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Income Tax Appellate Tribunal, MUMBAI BENCH “E” MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI S. RIFAUR RAHMAN
ORDER PER S. RIFAUR RAHMAN, A.M. The present appeal is filed by the Revenue against the order of the Commissioner of Income Tax (Appeals)-36, Mumbai [in short ‘CIT(A)’] for the assessment year 2012-13 dated 26.08.2019 and arises out of assessment completed u/s 143(3) of the Income Tax Act, 1961 (in short the Act).
At the outset, it is noticed that none appeared on behalf of assessee in spite of calls and even no application for adjournment was moved. On the other hand, Ld. DR is present in the court and is ready with arguments. Therefore, we have decided to proceed with the hearing of the case ex-parte with the assistance of the Ld. DR and the material placed on record. 2 Shri Sanjay K. Goyal 3. The brief facts of the case are, the assessee filed his return of income on 28.09.2012 declaring total income at Rs.10,93,030 /-. The case was selected for scrutiny, notices u/s 143(2) and 142(1) were issued and duly served on the assessee. In response to notice, the Ld. AR of the assessee attended time to time. The assessee is a prop. of M/s Chetak Steel is a whole-seller of iron & steel. Accordingly, assessment was completed u/s 143(3) of the Act by the AO thereby making 100% addition on account of bogus purchases.
Aggrieved by the above order of AO, assessee preferred appeal before Ld. CIT(A) and Ld. CIT(A) after considering the submission of assessee sustained the addition @ 12.5% of the bogus purchases and restricted the interest disallowance to Rs.2,11,700/- with the following observations :
“7.2 The ground No. 2 of the appeal is against disallowance of interest of Rs.4,00,000/- u/s 14A of the Act. The AO held that assessee has diverted interest bearing loans and advances for non-business purpose i.e. for making interest free investments and for giving interest free loans & advances and disallowed Rs.4,00,008/- out of the Total interest claim of Rs.5,90,458/- The AO has not commented on this issue in the remand report. During the appellate proceedings appellant submitted that out of loans & advances of Rs.2,57,13,519/- on aggregate amount of Rs.1,21,76,000/- has been paid out of surplus funds and AO has wrongly presumed that entire amount of Rs.2,57,13,519/- has been paid out of interest bearing funds. In view of these facts, the disallowance is restricted proportionately to Rs2,11,700/-. The ground of appeal s 'Partly Allowed.' 7.5 Grounds No 5 to 8 of the appeal are against addition of Rs.1,95,51,186/- u/s 69C or the Act on account of bogus purchases. The AO added entire amount of bogus purchases. As per investigation carried out by the Sales Tax Authorities, the accommodation parties were found to be involved in giving accommodation entries only without actually supplying the goods. The logical inference is that the purchases ITA No. 6871/M/2019 3 Shri Sanjay K. Goyal made by the appellant would also be in the nature of accommodation entries only. To verily the same, the AO had made enquiries by issuing notices u/s 133(6) which were returned unserved by the postal authorities. This party was found to be non-existent at the address given by the appellant. The appellant also failed to provide the latest address of the party. During the scrutiny assessment the appellant furnished details of purchases and corresponding sales. However, the appellant could not produce the party before the AO in spite of opportunity being given. The appellant also failed to produce delivery challans or transportation details. The onus of proving the genuineness o such purchases is on the appellant which the appellant had not been able to discharge fully. When the hawala party had admitted on oath that it had given accommodation entries only without actually supplying the goods, the genuineness of purchases made from one party will have to be considered Taking this into consideration while examining. The documentation submitted by the appellant in support of its claim. The documentary evidences such a; purchase bills, payments by cheques, etc. would all have been orchestrated to present a facade of genuineness and does not necessarily mean that the purchases from these parties are genuine. The Courts have held that payment by cheque by itself is not sacrosanct so as u prove genuineness of purchases when the surrounding circumstances are suspect. However, the appellant has shown onward sales which has not been doubted by the Assessing Officer. Since there can be no sales without corresponding purchases, the only logical explanation is that the appellant would have made purchases from undisclosed parties in the grey market a lower rates and purchases were known as being made from the impugned parties to suppress its profits. In such a situation, the various Courts including the Hon'ble Gujarat High Court in the case of CIT vs Simit P. Sheth, 356 ITR 451 have held that not the entire purchases but only the profit element embedded in these purchases was to be disallowed. The Hon'ble Gujrat High Court in This case has held that profit margin of 12.5% of the bogus purchases will be reasonable. Hon'ble ITAT Mumbai in & 5116/Mum/2015 dated 15/08/2017 for A.Y 2009-10 and 2010-11 in appellant's own case has held the profit margin at 12.5% of bogus purchases minus GP already disclosed. Respectfully, ITA No. 6871/M/2019 4 Shri Sanjay K. Goyal following the order of jurisdictional ITAT in appellant's own case the addition is restricted to 12.5% of bogus purchases. Further, the disclosed GP of 2.36% will be reduced. The ground of appeal is partly allowed.
Aggrieved, the revenue has preferred appeal by raising the following grounds of appeal :-
1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in directing the A.O. to restrict the addition of bogus purchases to 12.5% as against 100% addition made by the Assessing Officer on account of bogus purchases without appreciating the fact that the parties from whom these purchases were made proven accommodation entry providers, as concluded by Sales Tax Authorities pursuant to the investigation carried out by them.
2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred is not considering the latest Apex court decision in the case of N.K. Proteins Ltd vs. DCIT (769 of 2017), wherein the Hon'ble Supreme Court has confirmed 100% addition made on account of bogus purchases. 3. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in restricting the disallowance made u/s. 14A of the Act to Rs.2,11,700/- without appreciating the fact that the assessee has not submitted any evidence/supporting documents during the course of assessment proceedings to prove that an amount of Rs.1,21,76,000/- has been paid out of surplus funds and not out of borrowed funds of the assessee. 4. The appellant prays that the order of the Ld. CIT(A) on the above ground be reversed and that of the Assessing Officer be restored.”
Considered the submission of Ld. DR and material placed on record. We are of the considered view that no doubt the purchases made from the suspected parties are not genuine. However, the purchases itself cannot be doubted as rightly adjudicated by Ld. CIT(A) that AO has not doubted sales 5 Shri Sanjay K. Goyal declared by the assessee, only he suspects the purchases. Even the revenue raised grounds of appeal
mainly on the purchases not being genuine. Ld. CIT(A) has considered the corresponding onward sales and came to the decision. By respectfully following the decision of Hon’ble Gujrat High Court in the case of CIT vrs. Smith P. Sheth 356 ITR 451 (Guj), we are inclined to agree with the findings of Ld. CIT(A). Therefore, ground No. 1 & 2 raised by the revenue are dismissed. With regard Ground No. 3, we noticed that revenue has raised the ground objecting to the fact that assessee has not produced any evidence during the course of assessment to claim that assessee has invested out of its own funds. However, the assessee has submitted the evidence during the appellate stage and Ld. CIT(A) has considered the same. As he has co-terminus power to examine the evidence, we do not see any reasons to interfere with the findings of the Ld. CIT(A). Before us, no material produced anything contrary to the findings of the Ld. CIT(A). Accordingly, grounds raised by the Revenue are dismissed.