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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
Before: SHRI BALAGANESH & SHRI KULDIP SINGH
Present for: Assessee by : None Revenue by : Shri Rajat Mittal, D.R. Date of Hearing : 04 . 05 . 2022 Date of Pronouncement : 27 . 05 . 2022 O R D E R
Per : Kuldip Singh, Judicial Member:
The appellant, Income Tax Officer (hereinafter referred to as ‘the Revenue’) by filing the present appeal, sought to set aside the impugned order dated 03.08.2020 passed by Commissioner of Income Tax (Appeals)-3, Mumbai [hereinafter referred to as the CIT(A)] qua the assessment year 2009-10 on the grounds inter alia that :- 2 Shri Zaheerahmed Khatizama Khan “On the facts and in the circumstances of the case and in law, the Ld. CIT(A)-3,Thane erred in deleting the addition of Rs.5,45,249/- out of the total addition of Rs.7,26,999/- made on account of bogus purchases, despite holding that the purchases were not genuine and the assessee failed to prove genuineness of the transactions.
2. On the facts and in the circumstances of the case and in law, Ld. CIT(A)-3, Thane erred in deleting the above addition despite the fact that the assessee failed to discharge his onus of proving the purchases.
3. The appellant prays that the order of the Ld. CIT(A)- 3, Thane, may be set-aside and that of the Assessing Officer be restored.
4. The appellant craves leave to add, amend or alter or alter any ground/grounds, which may be necessary. .”
Briefly stated facts necessary for adjudication of the controversy at hand are : assessee is into the business of trading in cement and building materials under the name and style of Sana Traders. On the basis of information received from Maharashtra Sales Tax Department, Mumbai qua details of persons who have provided accommodation entries/bills of bogus purchases without physical delivery of goods to many entities, the assessee being one of the beneficiaries of such accommodation entries, the assessment was reopened by initiating the proceedings under section 147/148 of the Income Tax Act, 1961 (for short ‘the Act’).
The Assessing Officer (AO), in order to verify the genuineness of the bogus purchases, issued notice to the Shri Viramkumar Goulddas Shah, proprietor of Vahal Trading Pvt. Ltd. qua the purchase of Rs.7,26,999/- during financial year 2008-09 but notice returned unserved with the report “unclaimed/left”. Even the 3 Shri Zaheerahmed Khatizama Khan assessee has not appeared before the AO to prove the genuineness of the alleged purchases. Consequently, the AO proceeded to hold that the assessee’s bogus purchases made from Vahal Trading Pvt. Ltd. are non genuine in order to inflate its purchases of Rs.7,26,999/- and thereby made addition of entire amount of bogus purchases of Rs.7,26,999/- and thereby framed the assessment at the total income of Rs.9,34,410/- under section 144 read with section 147 of the Act.
Assessee carried the matter before the Ld. CIT(A) by way of filing appeal who has partly allowed the same. Feeling aggrieved the Revenue has come up before the Tribunal by way of filing present appeal.
5. Despite issuance of the notice to the assessee none appeared on behalf of him, so the Bench decided to decide this appeal on the basis of material available on record with the assistance of the Ld. D.R. for the Revenue.
We have heard the Ld. Departmental Representative for the Revenue, perused the orders passed by the Ld. Lower Revenue Authorities and documents available on record in the light of the facts and circumstances of the case and case law relied upon.
During the first appellate proceedings the Ld. CIT(A) called for the remand report from the concerned AO but no such remand report was sent by the AO and the Ld. CIT(A) decided the appeal by granting part relief by making addition of 25% of the bogus purchases i.e. Rs.1,81,750/- out of the total purchases of 4 Shri Zaheerahmed Khatizama Khan Rs.7,26,999/-, to the income of the assessee by returning following findings: “6. I have considered the facts of the case and the submission of the appellant. As the relevant purchases have been debited to the P&L Account and claimed as deduction in computing the profits of the business chargeable to tax, the onus was on the appellant to prove the genuineness of the purchases with satisfactory evidences. It is observed that the appellant, during the course of appellate proceedings has produced the copy of statement of income and financial statement, copies of ledger extracts, copy of stock register, copies of sales bills with deliver chaflans, etc. However, the fact remains that the information called for from this party u/s 133(6) of the Act remained un-complied with. It is noted that the AO was in possession of information received from the Sales Tax Department, indicating strongly that the suppliers concerned were only providing accommodation entries and were not carrying out any real business. Thus, the onus that was cast on the appellant was of a greater degree to prove the genuineness of this party as well as of these purchases. Under these circumstances the claim of the appellant that the said purchases are genuine cannot be accepted in totality.
6.1 Further, on perusal of the appellant's submission it is observed that during the year under consideration the appellant had declared gross profit @ 3,58% and net profit @ 2.19%, which is very low. There cannot be any dispute about the well settled legal proposition that tax can be levied only on real income. It is elementary rule of accountancy as well as of taxation laws that the profit from business cannot be ascertained without deducting the cost of purchase from sales, otherwise it would amount to levy of income tax on gross receipts or sales. of the Hon'ble Gujarat HC in the case of Vijay Protein and other decisions of the Guiarat HC in the case of Sanjay Oilcake Industries Vs. CIT (2009) 316 ITR 274 and N.K industries Ltd. Vs. DCIT.
6.2 Disallowance @ 25% out of Bogus purchases was held as reasonable in the case of Vijay Proteins Ltd. by the 5 Shri Zaheerahmed Khatizama Khan Hon'ble Gujarat High Court, in view of the fact that the savings occurred to the suppliers on account of sales tax, duties and income-tax, by buying the goods from grey market at lower rates and booking the purchases at normal rate, the assessee got the benefit of this proportion. It is pertinent to mention here that the Hon'ble Supreme Court, vide order dated 06.04.2015, dismissed the SLP filed by the assessee and confirmed the finding of the Hon'ble Gujarat HC in the case of Vijay Protein and other decisions of the Guiarat HC in the case of Sanjay Oilcake Industries Vs. CIT (2009) 316 ITR 274 and N.K industries Ltd. Vs. DCIT.
6.3 Considering the facts of case and in view of various decisions as discussed above, it is held that the appellant has made sales so the purchases cannot be totally bogus. Therefore only 25% of the bogus purchases, i.e. Rs. 1,81,750/-, out of total purchases of Rs, 7,26,999/- may be added to the income of the appellant. Accordingly the disallowance of Rs 1,81,750/- is confirmed and balance amount of Rs. 5,45,249/- is deleted. The above grounds of appeal are partly allowed.”
8. We have perused the findings returned by the Ld. CIT(A) which is based upon the facts of the case and law applicable thereto settled in case of Vijay Proteins Ltd. (supra) and in case of Sanjay Oilcake Industries (supra).
The Ld. D.R. for the Revenue contended that there is no basis to restrict the addition to the tune of 25% of the bogus purchases by the Ld. CIT(A). However, this argument of the Ld. D.R. for the Revenue is misconceived because even the AO has not applied any legal yardstick by conducting any enquiry rather proceeded to rely upon the information sent by Sales Tax Department of Maharashtra and made adhoc additions. Identical issue has also been decided by the Hon’ble Bombay High Court in ITA No.183/M/2021 6 Shri Zaheerahmed Khatizama Khan case of JK Surface Coatings Pvt. Ltd. in of 2017 order dated 28 October, 2021 by returning following findings: “4. Having considered the memo of Appeal and the Orders passed by AO / CIT(A) and the Order of ITAT, the only issue that comes up for consideration is with respect to the extent of ad-hoc disallowance to be sustained with respect to bogus purchases. The AO has observed 100% of the purchase value to be added to the income of Assessee, the CIT(A) has said it should be 15% and ITAT has said it should be 10%. First of all, this would be an issue which requires evidence to be led to determine what would be the actual profit margin in the business that Assessee was carrying on and the matter of calculations by the concerned authority. According to the Tribunal, in all such similar cases, it is ranged between 5% to 12.5% as reasonable estimation of profit element embedded in the bogus purchase when material consumption factor do not show abnormal deviation.
Whether the purchases were bogus or whether the parties from whom such purchases were allegedly made were bogus was essentially a question of fact. When the Tribunal has concluded that the assessee did make the purchase, as a natural corollary not the entire amount covered by such purchase but the profit element embedded therein would be subject to tax.”
In view of the matter, we are of the considered view that the Ld. CIT(A) has legally and validly decided the issue and finding no illegality or perversity in the same, appeal filed by the Revenue is hereby dismissed. Order pronounced in the open court on 27.05.2022.