M/S. NIKUNJ EXIMP ENTERPRISES,MUMBAI vs. ACIT CENT. CIR 2(4), MUMBAI

Others M/s Nickunj Eximp Enterprises Pvt. Ltd. आदेश / O R D E R

Per Amit Shukla, Judicial Member:

2. Since the issues involved in all the appeals are common arising out of identical set of facts, therefore the same were heard together and is being disposed of by way of this consolidated order.

3. As a lead case, we are taking cross appeals for AY 2014-15 wherein the revenue has raised the following grounds:-

1. "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in Partly allowing the Bogus purchase of Rs. 53,00,05,608/- which was rightly disallowed by Assessing Officer as unexplained expenditure u/s. 69C of the Act"

2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in not appreciating the decision in Nova Promoters and Finlease 342 ITR 169 (2012) wherein the Hon'ble Delhi High Court held that mere filing of PAN, ITRS, account confirmations and bank statements of the creditors is not sufficient enough to discharge the onus cast upon the assessee u/s 68 of the Others M/s Nickunj Eximp Enterprises Pvt. Ltd. Income Tax Act, 1961 when there are sufficient evidences of accommodation entry. 3. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in rrestricting the addition made by the AO on account of bogus purchases to 10% instead of 100% in view of decision of Hon'ble Supreme Court in the case of NK Proteins Ltd. in SLP 759 of 2017, dated 16 01-2017, wherein it was held that once it is proved that the purchases are bogus, then the addition should be made for the entire purchases and not for profit element embedded in such purchases. 4. Whereas the assessee has raised the following grounds:-

1. Whether on the facts and circumstances of the case and in law, CIT (A) erred in making addition of Rs.5,88,89,512/- in absence of any incriminating materials found in the course of search, hence the entire assessment proceedings are vitiated and bad in law based on settled judicial pronouncements.

2. Whether on the facts and circumstances of the case and in law, Assessing Officer ought to have proceeded only on the basis of seized material and evidence found during the course of search, travelling beyond that would make proceedings bad in law based on decision of Kabul Chawla's judgement (61 taxmann.com 412) and other settled case laws. 3. Whether on the facts and circumstances of the case and in law, CIT (A) erred in making addition of Rs.5,88,89,512/- on account of bogus purchases.

Others M/s Nickunj Eximp Enterprises Pvt. Ltd. 4.1 Whether on the facts and circumstances of the case and in law, Assessing Officer erred in levying interest u/s. 234A of Rs.81,21,140/-, when infact there is no delay and that the return was filed as soon as the notice u/s. 153A was received and the delay is not attributable to the cause of the appellants. 4.2 The Notice was on the portal in January 2019, when e- assessment was existing, however the rules exempted search and seizure returns as soon as appellants were aware, the returns were filed in August, 2019. Thus, there is no delay attributable to the appellants, hence section 234A is not attracted.

The Group follows standard operating procedure (SOP) as explained in detail in the statement recorded of Shri Manohar Balkrishna Pai dated 17.11.2017 in reply to Q.38 & Q.40. However, it was found that this SOP is followed only for their approved list of vendors and not for all the vendors through whom purchases are recorded in the regular books of account. The following are the parties from whom purchases are made without following the required SOP- • Ranka Silk House • Risa International • Ronak Overseas • Navratna Oil Industries • Daman Oil Industries • Richway International • Vienna Multiventure During course of search action, Shri Manohar Pai was asked to furnish various supporting evidences for the purchases made from Others M/s Nickunj Eximp Enterprises Pvt. Ltd. the above parties including invoices, purchase order copy, goods receipt note, etc. to substantiate the purchases made from the above parties. However, no supporting evidences were filed except copies of invoice and ledger accounts and bank statement reflecting payment. However, no evidence is filed to substantiate the delivery of goods, movement of goods by way of transport invoice, confirmations from parties, etc., which goes to show that these are bogus purchases. It is also seen that the material purchased from these parties are fabrics and food-grains whereas the Group is prima facie engaged in the business of manufacture of non-ferrous wires and machining of graphite. This also goes to prove that the purchases made from these parties are mere accommodation entries in order to reduce the profits. As the Group has not followed SOP in respect of purchases made from the above parties and no supporting material or evidence is filed to substantiate the purchases made from the above parties as genuine, the same are to be treated as bogus purchases. The year- wise chart of purchases made from the above parties is annexed the statement recorded of Shri Manohar Pai on 17.11.2017 as Annexure 3. The aggregate of the purchases for all the years i.e. from FY 2010-11 till date of search action amount to Rs.342,06,11,640/-. The entity-wise details of such purchases are reproduced as under:

Others M/s Nickunj Eximp Enterprises Pvt. Ltd. Name of the party Year Purchase (In Rs.) Ramka Silk House 2013-14 6,65,00,000 Risa International 2013-14 15,08,75,120 Roank Overseas 2013-14 27,10,00,000 NavRatan Oil Ind 2013-14 10,05,20,000 Daman Oil Industries 2014-15 69,95,49,000 Daman Oil Industries 2016-17 102,79,36,500 Richway 2015-16 61,37,83,853 International Richway 2016-17 8,34,22,759 International Vienna Multiventure 2015-16 39,49,23,346 Vienna Multiventure 2016-17 1,21,01,062 TOTAL 342,06,11,6407- Physical verification of offices of Ramka Silk House Pvt Ltd, Vienna Multiventures and Richway International Trade Ltd was done during the course of search action and it was found that no such entities are operating from the addresses mentioned. Inspectors reports were made part of the statement of Sh. Nickunj Shah and he did not offer any comment on the same. Further, it is worth to be noted that M/s Risa International was a penny stock which was operated by Sh. Naresh Jain and Sh. Abhinandan Jain.

Others M/s Nickunj Eximp Enterprises Pvt. Ltd. 8. Accordingly, the AO issued show cause notice to prove the purchases with documentary evidence and from time to time he asked for details of purchases made from these parties and in response, assessee submitted the following reply:-

"During the course of search operation, it was pointed that few parties with respect to trading activities were not genuine. So we are providing with party wise details of items purchased and corresponding sales to substantiate the purchases. Along with the delivery details of the items sold it was either got delivered to the purchasers premises directly by the suppliers or delivered to our godown and then transported to the buyers site. For each purchase of traded goods there is a corresponding sales and in most of the cases both the sale and purchases are back to back of same quantity. In support we are enclosing here purchase bill with corresponding sales, stock register recording both sales and purchase of each stock items, details for payment of purchases made and in case of sales, payment received into the bank account to substantiate both sales and purchases. Since we are providing back to back sales details for each purchases duly supported by bills and payment details just to substantiate that both sales and purchases are genuine. It is not a case where the purchases could be termed as bogus as we are providing details of corresponding sales for each and every purchases.

Others M/s Nickunj Eximp Enterprises Pvt. Ltd. Further we have been informed that some Inspector visited the address of the purchase parties and found to be non existing, however no efforts were made by the authorities to find them when their PAN, bank account details and bills which were available even on the date of search. Now we are giving the party wise details as called, for all the purchases made from them and corresponding details of sales of such goods to substantiate that the transaction were being done in regular course of business. As proper bills, payment details of both sales and purchases are being made available and there are reasonable profits from such activities then no adverse inference can be drawn by only taking adverse finding regarding the purchases without verifying the corresponding sales. There is a specific corresponding sales for each and every purchases of the traded goods duly supported by documentary evidence maintained/generated in normal course of business.

Others M/s Nickunj Eximp Enterprises Pvt. Ltd.

AY Name of the party from Name of the party to Total value of whom purchases were whom sales were Purchases made made 2014-15 Ramka Silk House P Dolertake and Rochlon 6,65,00,000/- Ltd Enterprises 2014-15 Risa International Ltd Jetspeed Tradecom 15,08,75,120/- PLtd 2014-15 Ronak Overseas RROils 27,10,00,000/- 2014-15 Navaratn Oil Industries Max Grow Trade 10,05,20,000/- Solutions P Ltd Total Purchases made 58,88,95,120/-

Others M/s Nickunj Eximp Enterprises Pvt. Ltd. 6.27 From the above tables it may be deduced that entire quantitative details have been submitted by the assessee alongwith party wise and invoice wise sales and purchases. Further the assessee has made some profits ranging from 1.2% to 1.8% in respect of these transactions and no loss as such has been incurred. (Besides, it has been noted that the assessee has first received sales consideration from which it has paid amount for purchases and there is direct co relation between sales and purchases. It also appears that the assessee has not blocked its own capital in the process and it is only a link in the entire transactions of sales and purchases and in most of the cases the goods have been directly despatched to the sales parties from purchase parties without it going through assessee's godowns. The details of payments received for sales and payments made for purchases are in close proximity and mostly on the same dates, details of which in respect of one party Risa International are tabulated as under: Date/Year Purchase Value Bank Date/Year Sales Value Bank 03 Jul 14 Risa International 35,00,000 Citi Bank 03 Jul 14 Jetspeed 35,46,250 Citibank Ltd. HO Tradecom Pvt. HO Ltd. 03 Jul 14 Risa International 46,00,000 Citi Bank 03 Jul 14 Jetspeed 31,55,010 Citibank Ltd. HO Tradecom Pvt. HO Ltd. 03 Jul 14 Risa International 19,00,000 Citi Bank 03 Jul 14 Jetspeed 32,98,740 Citibank Ltd. HO Tradecom Pvt. HO Ltd. 03 Jul 14 Risa International 33,00,500 Citi Bank 03 Jul 14 Jetspeed 64,98,450 Citibank Ltd. HO Tradecom Pvt. HO Ltd. 03 Jul 14 Risa International 31,50,200 Citi Bank 03 Jul 14 Jetspeed 35,01,550 Citibank Ltd. HO Tradecom Pvt. HO Ltd. Others M/s Nickunj Eximp Enterprises Pvt. Ltd. 03 Jul 14 Risa International 35,49,300 Citi Bank 04 Jul 14 Jetspeed 95,95,800 Citibank Ltd. HO Tradecom Pvt. HO Ltd. 03 Jul 14 Risa International 36,64,275 Citi Bank 05 Jul 14 Jetspeed 44,12,839 Citibank Ltd. HO Tradecom Pvt. HO Ltd. 04 Jul 14 Risa International 38,29,910 Citi Bank 05 Jul 14 Jetspeed 65,48,704 Citibank Ltd. HO Tradecom Pvt. HO Ltd. 04 Jul 14 Risa International 38,83,930 Citi Bank Ltd. HO 04 Jul 14 Risa International 39,82,180 Citi Bank Ltd. HO 04 Jul 14 Risa International 30,95,200 Citi Bank Ltd. HO 04 Jul 14 Risa International 25,18,420 Citi Bank Ltd. HO The details of payments made for purchases and payments received for sales in respect of all the parties are enclosed as annexure to this order, which clearly conveys that payments for sales and purchases are happening in close proximity and mostly on the same dates. There after what remains with the assessee is its margin, which is about 1.8% and has been offered to tax in the accounts.

6.28 We have also analysed the bank statement of the assessee and one of the purchase parties, namely Risa International. It is found that there are no cash withdrawls in the bank account of Risa International. Further there are also no cash deposits in the bank account of the assessee either except some small amounts which are verifiable from its cash book. From the bank account of Risa International, it has been further noticed that before making Others M/s Nickunj Eximp Enterprises Pvt. Ltd. sales to the assessee, it has made purchases from two parties namely Tanya Enterprises and VEMB Lifestyle P. Ltd. Assessments in the cases of both these companies were made u/s 143(3) Of the Act, in which certain additions were made in respect of bogus purchases/unproved purchases @ 12.50 %. The Hon'ble ITAT Mumbai vide order dated 03.12.2020, confirmed addition @ 12.50% in both the cases. Copies of these orders are placed on record. 6.29 In fact there is another aspect of this case. In respect of purchases made from one of the parties namely Maxgro Commodities P. Ltd, it is found that the assessee has received only its margin of profits of Rs. 30 lakhs on total purchases of Rs. 21,23,65,923/- and payments for purchases has been directly made by the end party Nav Prakruti Commodities P. Ltd to Maxgrow and thus the assessee has only acted as an agent and thus got its margin of profits of Rs. 30 lakhs. 6.30 From the discussions made in foregoing paras, it is quite clear that the assesse had submitted relevant details to the AO at the assessment stage in respect of purchases made from the parties both quantitative and qualitative. The assessee also produced copies of bills/invoices, ITRs, bank statement, ROC, Master data and confirmation of these parties. Further, the assessee had also provided details of party wise purchases and its corresponding sales made by them before the AO as well before me. Therefore various contentions made by the AO in this regard Others M/s Nickunj Eximp Enterprises Pvt. Ltd. stands clarified by the assessee. Since quantitative details of purchase and sales are available, the transaction may not be simply rejected in a summary manner. Further, if the purchases were questionable then sales also become doubtful. One cannot accept one and reject the other. 6.31 However, since the AO has not rejected the sales, 100% disallowance/addition of purchase does not look fair and reasonable. It is seen that Hon'ble High Courts and various Benches of Hon'ble ITAT have held that when purchases are supported by sufficient documentary evidences, then merely because of non-appearance of the parties before the AO, one cannot conclude that the purchases were not made by the assessee ( Nikunj Eximp Enterprises (P.) Ltd. (Bom) (2015) 372 ITR 0619 (Bom).

6.39 In the case of PCIT Vs M/s. Mohommad Haji Adam & Co. (Bombay High Court) the facts were that the assessee was a trader of fabrics. The A.O. found three entities who were indulging in bogus billing activities. A.O. found that the purchases made by the assessee from these entities were bogus. This being a finding of Others M/s Nickunj Eximp Enterprises Pvt. Ltd. fact, we have proceeded on such basis. Despite this, the question arises whether the Revenue is correct in contending that the entire purchase amount should be added by way of assessee's additional income or the assessee is correct in contending that such logic cannot be applied. The finding of the CIT(A) and the Tribunal would suggest that the department had not disputed the assessee's sales. There was no discrepancy between the purchases shown by the assessee and the sales declared. That being the position, the Tribunal was correct in coming to the conclusion that the purchases cannot be rejected without disturbing the sales in case of a trader. The Tribunal, therefore, correctly restricted the additions limited to the extent of bringing the G.P. rate on purchases at the same rate of other genuine purchases. The relevant excerpts of the judgment dated 11.02.2019 of the Hon'ble Bombay High Court are reproduced hereunder:- "8 In the present case, as noted above, the assessee was a trader of fabrics. The A.O. found three entities 'who were indulging in bogus billing activities. A.O. found that the purchases made by the assessee from these entities were bogus. This being a finding of fact, we have proceeded on such basis. Despite this, the question arises whether the Revenue is correct in contending that the entire purchase amount should be added by way ofassessee's additional income or the assessee is correct in contending that such logic cannot be applied. The finding of the CJT(A) and the Tribunal would suggest that the department had not disputed the assessee's sales. There was no 21 and Others M/s Nickunj Eximp Enterprises Pvt. Ltd. discrepancy between the purchases shown by the assessee and the sales declared. That being the position, the Tribunal was correct in coming to the conclusion that the purchases cannot be rejected without disturbing the sales in case of a trader. The Tribunal, therefore, correctly restricted the additions limited to the extent of bringing the G.P. rate on purchases at the same rate of other genuine purchases. The decision of the Gujarat High Court in the case ofN.K. Industries Ltd. (supra) cannot be applied without reference to the facts. In fact in paragraph 8 of the same Judgment the Court held and observed as under- " So far as the question regarding addition of Rs.3,70,78,125/- as gross profit on sales of Rs.37.08 Crores made by the Assessing Officer despite the fact that the said sales had admittedly been recorded in the regular books during Financial Year 1997-98 is concerned, we are of the view that the assessee cannot be punished since sale price is accepted by the revenue. Therefore, even if 6 % gross profit is taken into account, the corresponding cost price is required to be deducted and tax cannot be levied on the same price. We have to reduce the selling price accordingly as a result of which profit comes to 5.66 %. Therefore, considering 5.66 % of Rs.3,70,78,125/- which comes to Rs.20,98,621.88 we think it fit to direct the revenue to add Rs.20,98,621.88 as gross profit and make necessary deductions accordingly. Accordingly, the said question is answered partially in favour of the assessee and partially in favour of the revenue.

Others M/s Nickunj Eximp Enterprises Pvt. Ltd. 9 In these circumstances, no question of law, therefore, arises. All Income Tax Appeals are dismissed, accordingly. No order as to costs." 6.40 In view of the foregoing judicial pronouncements, it is held that only the profit element embedded in the bogus purchases needs to be taxed, in the cases, where sales are not doubted and the quantitative tally of purchases and sales are available. Therefore keeping in view the totality of facts and circumstances of the case, I am inclined to agree with the appellant's stand that the addition is excessive. The A.O. has disallowed the amount of Rs. 58,88,95,120/- being 100% on account of bogus purchases. I am of the view that estimation of profit at 10% would meet the ends of justice. 6.41 In view of the discussions made as above and respectfully following the decisions of Hon'ble Courts and ITAT, the addition made by AO is restricted to 10% of the suspected purchases, being savings made on account of VAT, Octroi etc., in these purchases of Rs.58,88,95,120/-, which comes to Rs.5,88,89,512/-. The AO is directed to modify the addition accordingly.

Others M/s Nickunj Eximp Enterprises Pvt. Ltd.