee and restricted the addition to the extent of 12.5% of purchases shown from such sixteen parties, thereby restricted the addition to the extent of Rs. 19,19,531/- and added under the assessment order.
Aggrieved by the additions in the assessmentorder, the assessee filed appeal before ld. CIT(A). Before ld. CIT(A), the assessee challenged the additions as well as validity of reopening. The ld. CIT(A) in para 6 of his order recorded that despite issuing three notices under section 250 of Income Tax Act in fixing the date of hearing on 26.08.2024, 19.09.2024 and 30.09.2024, the assessee neither attended nor filed any submission to substantiate various grounds of appeal. The ld. CIT(A) dismissed the appeal of assessee on legal issue of reopening as well as on merit. The ld. CIT(A) while deciding the appeal considered the material available on record. The ld. CIT(A) in para 8.1 of his order recorded that onus was on the assessee to prove the genuineness of purchases and that onus has not been discharged. It was incumbent on the assessee to produce the party with necessary document to establish the genuineness of purchases. On the contention of assessee that only profit ration of assessee which was at 1.54% should have been considered and not 12.5%, the ld. CIT(A) held that assessee has not furnished any detail to verify the claim of gross profit / net profit ratio. The assessee also raised plea that he was not given opportunity to examine the concern parties. The ld. CIT(A) held that income tax proceedings are not judicial proceedings and that assessing officer is not fettered or bound by rules of evidence. The assessing officer is entitled to act on material which may or may not be accepted as evidence in the court of law. Only principles of natural justice need to be applied in the Income Tax Authorities during assessment of appellate stage. The assessing officer made addition on the basis of information of bogus purchases received from DGIT (Investigation) and from Sales Tax Department. On the basis of such observation, the ld. CIT(A) dismissed the appeal of assessee.
Further, aggrieved the assessee has filed present appeal before Tribunal.
Before Tribunal, the assessee has challenged only the addition of bogus purchase to the extent of 12.5% by taking plea that ld. CIT(A) erred in dismissing the appeal with regard to net profit.
We have heard the submission of Learned Authorised Representative (ld. AR) of the assessee and the Learned Senior Departmental Representative (ld. Sr.
DR) for the Revenue. The ld. AR of the assessee submits that assessee is engaged in the business of ferrous and non-ferrous item. The assessee is running a proprietary concern in the name of Bharat Steel Industries. The assessing officer made addition of 12.5% of aggregate purchases of Rs.1.53 crores who were purchases from 16 parties. All 16 parties were treated as hawala traders. The assessee proved the genuineness of purchases. The assessing officer is not investigated the matter, rather made additions on the alternative plea of assessee, which was made to avoid long term process of litigation and restricted the purchases to the extent of 12.5%. The ld. CIT(A) confirmed the action of assessing officer by taking different view that assessee has not discharged his onus. Before assessing officer as well as ld. CIT(A), the assessee furnished the detail of gross profit ratio as well as net profit ratio of previous and subsequent assessment years. In the year under consideration, the assessee has shown gross profit @ 4.62% and net profit @ 1.67%. The net profit and gross profit ratio of assessee were better than the previous assessment year. In the subsequent assessment year, the assessee has shown gross profit at 5.13% and net profit at 2.13%. The total sales of the assessee were Rs. 2.02 crore and against total purchases of Rs. 1.94 crore. The assessee has shown good profit. The ld. AR of the assessee submits that in case the addition was to be restricted it has to be restricted in bringing the gross profit rate on purchases at the same rate of other genuine purchases. As has been held by Jurisdictional High Court in PCIT Vs Mohammad Haji Adam & Co. in Tax Appeal No. 1004 of 2016 dated 11.02.2019. In alternative submission, the ld. AR of the assessee submits that in case gross profit addition is to be restricted, the benefit of profit declared on such purchases may be allowed as has been held by Mumbai Bench in Amrat B Prajapati in ITA No. No. 5982/Mum/2019 dated 29.01.2020.
On the other hand, the ld. Sr. DR for the Revenue supported the order of lower authorities. The ld. Sr. DR submits that Investigation Wing of Income Tax Department make investigation about the modus operandi of accommodation entry provider. The assessee is one of the beneficiary who has availed bogus entry of purchases to inflate the profit. Before assessing officer, the assessee himself took the plea for making gross profit addition.
The assessing officer was reasonable in estimating the addition to the extent of 12.5% on the basis of assessees statement. Thus, the assessee is precluded to raise further plea before the appellate authority. Despite filing appeal before ld. CIT(A), no submission was made. The ld. CIT(A) was generous before deciding appeal on the basis of material available on record and adjudicated each and every issue. The Jurisdiction High Court in a recent decision in PCIT Vs Kanak Impex (2025)172 taxmann.com 283 (Bombay) upheld the addition of 100% of purchases shown from hawala parties.
We have considered the rival submissions of both the parties and have gone through the orders of lower authorities carefully. We find that before assessing officer, the assessee furnished certain details of purchases as recorded in para 6.2 of the assessment order. However, the assessing officer instead of making any common, on the basis of alternative submission of assessee for estimating addition of suppressed profit on similar type of allegation of purchases, restricted the addition to the extent of 12.5% of the impugned purchases from 16 parties. Thereby made addition of Rs. 19,19,531/-. We find that no independent investigation of fact was carried out by assessing officer. No finding on various evidences furnished by assessee was given by assessing officer. Consumption / sales of assessee is not disputed by assessing officer. The assessing officer solely relied upon the report of Investigation Wing. No doubt that before ld. CIT(A), the assessee has not filed written submission in response to three show cause notices issued under section 250 of Income Tax Act. The ld. CIT(A) decided of the issue on the basis of material available on record. The ld. CIT(A) gave his finding that assessee has not proved the purchases. We find that assessing officer has not given such finding rather on accepting alternative submission of assessee straightway restricted the addition / disallowed 12.5% of the purchases shown from 16 parties. Before us, the ld. AR of the assessee mainly raised two alternative plea, firstly, he is engaged in the business of ferrous and non-ferrous metal and on similar state of fact Hon’ble Jurisdictional High Court in PCIT Vs Mohammad Haji Adam & Co. (2019) 103 taxmann.com 459 (Bombay) restricted the addition of similar purchases to the extent of gross profit addition vis-à-vis, the gross profit declared on genuine purchases. In other alternative submission, it was argued that in case addition is to be made @ 12.5% of alleged bogus purchases, the gross profit already declared may be allowed from such additions. On considering the overall facts and circumstances of the case, we find that the assessee has not discharged his primary onus by filing details of purchases except details of delivery of goods, however, the assessing officer has not investigated on the evidences furnished by assessee. The assessing officer simply insisted to call all the parties which may or may not be possible by assessee to call all such persons after the gap of 6-7 years from transaction. Thus, considering the decision of Hon’ble Jurisdiction High Court in PCIT Vs Mohammad Haji Adam & Co. (supra) and decision of Tribunal in Amrat B Prajapati in ITA No. No. 5982/Mum/2019 dated 29.01.2020 (supra), we are of the view that reasonable profit on alleged bogus purchases would meet the end of justice.
Hence, the assessing officer is directed to retain the estimated addition 12.5% of the impugned / bogus purchases from 16 parties and but to allow deduction towards gross profit already declared in the regular books of account. In the result, the ground of appeal raised by assessee is partly allowed.
So far as in PCIT Vs Kanak Imports (supra) relied by ld. Sr. DR for the Revenue is concern, in our humble view, the ratio of said decision is not applicable on the facts of present case as facts of the present case is at variance. In the said case, assessment was completed under section 144 wherein assessee failed to substantiate the purchases. However, in the present case, the assessee has furnished details of purchases before assessing officer and assessee himself stated for making addition on the basis of decisions of Gujarat High Court to avoid the future litigation with the department. Thus, in the present case, the assessee has primarily discharged his primary onus to substantiate the purchases. In the result, the grounds of appeal raised by the assessee are allowed.
In the result, the appeal of assessee is partly allowed.
Order pronounced in the open Court on 28/05/2025.