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Income Tax Appellate Tribunal, “G” Bench, Mumbai
Before: Shri Shamim Yahya (AM) & Shri Saktijit Dey (JM)
O R D E R Per Shamim Yahya (AM) :-
This is an appeal by the revenue, wherein the revenue is aggrieved that the learned Commissioner of Income Tax (Appeals)-25 has reduced the addition for bogus purchase done @100% by AO, by sustaining only 12.5% for the AY 2009-10, vide order dated 25.08.2020.
The grounds of appeal read as under:- (i) Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) was correct in deleting the addition of Rs.49.76,247/- made by the Assessing Officer on account of bogus purchases, without appreciating the fact that the assessee had failed to produce bills, vouchers and other documentary evidences in support of its claim and without considering the latest Apex Court decision in the case of N.K. Proteins Ltd. wherein it is held that once it is proved that the purchases are bogus then addition should be made on entire purchases and not on profit element embedded in such purchases.
(ii) Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) was correct erred in estimating the profit from Hawala purchases by disallowing only Rs.7,10,893/-, being @ 12.5% of the bogus purchases as even the basic onus of producing delivery challan, transport bills etc. were not fulfilled by the assessee.
The assesee in this case is engaged into business of manufacturing of engineering goods. The AO had received list of cases from DGIT(Inv.), Mumbai, regarding parties who had obtained accommodation entries (bogus purchase bills). One of the assessee in the above list(based on the information received from Sales Tax Department) was the appellant who had taken bogus bills from the following parties:
S.No. Name of the hawala supplier Amount of such bogus bill (Rs.) 1 Tej Corporation 16,76,616/- 2 Mayur Enteprises 17,43,040/- 3 Hari Om Traders 22,67,484/- Total 56,87,140/-
In order to verify the genuineness of the purchases made by the appellant, the Assessing Officer issued notices u/s.133(6) of the Act calling for details of the transactions made with the appellant. As these notices were returned unserved by the postal authorities, the Assessing Officer asked the appellant to produce the parties alongwith documents to verify the genuineness of the purchases shown by the appellant. In response to the AO's query, the appellant furnished copies of bills of the above parties. Further, the appellant also submitted that payments to these parties had been made through account payee cheques only. The appellant could furnish copies of bills claiming that payments to these parties have been made through banking channels and, therefore, purchases made were genuine.
The AO did not accept appellant's contention that since the payment was made through banking channel and therefore, the purchases were genuine. Since, the appellant could not produce the above mentioned parties before the AO and could not provide other evidences of the purchase like delivery challans, transport bills etc., he concluded that the appellant had not given any evidence which leads to the conclusion that the purchases were actually made by the appellant from the abovementioned party and the said party actually existed. The Assessing Officer held that onus of proving the genuineness of any expenditure which is claimed as deduction lies on the appellant and, therefore, the onus of proving the genuineness of purchases was on the appellant, which he failed to discharge.”
Upon assessee’s appeal Ld.CIT(A) has noted that the sales have not been doubted. Accordingly placing reliance upon several case laws and upon the facts of the case, he sustained 12.5% disallowance out of the bogus purchases. Ld.CIT(A) has held as under:-
“In view of the facts and circumstances of the case and the judicial pronouncements cited above, what can be disallowed or taxed in the instant case, is the excess profit element embedded in such purchases shown to have been made from aforesaid party. As the AO in this case has held that the parties from whom the purchases were made by the appellant were found to be bogus, but not doubted the purchases in themselves, it will be appropriate to estimate the profit element. Estimations ranging from 12.5% to 25% have been upheld by the Hon'ble Gujarat High Court, depending upon the nature of the business. In a number/series of recent cases, the Hon'ble Mumbai Tribunal has estimated the G.P addition on account of such bogus purchases as 12.5%, some of which are listed below: i) Smt Kiran A/own Doshi in dated 18.01.2017. ii) Ashwin Purshotam Bajaj &Anr. Vs ITO & Anr. ,in ITA No.4736/Mum/2014,S207/Mum/2014,dated:14-12-2016. iii) ITO & Anr. Vs. Manish Kanji Patel & Anr., in ITA No. 7299/Mum/2014, 7154/Mum/2012 & 7300/Mum/2014, 7627/Mum/2014, dated: 18-05- 2017. iv) Ratnagiri Stainless Pvt. Ltd. Vs. ITO, in ITA No.4463/Mum/2016, dated: 04-04 2017.
Metropolitan Eximchem Ltd., dated:29-03- 2017.; In view of the above discussed factual matrix and precedents, I am of the view that estimation of 12.5% as profit embedded in impugned purchases shown from the alleged hawala party and adding the same to the total income returned, would meet the ends of justice. Therefore, 1 direct the AO to estimate profit @ 12,5% of the alleged bogus purchases, which works out to Rs.7,10,893/-(@12.5% of Rs.56,87,140/-) and restrict the addition to Rs.7,10,893/-. The appellant gets a relief for the balance amount of Rs.49;76,247/-. The appellant has prayed that while it is in agreement with such addition, it must be allowed the benefit of the GP declared on these purchases in its return. It is observed that in most judgment (some of which have been cited above) it has been held that by indulging in such transaction in the grey market the assessees had secured benefits in gross profit margin that would not be available to them if regular billed transactions had been entered into. Therefore, they have held 12.5% addition to be fair addition to compensate for such illegal advantages. I see no reason to deviate from the large majority of decision on the subject. The plea of the appellant in this regard is, therefore, disallowed.”
Against the above order, revenue is in appeal before the ITAT. We have heard the Ld. DR and perused the record.
We find that in this case, the sales and other working have not been doubted. It is settled law that when sales and other working are not doubted, 100% disallowance for bogus purchase cannot be done. The rationale being no sales is possible without actual purchases. This proposition is supported from Hon’ble jurisdictional High Court decision in the case of Nikunj Eximp Enterprises( in Writ Petition No.2860, order dated 18.06.2014). In this case, the Hon’ble High Court has upheld 100% disallowance for the purchases said to be bogus, when sales are not doubted. However, the facts of the present case indicate that assessee has made purchase from the grey market. Making purchases through the grey market gives the assessee savings on account of non-payment of tax and others at the expense of the exchequer. In such situation, in our considered opinion on the facts and circumstances of the case the 12.5% disallowance out of the bogus purchases done by the Ld.CIT(A) meets the end of justice. Accordingly, we uphold the order of Ld.CIT(A).
The decision of N.K.Protiens relied by the revenue was a dismissal of SLP by the Hon’ble Supreme Court and has already been explained and distinguished by Hon’ble Bombay High Court in the case of Mohammad Hazi Adam & Co in of 2006, dated 11.02.2019.
In the result, this appeal filed by the revenue stands dismissed.
Before parting, we may add that if the assessee has filed a cross-appeal or cross- objection, and the same has remained unheard, either party may apply for recall of this order so that the appeals can be heard together.
In the result, this revenue’s appeal is dismissed.
Pronounced in the open court on 10.11.2021.