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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
O R D E R
PER PAVAN KUMAR GADALE JM:
The revenue has filed the appeal against the orders of the Commissioner of Income Tax (Appeals)-55, Mumbai passed u/s 143(3) and 147 of the Act. The revenue has raised the following grounds of appeal:
1. "On the facts and circumstances of the case and in law, the Ld. CIT(A) is erred in restricting the addition @ 10% of the bogus purchases of Rs. 3,15,0181- as against 25% i.e. 100% of the total purchases by ignoring the fact that the Fakir Mohamed Gani Malim., Mumbai. - 2 -
action of the Assessing Of was only based on credible information received from the Maharashtra Sales Tax Department and that the assessee, during the course of assessment proceedings, failed to prove the genuineness of the purchase transactions?" 2. "On the facts and in the circumstances of the case and in law, Ld. CIT(A) is erred in restricting the addition @10% of the bogus purchases of Rs. 3,15,018/- as against 25% i.e. 100% of the total purchases without appreciating the fact that the assessee had failed to establish the genuineness of the alleged parties from whom purchases is claimed to have been made during the year ?" 3. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) is erred in restricting the addition @ 10% of the bogus purchases of Rs. 3,15,018/- as against 25% i.e. 100% of the total purchases without appreciating the fact that the Sales Tax Department as well as DGIT(Inv.) Mumbai during their course of Investigations found the alleged parties to be providing only bogus purchases/ accommodation Bills ?" 4. "On the facts and circumstances of the case and in law the Ld. CIT(A) is erred in restricting the addition on account of alleged bogus purchases to the gross profit margin returned by the assessee without appreciating the ration of the Supreme Court in the case of N K Proteins Ltd. in which the entire addition on account of bogus purchases has been upheld ?"
Though the Tax Effect is below the monetary limited 5. as prescribed in the CBDT instructions, No. 3/201 Dated. 11.07.201 as amended on 20.08.201 as the case fail in the exception provided in para 10(e) and the said instruction is as much as the addition is based on the information received from external sources in the nature of Law enforcement agency namely Sales Tax Authorities.
Fakir Mohamed Gani Malim., Mumbai. - 3 -
The brief facts of the case are that the assessee is engaged in the business of manufacturing of engineering goods. The assessee has filed the return of income for the A.Y 2010-11 disclosing a total income of Rs. 8,47,702/-. The Assessing officer (A.O) has received information from DGIT(Invg), Mumbai that the sales tax department Maharashtra has carried out investigation and found that there are list of parties who provides accommodation entries and the assessee is one of the beneficiary of accommodation entries of bogus purchases. The A.O find that the assessee has transactions with four parties aggregating to Rs. 3,15,108/-and is of the opinion that the income has escaped the assessment and the notice u/sec148 of the Act was issued. Subsequently notice u/s 143(2) and 142(1) of the Act are issued. In compliance, the Ld. AR of the assessee has submitted the audited report and details. The A.O. called for additional information to substantiate the genuineness of purchases. Since no information was filed by the assessee and the A.O. has relied on the information available on record and is of the opinion that the genuineness of transactions could not be accepted and made an addition of entire bogus
Fakir Mohamed Gani Malim., Mumbai. - 4 - purchases of Rs. 3,15,018/- and assessed the total income of Rs.11,62,720/- and passed the order u/s 143(3) r.w.s 147 of the Act dated 19.01.2016.
Aggrieved by the order, the assessee has filed an appeal before the CIT(A). The CIT(A) in the appellate proceedings considered the grounds of appeal
, findings of the A.O in the scrutiny assessment, submissions of the assessee/ remand report on the disputed issue. Finally the CIT(A) considered the judicial decisions of the Honble High Court and Honble Tribunal and restricted the addition to the extent of 10% of bogus purchases and partly allowed the appeal. The CIT(A) has observed at Para 7 to 9 of the order, which is read as under: Ground No 1. In this ground, the assesse has stated that Assessing Officer has grossly erred in reopening the assessment. It is noted that no submission are filed by the aassesse in support of this ground. In view of this, the ground is rejected.
7. Under this ground the assesse has claimed that the Assessing Officer erred in treating purchases of Rs. 3,15,013/-as bogus and adding it to the income. It is claimed that these are genuine purchases on which VAT was paid and that income cannot be assessed on mere declaration of other parties as hawala parties. Thus addition is made on assumptions and presumptions and is bad in law. I have considered the submission made by assesee and remand
Fakir Mohamed Gani Malim., Mumbai. - 5 - report by the Assessing Officer. During the appellate proceedings , the assesse filed account extract of concern parties in his books of accounts, Tax invoice from one party of Rs. 1627/- and a copy of audit report. This was sent to the Assessing Officer for his comments , the Assessing Officer after giving due opportunity to the assesee has submitted report. It is verified by the Assessing Officer that bills in respect of remaining three parties are not furnished parties before him also. And that payment of Rs. 307289/- made to Magnitude trading Pvt Ltd was done through bank. However, in that case also no confirmation of the said parties are bill, invoices is furnished by the assesee. The assesee also could not produced the said parties for personal verification stating that he is not aware of here ware abouts. As already stated the assesse has not filed rebuttal of the Assessing Officer's report. It is seen that the assesee claimed purchases totalling Rs. 315018/- from four parties identified as suspicious parties or the hawala parties and has taken accommodation entries in the form of bogus purchase without actual delivery of goods. The assesee was given sufficient opportunity during the assessment and appellate proceedings to prove the genuineness of the purchase. However in not a single case he has been able to establish it. Payment of Rs . 307289/- to Magnitude Trading Pvt. Ltd is made through bank, however no bill is produced by the assesee. Thus the assesee has failed to prove the genuineness of the purchases from these parties. The assesee has relied on decision of the Mumbai ITAT in the case of Hiralal Chun ilal Jain dated 01.01.2016 for AY 2009-10 in ITA No 4547/MUM/2014. In that case, the ITAT has deleted the addition on account of bogus purchases, which was restricted by CIT(A) to 20% of purchases, by noting that there was no independent inquiry nor principle of natural justice has been followed. The decision is not applicable to the assessee who did not comply during the assessment proceedings and also did not file the necessary details. However, the assesee is owner of trading concern and the books of accounts of the same are duly audited. The AO has not Fakir Mohamed Gani Malim., Mumbai. - 6 - rejected the sales of the assesee and has only disallowed some purchases. In its decision dated 11.02.2019 in the case of Pr. CIT Vs Mohd. Haji Adam& Co.( of 2016 etc.), the Hon'ble Bombay High Court has decided as below: The findings of the CIT(A) and the Tribunal would suggest the department has not disputed the assessee's sales. There was not discrepancy between the purchases shown by the assesee and the sales declared. That being the position the Tribunal was correct in coming to the conclusion that purchases cannot be rejected without disturbing the sales in the case of a trader. The Tribunal thereafter correctly restricted the additions limited to the extent of bringing the gross profit rate on purchases at the same rate of other genuine purchases. The decision of Gujrat High Court in N K Industries cannot be applied without reference to the facts" I find that the above decision of the jurisdictional High Court is applicable to the facts of the case. Considering the facts of the case, submission of the assesee and particularly the audited Trading and P & L A/c, I restrict the disallowance to 10% of the purchases held to be bogus by the Assessing Officer.
In the result, the appeal is partly allowed.
Aggrieved by the CIT(A) order, the revenue has filed an appeal before the Honble Tribunal.
At the time of hearing, the Ld.DR submitted that the CIT(A) has erred in restricting the addition to 10% irrespective of facts that no proper information was filed in the Assessment proceedings. None appeared on behalf of the assessee.
Fakir Mohamed Gani Malim., Mumbai. - 7 -
We heard the Ld.DR submissions and perused the material on record. The sole crux of the disputed issue envisaged by the Ld.DR that the CIT(A) has restricted the addition to the extent of 10% of the bogus purchases considering profit element embedded. We found that the CIT(A) has dealt on the facts and considered the Hon’ble High Court decision and took a view. Further, We find the Jurisdictional Honble High Court in the case of Pooja Paper Trading Co. Vs. ITO, (104 taxmann.com 95) and Honble Gujarat High court in CIT Vs. Simit P Sheth (2013) (356 ITR 451) has upheld the disallowance restricting profit element on such purchases.
We find that the Ld.CIT(A) took a reasonable view that the only profit percentage has to be added and estimated @ 10% of bogus purchases. The Ld.DR could not controvert the observations of the Ld. CIT(A) with any new cogent evidence and material but relied only on the A.O order. We are of the opinion that the CIT(A) dealt on the facts and considered the profit element in the bogus purchases and also the A.O has not disputed the sales. The Ld.CIT(A) has relied on the decisions of Hon’ble High Court and passed a reasoned order.
Fakir Mohamed Gani Malim., Mumbai. - 8 - Accordingly, we do not find any infirmity in the order of the CIT(A) and uphold the same and dismiss the grounds of appeal raised by the revenue.
In the result, the appeal filed by the revenue is dismissed.
Order pronounced in the open court on 21.04.2022