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Facts
The Assessing Officer (AO) made an addition to the assessee's total income for bogus purchases from M/s. Arihant Exports. The assessee contested this, arguing that the purchases were genuine and supported by an affidavit and past sales details. The Commissioner partially allowed the assessee's appeal, restricting the addition.
Held
The Tribunal held that while the AO initially made the addition based on information from sales tax authorities declaring M/s. Arihant Exports as a bogus party, the assessee provided evidence of regular business dealings. Following the rule of consistency with previous years where similar additions were restricted to 5%, the Tribunal reduced the addition to 5% of the alleged bogus purchases.
Key Issues
Whether purchases from a party declared as bogus by sales tax authorities can be added back to the income without proper verification of the current year's transactions, and if so, to what extent.
Sections Cited
142(1), 143(3), 250
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Income Tax Appellate Tribunal, MUMBAI “G” BENCH, MUMBAI
Before: SHRI NARENDER KUMAR CHOUDHRY, JM & SMT RENU JAUHRI, AM
सुनवाई की तारीख / Date of Hearing : 10/01/2025 घोषणा की तारीख/Date of Pronouncement : 28/02/2025 आदेश / O R D E R PER NARENDER KUMAR CHOUDHRY:
These cross appeals by the Assessee and the Revenue Department have been preferred, against the order dated 24.07.2024 Impugned herein, passed by the National Faceless Appeal Center (NFAC)/ Ld. Commissioner of Income Tax (Appeals) (in short Ld. Commissioner) under Section 250 of the Income Tax Act, 1961 (in short 'the Act') for the A.Y. 2017-18. Sunjewels Pvt. Ltd.
As both the appeals under consideration, emanates from the same impugned order dated 24.07.2024, hence for the sake of brevity the same were heard together and are being disposed of by this composite order.
First, we will decide the appeal filed by the Assessee le. relevant facts for adjudication of the same are that the Assessing Officer (AO), on noticing from the profit and loss account of the Assessee, has found that the Assessee has debited a sum of Rs.1,63,60,92,151/- on account of purchases of raw material and therefore vide notice dated 30.08.2019 u/s 142(1) of the Act, asked the Assessee to furnish party wise break up of all sales and purchase with name, PAN and address of the parties where amount is above Rs.5,00,000/-.
3.1 The Assessee in response to the same, has filed the party-wise purchase details vide letter dated 24.01.2019. On verification of the details and submission, it was noticed by the AO that the Assessee company has also purchased the raw material from M/s. Arihant Exports to the tune of Rs.55,41,394/- which was declared as bogus purchase (hawala dealers) by the Sales Tax Authorities and not found to be genuine in the assessment proceedings of the previous years and additions were made accordingly. This party is established as a bogus party by the Sales Tax Authorities and Revenue Authorities as well, during the assessment proceedings of previous years, hence the purchases made by M/s. Arihant Exports to the tune of Rs.55,41,394/- is considered as bogus and hereby added back to the total income of the Assessee. The AO vide order dated 20.12.2019 u/s 143(3) of the Act, ultimately made the addition of Rs.55,41,394/- on account of bogus purchase and added back to the total income of the Assessee. The AO also made other additions/disallowances, which are not in controversy before us. Sunjewels Pvt. Ltd.
The Assessee, being aggrieved, challenged the aforesaid addition along with other additions before the Ld. Commissioner and has claimed as under: “5.8 The appellant has strongly opposed the findings of the AO with regard to addition on account of bogus purchases made from Arihant Export. In its submission the appellant has argued that AO has not appreciated the documentary evidence and explanation of the appellant during assessment proceedings and has mechanically added back the bogus purchase made from M/s Arihant Export. The appellant has strongly denied that it has purchased any such raw material from Arihant Export (as held by sales tax as Bogus Party) during the year under consideration. The AO has simply relied upon the previous year assessments without properly verifying the facts of the current year. Further, appellant has submitted that Arihant Export from whom it has purchased raw material belongs to Shri Pushpendra Prakash Chandra Pataudi as against entity belonging to Shri Rajendra Jain. The appellant has submitted the affidavit from Shri Pushpendra Pataudi in this regard that the purchase has been made by the appellant during the year. The appellant has submitted that it is engaged in Jewellery manufacturing business and its manufacturing unit is situated in SEZ Mumbai, where it has to follow the procedure stated in SEZ Rules for import of goods. Further, the appellant has submitted that it has nothing to do with Hawala dealers and it has purchased the raw material from Arihant Export for its normal business need. It is seen that appellant has also referred the completed assessment for the AY 2010-11, 2011-12 & AY 2013-14 wherein disallowance of alleged bogus purchases have been restricted to 5% by the AO himself in the order passed u/s 143(3) of the Act.”
The Ld. Commissioner though considered “the claim of the Assessee vis-a-vis making of disallowance on account of alleged purchases to the tune of 5% by the AO himself in the assessment order decided u/s 143(3) of the Act passed by the AO in the A.Y. 2010-11, 2011-12 and 2013-14 and the contention of the Assessee that the Assessee has nothing to do with hawala dealers and has purchased the raw material from M/s. Arihant Exports for its normal business need”, however he ultimately while relying on the judgement passed by the Hon'ble Gujarat High Court in the case of CIT Vs Simit P. Sheth 356 Sunjewels Pvt. Ltd. ITR 051 restricted the addition @ 10% of the bogus purchases, as profit element of the business and directed the AO to restrict the addition of Rs.5,54,139/- and delete the remaining addition of Rs.49,87,255/- (Rs.55,41,394/- Rs.5,54,139/-).
The Assessee, being aggrieved, challenged the decision of the Ld. Commissioner in restricting the addition to the extent of 10% whereas the Revenue Department, being aggrieved, challenged the decision of the Ld. Commissioner in deleting the addition of Rs.49,87,255/- and reducing the addition to the extent of 10% only.
The Assessee by filing an affidavit of Shri Pushpendra Prakash Chandra Patodi, proprietor of M/s. Arihant Exports, Jaipur, Rajasthan demonstrated the details of the sales made to the Assessee as tabulated below:
That the year wise sales made to M/s. Sunjewels Pvt. Ltd. is tabulated as under:
Financial Item sold Amount INR years 2015-16 Semi-precious stones 43,49,387 2016-17 Semi-precious stones 55,27,128 2017-18 Semi-precious stones 55,22,299 2018-19 Semi-precious stones 56,73,821 2019-20 Semi-precious stones 60,44,340 2020-21 Semi-precious stones 21,34,321 2021-22 Semi-precious stones 18,25,562 Total 3,10,76,860 The Assessee also submitted that Mr. Patodi in the affidavit also mentioned that proprietary concern namely M/s. Arihant Exports having PAN number ABDPP7273N is assessed with the jurisdiction of Rajasthan State Zone, Jaipur-1, Circle-F, Ward-2 for the last 14 years and registered under Goods and Service Tax Act with GST Sunjewels Pvt. Ltd. no.08ABDPP7273NIZZ and is in the business of trading in semi- precious stones for the last 18-20 years. He is supplying semi- precious stones to various parties inter-alia Sun Jewels Pvt. Ltd. situated in Mumbai since 2009-10 and till today. Further, entire activities of the proprietary concern namely M/s. Arihant Exports was managed by him only and he is neither having any sister concern anywhere in or out of India nor he is a part of any business group. And thus the Assessee has claimed that the addition under consideration not based on any PAN number is liable to be deleted in entirety.
On the contrary the Ld. DR refuted the claim of the Assessee.
Heard the parties and perused the material available on record. Considering the aforesaid facts, as the AO in the Assessment Order, has nowhere mentioned the PAN number of the alleged proprietary concern M/s. Arihant Exports and therefore in order to verify the business details of M/s. Arihant Exports, query was sought from the AO, by the Bench vide order dated 18.11.2024. The AO was also directed to file the PAN number and the details of GST number of M/s. Arihant Exports, on the basis of which addition has been made by the AO and affirmed by the Ld. Commissioner. The AO in compliance to the direction dated 08.11.2024 submitted its report on dated 10.01.2024 and claimed as under:
That the Assessee, during the course of assessment proceedings, was asked to produce the PAN number, address, VAT/TIN of the seller involved in the transaction i.e. M/s. Arihant Exports totaling to Rs.35,86,485/- the proprietary concern of Shri Sachin Parikh and M/s. Arihant Exports totaling to Rs.1,94,232/- the proprietary concern of Shri Ashok Kumar Jain. Though the Assessee has submitted the VAT number of M/s. Aadi Impex having VAT number as 276606227757V and GST number 2766027757C, however, with regard to the M/s. Arihant Exports, the Assessee did not produce the VAT/TIN and PAN number of the said entity. Though Sunjewels Pvt. Ltd. the Assessee was specifically asked to provide PAN, VAT/TIN number of the seller's party during the assessment proceedings, however, the Assessee did not produce the PAN number of both the sellers. Even in the case of M/s. Arihant Exports, the Assessee, though claimed that purchases from M/s. Arihant Exports is OMS purchase (outside Maharashtra) but did not produce any VAT/TIN number for the same and therefore PAN number of Shri Anup Jain and Shri Sachin Parikh. The affairs of M/s. Aadi Impex and M/s. Arihant Exports are being controlled and managed by Shri Rajendra Jain and therefore details are not available in the assessment record. As per the information shared by Sales Tax Authorities in connection with the verification of PAN, GST/TAN only in the case of M/s. Aadi Impex, the VAT number is available but in both the cases the PAN numbers are not available
10. From the report, it appears that the Assessee was asked to discharge its onus to provide PAN numbers of the sellers, however, admittedly the same were not provided by the Assessee. No doubt there are glitches in making the addition. However, considering the peculiar facts and circumstances in totality, as in the previous assessment years i.e. 2010-11, 2012-13 & 2013-14, identical disallowance on account of alleged bogus purchases has also been made by the AO himself to the tune of 5% of the alleged bogus purchases by passing the respective assessment orders and therefore, we, in order to cut short the litigation and for substantial justice, are inclined to restrict the addition to the tune of 5% instead of 10% by following the rule of consistency, on which the Ld. Counsel for the Assessee Shri Ravikanth Pathak has also agreed to. Thus the addition is restricted to 5% of the bogus purchases, instead of 10% as sustained by the Ld. Commissioner. Resultantly, the appeal filed by the Assessee is partly allowed.
Coming to the appeal filed by the Revenue Department, we observe that there is a delay of 5 days in filing the instant appeal, on which the Ld. D.R. has submitted that due to heavy pressure of work load on the AO, the present appeal could not be filed within a prescribed period but the same was filed with a delay of 5 days and Sunjewels Pvt. Ltd. therefore lenient view may be taken and Revenue Department's appeal may be admitted. The Ld. A.R. did not refute the claim of the Assessee. Considering the delay as bonafide and unintentional, the same is condoned.
Coming to the merits of the case, the Revenue Department, being aggrieved against the decision of the Ld. Commissioner in restricting the addition to the extent of 10% and deleting the addition to the extent of 90%, has claimed that in view of the judgment passed by the Hon'ble High Court in the case of N.K. Industries Ltd. the addition has to be made @ 100% in the bogus purchase cases.
On the contrary, the Ld. A.R. has claimed that the decision of the Ld. Commissioner is based on the judgment of the same High Court in the case of CIT vs. Simit P. Sheth 356 ITR 051 and Bholenath Fab Pvt. Ltd. 355 ITR 290 (Guj.) as mentioned by the Ld. Commissioner in para number 5.9 of the impugned order and therefore the appeal of the Revenue Department is liable to be dismissed.
We have given thoughtful consideration to the peculiar facts and circumstances of the case. It is a settled law, as observed by the Ld. Commissioner that the estimation varies with the nature of business and no uniform yardstick could be adopted and once the sale is accepted then the very basis of purchase would not be questioned. Further, only profit element embedded in the purchase should be taxed. The decision of the Ld. Commissioner is based on the logical reasoning and under the facts and circumstances of the case, therefore the same needs no interference except sustaining the addition to the extent of 10% which, we, in the Assessee's appeal reduced to 5%. Hence, the appeal filed by the Revenue Department is liable to be dismissed and thus the same is dismissed. Sunjewels Pvt. Ltd.
In the result, the appeal filed by the Assessee is partly allowed, whereas the appeal of the Revenue Department is dismissed.