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Income Tax Appellate Tribunal, MUMBAI BENCH “C” MUMBAI
Asstt. Commissioner of Smt. Pushpa Madan Income Tax- 26(2), Vs. Sharma, Row House No. Room No. 320, 3rd Floor, 22, Grace Dieu Co.Op. Kautilya Bhawan, B.K.C., Hsg. Soc. Ltd., Near Bandra (E), Powai Garden, Powai, Mumbai – 400 051 Mumbai – 400 076 PAN No. BCXPS8613P (Revenue) (Assessee) Revenue by : Shreekala Pardeshi, (DR) Assessee by : None Date of Hearing : 07/09/2021 Date of pronouncement : 21/09/2021 ORDER PER RAVISH SOOD, J.M: The present appeals filed by the revenue are directed against the respective orders passed by the Commissioner of Income Tax (Appeals)-38, Mumbai [for short „CIT(A)‟] dated 18.12.2019 for A.Y 2010-11, which in turn arises from the respective orders passed by the A.O u/s 143(3) of the Income- tax Act, 1961 (for short “Act”), dated 08.03.2013 AND under Sec. 143(3) r.w.s. 147 of the Act, dated 11.02.2016. As common issues are involved in the aforementioned appeals, therefore, the same are being taken up and disposed off by way of a consolidated order. We shall first take up the appeal which finds its roots in the assessment order passed by the A.O u/s 143(3), dated 08.03.2013 i.e ITA No. 1527/Mum/2020. The revenue has assailed the impugned order on the following grounds before us:-
A. “Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in restricting the disallowance of 15% of the total of bogus purchase transaction instead of 100% of the total amount of bogus purchase made by the AO for the A. Y. 2010-11?”
B. “ 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.), Mumbai and Sales Tex Department, Maharashtra with regard to bogus purchase made by the assessee from dealers without supply of actual goods?” C. “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?” D. “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 purchase transactions during the course of assessment proceedings?” E. “Whether on the facts and circumstances of the case and in Law, the Ld. CIT (A) has erred in law by not appreciating the fact that the onus to justify the claim of expenses is on the assessee and the same has failed to discharge it in relation to the purchases made from the non-existent vendors ?”
F. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) was correct in restricting the disallowance @ 15% of bogus purchase failing to appreciate the ratiom of the decision of Hon'ble Apex Court in the case of N K Proteins Ltd. vs. DCIT in SLP (Civil) No. 769/2017 dated 16.01.2017 wherein the Apex Court has held that when the purchases are from bogus suppliers, the entire purchases are liable to be disallowed?,
G. The appellant craves leave to amend or to alter any ground or add a new ground, which may be necessary.”
Briefly stated, the assessee who is engaged in the business of trading of Air handling units, dust collectors and other ancillary labour jobs, had filed her return of income for A.Y 2010-11 on 07.10.2010, declaring an income of Rs. 77,12,722/-. The return of income filed by the assessee was initially processed as such u/s 143(1) of the Act. Subsequently, the case of the assessee was selected for scrutiny assessment u/s 143(2) of the Act.
During the course of assessment proceedings it was, inter alia, observed by the A.O that the assessee had claimed to have made purchases from six tainted parties which as per the information received from the Sales Tax Department were involved in the business of providing accommodation entries. In order to verify the genuineness and veracity of the impugned purchases the A.O issued notices u/s 133(6) of the Act, which however were either returned un-served by the postal authorities with the remarks "not known", "left", "unclaimed" or were though served but not complied with by the concerned parties. For the sake of clarity the fate of the notices issued u/s 133(6) to the aforesaid six tainted supplier parties is culled out as under:-
Sr. Name of the party Nature of Amount involved Remarks No. transaction (Rs.) 1 M/s Anmol Enterprises Purchases 26,12,975 Not known 2 M/s Mahavir Purchases 19,25,304 No reply Enterprises 3 M/s Paras Enterprises Purchases 26,41,022 Not known 4 M/s Paras Sales Purchases 33,11,714 No reply Corporation 5 M/s R.K. Enterprises Purchases 1,39,07,515 Not known 6 M/s Rashmi Enterprises Purchases 1,10,87,866 No reply 4. In the backdrop of the aforesaid facts the A.O directed the assessee to substantiate the genuineness and veracity of the purchases which were claimed by her to have been made from the aforementioned parties on the basis of supporting documents, viz. purchase bills, proof of delivery of goods, ledger accounts of the parties, bank statements etc. Also, the assessee was directed to furnish in a specified form the names and addresses of the aforesaid supplier parties, details of the goods purchased from them, as well as the details of the purchases that were made from them in the preceding years a/w the dates on which payments were made to them. In compliance, the assessee though placed on record the purchase bills and the delivery challans, however, she failed to file supporting documentary evidences say transport receipts etc. On a perusal of the details before him, it was observed that the A.O that there was a huge time gap between the date on which the impugned purchases were claimed by the assessee to have been made from the aforementioned parties and the respective dates on which corresponding payments of the purchase consideration were made to them. In order to verify the authenticity of the aforesaid purchase transactions the A.O directed the assessee to produce the aforementioned parties for necessary examination, which the assessee failed to do. Backed by the aforesaid facts, the A.O held a conviction that the assessee had failed to substantiate her claim of having made genuine purchases from the aforementioned parties. Accordingly, the A.O in the backdrop of his extensive deliberations stamped the impugned purchases in question as bogus and added their entire value to her returned income. After, inter alia, treating the entire amount of the impugned purchases of Rs. 3,54,86,396/- as bogus, the A.O vide his order passed u/s 143(3) dated 08.03.2013 assessed the income of the assessee at Rs. 4,74,66,500/-.
Aggrieved, the assessee carried the matter in appeal before CIT(A). After deliberating at length on the facts of the case and the material available on record, the CIT(A) was of the view that as the material/goods pertaining to the impugned purchase transactions had factually been purchased and consumed by the assessee in the course of her business, therefore, it could safely be concluded that she had purchased such goods/material though not from the aforementioned hawala parties, but at a discounted value from the open/grey market. Accordingly, the CIT(A) on the basis of his aforesaid deliberationsheld a conviction that the addition in the hands of the assessee was liable to be restricted only qua the profit which she would have made by procuring the goods at a discounted value from the open/grey market. After considering the average gross profit rate of the assessee for the last 8 assessment years i.e. AY 2007-08 to AY 2014-15, which worked out at 15.88%, the CIT(A) restricted the addition to 15% of the total value of the impugned purchases of Rs. 3,54,80,396/- and confined the addition to an amount of Rs. 56,77,225/-.
The revenue being aggrieved with the order of the CIT(A) has carried the matter in appeal before us.
We have heard the Ld. Authorized Representative for both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by them to drive home their respective contentions. Admittedly, it is a matter of fact borne from the record that the assessee had failed to substantiate her claim of having made genuine purchases aggregating to Rs. 3,54,86,396/- from the aforementioned six parties to the satisfaction of the A.O. Insofar the view taken by the CIT(A) that the assessee had failed to substantiate the genuineness and veracity of the impugned purchase transactions is concerned, the same not having been assailed any further in appeal by the assessee before us had thus attained finality. Our indulgence in the present appeal has been sought by the revenue, for adjudicating, as to whether or not the CIT(A) is right in law and the facts of the case in scaling down the disallowance of the entire amount of the impugned purchases of Rs. 3,54,86,396/- to an amount of Rs. 56,55,225/- i.e 15% of the value of the impugned purchases.
As is discernible from the order of the CIT(A), we find that he was of the view that as the assessee had purchased the goods/material though not from the aforementioned parties but from the open/grey market, therefore, the addition in her hands was liable to be restricted only to the extent of the profit which she would have made by procuring such goods at a discounted value as against that booked in the books of account. The CIT(A) while concluding as hereinabove had taken cognizance of the fact that the A.O had not doubted or dislodged the sales that were declared by the assessee in her financial statements for the year under consideration. Also, it was observed by him that without making the purchases of the goods/material in question, viz. m.s. plates, m.s. sheets, m.s. angles, m.s. channels, c.r. sheets, m.s. bright bars, h.r. sheets, s.s. flats, s.s. sheets, g.i angles, g.i pipes, g.i sheets, condensers, exhaust fans, fenner taper lock pully, polybond anti etc., it would not have been possible for the assessee to have executed the contracts and supplied the material in the course of her business. Considering the fact that it was proved to the hilt that the goods in question had been consumed by the assessee in her business, the CIT(A) restricted the addition to the extent of the profit which the assessee would have made by procuring the goods/material at a discounted value from the open/grey market. Insofar the quantification of the aforesaid profit element in procuring the goods at a discounted value was concerned, the CIT(A) had after taking cognizance of the average GP rate of 15.88% of the assessee for the last eight assessment years i.e. A.Y 2007-08 to A.Y 2014-15 had in all fairness worked out the addition qua the estimated profit element embedded in procuring the goods from the open/grey market at 15% of the value of the impugned bogus purchases of Rs. 3,54,86,396/-. For the sake of clarity, the observations of the CIT(A) on the basis of which he had concluded as hereinabove are reproduced as under:- “7.2.7 I have carefully considered the submissions of the appellant with reference to materials on record and the assessment order of the AO. I find the appellant has substantially furnished documentary evidences to prove that the purchases made for the alleged parties are genuine. I also find the AO has not doubted the sales/turnover declared by the appellant in the financial statements and Income Tax Return filed for the impugned assessment year. However, the fact remains that the alleged parties have not responded to notice w/s. 133(6). In the wake of information received from reliable sources, defaulters /hawala dealers, it becomes imperative for the appellant to produce, the alleged party before the AO. However, the alleged parties have not been produced before the AO despite communication that the notice u/s.133(6) issued. has been returned by the postal authorities. No confirmation of ledger account of the alleged
panty has been submitted. The stock register and bank account statements of the afore-mentioned parties have not been to the AO. 7.2.8 In the given facts and circumstances, though to a large extent the appellant‟s explanation are backed by documentary evidence, it does not mean that the appellant has established genuineness of the impugned purchases in. totality of the circumstances. Although appellant has produced documentary evidence to fairly establish that the goods in question were indeed consumed in the business activity of the appellant, it may be mentioned here that the Maharashtra Sales Tax Department had unearthed a large number of hawala dealers as mentioned in the assessment order. In a large number of cases who had purchased goods from such hawala dealers, the I.T Department has initiated proceedings and completed assessments treating such purchases as bogus. Such assessments have been challenged in appeals before the Hon'ble Tribunals and Hon„ble High Courts and a good number of judicial precedents are available for guidance, Some of which have been referred to by the Ld. AR of the appellant. It will be in fitness of things to state here that the Judicial Authorities based on the facts of each case has laid down the maxim that these so-called bogus purchase invoices have been issued as enabling accommodation entries to record purchases at higher rate in the books of the purchaser while the goods are purchased from the grey market without purchase invoices in the Hon‟ble ITAT Mumbai "D" Bench, in its order dated 30.12.2016, held that “simply because the assessee could not produce the dealers, the entire purchases cannot be treated as bogus purchases. The Assessing Officer could have made further investigations to ascertain the genuineness of the transactions. Specifically when the assessee submitted Xerox copies of bills of purchases from the above parties and further submitted that all the purchases are made within the local limits and the delivery has been done by hand, therefore, no transport, octroi and delivery challans are submitted, However, in view of the nature of business of the assessee and the fact that the assessee is making local purchases without any transportation bills, delivery challans etc., the possibility of tha assessee making: purchases in grey market on cash cannot be ruled out. Therefore, keeping in view the facts and circumstances of the case, we direct the Assessing Officer to disallow 2% of the above purchases to meet the anomalies.” 7.2.9 The Hon‟ble Jurisdictional High Court in the case of Pr.CIT vs. M /s Mohommad Haji Adam & Co. in ITA No. 1004 of 2016 vide its order dated 11.02.2019 has held as under: “8. In the present case, as noted above, the assessee was a trader of fabrics. The A.O. found three entities who were indulging in bogus billing activities. A.O. found that the purchases made by the assessee from these entities were bogus. This being a finding of fact, we have proceeded en such basis. Despite this, the question arises whether the Revenue is correct in contending that the entire purchase amount should be added by way of assessee‟s additional income or the assessee ts correct in contending that such logic cannot be applied. The finding of the CIT(A) and the Tribunal: would suggest that the department had not disputed the assessee's sales. There was no discrepancy between the purchases shown by the assessee and the sales declared. That being the position, the Tribunal was correct in coming to the conclusion that the purchases cannot be rejected without disturbing the sales in case of a trader. The Tribunal, therefore, correctly restricted the additions limited to the extent of bringing the G.P, rate on purchases at the same rate of other genuine purchases, the decision of the Gujarat High Court in the case of N.K. Industries Ltd. (supra) cannot be applied without reference to the facts, In fact in paragraph 8 of the same Judgment the Court held and observed as, under in So far as the question regarding addition of Rs,3,70,78,125/- as gross profit on sales of Rs.37.08 Crores made by the Assessing Officer despite the fact that the said sales had admittedly been recorded in the regular books during the Financial Year 1997-98 is concerned, we are of the view that the assessee cannot be punished since sale price is accepted by the revenue. Therefore, even if 6% gross profit is taken into account, the corresponding cost price is required to be deducted and tax cannot be levied on the same price. We have to reduce the selling price accordingly as a result of which profit comes to 5.66%. Therefore, considering 5.66 % of Rs.3,70,78,125/- which comes to Rs. 20,98,621.88 we think it fit to direct the revenue to add Rs.20,98,621.88 as gross profit arid make necessary deductions accordingly. Accordingly, the said question is answered partially in favour of the assessee and partially in favour of the revenue." 7.2.10 The Hon‟ble High Court of Gujarat in the case GIT vs. Simit P Sheth, 356 ITR 451 (Guj) in its order dated 16.01.2013: laid down the maximum that addition of profit element embedded in the said transactions would be fair and rational. The Hon‟ble Gujarat High Court has upheld the estimation of profit ranging from 12% to 15% depending upon the nature of the business in adjudicating the issue of bogus purchase in the case cited above. Considering the tenets framed by the Judicial Authorities, I am of the opinion that in the instant case also estimation of profit embedded in the said alleged purchases be subjected to tax in all fairness. It is observed from the tax audit reports of the appellant of eight assessment years 2007-08 to 2014-15, the average GP is 15.88%. I therefore hold that computing the profit embedded in the said purchases at 15% of total bogus purchase of Rs.3,77,01,501/- (Rs.3,95,59,626/- less total of credit balances -Rs.18,58,125/-) which works out to Rs.56,55,225/and addition thereof to total income of the appellant of the impugned assessment year would meet the ends of justice. The AO is directed to retain the addition to the extent of Rs.56,55,225/and delete the balance amount of Rs.3,20,46,276/(Rs.3,77,01,501/-less Rs.56,95,225/-). Accordingly, Ground of Appeal
No.2 is Partly Allowed.”
10. After giving a thoughtful consideration to the observations of the CIT(A), we concur with the view therein taken by him. We, thus, neither finding any infirmity as regards the restriction of the addition in the hands of the assessee to the extent of the profit element embedded in making of the impugned purchases by the assesssee from the open/grey market, nor the quantification of the said profit element at 15% of the value of the said bogus purchases, uphold the same. Accordingly, the Grounds of appeal A to G raised by the revenue before us are dismissed.
Resultantly the appeal filed by the revenue is dismissed.
We shall now take up the appeal of the revenue which finds its genesis in the order passed by the A.O u/s 143(3) r.w.s. 147, dated 11.02.2016 in . The revenue has assailed the impugned order on the following grounds before us : A. “Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in restricting the disallowance of 15% of the total of bogus purchase transaction instead of 100% of the total amount of bogus purchase made by the AO for the A. Y. 2010-11?”
B. “ 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.), Mumbai and Sales Tex Department, Maharashtra with regard to bogus purchase made by the assessee from dealers without supply of actual goods?” C. “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?”
D. “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 purchase transactions during the course of assessment proceedings?” E. “Whether on the facts and circumstances of the case and in Law, the Ld. CIT (A) has erred in law by not appreciating the fact that the onus to justify the claim of expenses is on the assessee and the same has failed to discharge it in relation to the purchases made from the non-existent vendors ?” F. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) was correct in restricting the disallowance @ 15% of bogus purchase failing to appreciate the ratiom of the decision of Hon'ble Apex Court in the case of N K Proteins Ltd. vs. DCIT in SLP (Civil) No. 769/2017 dated 16.01.2017 wherein the Apex Court has held that when the purchases are from bogus suppliers, the entire purchases are liable to be disallowed?, G. The appellant craves leave to amend or to alter any ground or add a new ground, which may be necessary.”
Briefly stated, the A.O on the basis of information received from the DGIT (Inv.), Mumbai that the assessee as a beneficiary had obtained bogus purchase bills of Rs. 20,12,513/- from a hawala party, viz. M/s Anil Trading Company had therein u/s 147 of the Act reopened her concluded assessment for the year under consideration i.e A.Y 2010-11.
During the course of assessment proceedings, the A.O in order to verify the genuineness and veracity of the purchases that were claimed by the assessee to have been made from the aforementioned tainted party, viz. M/s Anil Trading Company had therein issued to it a notice u/s 133(6) of the Act. However, the aforesaid notice was returned un-served by the postal authorities with the remarks "not known". Backed by the aforesaid fact, the A.O directed the assessee to produce the aforesaid party for examination and also file its confirmation. However, the assessee failed to comply with the direction of the A.O and neither produced the aforementioned party for examination before him nor placed on record its confirmation. Observing that the assessee had failed to substantiate the authenticity of the aforesaid purchase transactions the A.O added the entire amount of the impugned purchases of Rs. 20,12,513/- and vide his order passed u/s 143(3) r.w.s. 147 of the Act, dated 11.02.2016 assessed her income at Rs. 4,93,79,011/-.
Aggrieved, the assessee carried the matter in appeal before the CIT(A). After deliberating at length on the issue under consideration, the CIT(A) was of the view that as the A.O had not doubted the sales corresponding to the impugned purchases in question, therefore, the addition in the hands of the assessee was liable to be restricted only to the extent of the profit which she would have made by procuring the goods at discounted value from the open/grey market. Accordingly, backed by his aforesaid observation, the CIT(A) after taking cognizance of the average GP rate of 15.88% of the assessee for the last 8 assessment years i.e. A.Y 2007-08 to A.Y 2014-15 worked out the profit element embedded in the impugned purchases at 15% of the value of such purchases of Rs. 20,12,513/-. In the backdrop of his aforesaid deliberations, the A.O restricted the addition in the hands of the assessee to an amount of Rs. 3,01,877/-. 16. The revenue being aggrieved with the order passed by the Ld. CIT(A) has carried the matter in appeal before us. Admittedly, the fact that the assessee had failed to substantiate the veracity of the impugned purchases that were claimed to have been made from the aforementioned tainted party viz. M/s Anil Trading Company is not in dispute. Although, the assessee had failed to substantiate the authenticity of the impugned purchases to the satisfaction of the A.O, but we cannot remain oblivious of the fact that certain supporting documentary evidences coupled with the fact that the payment to the aforementioned parties were made by the assessee through account payee cheques had not been dislodged till date by the lower authorities. Be that as it may, in our considered view, now when the fact that the impugned purchases formed part of the sales/contract receipts of the assessee had not been dislodged by the A.O, therefore, it can safely be gathered that the assessee had procured the impugned material not from the aforementioned hawala parties but from the open/grey market. After giving a thoughtful consideration to the observations of the CIT(A), we do not find any infirmity in the view taken by him that the addition qua the impugned purchases claimed by the assessee to have been made from the aforementioned party was liable to be restricted only to the extent of the profit which the assessee would have made by procuring such goods at a discounted value from the open/grey market. Insofar the quantification of the aforesaid profit element is concerned, we are of the considered view that the CIT(A) had taken the GP rate of the assessee for the last eight years i.e. AY 2007-08 to AY 2014-15 of 15.88% as a yardstick and on the said reasoned basis restricted the addition to 15% of the value of the impugned bogus purchases of Rs. 2,12,513/-. Accordingly, backed by our aforesaid deliberations we find no merit in the appeal of the revenue and dismiss the same. The Grounds of appeal
A to G are dismissed.
17. Resultantly the appeals filed by the revenue for A.Y 2010-11 in and are both dismissed. Order pronounced in the open court on 21/09/2021. Sd/- Sd/- (Shamim Yahya) (Ravish Sood) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated: 21.09.2021 Alindra, PS Copy of the Order forwarded to :
1. The Appellant 2. The Respondent. 3. The CIT(A)-