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Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
Before: SHRI SHAMIM YAHYA, AM & SHRI AMARJIT SINGH, JM
O R D E R
PER AMARJIT SINGH, JM:
The revenue has filed the present appeal against the order dated 22.03.2019 passed by the Commissioner of Income Tax (Appeals) -12, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y.2010- 11.
The revenue has raised the following grounds: -
1. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in directing the Assessing Officer to disallow 12.5% of the bogus purchases rather than the whole of such purchases amounting to Rs. 31,89,2866." 2. "On the facts and in the circumstances of the case and in law, Ld. CIT(A) has erred in directing the Assessing Officer to disallow 12.5% of the bogus purchases rather than the whole of such purchases without appreciating that such allowance of 87.5% of expenditure imply allowance of Purchases A.Y.2010-11 mode in cash from the 'grey' market, thereby rendering the provisions of section 40(1)(3) of the Income Tax Act, 1961 totally redundant which could not have been the intention of the statute." 3. "On the facts and in the circumstances of the case and in law, Ld. CIT(A) has erred in deleting the quantum addition to the extent of Rs. 27,90,625/- made by the AO on account of bogus bill purchases from six parties by not appreciating that the assessee has not established the genuineness of transaction with these parties as it failed to produce the party/furnish the confirmation of transaction with the parties/transportation details/delivery challans, as also, stock details and the corresponding sales arising out of such purchases." 4. "On the facts and in the circumstances of the case and in law, Ld. CIT(A) has erred in failing to abide by the landmark decision of Hon'ble Supreme Court in the case of N.K. Proteins Ltd dtd 16/01/2017 wherein the Hon'ble Supreme Court has confirmed the addition of 100% of the bogus purchases." 5. "On the facts and in the circumstances of the case and in low, Ld. CIT(A) has erred in restricting the quantum addition ignoring that the information on account of bogus purchases is received from the external agency that the assessee had received accommodation entry from such party."
6. Though the tax effect in this case is Rs.8,62,304/-, however this appeal has been filed because it is covered by exception mentioned in para 10(e) of the CBDT Circular No.3/2018 dt.11.07.2018 as subsequently clarified by Board letter dtd.20/08/2018 vide no.279/misc/142/2007-ITJ(Pt.)
7. The appellant prays that the order of the CIT(Appeals) on the above grounds be set aside and that of the AO be restored.
8. The appellant craves leave to amend or alter any ground or to submit additional new ground, which may be necessary."
3. The brief facts of the case are that the assessee filed its return of income on 23-09-2010 declaring a total income of Rs.27,68,040/- under normal provisions of the Act. The return was processed u/s 143(1) of the I.T Act accepting the returned income. Thereafter the case of the assessee was reopened u/s 147 of the Act after having recorded reasons for the escapement of the assessment and a notice u/s 148 of the Act dated 24.03.2015 was issued and served upon the assessee. Notices u/s 143(2) & A.Y.2010-11 142(1) of the Act were issued and served upon the assessee. The case of the assessee was reopened on the basis of the information received from the Office of Director General of Income Tax (Inv.), Mumbai wherein it was conveyed that the assessee has taken the bogus purchase entry of Rs.31,89,286/- from the following six parties: - S. No. Name of the party Amounts 1 Ashtavinayak Sales Agency 1,11,879 2 Real Traders 1,84,748 3 Saradgi Syndicate 10,51,920 4 Sunrise Enterprises 1145,993 5 K. V. Trading Co. 1,93,329 6 Amar Enterprises 5,01,417 Total 31,89,286 In the instant case, the AO issued the notices to the parties u/s 133(6) of the Act which were not served by the Postal Authorities with the remark „Not known‟. After the reply of the assessee, 100% of the bogus purchase of Rs.31,89,286/- was added to the income of the assessee. The total income of the assessee was assessed in a sum of Rs.59,57,330/-. Feeling aggrieved, the assessee filed an appeal before the CIT(Appeals) who restricted the addition to the extent of 12.5%. The Revenue was not satisfied, therefore, filed the present appeal before us.
We have heard the argument advanced by the Ld. Representative of the Revenue and perused the record. Before going further, we deemed it necessary to advert the finding of the CIT(A) on record: - ITA No. 4265/M/2019 A.Y.2010-11 “I have considered the assessment order and the submissions of the appellant including the case laws cited. The AO held in the assessment order that the appellant produced the details with regard to purchases made. Assessee also filed copies of purchases invoices, ledger account of parties, stock register and also the bank statement showing the each and every payment for purchases. It is noticed that on account of non- production of suppliers and brokers, transportation bills etc. the AO added 100% as non-genuine purchases. It is seen that many Benches of ITAT and Hon’ble High Courts have held that when purchases are supported by sufficient documentary evidences, then merely because of non-appearance before the AO, one cannot conclude that the purchases were not made by the assessee. I agree with the contentions of the Ld. AR. that there are many decisions wherein the IT, T, Mumbai, has upheld addition of a percentage of alleged bogus purchases under similar facts. Apart from the cases cited by the AR, in the following decisions also the ITAT, Mumbai, has upheld estimation out of alleged bogus purchases in cad of addition of total purchases.
1. Salim Ebrahim Petiwala v/s. Ito 17(3)(2) Mum/2017 2. Tubes India v/s. Asst CIT Circle 19(3) ITA No 2230 to 2232/ Mum/2016 3. The ACIT 19(2) v/s. M/s Nocil Steels ITA No 4505/ Mum/ 2015 4. Satish R. Rathod v/s. ITO 15(3)(1) ITA No 567/ Mum/2016 5. Vinod H. Sanghvi v/s. DCIT 15(2)(old) ITA No 125 to 127/Mum/2016 6. M/s. Pentagon System and Services P. Ltd v/s. DCIT (OSD) Cir 2(3) ITA No 4804/Mum/ 2015 7. Turnkey Electrical Engineers P. Ltd v/s. DOT 7(3) ITA No 1936,1937,1938 & 1939/Mum/ 2015 8. Montex Glass Fibre v/s. DCIT 2(2) ITA No 1520/ Mum/2017 9. R.A. Industrial Metals v/s. ITO 14(1)(1) ITA No 1850/ Mum/ 2015 10. Mehul K. Mehta v/s. ITO 15(1)(3) ITA No 3227/ Mum/2016 11. Nangalia Fabrics P Ltd 40 taxmann.com 206 (Guj) 12. PCIT vs Tejua Rohitkumar Kapadia SLP No. 12670/2018 (SC) 3. Further, this is also not case in which the signed blank cheque books are found with the buyer to hold that the purchases of material were not at all made but entered in the stock to inflate the raw material. Therefore the decision of the Supreme Court in the case of N. K. Protiens A.Y.2010-11 Ltd. 250 taxman 0022 (SC) apply to the case. Therefore, the saving on account of VAT and other incidental charges made by the appellant on the said bogus purchases can be brought to as additional profit. In the case of CIT vs. Simit P Sheth, 356 ITR 451, Hon’ble Gujarat High Court has upheld estimation @ 12.5% of alleged bogus purchases by finding as under: "If the payments to the above mentioned parties are made through cheque and the subsequent sales made have been accepted in total by the assessing officer, then it can be concluded that purchases have been made from persons in the open market. That being the position, not the entire purchase price but only profit element embedded in such purchases can be added to the income of the assessee." 4 Further it is seen that in appellant's own case for AY 2009-10, the same latter was involved, where the then CIT(A) following the above judgment is allowed/confirmed 12.5% of the bogus purchases as against 100% as made by ne A.O. in the assessment. Keeping in view the totality of facts and circumstances of the case and respectfully following the decision of my predecessor CIT(A) in appellant's case for AY 2009-10, the addition is restricted to 12.5% of bogus purchases. Accordingly, the addition to the extent of 12.5% of bogus purchases of Rs.31,89,286/- which comes to Rs. 3,98,661/- is sustained. The AO is directed to modify the addition accordingly. The appellant gets part relief. These grounds are partly allowed.”
On appraisal of the above mentioned finding, we noticed that the CIT(Appeals) has decided the matter of controversy on the basis of the decision of Gujarat High Court in the case of CIT vs. Simit P. Sheth 356 ITR 451 (Guj.), and in the case of Hon‟ble Gujarat High Court CIT Vs. Bholanath Poly Fab Pvt. Ltd. reported in 355 ITR 290 (Guj), Vijaya Protein Vs. CIT 58 ITD 428 (Ahd). In the said mentioned law, it is well- settled that the profit ratio embedded to the transaction is required to be added to the income of the assessee. In the instant case, sale is not doubted, therefore, the CIT(A) has restricted the addition to the extent of 12.5% of the total bogus purchase in sum of Rs.31,89,286/-. Taking into account of all the facts and circumstances, we are of the view that CIT(A) has decided A.Y.2010-11 the matter of controversy judiciously and correctly which is not liable to be interfere with at this appellate stage. Accordingly, we upheld the finding of the CIT(A) on this issue and decide these issues in favour of the assessee against the revenue.