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Income Tax Appellate Tribunal, VIRTUAL COURT
Before: SHRI C.N. PRASAD, HONBLE & SHRI S. RIFAUR RAHMAN, 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 30.10.2019 for the A.Y. 2009-10.
Assessee in his appeal has raised following grounds: -
1) (a) The learned Commissioner of Income Tax (Appeals) - 30, Mumbai ["the Ld. CIT(A)"] erred in facts and law in confirming the 2 ITA.NO. 8016/MUM/2019 (A.Y: 2009-10) Shri Ramesh R. Jain order passed by the Id. Assessing Officer u/s. 143(3) r.w.s. 147 of the Act and not treating it as non-est and bad in law. (b) The Id. CIT(A) erred in facts and law in not appreciating that the order passed by the Id. Assessing Officer is against the principles of natural justice, suffers from infirmity, without jurisdiction and invalid. 2) (a) The Ld. CIT(A) erred in facts and law in not only confirming the addition of profit of Rs. 69,06,184/- being 25% of the alleged purchases but also enhancing the addition to Rs. 2,76,24,734/- being whole of the alleged purchases without appreciating the material evidences and submissions placed on record. (b) The Ld. CIT(A) erred in facts and law in not appreciating that the corresponding sales are already taxed and have failed to considered the one to one nexus of trades executed placed on record. (c) The Ld. CIT(A) erred in facts and law in not appreciating that the assessee ought to have been given the copy of the statements of the alleged suppliers relied upon and have been granted cross examination of these parties in light of natural justice. 3) Without prejudice to above, the Ld. CIT(A) erred in not restricting the addition on the alleged purchases to the extent of the gross profit earned and accepted by the revenue on genuine purchases.”
At the time of hearing, Ld. Counsel for the assessee submitted that on instructions from the assessee Ground No. 1 is not pressed. Accordingly, Ground No. 1 is dismissed as not pressed.
Coming to Ground No. 2 of grounds of appeal, Ld. Counsel for the assessee submits that Assessing Officer while completing the assessment treated purchases of ₹.2,76,24,734/- made from various parties as mentioned in the Assessment Order as non-genuine for the reason that 3 ITA.NO. 8016/MUM/2019 (A.Y: 2009-10) Shri Ramesh R. Jain assessee could not file transportation receipts, octroi receipts, weigh bridge receipts, delivery challans, excise gate pass, goods inward register maintained at godown and warehouse etc.,. 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, 5% of the purchases amounting to ₹.69,06,184/- 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 percentage of Gross Profit shown on genuine purchases. However, the Ld.CIT(A) enhanced the disallowance to 100% of purchases of ₹.2,76,24,734/- 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.
5. 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 4 ITA.NO. 8016/MUM/2019 (A.Y: 2009-10) Shri Ramesh R. Jain 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). Ld. Counsel for the assessee further submits that for the immediately succeeding assessment year in assessee’s own case the Tribunal in ITA.No. 4367/Mum/2018 dated 24.07.2019 restricted the disallowance of non-genuine purchases to 5% of such purchases. Therefore, Ld. Counsel for the assessee requested that addition be restricted to 5% following the Tribunal’s order for immediately succeeding assessment year i.e. A.Y. 2010-11.
Ld. DR vehemently supported the orders of the authorities below.
We have heard the rival submissions, perused the orders of the authorities below. On a perusal of the Coordinate Bench decision in the case of Shri Pravin C. Bokadia v. ITO (supra) we 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 5 ITA.NO. 8016/MUM/2019 (A.Y: 2009-10) Shri Ramesh R. Jain 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.”
8. Thus, we are 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). We further observe that the Tribunal in assessee’s own case for the immediately succeeding assessment year i.e. A.Y. 2010-11 by order dated 24.07.2019 in ITA.No. 4367/Mum/2018 restricted the disallowance to 5% observing as under: - “4. During the course of assessment proceedings and during appellate proceedings, the assessee submitted documentary evidences such as payment received against such sales, receipt of material purchases, account payee cheque. According to the AO, the 6 ITA.NO. 8016/MUM/2019 (A.Y: 2009-10) Shri Ramesh R. Jain assessee failed to establish the genuineness of the purchase and accordingly, he made addition of unproved purchase at 12.5% of ₹.10,51,277/- to the returned income of the assessee. Aggrieved, assessee preferred the appeal before CIT(A), who confirm the action made by the AO by observing in paras 7.3.5 & 7.3.6 by following the decision of Hon'ble Gujarat High Court in the case of CIT vs. Smith P. Seth (2013) 356 ITR 451 (Guj) by observing as under: "7.3.6 In the present case, AO concluded that the assessee indulged in non-genuine transaction and intention of indulging in such activity is to suppress the true profits and to x reduce the tax liability. Therefore, an addition on account of a higher margin of profit is fair and equitable. In the decision of Hon'ble Gujarat High Court in the case of CIT vs. Simit Sheth 356 ITR 451 (Guj) wherein also it is found that some of the alleged suppliers of steel to the assessee had not supplied any goods but had only provided sale bills and hence, purchases from the said parties were held to be bogus. The AO in that case added the entire amount of purchases to gross profit of the assessee. Ld. CIT(A) having found that the assessee had indeed purchased though not from named parties but other parties from grey market, partially sustained the addition as probable profit of the assessee. The Tribunal however, sustained the addition to the extent of 12.5%. Taking into account the above facts, the Hon'ble Gujarat High Court held that since the purchases were not bogus but were made from parties other than those mentioned in books of accounts, only the profit element embedded in such purchases could be added to the assessee's income and concluded that no question of law arose in such estimation. In respect of assesees contention regarding restricting addition to difference between average gross profit over last 4 years and that actually booked in relation to questioned purchases, it is stated that such arguments cannot be accepted for granting any further benefit to the assessee, as the working of so called gross profit itself would be unreliable in the absence of actual cost of questioned purchases. Further the addition of 12.5% is on estimation basis and is based on prevailing jurisprudence on the issue. Further, as far as assessee's reliance on various decisions of Hon'ble IT AT are concerned, it is stated that they have been delivered in respect of specific facts of those cases and thus cannot be generalized. 7.3.7 The facts of the present case are exactly similar to the above case. The appellant made purchases from, five parties who are said to be hawala operators, who are indulged in providing bogus bills without supply of any material. Under 7 ITA.NO. 8016/MUM/2019 (A.Y: 2009-10) Shri Ramesh R. Jain these circumstances, as the appellant could not prove his claim of purchases debited to the profit & Loss account, there is no other way to the AO, but to estimate the profit element embedded on such purchases. As stated earlier, the facts of the present case are exactly similar to the cited case and respectfully following the above cited decision, the action of the AO in estimating the addition @ 12.5% on the total purchases from the five parties is confirmed. Ground Nos. 2 and 3 of the appeal are treated as dismissed."
I have considered the issue and gone through the facts and circumstances of the case. I find from the facts of the case and argument of both the sides. The CIT(A) has confirmed the profit rate at the rate of 12.5%, which according to me is on higher side going by the nature of business of the assessee i.e. trading in ferrous and non-ferrous metals. I am in full agreement with the contentions raised by the assessee before CIT(A) and according to me a profit rate of 12.5% is on higher side as assessee has also paid the VAT element on these bogus purchases. Hence, a further deduction in estimation of profit to the extent of 7.5% can be allowed. Hence, I direct the AO to recompute the income after applying profit rate at the rate of 5% of the bogus purchases and compute the income accordingly. The appeal of the assessee is partly allowed.”
Following the said decision, we direct the Assessing Officer to recompute the income of the assessee by restricting the disallowance of non-genuine purchases to 5%. Ground No.2 of grounds of appeal is partly allowed.
In the result, appeal of the assessee is partly allowed.
Order pronounced on 14.09.2021 as per Rule 34(4) of ITAT Rules by placing the pronouncement list in the notice board