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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI PRAMOD KUMAR, VP & SHRI AMARJIT SINGH, JM
O R D E R
PER AMARJIT SINGH, JM:
The revenue has filed the present appeal against the order dated 11.06.2019 passed by the Commissioner of Income Tax (Appeals) -34, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y.2010- 11.
The revenue has raised the following grounds: - "1. "Whether on the facts and in the circumstances of the case and in Law, the CIT(A) erred in restricting the addition @ 12.5% of bogus purchases as against 100% made by the Assessing Officer misinterpreting the judge ment in the case of M/s Simit P Seth 656 ITR 461(Guj) and ignoring the fact that the assessee completely tailed in substantiating the purchases made from Hawala Parties and AC rightly A.Y.2010-11 applied the ratio of the judgment in the case of M/s Vijay Proteins Ltd. (1996 58 ITD 428 Ahd".
2. Whether on the facts and in the circumstances of the case and in Law, the CIT(A) erred restricting the addition to 12.5% of bogus purchase from M/s C.R. Enterprises as against 25% made by the Assessing Officer, which is proved bogus in the independent enquiry carried out during course at assessment".
3. "Whether, on the facts and in the circumstances of the case and in law, the CIT(A) Failed to appreciate the fact that Onus is on the assessee to explain and substantiate the genuineness and true nature of purchase transaction'.
4. The appellant prays that appeal is being filed because it is covered under the exception provided in para 10(e) of the amended instruction no 3 of 2018 dated 20.08.2018.
5. The appellant prays that the order of the CIT(A) on the ground be reversed and that of the Assessing officer be restored.
The appellant craves Leave to amend or alter any ground or acid a new ground, which may be necessary."
The brief facts of the case are that the assessee filed its return of income on 13-03-2010 declaring a total income of Rs.47,99,050/- for the A.Y.2010-11. The return was processed u/s 143(1) of the I.T Act. Thereafter the case of the assessee was reopened upon the information received from the Sales Tax/Vat Department, Gov. of Maharashtra in which it was conveyed that the assessee has taken the bogus purchase entry from the C. R. Enterprises of Rs.8,91,680/-. The necessary notices u/s 143(2) & 142(1) of the Act were issued and served upon the assessee. Notice to the A.Y.2010-11 C. R. Enterprises in view of the provisions u/s 133(6) of the Act was also issued which was not served. After the reply of the assessee, the AO restricted the addition of bogus purchase to the tune of Rs.2,22,920/- i.e. 25% of the bogus purchase in sum of Rs.8,91,680/-. The income of the assessee was assessed to the tune of Rs.50,21,970/-. 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.
ISSUE Nos. 1 to 4
We have heard the argument advanced by the Ld. Representative of the parties and perused the record. All the issues are in connection with the restriction of addition of bogus purchase to the extent of 12.5% of the bogus purchase in sum of Rs.8,91,680/-. Before going further, we deemed it necessary to advert the finding of the CIT(A) on record: -
“5.5. Conclusion on case laws: The net conclusion that can be arrived at from the above discussion is that where the sales and purchases are verifiable and proven e.g. to or from government bodies or agencies etc no addition may be made. If however, the purchases are bogus but the direct sales are proved, the assumptions are that the purchases were made from unknown parties and the AO can apply a profit rate to determine the liability of the assessee. It is also seen that putting an onus on the AO to trace the money trail or verify the withdrawals from the banks etc may give more pointers but it is not sufficient by itself and the ITAT has not accepted such an argument in the case of Shri Ganpatraj A.Sanghavi (supra). If the bogus purchases are unproved and are declared consumed by ITA No. 5929/M/2019 A.Y.2010-11 assessee itself in its trading, manufacturing or non-trading activities, the entire addition can be made as it only goes to inflate the expenses of the assessee. (refer MIs. Shoreline Hotel Pvt. Ltd vs. CIT Central-1 in dated 19.06.2015).
5.6. In view of the above, it is an admitted fact that Sales Tax Department has conducted search and seizure operation and has established large number of companies/firms/partnership concerns as hawala dealers who are engaged in accommodation entries without actually supplying the goods. The appellant is one of the beneficiary and has received such accommodation bills from one of the hawala operetors totaling to Rs. 8,91,680/-. The A.O. attempted to verify such parties by making independent enquiries u/s. 133(6) of the I.T. Act, 1961. All these verification letters came with the remark 'Not known/left'. The onus shifted on the appellant particularly in the background of finding of Sales Tax Department and DGIT (INV.), Mumbai. The appellant filed certain details such as purchase bills, ledger account, bank statement etc. However, some of the specific details required to establish the genuineness of purchase such as evidence of transportation of goods, entry of goods in the stock register, one to one consumption pattern of alleged purchase items, and confirmation from the parties concerned etc could not be submitted before the AO. The Principle Officer of these concerns was not produced before the A.O. for examination. However, it is also a fact that the A.O. has not questioned the total sale component and if there is a sale, there should be purchase. The appellant being a trading concern, has indulged in using such accommodation entry. As evident from catena of judgements on bogus purchases, only the benefit derived by using such accommodation entries has to be brought to tax. The advantages from using such bogus bills are in the form of saving VAT, saving of transportation charges and various taxes etc. The A.O. has rightly disallowed part of the purchases claimed such hawala A.Y.2010-11 dealers. However, the judgment of Vijay Protein (supra) is a judgement related to manufacturing concern where all the documents were threadbare analyzed and 25% disallowance on purchase was upheld. In the present case, the ratio of Vijay Protein, a manufacturing concern cannot be applied since the appellant is a business concern doing trading. In my opinion, the ratio of the judgement of Hon’ble Gujarat High Court in the case of Simit P. Seth 356 ITR 461 (Guj.) is applicable to the facts and circumstances of the appellant's case. Here, the Hon’ble Court has held that disallowance of 12.5% of the purchases from such hawala dealers will be justified. Thus, the disallowance made by the A.O. is upheld in principle. However, the percentage is restricted from 25% to 12.5%. The ground of appeal filed by the appellant, on this issue is therefore, partly allowed.”
5. On appraisal of the above mentioned finding, we find 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 461 (Guj.) & Vijaya Protein Vs. CIT 58 ITD 428 (Ahd). The CIT(A) has restricted the addition to the extent of 12.5% of the total bogus purchase in sum of Rs.8,91,680/- by considering the gross profit ratio of the assessee for the relevant assessment year. Taking into account of all the facts and circumstances, we are of the view that the CIT(A) has decided 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 these issues and decide these issues in favour of the assessee against the revenue.
ISSUE Nos. 5 & 6 A.Y.2010-11 6. Issue Nos. 5 & 6 are formal in nature which is not required to be adjudication.
In the result, the appeal filed by the revenue is hereby dismissed.