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Income Tax Appellate Tribunal, “SMC” BENCH,
O R D E R
PER AMARJIT SINGH, JM:
The revenue has filed the present appeal against the order dated 26.02.2020 passed by the Commissioner of Income Tax (Appeals) -01, Thane [hereinafter referred to as the “CIT(A)”] relevant to the A.Y.2010- 11.
The revenue has raised the following grounds: - “1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A)-1, Thane erred in deleting the addition of Rs. 6,56,771/- out of the total addition of Rs. 7,50,595/- 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)-1, 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)-1, 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.”
The brief facts of the case are that the assessee filed his return of income on 26.09.2010 declaring total income to the tune of Rs.2,10,160/-. Thereafter, the assessment of the assessee was reopened on receipt of the information from the DGIT(Inv.), Pune in which it was conveyed that the assessee has taken the bogus purchase entry from the seven parties in sum of Rs.7,50,595/-. The details of the parties are hereby as under:-
Tin of hawala Name of Hawala PAN of Hawala A.Y Amount in dealer Dealer Dealer Rupees 27790690881V Shubham AJAPM6393F 2009-10 248271 Enterprises 27650686108V Arco Enterprises AQRPB8274G 2009-10 58941 27880265244V Hiten Enterprises ANBPP2704H 2009-10 133374 27310721312V Globe Impex AGKPJ6666M 2009-10 110306 (India) 27290663802V Liberty Trading ANAPB3443P 2009-10 93987 Corporation
27880705721V Adinath BXIPS3607M 2009-10 1596 Enterprises Seemant Trading 27420676874V AQRPB8469K 2009-10 104120 Co. Total 7,50,595/- Notices u/s 143(2) & 142(1) of the Act were issued and served upon the assessee. Notices to the parties u/s 133(6) were also issued but finding no reasonable explanation, the AO raised the addition to the tune of Rs.7,50,595/- u/s 69C of the Act. The total income of the assessee was assessed to the tune of Rs.9,60,755/-. Feeling aggrieved, the assessee filed an appeal before the CIT(A) who restricted the addition to the extent of Rs.12.5% of the bogus purchase in sum of Rs.7,50,595/- i.e. 93,824/-. The revenue was not satisfied, therefore, the revenue has filed the present appeal before us.
We have heard the argument advanced by the Ld. Representative of the Department and has gone through the case carefully filed. Before going further, we deem it necessary to advert the finding of the CIT(A) on record:
“6. I have considered the facts of the case, findings of the A 0. in the Assessment Order, submission of the AR of the Appellant and material placed on record. During the course of Assessment Proceedings, information was called for by the AO. u/s 133(6) of the LT Act 1961 from the hawala dealers, but the notices were not complied with It is noted that the AO was in possession of information received from the DGIT (lnv). indicating strongly that the parties 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 the parties as well as these purchases. Under these circumstances, the claim 01 the Appellant that the said purchases are genuine cannot be accepted in totality. Although the Appellant, during the course of Assessment Proceedings, submitted copies of Rank Book, Cash Book, Ledger and Financial Statement 6.1 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 horn business cannot be ascertained without deducting cost of purchase from sales, otherwise it would amount to levy of income tax on gross receipts or sales. Such recourse is not permissible unless it is specifically authorized under any provisions contained in the Act. The Hon'ble Jurisdictional High Court in the case of Harma Bharubhai - of 2013) has held that only the profit attributable to the unaccounted sales can be brought to tax Similar view has been taken by the Gujarat High Court in the cases of Vijay M Mistry Construction Pvt Ltd (355 ITR 498), Bholanath Polyfab (P) Ltd (355 ITR 290) and Vijay Proteins Ltd (58 taxmann 44).
6.2 The Hon'ble Ahmedabad ITAT, in the case of Simit P Sheh v/s ITO, in and 3293/Ahd/2009 has held 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% is the profit margin. Therefore, respectfully the decisions of the coordinate bench pronounced on identical circumstances, we hereby direct that the ITA No. 3238 & 3293/Ahd/2009 A Y 2006-07 Sh. Simit P Sheth Vs. ITO wd 2(2), BRD page 6 disallowance is required to be sustained at 12.5% of the purchases from those parties" The order of the IT AT was also sustained by the Hon’ble Gujarat High Court vide order
16.01.2013, (38 taxmann 385) wherein it was held that "This being the question. 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 ration of 30% of such total sales The Tribunal, nowhere, scaled down to 12.5%. We may notice that in the immediately preceding year to the assessment year under consideration the assessee had declared gross profit 3.56% of the total turnover If the yardstick of 30%, as adopted by the commissioner. Is accepted GP 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."
6.3 Considering the facts of the case and in view of various decisions as discussed above, it is held that only 12.5% of the bogus purchases of Rs.7,50,595/-, that is Rs.93,824/- is to be added to the income of the appellant. Accordingly, the disallowance of Rs.93,824/- is confirmed and balance amount of Rs.6,56,771/- is deleted and the above grounds of appeal are partly allowed.”
5. On appraisal of the above mentioned finding, we noticed that the CIT(A) has decided the matter of controversy on the basis of the decision of Hon’ble Bombay High Court in the case of Vijay M. Mistry Construction Pvt. Ltd. (355 ITR 498), Bholanath Polyfab (P.) Ltd. (355 ITR 290) and Vijay Proteins Ltd. (58 taxmann 44) and the case of Simit P. Sheth Vs. ITO in and 3293/Ahd/2009). The addition of bogus purchase has been restricted to the extent of 12.5%. The addition
Rs.93,824/- of the bogus purchase nowhere seems unjustifiable. The CIT(A) has also considered the G.P. Ratio of profit of the assessee. Considering of all the facts and circumstances, we are of the view that the CIT(A) has decided the matter of controversy judiciously and correctly which is not liable to be interfered with at this appellate stage. Accordingly, we decide all the issues are in favour of the assessee against the revenue.