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Income Tax Appellate Tribunal, VIRTUAL COURT
Before: SHRI C.N. PRASAD, HONBLE
O R D E R PER C.N. PRASAD (JM) 1. This appeal is filed by the assessee against the order of the Learned Commissioner of Income Tax (Appeals)-30, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 22.11.2019 for the Assessment Year 2009-10.
Assessee in its appeal has raised following grounds: - “On the facts and in the circumstances of the case and in law the Hon'ble CIT(A) erred in enhancing the addition made by the Ld AO of Rs. 19, 37,782/- to Rs. 1,55, 02,257/- by wrongly treating 100%
2 ITA.NO. 1348/MUM/2020 (A.Y: 2009-10) Shri Praveen Singh Chandan Singh Dewal of the purchases from MVAT party as bogus against 12.5% made by the Ld AO and further erred in not treating the whole purchases as genuine and the reasons assigned for doing so are wrong and contrary to the provision of Income Tax and rules made there under”.
At the outset, it is observed that filing of appeal is time barred by three days and the assessee filled petition for condonation of delay stating that assessee’s mother was seriously ill and suffering from heart ailment and earlier chartered accountant deserted the assessee and did not advise him to compile the details, thus the appeal could not be filed in time. It is submitted that the due date for filing of appeal before the Tribunal was 25.02.2020 and the appeal was filed on 28.02.2020 and therefore there is three days’ delay in filing of appeal. Ld. DR has no serious objections in condonation of delay.
On hearing both the sides and perusing the affidavit filed by the assessee and for the reasons stated for delay in filing of appeal, that assessee’s mother was seriously ill and suffering from heart ailment and earlier chartered accountant did not advise the assessee to compile the details to file the appeal in time, in view of the above I admit the appeal by condoning the delay of three days in filing the appeal.
3 ITA.NO. 1348/MUM/2020 (A.Y: 2009-10) Shri Praveen Singh Chandan Singh Dewal 5. Briefly stated the facts are that, assessee an individual engaged in the business of supplier of ferrous and non-ferrous metals, filed return of income on 29.09.2009 declaring income of ₹.3,74,328 for the A.Y.2009-10 and the return was 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 assessment was 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. Assessing Officer while completing the assessment treated purchases of ₹.1,55,02,257/- made from various parties as mentioned in the Assessment Order as non-genuine for the reason that assessee could not file lorry receipts, transportation details. However, as the assessee recorded purchases in the Books of Accounts he was of the view that only profit element embedded in such purchases should be disallowed. Accordingly, 12.5% of the purchases amounting to ₹.19,37,782/- was disallowed. Assessee preferred appeal before the Ld.CIT(A) contending that all the purchases made from such parties are genuine and alternatively addition should be restricted only to the 4 ITA.NO. 1348/MUM/2020 (A.Y: 2009-10) Shri Praveen Singh Chandan Singh Dewal percentage of Gross Profit shown on genuine purchases. However, the Ld.CIT(A) enhanced the disallowance to 100% of purchases of ₹.1,55,02,257/- relying on the decision of the Hon'ble Bombay High Court in the case of Shoreline Hotel Pvt. Ltd., [98 taxmann.com 234] which was passed under the context of section 236 of the Act. Against this order assessee is in appeal before us.
Ld. Counsel for the assessee placing reliance on the decision of the Coordinate Bench in the case of Shri Pravin C. Bokadia v. ITO in ITA.No. 3552/Mum/2019 dated 17.07.2020 submits that identical issue has come up before the Coordinate Bench wherein the Ld.CIT(A) enhanced the addition to 100% of non-genuine purchases relying on the decision in the case of Shoreline Hotel Pvt. Ltd., (supra) and the Tribunal considering the decision of the Hon'ble Jurisdictional High Court in the case of M. Haji Adam & Co. (ITA.No. 1004 of 2016 dated 11.02.2019) directed the Assessing Officer to make the disallowance in accordance with the ratio of the decision of the Hon'ble Bombay High Court in the case of M. Haji Adam & Co. (supra). Therefore, Ld. Counsel for the assessee requested that addition be restricted to the difference between the Gross Profit that is shown by the assessee on normal purchase as against the Gross Profit
5 ITA.NO. 1348/MUM/2020 (A.Y: 2009-10) Shri Praveen Singh Chandan Singh Dewal shown on bogus purchases. In support of his contentions Ld. Counsel for the assessee relied on the following decisions: - (i) Pravin C. Bokadia v. ITO in ITANo.3552/Mum/2019 dated 17.07.2020. (ii) V.R. Enterprises v.. ITO in ITANo.4650/Mum/2018 dated 16.05.2019. (iii) The Pr.CIT v. Mohommad Haji Adam & Co. in of 2016 dated 11.02.2019. (iv) Pr.CIT v. Rishabhdev Technocable Ltd [115 Taxmann.com 333 (Bom-HC)].
Ld. Counsel for the assessee further submitted that assuming that the assessee made purchases in grey market what was saved by the assessee by way of VAT is only 4% and in addition the probable profit element may at 1% totaling to 5%. Hence estimating the profit element at 12.5% is not justified.
8. Ld. DR vehemently supported the orders of the authorities below.
Heard both sides, perused the orders of the authorities below. An identical issue has come before the Coordinate Bench in the case of Shri Pravin C. Bokadia v. ITO in ITA.No. 3552/Mum/2019 dated 17.07.2020 wherein the Ld.CIT(A) enhanced the addition to 100% of non-genuine purchases relying on the decision in the case of Shoreline Hotel Pvt. Ltd., (supra) and the Tribunal considering the decision of the Hon'ble Jurisdictional High Court in the case of M. Haji Adam & Co. (ITA.No. 1004 of 2016 dated 11.02.2019) directed the Assessing Officer 6 ITA.NO. 1348/MUM/2020 (A.Y: 2009-10) Shri Praveen Singh Chandan Singh Dewal to make the disallowance in accordance with the ratio of the decision of the Hon'ble Bombay High Court in the case of M. Haji Adam & Co. (supra). On a perusal of the Coordinate Bench decision in the case of Shri Pravin C. Bokadia v. ITO (supra), I find that the Ld.CIT(A) enhanced the disallowance to 100% of the non-genuine purchases placing reliance in the case of Shoreline Hotels Pvt. Ltd., (supra), the Tribunal noticed the distinguishing features of the Hon'ble Bombay High Court decision in the case of Shoreline Hotels Pvt. Ltd., (supra) to the cases where there is a disallowance made under non-genuine purchases and the observation of the Tribunal is as under: - “7. Upon assessee's appeal learned CIT(appeals) has enhanced the addition to hundred percent. In doing so she has referred to the honourable jurisdictional High Court decision in the case of Shoreline Hotels Pvt. Ltd.(supra). It is settled law that case law cannot be considered in isolation of the context thereof. This is duly the ratio arising of out of the decision of honourable Supreme Court in the case of Sun Engineering Works Pvt. Ltd. (198 ITR 2970. In the decision of Shorteline Hotels Pvt. Ltd. (supra) considered by the Hon'ble Bombay High Court was in context of the order passed by learned CIT(A) under section 263 of the income tax act, wherein the ITAT had upheld the order of the learned CIT, invoking his jurisdiction u/s.
The issue was expenditure incurred in the maintenance by a hotel. In contrast the present case is a case where the assessee is a dealer in steel and disallowance has been done by the Assessing Officer on a finding that the assessee has made purchases through grey market.
In our considered opinion by no stretch of imagination it can be said that there is any similarity in the facts upon which the honourable jurisdictional High Court has rendered the above said decision and the facts of the present case.”
7 ITA.NO. 1348/MUM/2020 (A.Y: 2009-10) Shri Praveen Singh Chandan Singh Dewal 10. Thus, I am of the opinion that the Ld.CIT(A) is not correct in enhancing the disallowance to 100% of the genuine purchases placing reliance on the decision of the Hon'ble Bombay High Court in the case of Shoreline Hotels Pvt. Ltd., (supra).
It is not in dispute that sales have been accepted as genuine from out of these purchases. When the sales have been accepted as genuine the entire purchases cannot be treated as non-genuine. The Hon'ble Gujarat High Court in the case of Bholanath Polyfab Pvt. Ltd [355 ITR 290] held that when the assessee made purchases and sold the finished goods as a natural corollary not the entire amount covered under such purchases would be subject to tax but only the profit element embedded therein. Similar view has been taken by the Hon'ble Gujarat High Court in the case of CIT v. Simit P. Seth [38 taxman.com 385]. Simply because the parties were not produced the entire purchases cannot be added as held by the Bombay High Court in the case of CIT v. Nikunj Eximp [216 Taxman.com 171].
I agree with the view of the lower authorities that there should be an estimation of profit element from these purchases and should be estimated reasonably as the assessee could not conclusively prove that 8 ITA.NO. 1348/MUM/2020 (A.Y: 2009-10) Shri Praveen Singh Chandan Singh Dewal the purchases made are from the parties as claimed, especially in the absence of any confirmations from them. Taking the totality of facts and circumstances, keeping in view the nature of business of the assessee i.e., Trading in Ferrous and Non-Ferrous metals and the submission of the Ld. Counsel for the assessee that the benefit what the assessee got by way of VAT is 4% and the probable profit element may be adopted at 1% totaling to 5%, it would be justified if the profit element embedded in those purchases are estimated at 6%. Accordingly, I direct the Assessing Officer to estimate the profit element from the non-genuine purchases at 6% and restrict the disallowance of purchases to 6% and compute the income accordingly for the assessment year under consideration i.e. A.Y: 2009-10.
In the result, appeal of the assessee is partly allowed.
Order pronounced on 01.10.2021 as per Rule 34(4) of ITAT Rules by placing the pronouncement list in the notice board.