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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SHRI OM PRAKASH KANT & SHRI SANDEEP SINGH KARHAIL
The present appeals have been filed by the assessee challenging the separate impugned orders of even date 22/03/2022, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [“learned CIT(A)”], for the assessment years 2009-10 and 2010–11.
Since, identical issue is involved, therefore, both the appeals are taken up together and disposed off by this common order for the sake of Magan Vadhaji Prajapati ITA No.559/Mum./2022 ITA no.560/Mum./2022 convenience. With the consent of both the parties, the appeal of the assessee for the assessment year 2009-10 was taken up as the lead case and the decision rendered therein would apply with equal force in appeal for assessment year 2010-11, except with variance in figures.
./2022 Assessee’s Appeal – A.Y. 2009 – 10 3. In this appeal, the assessee has raised following ground: “1. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming addition of Rs.8,60,860, which was 12.50% of alleged bogus purchase.”
4. The only grievance of the assessee is against addition made on account of bogus purchases.
5. The brief facts of the case pertaining to this issue, as emanating from the record, are: The assessee is an individual running the proprietor concern under the name and style of M/s Kailash Steel, which is dealing in reselling of ferrous and non-ferrous metal. For assessment year 2009–10, assessee e- filed his return of income on 08/07/2009 declaring total income of Rs. 1,37,407. Information was received from DGIT (Investigation) wing, Mumbai about having initially received information from the Sales Tax Department of Maharashtra regarding some dealers indulged in practice of providing accommodation entries in the form of issuing bogus sales/purchase bills without supplying any goods but providing accommodation entries. As per the list of beneficiaries forwarded by DGIT (Investigation), Mumbai the assessee was also one of the beneficiaries of such bogus bills. On the basis of the Magan Vadhaji Prajapati ITA No.559/Mum./2022 ITA no.560/Mum./2022 aforesaid information from the investigation wing, reassessment proceedings were initiated in the case of the assessee under section 147 of the Act. During the course of reassessment proceedings, in order to verify the genuineness of the purchases, notice under section 133 (6) of the Act was issued and sent to the said parties at the addresses provided by the assessee. However, the notices were returned unserved with the remarks „not known‟ or „no such address‟ or „left’ etc. In such circumstances, the assessee was also given an opportunity to establish the genuineness of these parties and the purchases made from them with adequate supporting evidences and also requested to produce the parties along with their books of accounts as these parties were found to be non-existent. However, despite the aforesaid opportunity, the assessee could not produce these parties nor furnished new addresses of these parties. The assessee furnished copies of Ledger accounts in the books of the assessee, purchase bills and assessee‟s bank statement showing the payment made through bank. The Assessing Officer („AO‟) also sought of the details viz. details of transportation of goods i.e. lorry receipts, documentary evidence regarding the relevant entries of having received such goods in the premises of the assessee and having consumed such goods. The AO vide order dated 13/03/2015 passed under section 143 (3) r/w section 147 of the Act did not agree with the submissions of the assessee and held that the assessee has not furnished any evidence or explanation to prove that the purchases made are genuine. Further, the AO held that only part of purchases can be disallowed where corresponding sales are treated as geniune or alternatively the profit embedded in such sales can only be Magan Vadhaji Prajapati ITA No.559/Mum./2022 ITA no.560/Mum./2022 brought to tax. Accordingly, the AO, following the decision of Hon‟ble Gujarat High Court in CIT vs Simit P. Sheth, (2013) 356 ITR 451 (Guj), made an addition of Rs. 8,60,860 by considering 12.5% of the purchases as possible profit out of such purchases made through non-genuine parties.
6. In appeal, learned CIT(A) vide impugned order upheld the assessment order on this issue. Being aggrieved, the assessee is in appeal before us.
During the course of hearing, learned Authorised Representative („learned AR‟) submitted that only motive in issuing bogus bills is to save the VAT amount to be paid to the state government. Learned AR submitted that in the State of Maharashtra, the rate of VAT for ferrous and non-ferrous item is 4%. In this regard, the learned AR referred to the various bills forming part of the paper book, wherein rate of VAT is mention as 4%. The learned AR further submitted that when found that the vendors have not paid the VAT, the assessee paid the VAT liability under the amnesty scheme declared by the Government of Maharashtra. Thus, it was submitted that the addition in the present case should only be restricted to the percentage of the VAT amount sought to be defaulted by the vendors. The learned AR submitted that the decision of Hon‟ble Gujarat High Court relied upon by the lower authorities deal with facts relevant for State of Gujarat, wherein the rate of VAT is different.
On the other hand, learned Departmental Representative vehemently relied upon the orders passed by the lower authorities.
Magan Vadhaji Prajapati ITA No.559/Mum./2022 ITA no.560/Mum./2022
We have heard the rival submissions and perused the material available on record. In the present case, on the basis of information received from investigation wing, Mumbai that assessee is one of the beneficiary of bogus purchases from parties who were found by the Sales Tax Department of Maharashtra to be indulged in practice of providing bogus sales/purchase bills without supplying any goods, reassessment proceedings in the case of assessee were initiated. Further, in order to verify the genuineness of the purchases made by the assessee, notice under section 133 (6) of the Act were issued. However, the same were returned as unserved. The AO also granted opportunity to the assessee to establish the genuineness of the parties and purchases made from them with adequate supporting evidences and also requested to produce the parties. However, the assessee neither produces these parties nor furnishes new addresses of these parties. The assessee merely produced invoices, delivery challans and Ledger accounts of these parties in its books. Since the assessee is a trader and the corresponding sales were accepted as genuine, therefore, the AO restricted the addition on account of non-genuine purchases to 12.5% following the decision of Hon‟ble Gujarat High Court in Simit P. Sheth (supra). The learned CIT(A) also upheld the conclusion reached by the AO.
We find that in Simit P. Sheth (supra), the Hon‟ble Gujarat High Court dismissed the appeal filed by the Department and upheld the decision of the coordinate bench of the Tribunal, wherein addition on account of bogus purchases was restricted to 12.5%, by observing as under:
Magan Vadhaji Prajapati ITA No.559/Mum./2022 ITA no.560/Mum./2022
“9. This being the position, the only question that survives is what should be the fair profit rate out of the bogus purchases which should be added back to the income of the assessee. The Commissioner adopted the ratio of 30 per cent of such total sales. The Tribunal, however, scaled down to 12.5 per cent. We may notice that in the immediately preceding year to the assessment year under consideration the assessee had declared the gross profit at 3.56 per cent of the total turnover. If the yardstick of 30 per cent, as adopted by the Commissioner (Appeals), is accepted the gross profit rate will be much higher. In essence, the Tribunal only estimated the possible profit out of purchases made through non-genuine parties. No question of law in such estimation would arise. The estimation of rate of profit return must necessarily vary with the nature of business and no uniform yardstick can be adopted.”
We further find that the coordinate bench of the Tribunal in Shri Simit P. Sheth vs ITO, in and 3293/Ahd/2009, vide order dated 24/02/2012, observed as under: “7. Having heard the submissions of both sides, we have been informed that the malpractice of bogus purchase is mainly to save 10% sales tax etc. It has also been informed that in this industry about 2.5% as the profit margin. Therefore, respectfully following the decisions of the co-ordinate bench pronounced on identical circumstances, we have a direct that the disallowance is required to be sustained at 12.5% of the purchases from those parties. With these directions, we hereby decide. The grounds of the rival parties which are partly allowed.”
Thus, from the above it is evident that the basis on which the coordinate bench of the Tribunal restricted the addition to 12.5% is by considering the percentage of sales tax tried to be saved by the parties engaged in these hawala transactions and the profit margin of the industry. Further, as noted above the said decision of the coordinate bench of the Tribunal was upheld by the Hon‟ble Gujarat High Court in case cited supra. Thus, we are of the considered view that in the present case, the lower authorities though correctly agreed that only profit embedded in the sales could be brought to tax, however, placed reliance upon the aforesaid decision
Magan Vadhaji Prajapati ITA No.559/Mum./2022 ITA no.560/Mum./2022 of Hon‟ble Gujarat High Court to restrict the disallowance to 12.5% without appreciating the basis on which such percentage of addition was arrived at in the facts of that case. In the present case, reliable industry data was also not brought on record to prove the prevailing profit margin of the ferrous and non-ferrous industry during the relevant assessment year. Therefore, in view of the aforesaid findings, we deem it fit to modify the impugned order only to the extent that the disallowance on account of bogus purchases should be restricted to the total of rate of VAT applicable during the year under consideration in the State of Maharashtra on the goods traded by the assessee and gross profit earned by the assessee during the year under consideration. We, accordingly, direct the AO to recomputed the disallowance. With the above directions, the sole ground raised in assessee‟s appeal is partly allowed.
In the result, appeal by the assessee for assessment year 2009–10 is partly allowed. ./2022 Assessee’s Appeal – A.Y. 2010–11 14. In this appeal, assessee has raised following grounds: “1. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming addition of Rs.16,06,021, which was 12.50% of alleged bogus purchase.”
15. The issue arising in sole ground raised in assessee‟s appeal is similar to the ground raised in assessee‟s appeal for assessment year 2009–10, except with variance in amount of addition. Therefore, our findings / conclusions in Magan Vadhaji Prajapati ITA No.559/Mum./2022 ITA no.560/Mum./2022 aforesaid appeal for assessment year 2009-10 shall apply mutatis mutandis to this ground also. As a result, sole ground raised in assessee‟s appeal is partly allowed.
In the result, appeal by the assessee for assessment year 2010–11 is partly allowed.
To sum up, both the appeals by the assessee are partly allowed. Order pronounced in the open Court on 19/19/2022