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Income Tax Appellate Tribunal, “B” Bench, Mumbai
Since the issues are common and connected and appeals were heard together, these are being disposed of by this common order, for the sake of convenience.
A.Y. 2016-17
3. The grounds of appeal
read as under :-
1. The learned A.O. erred in making addition at Rs.22,47,801/-u/s 14A of IT. Act 1961 read with Rule 8D of IT. Rule 1962.
2. The addition made by A.O. u/s 14A at Rs.22,47,801/- and confirmed by Hon'ble CIT (A) is unjustified, unwarranted and excessive.
2 Mirah Dekor Pvt. Ltd.
3. The addition made by A.O. and confirmed by Hon'ble CIT(A) u/s 14A of IT. Act 1961 in excess of exempt income earned at Rs.20,724/- is unjustified and excessive.
4. The learned A.O. erred in considering investment on which no exempt income earned while computing disallowance u/s 14A read with rule 8D.
5. The addition made by A.O. at Rs.1,20,41,725/- on account of estimated gross profit on purchase made from M/s. Sarvesh Mercantile Pvt. Ltd. by treating same as bogus purchases is unjustified, unwarranted and bad in law.
6. The Hon'ble CIT(A) erred in upholding the addition made by A.O. at Rs.1,20,41,725/-.
The addition made at Rs.1,20,41,725/- relying on statement recorded behind the back of assessee and without offering opportunity to cross examine is bad in law being in violation of principles of natural justice.
8. Without prejudice the learned A.O. and Hon'ble CIT(A) erred in not considering that gross profit at Rs.24,27,824/- is already assessed to tax at the hands of assessee in respect to sales made out of purchases made from M/s. Sarvesh Mercantile Pvt. Ltd. and resulted in to double addition of Rs.24,27,824/-. 7. Without prejudice the learned A.O. and Hon'ble CIT(A) erred in not considering the gross profit at Rs.3,81,900/- on purchases of Rs.31,82,500/- made from M/s. Sarvesh Mercantile Pvt. Ltd. held as stock in hand as on 31/03/2016 and resulted in to double addition of Rs.3,81,900/-.
10. The assessee denies liability to be assessed to interest u/s 234A, 234B and 234C of income Tax Act 1961. Without prejudice the interest levied u/s 234A, 234B and 234C is unjustified and unwarranted.
11. Any other ground shall be prayed at the time of hearing.
Apropos issue of disallowance under section 14A:-
In this case the Assessing Officer noted that on perusal of computation of income it is seen that the assessee company has declared an amount of Rs. 20,724/- as dividend and has claimed the same as exempt income. Upon Assessing Officer’s query regarding disallowance under section 14A, the assessee submitted as under :- “Own Funds
3 Mirah Dekor Pvt. Ltd.
Share Capital Rs. 3,53,09,800/- Reserves & Surplus Rs. 51,58,81,888/- Total Own Funds Rs. 51,11,91,688/- Total Investments Rs.45,27,64,747/- We would like to bring your kind attention to the fact that in the decision of Hon'ble ITAT(Mumbai) in the assessee's own case, for the assessment year 2008-09 to A. Y.2010-11, it was held that the provisions of section 14A is not applicable when assessee used owned funds and interest free funds for investment in shares of other companies. Copy of the decision of Hon'ble ITA T (Mumbai) dated 06.01.2015 for the A. Y. 2008-09 to A. Y.2010-11 is enclosed herewith”
5. Further the Assessing Officer rejected the same and proceeded to compute the disallowance under rule 8D(2)(iii) amounting to Rs. 22,47,801/.
Upon assessee’s appeal learned CIT(A) confirmed the Assessing Officer’s action.
7. We note that it has been settled by Hon'ble Apex Court also in the case of Maxopp Investment Ltd. Vs. CIT (91 Taxmann.com 154), disallowance under section 14A cannot exceed exempt income. The exempt income noted by the Assessing Officer is only Rs. 20,724/-. Hence, disallowance cannot be more than that. Furthermore regarding disallowance of under rule 8D(2)(iii), Special Bench of ITAT in the case of Vireet Investments (165 ITD 27) has held that disallowance under rule 8D(2)(iii) only those investment cannot be considered which have earned exempt income. Hence, we direct the disallowance in this case cannot exceed Rs. 20,724/-.
Apropos addition on account of bogus purchases :-
Addition for bogus purchase to this case was done on the basis of statement obtained under section 133A from Shri Kirit Kumar Doshi for the purchase from M/s. Sarvesh Mercantile amounting to Rs. 10,03,47,715/-. The assessee in response to the query has submitted details of purchase made from Sarvesh Mercantile P. Ltd. and its sales to Hinduja International,
4 Mirah Dekor Pvt. Ltd. purchase bills, delivery challans, ledger confirmation, and return of income of both the seller and the purchaser. However, the same was rejected by the Assessing Officer on the ground that the statement recorded under section 133A in the case of Sarvesh Mercantile P. Ltd. that they are providing only accommodation entries. The Assessing Officer added 12% of such purchases amounting to Rs. 1,20,41,725/-.
Learned CIT(A) confirmed the addition.
Against the above order the assessee is in appeal before us.
Learned Counsel of the assessee submitted that the addition has solely been made on the basis of statement obtained on survey from third party. That the assessee has already submitted details of goods purchased made from M/s. Sarvesh Mercantile P. Ltd. and corresponding sales to Hinduja International alongwith purchase bills, delivery challans and ledger confirmation. No mistake in this regard was found. Further learned Counsel of the assessee submitted that in A.Y. 2014-15 the Assessing Officer had made addition for purchases from M/s. Sarvesh Mercantile Pvt. Ltd. at 2% of purchase value. He further submitted that similar addition made on the basis of statement from Shri Kiritkumar Doshi is deleted in the case of assessee for A.Y. 2010-11. Learned counsel submitted that the complete details of purchases and sales in this regard was submittd. That the assessee has already shown gross profit at Rs. 24,27,824/- in respect of transaction of purchase from M/s. Sarvesh Mercantile Pvt. Limited. That closing stock out of purchase of goods from the said party amounting to Rs. 31,82,500/- has been accepted. He further submitted that M/s. Sarvesh Mercantile Pvt. Ltd. is not surveyed by sales tax authority.
Per contra, learned Departmental Representative relied upon the orders of authorities below.
Upon careful consideration we note that this addition has solely based upon the statement of third party. Hon'ble Apex Court in the case of S.
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Khader Khan Son (352 ITR 480) has held that addition solely based upon the statement obtained under survey u/s.133A is not sustainable. Moreover, we note that the assessee has also given corresponding sales details from said purchases. It is totally contradictory that purchases are treated as bogus but sale and closing stock out of the said purchase is accepted. No defect has been noted in the sales. Moreover, as submitted by learned Counsel of the assessee the ITAT in assessee’s own case in earlier years has deleted additions made on the basis of statement of Shri Kirtikumar Doshi and treating the purchases as bogus. We may refer to the following ITAT order in assessee’s own case in combined order for A.Y. 2012-13, 2013-14 & 2014-15 vide order dated 13.8.2021 in para 6 thereof as under :- “As the facts and circumstances of the case are exactly identical in these years also, respectfully, following the Tribunal's order in assessee's own case, as nothing was controverted by learned Sr. DR, we are deleting the addition of commission made by Assessing Officer on notional basis by treating the genuineness of purchases from Sarvesh Mercantile Pvt. Ltd and assessee as bogus and subsequent sales made by assessee to Ecoscapes International Pvt. Ltd as bogus without any corroborating evidence to prove the receipt/payment of commission in cash. We delete the addition and allow these two grounds of assessee’s appeal”.
Moreover as noted above assessee has shown sufficient gross profit and the same has been accepted and brought to tax. Hence legality of notional disallowance is not sustainable. Accordingly, in the background of the foresaid decision and precedence the same is directed to be deleted.
In the result this appeal by the assessee stands partly allowed.
A.Y. 2009-10
Grounds of appeal
read as under :-
1. The notice issued u/s 148 of IT. Act 1961 is illegal, invalid and bad in law. Thus consequent reassessment framed thereupon is liable to be cancelled.
2. The addition made by A.O. and confirmed by Hon'ble CIT(A) at Rs.4,59,58,347/- by holding purchases as bogus is unjustified, unwarranted and excessive.
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The addition made out of purchases at Rs.4,59,58,347/-relying on statement recorded behind the back of assessee and without offering opportunity to cross examine is bad in law being in violation of principles of natural justice.
4. The learned A.O. having assessed gross profit on sales made out of alleged disputed purchases ought not to have made disallowance of purchases. 5. The book profit determined u/s 115JB of I.T. Act 1961 at Rs. 11,64,73,200/- is unjustified, unwarranted and excessive. 6. The learned A.O. erred in adding disallowance made at Rs.4,59,58,347/- by treating purchases as bogus and at Rs. 14,85,203/- u/s 14A r.w.r 8D while determining Book Profit u/s 115JB of I.T. Act 1961. 7. The assessee denies liability to be assessed to interest u/s 234A, 234B and 234C of income Tax Act 1961. 8. Without prejudice the interest levied u/s. 234A, 234B and 234C is unjustified and unwarranted. 9. Any ground shall be prayed at the time of hearing.” 17. Brief facts of the case are as under :-
The assessee filed the return of income in response to notice u/s 153A for A Y 2009-10 on 28.06 2011. The assessment was completed u/s 143(3) r.w.s 153A on 28.12,2011 assessing total income at Rs. 4,44,50,237/- disallowing Rs. 14.85.203/-, Against the said order the assessee preferred appeal before the Ld CIT(A) Ld. CIT(A) in appeal No. CIT(A)37/578-580/ACCC- 14/11-12 dated 21.08.2012 had dismissed the appeal of the assessee. Subsequently, information received from the DGlT (Inv.), Mumbai that the assessee was involved in showing bogus purchases. Therefore, the case was reopened by issue of notice u/'s, 148 The assessment u/s. 143(3) r.w.s, 147 was completed by AO on 25.03.2014 determining the total income at Rs. 9.04.08.580/- by making addition of Rs. 4.59.58,347/- on account of bogus purchases.
Apropos issue of reopening :-
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In this case before learned CIT(A) the assessee has challenged the issue of validity of reopening. Learned CIT(A) dealt with this issue as under :-
“In page 2 of the assessment order, the AO stated that during a survey by the Sales Tax Authorities in the case of various parties, they have submitted that they have only issued bills without having any actual delivery of goods. On verification, the AO found that the assessee had taken bills from the following parties, involving amount of Rs. 4,23,37,325/-, against which no actual delivery was taken :-
Sr Name of the Party Sales Bills as per information from DG(Inv.) 1 Niddhish Impex P. Ltd. 41,30,382
2 Skand Inds. 74,44,016 3 Raj Traders 3,00,229 4 River Gold Elevators 3,038 5 Blue Line Enterprise 44,308 6 Om Corporation 14,625 7 Swastick Sales Agency 2,34,86,918 8 Arihant Traders 1,20,792 9 Vijay Sagar Trading P, Ltd. 36,18,072 10 Naman Enterprises 1,67,925 11 Nisha Enterprises 5,79,398 12 Deep Enterprises 15,31,399 13 VidhiS, Vrushts Trade P. Ltd. 7,64,660 14 Sthapna Trade Impex P. Ltd. 81,563 TOTAL 4,23,37,325
The following facts emerge from the above: (i) Since the assessee has shown bogus purchases and claimed the benefit of the same, which was not considered in the order passed u/s, 143(3) r.ws. 153A. the AO had reason to believe that the amount of Rs. 4.23,37,325/- had escaped the assessment. In view of this, the AO, vide letter dated 07.01.2014 had provided the reasons for reopening to the assessee. The assessee objected to the reopening vide its letter dated 08.01.2014. The 8 Mirah Dekor Pvt. Ltd.
AO duly disposed of the objection of the assessee vide letter dated 18.02.2014. (ii) Further, to verify the genuineness of the transactions, notices u/s 133(6) were issued to the above named parties However there was no response from the above parties Hence assessee was asked to produce the parties Assessee also could not produce the parties. It is pertinent to mention here that the above parties have admitted the fact suing bogus bills before the S.T. Authorities The claim of assessee could prove on the basis of documents i e purchase bills delivery challans bank statement etc. Also the assessee had failed to prove his onus by producing the parties In view of this. AO considered the purchases as bogus and added to the total income. (iii) Assessee was indulging in obtaining bogus entries from the above parties and no goods were being actually received by assessee from these concerns and assessee had hidden this fact from the A.O and thus had not fully disclosed all material facts of his case. (iv) The ledger entries in assessee's books of accounts, the purchase bills and the payments through Banks were all sham transactions which were mis- represented as genuine by assessee before the A O at the time of original assessment Therefore there was failure on part of assessee to disclose fully and truly all material facts for his assessment at the time of first assessment. (v) The information collected by Inv Wing is definitely the new tangible information which has come to the knowledge of A.O. and reopening on the basis of such information is very much valid. (vi) It is not intended by law that each officer should be working in a silo The sharing and flow of information from one department to another or from one officer to another is very much within the legal framework of an integrated government set up Thus, to use the information gathered by Inv. Wing and re-open the assessment on its basis is very much valid. (vii) Once a specific investigation has been done by a particular Wing of government, the same information can be used by ether officers for initiating necessary legal actions in their jurisdiction. (viii) The requirement of Sec 147 is only to have prima-facie reason to behave that income has escaped assessment It has been held in plethora of case laws that at the time of reopening. A.O. is not required to establish the escapement of income. The existence of reason is enough. In this regard, reliance is placed on following case laws of the Apex Court. a Kalyanji Mavji & Co vs CIT (Supreme Court) 102 ITR 23 b ITO vs Lakhmani Mewal Das (Supreme Court) c. Phool Chand Bajrang Lal and Another vs ITO & Anr (SQ203 ITR 456 d. Shri Krishna (P) Ltd, vs CIT (SC)221 ITR 538 e. Central Provinces Manganese Ore Co Ltd vs ITO (SC) 191 ITR 6
9 Mirah Dekor Pvt. Ltd. ix) Not a case of change of opinion It is not a case of change of opinion as no opinion was formed in earlier assessment about genuineness of bills & parties It was not a case of definite and specific opinion made by AO regarding original bills being genuine and parties being genuine. Hence, on subsequent tangible information about parties being bogus and only providing book entries, there is no case of change of opinion The foots, themselves have changed.
5.1.2 In view of these facts, AO had reason to believe that income to the extent of Rs 4,59,58,347/- had escaped assessment. The case of Revenue is on stronger footings as in these cases assessee had actually failed to disclose fully and truly all material facts in his return of income In fact the failure on the part of assessee is of such an extreme kind that the entire racket of companies engaged in business of bogus entry providing business was detected in search conducted by the Inv. Wing and sales tax department Therefore, it was a clear case of failure, nay deliberate attempt to hide the real facts and present bogus documents procured, on the part of assessee. a) In view of above detailed and satisfaction note of AO on the basis of new facts unearthed by investigation wing and made available to AO it is held that AO was correct in assuming jurisdiction u/s 147 and has correctly issued notice u/s 148. The appeal of assessee, therefore does not succeed on this account.”
19. Learned CIT(A) further referred to following case laws :- • McDowell’s (154 ITR 148) (SC) • ITO Vs. Purshottam Das Bangur (90 Taxmann.com 541)(SC) • Phoolchand Bajrang Lal Vs. ITO (69 Taxman 627)(SC) • Nickunj Eximp Enterprises Vs. ACIT (48 Taxmann.com 20(Bombay HC) • Sohar Siraj Lokhandwala Vs. ACIT (77 Taxman 302) (Bombay HC) • Yash Raj Films Pvt. Ltd. Vs. ACIT (15 Taxmann.com 275) (Bombay HC)”
Apropos issue of bogus purchase :-
As noted above there was survey conducted by the Mumbai sales tax department as per information from sales tax department the assessee indulged in bogus purchases as detailed in ground No. 1 above. The assessee is engaged in the business of dealing in cloth, textile, fabrics, furniture, gift articles and generation of power and also business of film production. The Assessing Officer issued notices asking for various documentary evidences for purchases. The Assessing Officer noted that to verify the genuineness of the transaction notices under section 133(6) of the Act were issued to the said sellers. However no response was received. The Assessing Officer asked the 10 Mirah Dekor Pvt. Ltd.
assessee to produce the parties. By noting that the assessee could not produce the parties nor any response to the notices under section 133(6) of the Act was received the Assessing Officer observed that it is clear that no such parties exist and no such transaction was made. No adverse inference whatsoever was noted by the Assessing Officer regarding the detailed documentary evidence the Assessing Officer sought from the assessee. He proceeded to observe that assessee’s claim is not sustainable on the basis of documents i.e. purchase bills, delivery challenge, bank statement etc. produced by the assessee. The Assessing Officer held that since the assessee has failed to produce the parties from whom purchases have been made the assessee has not discharged the onus which lies upon the assessee to prove the genuineness of the transaction. The Assessing Officer proceeded to reject the books of account and held that the purchases amounting to Rs. 4,59,58,347/- purchases out of books and added to the total income of the assessee.
Before learned CIT(A), as per learned CIT(A)’s noting the assessee filed relevant documents and paper books and argued that it was not given proper opportunity by the Assessing Officer to produce its purchase and sales parties. Learned CIT(A) noted that despite several remainders the Assessing Officer did not respond. In his order learned CIT(A) noted that the assessee has submitted following details :-
i) A detailed Note with reasons for fall in Gross Profit Ratio. ii) Details of GP and NP ratio alongwith analysis of the GP ratio. iii) Details of purchases alleged to be bogus. iv) Details of sales (purchases of which are alleged to be bogus). v) A chart highlighting the nexus between the purchases (alleged to be bogus) and its corresponding sales. vi) Details of total purchases made during the assessment year under consideration.
Learned CIT(A) noted that from the submissions of the assessee it is noted that the assessee has submitted elaborate charts and details of the date of purchase and sale (related to bogus parties) and has done an elaborate exercise in calculating the net and gross profit, with and without these
11 Mirah Dekor Pvt. Ltd. purchases and sales. That also the assessee has filed list of parties to whom these purchases are claimed to have been sold. However, learned CIT(A) held that since the assessee has not been able to produce the parties, he was confirming the Assessing Officer’s action. Despite noting in paragraph 5.2.1 of his that the assessee has given an elaborate chart and details of the date of purchase and sale related to bogus parties. In paragraph 5.2.6 of his order learned CIT(A) held that these are dumb document and cannot be relied. Lastly learned CIT(A) held that the assessee’s ground No. 3&4 relate to difference in figures. Regarding correctness of amounts of parties Swastik Sales & Agency Pvt. Ltd. and Vijay Sagar Trading Pvt. Ltd., the Assessing Officer may verify the correct amount and disallow the correct amount as per verification. Pursuant to the order of learned CIT(A) the Assessing Officer has granted following reduction in addition :-
(i) Reduction in addition on purchase made from Swastik Sales Agency Pvt. Ltd. ...................Rs. 2,25,24,418/- (ii) Reduction in addition on purchase made from Vijay Sagar Trading Pvt. Ltd. ........................Rs. 5,51,479/-
Thus effective addition on merits in this case is reduced by the aforesaid amount.
We have heard both the parties and perused the records. Learned Counsel of the assessee submitted that all necessary documents regarding genuineness of purchases were submitted. No shortcoming whatsoever has been noted. He submitted that the assessee has submitted following documents before the Assessing Officer as reflected in page No. 8 of the paper book as under :- “Details of Purchases from the relevant parties mentioned in your letter dated 07/0 1/2014 along with quantity wise and value wise details of purchases for the period from 01.04.2008 to 31.03.2009 as Annexure -1.
• Copies of Purchase Invoices issued by the said parties along with ledger copies of parties are enclosed herewith as Annexure -2.
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• Details of corresponding sales of the goods purchased from the said parties with copies of Invoices along with Delivery challan, courier POD/Lorry receipt issued by transporter wherever applicable are enclosed herewith Annexure-3. • Details of Purchase vis-a-vis Sales along with quantity wise and value wise details of purchases and sales are enclosed herewith as Anriexure-4. • Copies of relevant Bank Statements reflecting payments to the said purchase parties are enclosed herewith as Annexwre-5. • Copies of Sales tax Assessment order for the period, 01.04.2008 to 31.03.2009 are enclosed herewith as Annexure-6.”
He also submitted that the assessee has duly submitted proof of genuineness of these parties as under in paper book page No. 9:-
“We have in our records the proof of the genuineness of these parties to the extent possible. We have obtained/checked : i) Online TIN number (Sales tax number) of the parties ii) Copy of TIN number' allotment letter from sales tax department iii) Copy of acknowledgement of VAT return iv) Copy of last VAT payment challan v) Copy of PAN number vi) Copy of Certificate of Incorporation Copies of the same enclosed herewith as Annexure-7”.
Learned Counsel of the assessee also referred to the paper book wherein he submitted that the details of impugned purchases and corresponding sales have also been provided. They have also been produced before us by means of paper book. Learned Counsel has further submitted written submission in this regard as under :-
“A) A.O. has made additions in computation at Rs.4,59,58,347/-. In tabulation made of same parties at page 8 & 9 A.O. has computed total at Rs.4,59,58,347/- as against correct total of Rs.4,23,39,429/-. There is totaling mistake of A.O. at page 8 & 9 of Rs.36,18,918/-. This dispute was raised in Grounds of Appeal at Sr. No.4. Excess addition is Rs.36,18,918/- on account of totaling mistake. B) Mistake in figures of purchase from two parties namely Swastik Sales & Agency Pvt. Ltd. and Vijay Sagar Trading Pvt. Ltd. rectified in order passed by A.O. on 01/07/2021 wherein addition is reduced by Rs.2,30,75,897/- (Rs.2,25,24,418 + Rs.5,51,479).
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C) Addition of Rs.1,92,63,532/- (Rs.4,59,58,347/- Rs.2,30,75,897/- - Rs.36,18,918/-) for purchases from parties remain after rectifying totaling mistake and reduction given by A.O.
D) Submission as made before A.O. on 09/01/2014 reproduced in assessment order at page 4to7. Evidences submitted indicates that complete details of purchases and corresponding sales of such goods submitted before A.O. Invoice payments through proper banking channel. Parties were holding TIN. Copy of Acknowledgement of VAT return and last VAT payment challan available. Submission has not been found to be incorrect or false. Onus to explain - purchases is discharged. No addition as made by A.O. sustainable.
E) Only reason for disallowance is no response received in response to notice u/s 133(6) of IT. Act 1961 and assessee could not produce parties before A.O. Reliance has been placed on affidavit before Sales Tax Authorities by parties that no delivery is given and they are only charging commission (Para 7.2 & 7.3) of assessment order.
F) Notice u/s 133(6) have been issued in the year 2014 in respect to transaction in the year 2008-09 with a gap of more than 5 years.
G) Affidavits were not confronted to assessee nor was opportunity to cross examine the deponents allowed. Addition on the basis of such evidence unsustainable.
Reliance on: i) Supreme Court order in Civil Appeal No.4228 of 2006 in the case of M/s. Andaman Timber Industries vide order dated 02/09/2019. ii) (2019) 418 ITR 0315 (SC) CIT vs. Odeon Builders Pvt. Ltd.”
Further learned Counsel of the assessee referred to the following case laws :-
Disallowance on bogus purchases :- • ITAT order in in the case of R.A. Industrial Metals vide order dated 01/07/2021 • ITAT order in ITA No.2959/Mum/2014 in the case of Ramesh Kumar & Co. vide order dated 28/11/2014 • Hon'ble Bombay High Court in ITA No.1298 of 2017 in the case of Shapoorji Pallonji & Co. Ltd. vide order dated 04/03/2020 • Hon'ble Bombay High Court in ITA No.1940 of 2017 in the case of Vaman International Pvt. Ltd. vide order dated 29/01/2020
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• ITAT order in in the case of assessee vide order dated 06/01/2015 • (2019)418ITR0315(SC) CIT vs. Odeon Builders Pvt. Ltd.
Per contra learned Departmental Representative relied upon the orders of authorities below.
Upon careful consideration, we note in this case the Assessing Officer has made addition of bogus purchases on the ground that during the survey by sales tax authority information was obtained that certain parties have issued sale bills without actual delivery. In this regard the Assessing Officer has referred to names of fourteen parties. Assessee in this regard has given complete details and documentary evidence. The assessee has also given detailed note on the gross profit ratio, details of purchase and details of sales including linking of purchase and sales. No defects whatsoever have been found by the authorities below. The Assessing Officer has made addition simply because notices issued under section 133(6) to these parties have been remained un-responded. It is not the case that the Assessing Officer has issued summons under section 131(1) of the Act. Just because the said parties have not responded to order under section 133(6) the Assessing Officer has rejected all documentary evidence and learned CIT(A) has called these as dumb documents and upheld the addition. In this regard we note that the Assessing Officer has firstly rejects the books of account solely on the ground that these parties have not responded. Once the Assessing Officer rejected the books of account he cannot add any item from the same accounts arbitrarily. Moreover, when all documentary evidence have been produced, sales have also been linked to the purchases, details of same were also before the authorities below, addition for bogus purchases is not legally sustainable. Moreover, it is the submission of learned Counsel of the assessee that the assessee has already shown 18.11% as gross profit on the sales which has also been accepted and taxed by the revenue authority. In identical circumstances when sales are not doubted, in the decision of Hon'ble Bombay High Court in the case of Nikunj
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Eximp Enterprises Pvt. Ltd. (372 ITR 619) it was held that when sales are not doubted no disallowance for bogus purchases is permissible. Furthermore, Hon'ble Jurisdictional High Court in the case of Shapoourji Pallonji & Co. Ltd. (supra) vide order dated 4.3.2020 has held as under :- “18. Thus, we find that according to the Tribunal the assessing officer had merely relied upon information received from the Sales Tax Department, Government of Maharashtra without carrying out any independent enquiry. Tribunal had recorded a finding that assessing officer had failed to show that the purchased materials were bogus and held that there was no justification to doubt genuineness of the purchases made by the respondent - assessee.
We are in agreement with the views expressed by the Tribunal. Merely on suspicion based on information received from another authority, the assessing officer ought not to have made the additions without carrying out independent enquiry and without affording due opportunity to the respondent - assessee to controvert the statements made by the sellers before the other authority. Accordingly, we do not find any good ground to entertain this question for consideration as well.
20. Consequently, we find no merit in the appeal preferred by the Revenue. Appeal is dismissed.”
We note that the above said case laws are fully applicable on the facts of this case. Addition has simply been made on the basis of information from sales tax department, the Assessing Officer has not issued any summons under section 131(1). Sales have not at all been doubted, the assessee has not been given any opportunity to controvert the statement made by the seller before the authorities. Furthermore, when the assessee has already shown sufficient gross profit which has more than 12.5% being the general disallowance done in such cases no disallowances on account of bogus purchases is required on the facts and circumstances of this case.
Moreover our adjudication on bogus purchases addition for A.Y. 2016-17 also applies mutatis mutandis where we have deleted the addition noting that such additions were deleted by the ITAT earlier in assessee’s own case. Hence, in the facts and circumstances of the case, we respectfully follow the precedent as above and set aside the orders of authorities below and delete the disallowance.
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Apropos ground relating to addition under section 115JB of the Act:
The Assessing Officer in his assessment order in computation part has computed bogus purchases as under without any discussion in this regard :-
“COMPUTATION OF BOOK PROFIT Book profit u/s.115JB of the I.T. Act : Net profit for the year as per P&L Rs. 6,90,29,650 account Add : disallowance u/r. 14A (as per 14,85,203 order u/s. 143(3) r.w.s. 153A) Add : on account of bogus purchases 4,59,58,347 4,74,43,550 as discussed in para 7 in the body of the order BOOK PROFIT 11,64,73,200
Submissions of learned counsel in this regard are as under :- A) “A.O. has computed income u/s 115JB at Rs.11,64,73,200/-. Addition made is in respect to two items as under:-
i) Disallowance under Rule 8D r.w.s. 14A Rs. 14.85.203/- ii) Bogus purchase Rs.4,59,58,347/-
B) No amount is disallowable on account of bogus purchase as per submission made in ground Nos. 2 to 4. Addition for same u/s 115JB is unjustified.
C) Disallowance out of purchases is not within the scope of adjustment to be made to net profit as per Profit & Loss Account under Explanation to sec. 115JB of IT. Act 1961.
D) Addition in respect to Rule 8D r.w.s. 14A has been restricted to Rs.1,15,885/- by Hon'ble ITAT in the appeal of assessee in respect to assessment proceedings u/s 143(3) r.w.s. 153A of LT. Act 1961 in vide order dated 06/01/2015.
E) Addition made u/s 14A cannot be added for determining book profit u/s 115JB profit. Reliance on: DCIT, Central Circle-1(4) vs. M/s. D.B. Realty Limited in vide order dated 05/03/2019.”
As regards the issue of disallowance under section 14A of the Act to be added to the book profit, we note that the said issue is covered in favour of the assessee by the decision of the ITAT in the case of Vireet Investments (165 ITD
17 Mirah Dekor Pvt. Ltd.
27)(SB-Del). In the said case, it was held that disallowance under section 14A cannot be made to the computation of book profit under section 115JB. Hence, disallowance under section 14A in the book profit is directed to be deleted.
As regards the addition of bogus purchases to the book profit figure the same is totally unjustified. As addition to book profit is to be done only as per specific mandate of section 115JB Explanation (1) of the Act. Such disallowance of bogus purchase are not at all mandated to be added in the book profit under the scheme of 115JB. Moreover, as noted above we have already held that disallowance on account of bogus purchase is not at all sustainable hence, these issues raised by the assessee are decided in favour of the assessee.
Since we have decided the issue on merit in favour of the assessee, challenge of reopening is only of academic interest. Hence, we are not engaging into the same.
In the result, this appeal stands partly allowed.
Start with A.Y. 2010-11
The grounds of appeal
read as under :-
1. The notice issued u/s 148 of IT. Act 1961 is illegal, invalid and bad in law. Thus consequent reassessment framed thereupon is liable to be cancelled.
2. The addition made by A.O. and confirmed by Hon'ble CIT(A) at Rs.65,20,894/- by holding purchases as bogus is unjustified, unwarranted and excessive.
3. The addition made out of purchases at Rs.65,20,894/-relying on statement recorded behind the back of assessee and without offering opportunity to cross examine is bad in law being in violation of principles of natural justice.
4. The learned A.O. having assessed gross profit on sales made out of alleged disputed purchases ought not to have made disallowance of purchases.
18 Mirah Dekor Pvt. Ltd.
The book profit determined u/s 115JB of I.T.Act 1961 at Rs. 12,19,21,894/- is unjustified, unwarranted and excessive.
6. The learned A.O. erred in adding disallowance made at Rs.65,20,894/- by treating purchases as bogus and at Rs.13,54,885/- u/s 14A r.w.r 8D while determining Book Profit u/s 115JB of I.T.Act 1961. 8. The assessee denies liability to be assessed to interest u/s 234A, 234B and 234C of income Tax Act 1961. 9. Without prejudice the interest levied u/s. 234A, 234B and 234C is unjustified and unwarranted.
Facts and order of the authorities below are similar to the one dealt with by us in A.Y. 2009-10. Our aforesaid order applies mutatis mutandis here also. Hence, disallowance of bogus purchases and addition under section 115JB are directed to be deleted.
Issue of reopening is not dealt with treating the same as academic interest. Hence, this appeal is also partly allowed.
Hence all the appeals are partly allowed.
Pronounced in the open court on 12.11.2021.