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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC” MUMBAI
Before: SHRI PRAMOD KUMAR & SHRI RAVISH SOODShri Janak Gulabchand Khona
PER RAVISH SOOD, J.M: The present appeal filed by the revenue is directed against the order passed by the CIT(A)-38, Mumbai, dated 29.06.2018, which in turn arises from the order passed by the A.O u/s 143(3) r.w.s 147 of the Income Tax Act, 1961 (for short „Act‟), dated 29.02.2016 for A.Y. 2010-11. The revenue has assailed the impugned order on the following grounds of appeal before us:
“1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in restricting the disallowance to 19.67% of the total amount of bogus purchase transaction instead of 100% of the total amount of bogus purchase made by the AO
2 ITO-26(1)(4) Vs. Shri Janak Gulabchand Khona
2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in not considering that the addition was made on the basis of information received from DIT(Inv.) and Sales Tax department, Maharashtra with regard to bogus purchase made by the assessee from dealer without supply of actual goods.
Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in not considering that the hawala operators have admitted on oath before the Sales Tax Authorities that they have not sold any material to anybody. 4. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in not considering that the assessee could not prove the genuineness and creditworthiness of the purchase transactions during the course of assessment proceedings. 5. The Ld. CIT(A) failed to uphold the decision of Hon‟ble Apex Court in the case of N.K.Proteins Ltd. vs. DCIT in SLP(Civil) No. 769/20017 dated 16.01.2017 where 100% of addition was confirmed by the apex court. 6. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in not appreciating the fact that applicability of provisions of section 40A(3) attracts 100% bogus purchases to be held as profit. The appellant craves leave to aid, to amend, alter, substitute or modify any of the above ground or add a fresh ground as and when found necessary either before or at the time of hearing.”
Controversy involved in the present appeal lies in a narrow compass i.e as to whether or not the CIT(A) is right in law and the facts of the case in scaling down the addition made by the A.O of the entire value of bogus purchases to 19.67% of the value of the said impugned purchases. Shorn of unnecessary details, on the basis of information received from the DGIT(Inv.) Mumbai, that the assessee as a beneficiary had booked bogus purchases his case was reopened u/s 147 of the Act. Observing, that the assessee had claimed to have made purchases of Rs.1,53,241/- from 5 tainted parties the A.O called upon him to substantiate the authenticity of the said purchase transactions. In reply, the assessee placed on record copies of purchase bills a/w ledger copies and payment details w.r.t the impugned purchases. Notices issued by the A.O u/s 133(6) to all the aforementioned parties were returned unserved. Backed by the aforesaid facts, the A.O holding a conviction that the assessee had failed to 3 ITO-26(1)(4) Vs. Shri Janak Gulabchand Khona discharge the onus as regards the genuineness and veracity of the purchases claimed to have been made from the aforementioned parties, thus, added the entire value of the impugned purchases by dubbing them as bogus.
3. On appeal, the CIT(A), inter alia, observed that the assessee had failed to discharge the onus that was cast upon him as regards proving the authenticity of the purchases that were claimed to have been made from the aforementioned tainted parties on the basis of supporting documentary evidence proving the same to the hilt, viz. delivery challans, goods receipt notes, stock register, details of transport such as lorry numbers, lorry receipts etc. Insofar the support that was drawn by the assessee from the fact that the payments to the aforementioned parties towards purchase consideration were made by account payee cheques was concerned, the CIT(A) was of the view that the same could not be taken as sacrosanct. In sum and substance, the CIT(A) concurred with the view taken by the A.O that the assessee had failed to substantiate the genuineness of the purchase transactions in question. Also, it was observed by the CIT(A) that the fact that the notices issued to the aforementioned tainted parties u/s 133(6) of the Act by the A.O were returned unserved further disproved the assessee‟s claim of having made genuine purchases from them. At the same time, it was noticed by the CIT(A) that the sales of the assessee were not disputed by the A.O. Backed by the aforesaid facts, the CIT(A) was of the view that as there cannot be sales without purchases, thus, it could safely be concluded that the assessee had made the impugned purchases at a discounted value from the open/grey market and had only obtained bills from the aforementioned hawala parties. In the backdrop of the aforesaid facts, the CIT(A) was of the view that the addition in the hands of the assessee could only be made to the extent of the profit which he would have made by procuring the goods at a discounted value from the open/grey market. Observing, that the average G.P. rate of the assessee for the A.Y 2009-10 to A.Y 2013 -14 was 4 ITO-26(1)(4) Vs. Shri Janak Gulabchand Khona 30.44%, the CIT(A) was of the view that in all fairness the profit made by the assessee by making the impugned purchases at a discounted value from the open/grey market could be determined by applying the rate of profit on the total value of the impugned bogus purchases of Rs.1,53,241/-. Considering the fact that the assessee had already disclosed a net profit rate of 10.77% the CIT(A) directed the A.O to restrict the addition with respect to the impugned purchases at 19.67% [30.44% (-) 10.77%].
4. Aggrieved, the revenue has carried the matter in appeal before us. We have heard the Ld. Authorized Representatives for both the parties, perused the orders of the lower authorities and the material available on record. Admittedly, it is a matter of fact borne from the record that the assessee had failed to substantiate the authenticity of the impugned purchases in question. Our indulgence in the present appeal has been sought for adjudicating the quantification of the addition qua the impugned purchases made by the A.O. As is discernible from the records, it is a matter of fact borne from the record that the sales of the assessee had not been doubted by the AO. As stated by the CIT(A), and rightly so, there cannot be sales without corresponding purchases. Backed by the aforesaid fact, we are of the considered view that the CIT(A) had rightly concluded that now when the sales of the assessee have not been doubted, therefore, it could safely be concluded that the assessee had though purchased the goods under consideration not from the aforementioned hawala parties but at a discounted value from the open/grey market. Insofar the quantification of the profit that the assessee would have made by procuring the goods at a discounted value from the open/grey market, we find no infirmity in the view taken by the CIT(A) who had adopted the average G.P rate of the assessee as a yardstick for working out the same. In our considered view the CIT(A) had rightly directed the A.O to restrict the addition qua the impugned purchases to 19.67% of the value
5 ITO-26(1)(4) Vs. Shri Janak Gulabchand Khona of the impugned purchases. We, thus, concurring with the view taken by the CIT(A) uphold the same.
The appeal filed by the revenue is dismissed.
Order pronounced in the open court on 09.11.2021