ITO 32(1)(3), MUMBAI vs. SHRI BHAVIK JAYANT GANDHI, MUMBAI

O R D E R PER S. RIFAUR RAHMAN (AM) 1. These appeals are filed by the revenue against different orders of the Learned Commissioner of Income Tax (Appeals)–44, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 07.01.2020 for the A.Ys., 2009-10, 2011-121 & 2012-13.

3. Briefly stated the facts are that, the assessee engaged in the business of dealer in chemicals, filed return of income on 22.09.2009 and 22.09.2012 declaring income of ₹.2,99,830/-, and ₹.6,99,440/- for the A.Y: 2009-10 and A.Y.2012-13 respectively, and the returns were processed u/s. 143(1) of the Act. Subsequently, Assessing Officer received information from the DGIT (Investigation), Mumbai about the accommodation entries provided by various dealers and assessee was also one of the beneficiary from those dealers. The assessments were reopened U/s. 147 of the Act based on the information received from DGIT (Investigation), Mumbai, that the assessee has availed accommodation entries from various dealers who are said to be providing accommodation entries without there being transportation of any goods. In the reassessment proceedings, the assessee was required to prove the genuineness of the purchases made from various parties referred in Assessment Order. Assessee furnished purchase bills, delivery challans, details of payments made for the purchases and details of corresponding sales of the goods purchased and submitted that the purchases made are genuine.

3 & 1536/MUM/2020 (A.Ys. 2009-10, 2011-12 & 2012-13) Shri Bhavik Jayant Gandhi 4. Not convinced with the submissions of the assessee the Assessing Officer treated the purchases as non-genuine and he was of the opinion that assessee had obtained only accommodation entries without there being any transportation of materials and the assessee might have made purchases in the gray market. It is the finding of the Assessing Officer that the assessee failed to produce the parties before the Assessing Officer to prove the claim of the assessee. Assessing Officer observed that the notice issued u/s.133(6) of the Act to the parties were returned unserved with remark “Not known”. Therefore, Assessing Officer treated entire purchases of ₹.60,26,813/- and ₹.44,16,660/- for the A.Y:2009-10, and A.Y. 2012-13 respectively as non-genuine and added to the income of the assessee. On appeal the Ld.CIT(A) considering the evidences and various submissions of the assessee restricted the disallowance to an extent of 9.7 and 11.32% of the non-genuine purchases for the A.Y. 2009-10 and 2012-13 respectively.

4 & 1536/MUM/2020 (A.Ys. 2009-10, 2011-12 & 2012-13) Shri Bhavik Jayant Gandhi 7. Considered the rival submissions and material placed on record, perused the orders of the authorities below. On a perusal of the order of the Ld.CIT(A), we find that the Ld.CIT(A) considered this aspect of the matter elaborately with reference to the submissions of the assessee and the averments in the Assessment Order along with various judicial pronouncements including the decision of the Hon'ble Gujarat High Court in the case of CIT v. Simit P. Sheth [356 ITR 451] and also following assessee’s own case for the A.Y. 2011-12 in ITA.No. 1653/Mum/2016 dated 06.04.2017 restricted the disallowance to 12.5% of the non-genuine purchases. Ld.CIT(A) further considering the Gross Profit furnished by the assessee for the A.Y. 2009-10 and 2012-13 being 2.8% and 1.18% respectively, restricted the disallowance 9.7% and 11.32% for the A.Y. 2009-10 and 2012-13 respectively. While holding so, the Ld.CIT(A) for the A.Y. 2009-10 observed as under: - “4.2. I have considered the Assessment Order and the submissions of the appellant including the case laws cited. The AO held tin the Assessment Order that he appellant produced the details with regard to purchases made. Assessee also filed copies of purchase invoices, ledger account of parties, bank statement showing each and every payment for purchases and also corresponding sales made. It is noticed that on account of non-production of suppliers, delivery challans, transportation bills etc. the AO added 100% as un explained purchases u/s 69C of the Act. Section 69C reads. “Where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof, or the explanation, if any, offered by him is not, in the opinion of the AO, satisfactory, the amount covered

5 & 1536/MUM/2020 (A.Ys. 2009-10, 2011-12 & 2012-13) Shri Bhavik Jayant Gandhi by such expenditure or part thereof, as the case may be, may be deemed to be the income of the assessee for such financial year. As can be seen, for applying the section 69C, there should be no explanation about the source of expenditure or that the explanation offered is not found satisfactory: In other Wards the addition can be made if the source of expenditure incurred is not proved. Here in this case, the appellant furnished an’ explanation of source from his bank account along with supporting evidence of purchase invoices and payment made for the said purchases by cheques ‘from the bank account. Therefore, in this case, the source of expenditure for purchases stands explained through the bank account. Therefore, invoking of section 69C in the present case is not proper. 4.3 It is seen that many Benches of ITAT and Hon'ble High Courts have held that when purchases are supported by sufficient documentary evidences, then merely because of non-appearance before the AO or non production of minor documents like delivery challans and lorry receipts, one cannot conclude that the purchases were not made by the assessee. | agree with the contentions of the Ld. AR. that there are many decisions wherein the ITAT, Mumbai, have upheld addition of certain percentage of alleged bogus purchases under similar facts. 4.4 Further, this is also not case in which the signed blank cheque books are found with the buyer to hold that the purchases of material were not at all made but entered in the stock to inflate the raw material. Therefore the decision of the Supreme Court in the case of N K Proteins Ltd 250 taxman 0022(SC) would not apply to the case. It is also seen that the AO has not doubted the sales made by the appellant, and there cannot be sales without the purchases in a trading business. Therefore, the saving on account of VAT and other incidental charges made by the appellant on the said bogus purchases can be brought to tax as additional profit. In the case of CIT vs. Simit P Sheth, 356 ITR 451, Hon'ble Gujarat High Court has upheld estimation @ 12.5% of alleged bogus purchases by holding as under: “If the payments to the abovementioned parties are made through cheque and the subsequent sales made have been accepted in total by the assessing Officer, then it can be concluded that purchases have been made from persons in the open market. 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.”

6 & 1536/MUM/2020 (A.Ys. 2009-10, 2011-12 & 2012-13) Shri Bhavik Jayant Gandhi 4.5. However, Ha appellants own case for the A.Y. 2011-12, the Hon'ble ITAT “C” Bench Mumbai in ITA.No. 1653/Mum/2016 dated 06.07.2017 estimated profit at 12.5% minus the GP% on disputed purchases regarding which information was received from Sales Tax Department. Copy of the ITAT order is available on the file. It is seen from the Audit Report that the GP of the appellant for the year is 2.8%. Keeping in view the totality of facts and circumstances of the case, the disallowance made by the AO is restricted to 9.7% (being 12.5% - 2.8) of such purchases. Therefore, the AO is directed add 9.7% of Rs.60,26,813 working out to Rs.5,84,600 and modify the addition accordingly. Appellant gets part relief. These grounds are partly allowed. In result, the appeal is partly allowed.”

Similarly, the Ld.CIT(A) restricted the disallowance to 11.32% for A.Y. 2012-13 also.

ITA.No. 1535/MUM/2020 (A.Y. 2011-12)

“6. We have heard the rival submissions, perused the orders of the authorities below. In so far as the penalty levied on estimation of profit element on purchases is concerned, we are of the view that 9 & 1536/MUM/2020 (A.Ys. 2009-10, 2011-12 & 2012-13) Shri Bhavik Jayant Gandhi Assessing Officer had made only adhoc estimation of profit on certain purchases treated as unexplained expenditure. Assessing Officer did not doubt the sales made by the assessee from out of such purchases. Assessing Officer based on the decision of the Hon'ble Gujarat High Court in the case of CIT v. Simit P. Seth [356 ITR 451] estimated the profit element in such purchases at 12.5% and by reducing the Gross Profit already declared by the assessee. In the circumstances, we hold that there is no concealment of income or furnishing of inaccurate particulars as the profit element was determined by way of adhoc estimation. Coming to the interest, the assessee furnished complete details in the return of income and made a claim and simply because the claim is denied and cannot lead to furnishing of inaccurate particulars or concealment of income. No allegation by Assessing Officer that the assessee failed to disclose the particulars relating to its claim in the return of income. Thus we hold that there is no concealment of income or furnishing of inaccurate particulars of income. Thus we direct the Assessing Officer to delete the penalty levied u/s. 271(1)(c) of the Act.”

Order pronounced on 26.11.2021 as per Rule 34(4) of ITAT Rules by placing the pronouncement list in the notice board.