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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SHRI OM PRAKASH KANT & SHRI SANDEEP SINGH KARHAIL
PER SANDEEP SINGH KARHAIL, J.M.
The present appeal has been filed by the assessee challenging the impugned order dated 20/06/2019, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by learned Commissioner of Income Tax (Appeals)–7, Mumbai, for the assessment year 2010–11.
The present appeal before us is delayed by 947 days. Along with the present appeal, assessee has filed application seeking condonation of delay in filing the appeal, which is also supported by an affidavit sworn by the Partner of the assessee. In the affidavit, the deponent has submitted as under:
Prakash Industrial Corporation ITA No.524/Mum./2022
“W.r.t. above I, Mr Prakash Chandan in capacity of partner of M/S Prakash Industrial Corporation would like to state that the order for the above year have been received by our office and same was handed over to our consultant and was under the impression that the matter has been resolved. The negligence or through oversight on account of the consultant, this remained to be unresolved. This fact came to our notice now, thereafter we searched out and immediately paid the appeal fees of the tribunal and got the relevant papers ready. I humbly pray to your honor to condone the delay in filing the appeal for which I shall be grateful to your honor. I always co-operate with the income tax department and once again request you please condone the delay in filing the above and accept the same.”
In view of the above, the assessee has requested to condone the delay as the same is unintentional and due to circumstances beyond the control of the assessee. On the other hand, learned Departmental Representative („learned DR’) did not raise any serious objection against the application seeking condonation of delay. Having perused the application, which is also supported by an affidavit, we find that the impugned order dated 20/06/2019, was received by the assessee on same date. Thus, as per the provisions of section 253(3) of the Act, the assessee was required to file appeal within 60 days from the date of receipt of order. However, the assessee filed appeal, for the year under consideration, on 23/03/2022. We find that even if the period from 15/03/2020 till 28/02/2022, covered by the Hon'ble Supreme Court‟s order dated 10/01/2022, passed in M.A. no.21 of 2022, in M.A. no.665 of 2021, in Suo–Motu Writ Petition (Civil) no.3 of 2020 is excluded, there is a delay of about 268 days in filing the present appeal. We find that even before the learned CIT(A), there was no representation on behalf of the assessee. However, in the present appeal, assessee is has been represented. The reasons stated by the assessee for seeking Page | 2
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condonation of delay falls within the parameters for grant of condonation laid down by Hon‟ble Supreme Court in the case of Collector Land Acquisition, Anantnag Vs. MST Katiji and others: 1987 SCR (2) 387. It is well established that rules of procedure are handmaid of justice. When substantial justice and technical considerations are pitted against each other, cause of substantial justice deserves to be preferred. In the present case, the assessee did not stand to benefit by late filing of appeal. In view of the above and having perused the application, which is also supported by an affidavit, we are of the considered view that there exist sufficient cause for not filing the present appeal within the limitation period and therefore we condone the delay in filing the appeal by the assessee and we proceed to decide the appeal on merits.
In this appeal, the assessee has raised following grounds:
“Being aggrieved by the order passed by the Learned Assessing Officer (AO) u/s 143(3) rws. 147 of the Income Tax Act (the Act) and as confirmed by the CIT(A), your appellant prefers an appeal on the following grounds, which it is prayed, may be considered without prejudice to one another. 1. (a) On facts and circumstances of the case and in law, L. CITA) erred in confirming the action of the AO and approving the addition calculated by the AO on alleged bogus purchases without appreciating the facts that the opinion of the A.O is based on merely presumptions and sub conjectures and not on any material evidences corroborating the purchases when it is an accepted fact that material evidences super cedes all presumptions (b) The CIT(A) erred in confirming the addition without appreciating the understated vital facts that the purchases are duly supported with necessary documentary evidences including quantitative tally of purchases and sales and there appears no sign of it being bogus and the learned officer accepted the books of accounts. (c) The Id. CIT(A) has erred in holding the impugned purchases to be bogus, in spite of voluminous evidences on record simply on the basis that the current addresses of vendors were not provided and the vendors were not produced before the Respondent. Page | 3
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(d) The Appellant prays that the addition/ disallowance of entire 483079/- made in respect of Alleged purchases be deleted. 2. On the facts and circumstances of the case and in law, the CIT (A), erred in dismissing the ground for the appellant's plea of withdrawal of initiation of penalty proceedings u/s 271(1)(c).”
The brief facts of the case, as emanating from the record, are: The assessee is engaged in the business of trading in ferrous and non-ferrous metals under the name and style of M/s Prakash Industrial Corporation. For the year under consideration, assessee filed its return of income on 22/07/2010, declaring total income of Rs. 90,520. Subsequent to the receipt of information from Sales Tax Department, the reassessment proceedings were initiated in the case of the assessee and notice under section 148 of the Act was issued. As per the aforesaid information, assessee was alleged to be involved in taking entries of non-genuine purchases from entities, who were engaged in providing accommodation bills. During the course of assessment proceedings, in order to ascertain the genuineness of the purchases, the assessee was asked to show cause as to why the transactions with the entities, as mentioned in the aforesaid information, be not taken are non-genuine and disallowed. The Assessing Officer observed that barring the ledger account and cheque payments, no other document such as lorry receipts, transportation details etc., were produced by the assessee. Accordingly, Assessing Officer vide order dated 07/01/2016, passed under section 143(3) read with section 147 of the Act considered the transaction entered into by the assessee as non-genuine and added 12.5% of the total amount of transaction to the income of the assessee.
Prakash Industrial Corporation ITA No.524/Mum./2022
In appeal before the learned CIT(A), despite various notices being issued, no one appeared on behalf of the assessee. The assessee only filed one written submission before the learned CIT(A). After taking into consideration the written submission filed by the assessee, the learned CIT(A) dismissed the appeal filed by the assessee and upheld the addition of 12.5% of the gross profit as made by the Assessing Officer, by observing as under: “4.3 Having considered the assessment order of the AO and the submissions of the assessee, it is seen that the main plank of assessee's arguments regarding the genuineness of the purchases was that the payment has been made by cheque/banking channels and which has not found favour with court's/Tribunal's pronouncements like in the case of M/s. Kanchwala Gems vs. JCIT [ITA No. 134/JP/2002 dated 10.12.2003 by the Hon'ble ITAT, Jaipur wherein it is held that payment by account pree cheque is establish the genuineness of purchases. The said decision of the TEXT, pr has been affirmed by the Hon'ble Supreme Court in the case of M Kachwala Gems vs. JCIT (2006) 206 CTR (SC) 585: 288 ITR 10 SC Thus, the main contention of the appellant does not hold much water. The AD has med his views about the bogus nature of the purchases made by the appellant from the above parties on the basis of statements recorded by the Sales Tax Authorities as well as further inquiries carried out by him independently. The information received from the Sales Tax authorities was only a piece of evidence in depth independent investigation on the issue. It is not the case of the appellant that he has maintained a proper stock register. The appellant has not been able to establish one to one relationship/nexus between the purchases and sales. The assessee has not been able to produce the parties from whom purchases have been alleged to have been made. The appellant has also failed to produce corroborative evidence in the form of transportation bills etc. to establish that the alleged purchases were actually transported to its premises and entered in the stock register. It is also a fact that the AO has not confronted the assessee with all the information in his possession like statements of the alleged hawala operators. He did not go ahead with money trail of cheques debited in the appellant's bank account towards the alleged purchases though such investigation do not lead to concrete results in the case of hawala dealers and investigators often reach dead end in such cases. It is not the case of the AO that the impugned purchases have conclusively been established as not having been effected at all. The AO has only found the impugned supplier as bogus parties and he has not disputed the corresponding sales. The AO has only estimated the profit element embedded in the impugned purchases and he has not disputed the corresponding sales. 4.3.1. In the facts and the circumstances of the case, the total purchases shown to be made from the aforesaid parties could not be held to be entirely Page | 5
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bogus. It needs to be appreciated that in order to achieve the reported sales/turnover, there must be some corresponding purchases, whether effected from the alleged entry providers or from the grey market without bills. Thus, there ought to be some purchase. The AO has not disputed corresponding sales In this regard, the ratio laid down by the Hon'ble Bombay High Court in the case of CIT v. Nikunj Eximp Enterprises (P) Ltd., is quite relevant wherein Hon'ble High Court has held that - "When the assessee have filed letter of confirmations of the suppliers, Bank statements highlighting the payment entries through account payee cheque, copies of invoices, stock reconciliation statements before the AO; and merely because the suppliers did not appear before the AO, one cannot conclude that the purchases were not made by the assessee. The AO cannot disallow the purchases on the basis of suspicion because the suppliers were not produced before them." 4.3.2 In view of the discussion as above, it is clear that materials purchased and sold by the appellant cannot be doubted though it is not possible for the assessee to establish one to one nexus/link between purchases and sales. However, the fact of the matter remains that these transactions are not verifiable from the parties in question as it could not be established that purchases had been effected from the parties in question. Thus, the purchase prices shown on the invoices produced could not be subjected to verification and as such it was difficult to establish the correctness of the purchase prices paid for the material purchased. In the absence of any such verification as to the correctness of the price paid for the materials purchased by the appellant, the purchase price paid as mentioned on the invoices/bills cannot be accepted as the correct price paid for the goods purchased from such parties. In view of the same, the possibility of over–invoicing of the material purchased to reduce the profit cannot be ruled out. Therefore, the gross profit rate shown by the appellant for the year under consideration cannot be relied upon. In the circumstances, the correct approach in such transactions would be to estimate the additional benefit or profit earned these purchases and not to disallow the entire purchases from the aforesaid parties. In my view either the purchases from such parties is over invoiced or the purchases were actually made but not from the parties from which it was claimed to have been made and instead may have been purchased from grey market without proper billing or documentation. 4.3.3. In many judicial pronouncements on the test, the Courts have taken a consistent view that in case of non–existent parties from which the purchases are shown to have been made, only a part of such purchases can be disallowed, particularly in such cases where the corresponding sales are dot doubted Alternatively the profit embedded in such sales against the alleged bogus purchases should be brought to tax. 4.3.3.1. In the case of CIT-1 Vs Simit P. Sheth, ITA no. 553 of 2012, order dated 16/01/2013, while deciding a similar issue, the Hon'ble High Court of Gujarat has held that: "We are broadly in agreement with the reasoning adopted by the Commissioner (Appeals) with respect to the nature of disputed purchases of steel. It may be that the three suppliers from whom the assessee claimed to have purchased the steel did not own up to such sales. However, vital question while Page | 6
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considering whether the entire amount of purchases should be added back to the income of the assessee or only the profit element embedded therein was to ascertain whether the purchases themselves were completely bogus and non existent or that the purchases were actually made but not from the parties from whom it was claimed to have been made and instead may have been purchased from grey market without proper billing or documentation. In the present case, CIT believed that when as a trader in steel the assessee sold certain quantity of steel, he would have purchased the same quantity from some source. When the total sale is accepted by the Assessing Officer, he could not have questioned the very basis of the purchases. In essence therefore, the Commissioner (Appeals) believed assessee theory that the purchases were not bogus but were made from the parties other than those mentioned in the books of accounts. That being the position, not the entire purchase price but only profit element embedded in such purchases can be added to the income of the assessee. So much is clear by decision of this Court. In particular, Court has also taken a similar view in case of Commissioner of Income Tax-IV vs. Vijay M Mistry Construction Ltd. vide order dated 10.01.2011 passed in Tax Appeal No. 1090 of 2009 and in case of Commissioner of Income Tax-I vs. Bholanath Poly Fab Pvt. Ltd. vide order dated 23.10.2012 passed in Tax Appeal No. 63 of 2012. The view taken by the Tribunal in case of Vijay Proteins Pvt Ltd. Vs. CIT reported in 58 ITD 428 came to be approved." 4.3.4. Similarly, while dealing with an identical issue, in the case of CIT, Vs. Bholanath Poly Fab (P) Ltd., I.T.A. No. 63 of 2012, in the order dated 23/10/2012 23/10/2012, the Hon'ble High Court of Gujarat has held as under:– "We are of the opinion that the Tribunal committed no error. Whether the purchases themselves were bogus or whether the parties from whom such purchases were allegedly made were bogus is essentially a question of fact. The Tribunal having examined the evidence on record came to the conclusion that the assessee did purchase the cloth and sell the finished goods. In that view of the matter, as natural corollary, not the entire amount covered under such purchase, but the profit element embedded therein would be subject to tax. This was the view of this court in the case of Sanjay Oilcake Industries v. CIT [2009] 316 ITR 274 (Guj). Such decision is also followed by this court in a judgment dated August 16,2011, in Tax Appeal No.679 of 2010 in the case of CIT v. Kishor Amrutlal Patel. In the result, tax appeal is dismissed." (emphasis supplied) 4.3.5 In view of the facts and circumstances of the case and the judicial pronouncements cited above, what can be disallowed or taxed in the instant case, is the excess profit element embedded in such purchases shown to have been made from aforesaid parties. As narrated earlier, the AO in this case has held that various parties from whom the purchases were made by the appellant were found to be bogus, estimations ranging from 12.5% to 25% have been upheld by the Hon'ble Gujarat High Court, depending upon the nature of the business. 4.3.5.1 In a number/series of recent cases involving the scam unearthed by the Sales Tax Dept of Maharashtra whereby the hawala dealers were found to be issuing bogus purchase bills without delivery of goods, the Hon'ble Mumbai Tribunal has estimated the G.P addition on account of such bogus purchases as 12.5%, some of which are listed below: Page | 7
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i) Smt. Kiran Navin Doshi in ITA No. 2601/Mum/2016 dated 18.01.2017. ii) Ashwin Purshotam Bajaj &Anr. Vs ITO & Anr., in ITA No.4736/Mum./ 2014, 5207/Mum./2014, dated: 14-12-2016. iii) ITO & Anr. Vs. Manish Kanji Patel & Anr., in ITA No. 7299/Mum./2014, 7154/Mum./2012 & 7300/Mum./2014, 7627/Mum./2014, dated: 18.05.2017. iv) Metropolitan Eximchem Ltd, ITA No. 2935/Mum/2015, dated:29.03.2017 v) Romak Metal Industries vs ITO, ITA No. 722/Mum 2017 did 04.09.2017 vi) TTO vs Jugraj R. Jain, ITA No. 2571/Mum./2016 & 2572/M./2016 dtd. 02.08.2017 vii) B.J. Exports vs. Asstt. Commissioner of Income tax, ITA No.5442– 5444/Mum./2016 dated 13.09.2017; viii) Batliboi Environmental Engineering Ltd. vs. Deputy Commissioner of Income-tax, ITA No.2840 & 3482/M/2015 dated 15.03.2017; ix) Deputy Commissioner of Income-tax & Anr. Vs. Remi Process Plant & Machinery Ltd. & Anr, ITA No. 1723/M./2015, 1817/M./2015 dated 21.03.2017. x) Smt. Usha B. Agarwal vs ITO, ITA No. 7034/Mum./2016, dated 01.09.2017. In view of the above discussed factual matrix and precedents, I am of the view that the AO is justified in estimating the profit element calculated @ 12.5% embedded in impugned purchases of Rs. 38,64,638/- shown from the alleged hawala parties and adding the same to the total income returned. The assessment order of the AO is a well-reasoned and a speaking order giving in detail the reasons for his fair estimation and therefore, I do not see any reason to take a view in the matter different from the one taken by the AO. The action of the AO in estimation of 12.5% GP is sustained. The addition of Rs. 4,83,079/ made by the AO is confirmed. Hence, the grounds No. 1, 3 & 4 of appeal are Dismissed.”
Being aggrieved, assessee is in appeal before us.
During the course of hearing, learned Authorised Representative („learned AR‟) submitted that in the present case assessee earned gross profit of 5.07% and, therefore, any addition should be restricted to the gross profit as earned by the assessee.
Prakash Industrial Corporation ITA No.524/Mum./2022 8. On the other hand, learned Departmental Representative vehemently relied upon the orders passed by the lower authorities.
We have considered the rival submissions and perused the material available on record. In the present case, addition has been made as the assessee could not produce evidence in support of the purchases made during the year, which are treated as non-genuine by the lower authorities. Assessee has claimed that addition, if any, be made considering the gross profit earned by the assessee, during the year under consideration. It is the claim of the assessee that it has earned gross profit of 5.07%. However, we find that this aspect was not raised and thus, was not considered by any of the lower authorities. Even in its appeal before the learned CIT(A), the assessee did not appear despite issuances of various notices. However, during the hearing before us, learned AR gave a personal undertaking that in case the matter is remanded to the learned CIT(A) for de novo adjudication, she will appear under any circumstances. Considering the undertaking given by the learned AR and also in view of the fact that the assessee did not appear before the learned CIT(A) and apart from filing one written submission, no other details were filed before the learned CIT(A), therefore, we deem it appropriate to remand this issue to the file of learned CIT(A) for de novo adjudication after consideration of all details as may be filed by the assessee. Further, the assessee is directed to appear before the learned CIT(A) on all the dates of hearing as may be fixed without any default and file all details/ documents in support of its claim. Thus, ground no.1 raised in assessee‟s appeal is allowed for statistical purpose. Page | 9
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Ground no. 2 raised in assessee‟s appeal is pertaining to initiation of penalty proceedings, which is premature in nature and therefore is dismissed.
In the result, appeal by the assessee is partly allowed for statistical purpose. Order pronounced in the open court on 22/08/2022 Sd/- Sd/- OM PRAKASH KANT SANDEEP SINGH KARHAIL JUDICIAL MEMBER ACCOUNTANT MEMBER
MUMBAI, DATED: 22/08/2022
Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The CIT(A); (4) The CIT, Mumbai City concerned; (5) The DR, ITAT, Mumbai; (6) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary Assistant Registrar ITAT, Mumbai