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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SHRI OM PRAKASH KANT & SHRI SANDEEP SINGH KARHAIL
The present appeal has been filed by the Revenue challenging the impugned order dated 16/01/2020, passed under section 250 of the Income Tax Act, 1961 (‘the Act’) by the learned Commissioner of Income Tax (Appeals)–46, Mumbai, [‘learned CIT(A)’], for the assessment year 2011–12.
When the appeal was called for hearing, neither any one appeared on behalf of the assessee nor was any application seeking adjournment
Shri Nilesh M. Jain ITA No. 1660/Mum./2020 filed. Considering the issue involved, we proceed to decide the present appeal ex parte qua the assessee, after hearing the learned Departmental Representative and on the basis of material available on record.
3. In this appeal, the Revenue has raised following grounds:
“1. On the facts and in the stances of the case, the Ld CTT(A) erred in restricting the addition of 32% on account of bogus purchase without appreciating the fact that the Sales Tax Department Maharashtra has proved beyond doubt that the parties declared as hawala trades were involved in providing accommodation entry of purchases and the assessee was one the beneficiaries of accepting accommodation entry for the purchase.
2. On the facts and circumstances of the case and in the law, the Ld cit(A) erred in not appreciating the fact that the assessee failed to produce the parties for verification, in spite of opportunity provided by the A.O.”
On the facts and in the circumstances of the case, the Hon'ble ITAT is requested to entertain this appeal though the tax effect is below the monetary bit prescribed in the CBDT Circular no.14/2019 dated 08.08.2019 r.w Circular no.3/2018 dtd 11.07.2018 as amended on 2008 2018 as the case falls in the exception provided in para 10(e) of the sand Circular in as much as the addition is based on information received from external sources in the nature of law enforcement agencies, namely, Sales Tax Authorities.
4. The appellant prays that the order of the Ld. CITA) on the above grounds be set aside and that of the AD be restored.
5. The appellant craves have to amend or alter any grounds or add a new ground which may be necessary"
The only grievance of the Revenue in present appeal is against the reduction in the disallowance made by the Assessing Officer on account of bogus purchases made by the assessee.
The brief facts of the case, as emanating from record, are: For the year under consideration, the assessee filed his return of income on Shri Nilesh M. Jain ITA No. 1660/Mum./2020 23/09/2011, declaring total income of Rs. 5,66,742. Subsequent to the information received from the Sales Tax Department and DGIT (Investigation), Mumbai, notice under section 148 of the Act was issued to the assessee. In the reasons provided by the Assessing Officer for reopening the assessment, it was alleged that the assessee has obtained bills of bogus purchases from parties engaged in hawala transaction. It was further alleged that no actual goods or services are delivered by these parties to the customers and they issued only bogus bills after charging small commission. Accordingly, it was alleged that assessee took bills worth Rs. 8,69,067, at least, from the above parties to inflate the purchases. During the course of reassessment proceedings, assessee submitted that all the transactions are genuine and the amount of VAT has already been paid by the assessee, so it doesn’t form part of the purchase amount. The Assessing Officer, vide order dated 12/11/2015, passed under section 143(3) r.w.s. 147 of the Act, in absence of relevant and corroborative evidence or material in support of the assessee’s submission, treated the purchases made by the assessee as unverifiable. The Assessing Officer after estimating gross profit percentage of the assessee at 12.5%, made addition of Rs. 1,08,635, to the total income of the assessee.
In appeal, learned CIT(A), vide impugned order dated 16/01/2020, following the decision of Hon’ble Jurisdictional High Court in Pr. CIT vs.
Shri Nilesh M. Jain ITA No. 1660/Mum./2020 Mohommad Haji Adam & Co., of 2016 etc., judgment dated 11/02/2019, granted partial relief to the assessee, observing as under:
“6. I have considered the submissions and contentions of the appellant as well as the order of the AO. The appellant has placed reliance on the decision of the Hon'ble Mumbai High Court in the case of Mohamed Haji Adam & Co (supra). It is seen that the question of law arising in these appeals is as under: "(a) Whether on the facts and in the circumstances of the case and in law, the Hon'ble ITAT was justified in not confirming the addition made by the Assessing Officer on account of bogus purchases shown to have been made through hawala transactions from certain parties who were only providing accommodation sale bills? (b) Whether on the facts and in the circumstances of the case and in law, where evidently no purchases were made from these parties who were issuing only bogus accommodation bilis and this finding has been accepted by the CIT(A) and the ITAT, the ITAT, without any evidence, was justified in presuming that there must have been purchases and thereupon giving huge relief to the assessee? (c) whether on the facts and in the circumstances of the case and in law, the order of the Hon'ble ITAT is perverse as no reasonable person acting judicially and properly instructed in the relevant law could arrive as such a finding on the evidence on record?" 6.1 The Hon'ble Mumbai High Court after considering the facts of the case has decided the case in favour of the assessee by observing as under: In the present case, as noted above, the assessee was a trader of fabrics The AO found three entities who were Indulging in the bogus billing activities. AO 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 rises whether the Revenue is correct in contending that the entire purchase amount should be added by way of 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 GP rate on purchases at the same rate of other genuine purchases. The decision of the Gujarat High Court in the case of N K Industries Ltd (supra) cannot be applied without reference to the facts in fact in Paragraph 5 of the same Judgement the court held and observed as under: “So for 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, Page | 4
Shri Nilesh M. Jain ITA No. 1660/Mum./2020 even if 8% 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 6.66% 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.”
In these circumstances, no question of law, therefore arises All Income Tax Appeals are dismissed, accordingly. No order as to costs. 6.2 Considering the facts of the case as well as the decision cited (supra), the suppressed profit as estimated by the AO to the extent of 12.5% of the purchases made from the bogus entities is restricted to 8.32%.”
Being aggrieved, Revenue is in appeal before us.
During the course of hearing, learned Departmental Representative vehemently relied upon the order passed by the Assessing Officer and submitted that gross profit percentage should be estimated at 12.5% only.
We have considered the submissions and perused the material available on record. In the present case, both Assessing Officer as well as learned CIT(A) agreed that addition in respect of bogus purchases can only be made to the extent of gross profit percentage of the assessee. The Assessing Officer estimated the gross profit percentage at 12.5%, while the learned CIT(A), agreeing with the submissions of the assessee, restricted the said percentage to 8.32%, following the decision of Hon’ble jurisdictional High Court in Mohommad Haji Adam & Co. (supra). During the hearing before us, no material/evidence has been brought on record to justify adoption of gross profit percentage at 12.5% in the case of Page | 5
Shri Nilesh M. Jain ITA No. 1660/Mum./2020 assessee, as applied by the Assessing Officer. Thus, in view of the above, we find no infirmity in the impugned order passed by the learned CIT(A) granting partial relief to the assessee by following the decision of Hon’ble jurisdictional High Court cited supra. Accordingly, grounds raised by the Revenue are dismissed.