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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
Before: SHRI MAHAVIR SINGH
This appeal by the assessee is arising out of the order of Commissioner of Income Tax (Appeals)-29, Mumbai (in short ‘CIT(A)’) in Appeal No. CIT(A)-29/IT- 421/ITO-19(1)(4)/17-18 dated 13.08.2018. The assessment was framed by Income Tax Officer - 19(1)(4), Mumbai for Assessment Year 2009-10 vide his order dated 19.03.2015 under Section 143(3) r.w.s. 147 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).
The only issue in this appeal of the assessee is against the order of CIT(A) confirming the action of the Assessing Officer in estimating the profit rate at 12.5% of the alleged bogus purchases. For this, assessee has raised the following Ground no. 2 :-
2. On the facts and in the circumstances of the case and in law the Hon'ble CIT(A) erred in upholding the action of Ld AO of making addition of Rs.11,55,887/- by estimating GP @ 12.50% of total alleged bogus purchases of Rs.92,47,095/- and the reasons assigned for doing so are wrong and contrary to the provisions of Income Tax Act and rules made there under.”
I have heard the rival contentions and gone through the facts and circumstances of the case. I noted that the Assessing Officer received information from the Maharashtra Sales Tax Department that the assessee is one of the beneficiaries of accommodation entries received from the parties who have issued false bills without delivery of goods. The assessee has received the accommodation bills from the following parties :-
1 M/s Shankeshwar Sales Corporation Rs.31,58,504/- 2 M/s. Prakash Trading Corporation Rs.60,88,591/- Total Rs.92,47,095/- The assessee before the Assessing Officer filed complete details, i.e. sale and purchase bills, stock register, payment made through account payee cheques and books of account, but the Assessing Officer disallowed profit rate of 12.5% of the bogus purchases and made addition of Rs.11,55,887/-. Aggrieved, assessee preferred appeal before the CIT(A). The CIT(A) confirmed the action of the Assessing Officer by observing in paragraphs 4.3 and 4.3.1 as under :-
“4.3 The submissions and case laws relied upon by the ld. Counsel for the appellant are carefully considered. When the expenditure has been claimed by the assessee, the onus is on the assessee to prove the genuineness of the same. As it is the claim of the assessee that it has made purchases from the said parties, the AO had requested the assessee to produce the parties for verification. However, the assessee failed to do so.
4.3.1 Coming to the addition made, the Hon'ble ITAT, Ahmedabad ‘C’ Bench in the case of Vijay Proteins Ltd. vs ACIT 58 ITD 0428 held that in similar circumstances, 25% of the purchase price accounted through fictitious invoices has to be disallowed. The Hon'ble High Court of Gujarat in the case of Sanjay Oil Cakes v/s CIT 316 ITR 0274 dealt with similar case where some of the alleged suppliers who had issued bills to the assessee were not genuine as they were not traceable. The Dinesh S. Dhokar goods must have been received from other parties. The likelihood of the purchase price of these alleged purchases being inflated could not be ruled out and therefore the Hon'ble High Court has upheld the decision of CIT(A) and the ITAT disallowing 25% of the payments made to such parties. The Hon'ble High Court of Gujarat in the case of CIT vs. Simit P. Sheth 356 ITR 0451 held that once the sale is accepted by the AO, the very basis of purchases could not be questioned. Not the entire purchase price could be disallowed but only the profit element embedded in such purchases could be added to the income of the assessee. The estimation varies with the nature of business and no uniform yardstick could be adopted. Given the facts and circumstances of the instant case, I find it reasonable to estimate the gross profit on the alleged bogus purchases at 12.5%. The addition made by the AO @ 12.5% on the alleged bogus purchases is upheld. This ground of appeal is therefore dismissed.”
Aggrieved, assessee came in appeal before the Tribunal.
I noted from the documents and the case records as well as the submissions of both the sides that admittedly the assessee has obtained bogus bills from these parties, but the assessee has also produced the following :-
i) Copies of purchase bills of all the specific parties and their respective sales invoices. ii) Copies of ledger account and bank statements evidencing that payment was made through proper banking channel. iii) Chart showing details of purchases from alleged parties and quantitative tally with corresponding sales.
It is also a fact that the assessee has filed bank statement highlighting payment made to parties through account payee cheques, but could not produce the parties for examination. The assessee is able to discharge the primary onus of proving the purchases as genuine, but could not produce the parties for examination nor the delivery challans or transportation receipts of the goods. Admittedly, the assessee is engaged in the business of reselling of ferrous and non-ferrous metals and for this Dinesh S. Dhokar business, the profit rate applied by the Assessing Officer, i.e. 12.5%, is not reasonable. Going by the nature of the business of the assessee, I estimate profit rate of 5% and direct the Assessing Officer accordingly.
In the result, appeal of the assessee is partly allowed.
Order pronounced in the open court on 25th October, 2021.