Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, MUMBAI BENCH “H” MUMBAI
Before: SHRI PRAMOD KUMAR & SHRI RAVISH SOOD
ORDER PER RAVISH SOOD, J.M : The present appeals filed by the assessee are directed against the respective orders passed by the CIT(A)-30, Mumbai, dated 21.11.2019, which in turn arises from the assessment orders passed u/s 144 r.w.s 147 of the Income Tax Act, 1961 (for short „Act‟) dated 14.03.2016 and 12.03.2016 for A.Y. 2010-11 and A.Y. 2011-12, respectively. As a common issue is involved in the aforementioned appeals, therefore, the same are being taken up and disposed off together by way of a consolidated order. We shall first take up the appeal for A.Y 2010-11 wherein the assessee has assailed the impugned order on the following grounds before us:
“1. That on the facts and circumstances of the case and in law, the reopening proceedings initiated by the ld. AO u/ 147 is bad in law and liable to be quashed. a) The ld. A.O erred in reopening the assessment u/s 147 solely on the basis of information received from DGIT (Inv.) Mumbai & 1100/Mum/2020 A.Ys. 2010-11 & 2011-12 2 Shri Himanshu Dilip Jain Vs. ACIT-19(1) without any application of mind and as such, the reopening is bad in law and liable to be quashed. b) The ld. A.O erred in reopening the assessment u/s 147 based on suspicion and surmises without any tangible material showing escapement of income and as such, the reopening is bad in law and liable to be quashed.
2. That on the facts and circumstances of the case and in law, the ld. CIT(A) erred in confirming the action of AO in disallowing a sum of Rs.4,97,40,017/- on account of alleged bogus purchase.
3. Your appellant craves leave to add to, amend or alter or delete any of the above grounds of appeal.”
Briefly stated, the assessee had filed his return of income for A.Y. 2010-11 on 30.09.2011, declaring a total income of Rs.11,50,184/-. The return of income filed by the assessee was initially processed as such u/s 143(1) of the Act. Subsequently, on the basis of information received by the A.O from the office of the DGIT(Inv.), Mumbai, that the assessee during the year under consideration as a beneficiary had obtained accommodation purchase bills of Rs.7,11,82,340/- from 15 parties, its case was reopened u/s 147 of the Act.
During the course of the assessment proceedings, it was observed by the A.O that the assessee had claimed to have made purchases aggregating to Rs.7,11,82,340/- from the following 15 tainted parties:
Sr. No. Name Amount (in Rs.) 1. Rolex Trading Company 1,15,608/- 2. Ratandeep Tubes 1,88,876/- 3. Master Trading Co. 7,49,995/- 4. Siddharth Steel 68- 5. Kanak Steel (India) 92,674/- 6. Arihant Trading Co 2,20,039/- 7. Mortan Steel India 5,06,183/- 8. Jinalay Trading Private Limited 5,13,878/- 9. Shankeshwar Sles 5,23,541/- 10. Goodluck Metal 6,50,735/- 11. Nerolac Metal (India) 10,05,662/- 12. Avion Sales Private Limited 12,64,722/0 13. Prakash Steel & Allies 15,87,956/- 14. Meridian Trading Co. 2,43,71,639/- 15. Globe Impex (India) 3,93,90,764/- Total 7,11,82,340/- & 1100/Mum/2020 A.Ys. 2010-11 & 2011-12 3 Shri Himanshu Dilip Jain Vs. ACIT-19(1)
Notices u/ss. 143(2)/143(1) of the Act were issued and duly served upon the assessee by the A.O. However, the assessee failed to comply with the aforementioned notices. In order to verify the genuineness of the aforesaid purchase transactions the A.O issued notices u/s 133(6) to the abovementioned supplier parties. However, neither of the aforementioned party complied with the notices issued by the A.O and no confirmation/reply was received by him from the said parties. Backed by the aforesaid facts, the A.O held a conviction that the assessee had not made any genuine purchases from the aforementioned parties, but had made the impugned purchases from the open/grey market. As the books of accounts of the assessee were not verifiable, therefore, the A.O rejected the same u/s 145(3) of the Act and made an addition of the entire amount of purchases of Rs.7,11,82,340/- by dubbing the same as an unexplained business expenditure incurred by the assessee company. After disallowing the entire value of the impugned purchases, the A.O vide his order passed u/s 144 r.w.s 147, dated 14.03.2016 assessed the income of the assessee company at Rs.7,23,32,520/-.
Aggrieved, the assessee assailed the assessment order before the CIT(A). Before the CIT(A) the assessee assailed the validity of the jurisdiction assumed by the A.O for reopening its case u/s 147 of the Act, as well as challenged the addition of the entire value of the impugned purchases by treating the same as bogus purchases. However, the CIT(A) not finding any infirmity in the view taken by the A.O therein upheld the same and dismissed the appeal of the assessee.
The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. The ld. Authorized Representative (for short „A.R‟) for the assessee at the very outset submitted that both the lower authorities had most arbitrarily made/sustained the addition of the entire value of the alleged bogus purchases in question. Although, it was not the claim of the ld. A.R that the assessee company had made genuine purchases from the aforementioned & 1100/Mum/2020 A.Ys. 2010-11 & 2011-12 4 Shri Himanshu Dilip Jain Vs. ACIT-19(1)
supplier parties, however, she confined her contention qua the arbitrary manner in which the addition of the entire value of the impugned purchases was made by the A.O, which thereafter had been sustained by the first appellate authority. It was submitted by the ld. A.R that the addition in respect of the aforesaid unverifiable purchases could only have been made only up to the extent of the profit which the assessee would had made by procuring the goods/material in question not from the aforementioned parties, but at a discounted value from the open/grey market. On a specific query by the bench, it was submitted by the ld. A.R that the profit element in the case of the assessee could in all fairness be estimated @ 12.5% of the value of the impugned purchases in question.
Per contra, the ld. Departmental Representative (for short „D.R‟) relied on the orders of the lower authorities. It was submitted by the ld. D.R that as the assessee had failed to comply with the notices issued u/s 143(2)/142(1) of the Act and had failed to place on record any documentary evidence to substantiate the authenticity of the impugned purchases that were claimed to have been made from the aforementioned parties, therefore, the A.O had rightly added the entire value of the impugned purchases to the returned income of the assessee. It was submitted by the ld. D.R that the appeal filed by the assessee being devoid and bereft of any merit was thus liable to be dismissed.
We have heard the ld. Authorized Representatives for both the parties, perused the orders of the lower authorities and the material available on record. As is discernible from the assessment order, we find that the A.O had categorically observed that in the totality of the facts of the case it could safely be concluded that the assessee had made the impugned purchases from the grey market. For the sake of clarity the observations of the A.O are reproduced as under : “Further on the basis of examination and investigation of record and after due application of mind, it is evident that in the given facts and circumstances of the case, the only & 1100/Mum/2020 A.Ys. 2010-11 & 2011-12 5 Shri Himanshu Dilip Jain Vs. ACIT-19(1)
probability that is thrown up would be that the assessee has made the impugned purchases from the grey market.” Admittedly, it is a matter of fact borne from the record that the assessee had failed to substantiate the genuineness and veracity of the purchases that were claimed to have been made from the aforementioned 15 tainted parties. In our considered view, now when the A.O was in receipt of information from the DGIT(Inv.), Mumbai, that the assessee had not made any genuine purchases from the aforementioned 15 parties, therefore, a very heavy onus was cast upon the assessee to have dispelled all doubts as regards the genuineness of the said purchase transactions and substantiate to the hilt the authenticity of the impugned purchases. However, we are afraid that it is a matter of fact discernible from the records that the assessee had utterly failed to evidence the genuineness of the impugned purchase transactions on the basis of any supporting material. At the same time, we cannot also shut our eyes to the fact that the A.O himself had admitted that in the given facts and the circumstances of the case the assessee had probably made the impugned purchases from the grey market. Backed by the aforesaid observation of the A.O, we are of the considered view that though he had rejected the books of accounts of the assessee by invoking the provisions of Sec. 145(3) of the Act, however, there was no justification on his part in adding the entire value of the impugned purchases as an unexplained business expenditure in the hands of the assessee. Accordingly, now when the A.O himself was of the view that the assessee had probably purchased the goods in question from the open/grey market, then, the addition qua such impugned purchases was liable to be restricted only to the extent of the profit which the assessee would have made by procuring the goods at a discounted value from the open/grey market. Insofar the nature of the addition made by the A.O is concerned, we find that the addition of the entire value of the impugned purchases have been made by him by treating the same as an unexplained business expenditure incurred by the assessee. We & 1100/Mum/2020 A.Ys. 2010-11 & 2011-12 6 Shri Himanshu Dilip Jain Vs. ACIT-19(1) are unable to persuade ourselves to concur with the aforesaid basis adopted by the A.O for making the impugned addition in the hands of the assessee. Insofar the source of purchasing the goods under consideration is concerned, we are unable to comprehend as to how and on what basis an addition qua the impugned purchases could have been made by the A.O by stamping it as an unexplained business expenditure. Although, we concur with the A.O that the assessee had failed to substantiate the genuineness of the impugned purchase transactions, but in the backdrop of the fact admitted by him that the assessee would have probably purchased the impugned goods from the grey market, we are of the considered view that the addition qua the said purchases was liable to be restricted to the extent of the profit element involved in procuring such goods at a discounted value from the said open/grey market. But then, we also cannot remain oblivious of the fact that the assessee had failed to demonstrate that the impugned purchases formed part of the duly accounted sales and/or closing stock of the assessee for the year under consideration. In the totality of the facts of the case before us, we are of a strong conviction that in case the impugned purchases formed part of the sales and/or closing stock of the assessee for the year under consideration, then, the addition in the hands of the assessee would be liable to be restricted only to the extent of the profit which the assessee would had made by procuring the goods at a discounted value from the open/grey market. Insofar the quantification of the aforesaid profit element is concerned, the same in our considered view in all fairness can safely be taken @ 12.5% of the value of the impugned purchases. Our aforesaid view qua the quantification of the profit element embedded in bogus/unverified purchases made by an assessee at 12.5% of the value of such purchases is fortified by the judgment of the Hon‟ble High Court of Gujarat in the case of Simit P. Sheth (2013) 356 ITR 451 (Guj). Accordingly, in all fairness, we herein set-aside the order of the CIT(A) and restore the matter to the file of the A.O. In the course of the set-aside proceedings, if the assessee is able to demonstrate before the A.O that the & 1100/Mum/2020 A.Ys. 2010-11 & 2011-12 7 Shri Himanshu Dilip Jain Vs. ACIT-19(1) impugned bogus/unverified purchases in question formed part of its sales and/or closing stock for the year under consideration, then, the A.O shall restrict the addition in the hands of the assessee to the extent of 12.5% of the aggregate value of the impugned purchases aggregating to Rs. 7,11,82,340/-
Resultantly, the appeal of the assessee is partly allowed for statistical purposes in terms of our aforesaid observations.
We shall now take up the appeal of the assessee for A.Y. 2011-12. The assessee has assailed the impugned order on the following grounds before us:
“1. That on the facts and circumstances of the case and in law, the reopening proceedings initiated by the ld. AO u/ 147 is bad in law and liable to be quashed. a) The ld. A.O erred in reopening the assessment u/s 147 solely on the basis of information received from DGIT (Inv.) Mumbai without any application of mind and as such, the reopening is bad in law and liable to be quashed. b) The ld. A.O erred in reopening the assessment u/s 147 based on suspicion and surmises without any tangible material showing escapement of income and as such, the reopening is bad in law and liable to be quashed.
2. That on the facts and circumstances of the case and in law, the ld. CIT(A) erred in confirming the action of AO in disallowing 100% of alleged bogus purchase amounting to Rs.7,11,82,340/-.
3. Your appellant craves leave to add to, amend or alter or delete any of the above grounds of appeal
.”
10. Briefly stated, the assessee had filed his return of income for A.Y 2011-12 on 30.09.2011, declaring a total income of Rs.32,21,680/-. The return of income filed by the assessee was initially processed as such u/s 143(1) of the Act. Subsequently, on the basis of information received from the office of the DGIT(Inv.) Mumbai, that the assessee as a beneficiary had obtained bogus purchase bills aggregating to Rs.9,97,40,017/- from 11 parties, its case was reopened u/s 147 of the Act.
& 1100/Mum/2020 A.Ys. 2010-11 & 2011-12 8 Shri Himanshu Dilip Jain Vs. ACIT-19(1)
During the course of the assessment proceedings, it was observed by the A.O that the assessee had claimed to have made purchases aggregating to Rs.4,97,40,017/- from the following 11 parties:
Sr. No. Particulars Amount (in Rs.) 1. Stelco Steel Industries 7,00,128/- 2. Rolex Trading Company 9,99,996/- 3. Manibhadra Metal Industries 10,39,584/- 4. Mico Steels 16,00,000/- 5. Harish Metal & Tubes 1,58,55,514/- 6. Vidhi Metal Industries 5,03,329/- 7. Reliable Metal (India) 15,03,216/- 8. Akshay Metal 7,21,398/- 9. Prakash Steel & Allies 14,29,071/- 10. Manidhari Enterprises 23,57,542/- 11. Meridian Trading Co. 2,30,30,239/- Total 4,97,40,017/- As the assessee failed to comply with the notices that were issued issued u/s 143(2)/142(1) of the Act, therefore, the A.O could not verify the genuineness and veracity of the purchases which were claimed by the assessee to have made from the aforementioned 11 tainted parties. Also, the notices issued by the A.O u/s 133(6) of the Act to the aforementioned 11 parties were also not complied with and no reply/confirmations was received from them. Backed by the fact that the books of accounts of the assessee were not verifiable, the A.O rejected the same u/s 145(3) of the Act and added the entire value of the impugned purchase of Rs. 4,97,40,017/- as an unexplained business expenditure to the returned income of the assessee. In the backdrop of his aforesaid observations, the A.O vide his order passed u/s 144 r.w.s 147, dated 12.03.2016 assessed the total income of the assessee at Rs.5,29,61,700/-.
Aggrieved, the asessee carried the matter in appeal before the CIT(A). However, the CIT(A) concurred with the view taken by the A.O and dismissed the appeal.
We have heard the ld. Authorized Representatives for both the parties, perused the orders of the lower authorities and the material available on record. & 1100/Mum/2020 A.Ys. 2010-11 & 2011-12 9 Shri Himanshu Dilip Jain Vs. ACIT-19(1)
As the facts and the issue in the present appeal of the assessee remains the same as were there before us in his appeal for the immediately preceding year i.e A.Y. 2010-11 in , therefore, our order therein passed shall apply mutatis mutandis for the purpose of disposal of the present appeal. Accordingly, in terms of our observations recorded while disposing off the appeal of the assessee for AY. 2010-11 in we herein set-aside the order of the CIT(A) and direct the A.O to restrict the addition qua the impugned purchases of Rs. 4,97,40,017/- to 12.5% of aggregate value of such purchases.
Resultantly, the appeal of the assessee is partly allowed for statistical purposes in terms of our aforesaid observations.
Both the appeals of the assessee are partly allowed for statistical purposes in terms of our aforesaid observations.