INCOME TAX OFFICER 17(2)(1), MUMBAI vs. SHRI JATIN SHANKARLAL DOSHI , MUMBAI

ORDER PER N.K. PRADHAN, A.M. The captioned appeals filed by the Revenue are directed against the order of the Commissioner of Income Tax (Appeals)-56, Mumbai [in short ‘CIT(A)’] and arise out of order u/s 143(3) r.w.s. 147 of the Income Tax Act, 1961 (‘the Act’).

Shri Jatin Shankarlal Doshi 2 5092 & 5095/M/2019 Though the case was fixed for hearing on 24.02.2021, neither the assessee nor his authorized representative appeared before the Bench on the above date. As there is non-compliance by the assessee, we are proceeding to dispose off these appeals after examining the materials available on record and after hearing the Ld. Departmental Representative (DR). As common issues are involved, we are deciding these appeals by a consolidated order for the sake of convenience. We begin with the AY 2009-10.

1. Whether on the facts and circumstances of the case and in law, the Id. CIT(A) justified in restricting the addition made by the AO to 6.75% of bogus purchase as against the addition made at 7.28% of the bogus purchases, ignoring that the assesses was unable to prove the genuineness of the purchases either by producing the suppliers for examination or by furnishing other substantiating documents which were required by the Assessing Officer? 2. Whether on the facts and circumstance of the case and in law, the Id. CIT(A) erred in overlooking the fact that the addition made by the AO was based on credible information received from the Sales Tax Department, wherein it was established that the assessee has taken mere accommodation entries/bogus bills from the suppliers without actually making purchases from them?

Shri Jatin Shankarlal Doshi 3 5092 & 5095/M/2019 Officer (AO) issued notice u/s 148 dated 19.03.2014 for reopening the assessment. During the course of re-assessment proceedings, the assessee filed before the AO, copies of (a) ledger accounts of the purchase party ; (b) purchase bill ; and (c) payment details to purchase parties.

However, the AO noted that till the date of assessment on 05.03.2015, the assessee could not produce before him the details of the broker/agent or the suppliers and also the monthly cash flow statement. Further, the AO noted that the assessee failed to produce before him the details of transportation of the materials supposed to have been purchased from the said hawala dealers. Thus considering the facts of the case and taking into account the average GP for the year 2006-07, 2007-08 and 2008-09 which comes to 7.28%, the AO estimated the profit @ 7.28% on the disputed purchases of Rs.58,24,569/- which comes to Rs.4,24,029/-. Accordingly, he made an addition of Rs.4,24,029/-.

“9. Ordinarily once purchase is held bogus, entire purchase is to be disallowed as a book entry having effect of reducing profit is created solely for reducing normal profit. However judicial decisions need to be followed by which a fixed per cent of same i.e. bogus entry/accommodation entry is added to income [eg: DCIT, 14(1)(2), Mumbai vs. M/s Fagioli India Pvt. Ltd. (ITA No. 4557 & 4558/Mum/2015 dated 28.07.2017, which inter alia considered decision of Hon. Supreme Court in N K Protiens vs. DCIT (SLP 759 to 2017) dated 16.01.2017]. In the cited case of M/s Fagioli India Pvt. Ltd. gross profit was 37% and Hon. ITAT decided that estimate of Shri Jatin Shankarlal Doshi 4 5092 & 5095/M/2019 profit be 12.5% on the figure of accommodation entry or bogus purchase. Further in Shri Mehul K. Mehta Prop. Vaishnavi Enterprises vs. Income Tax Officer 15(1)(3) Mumbai in dated 14.03.2017 in the context of the case the Hon. ITAT ordered as under:

We do not find any infirmity in the well reasoned appellate order of learned CIT(A) which we are inclined to affirm/sustain except that, in our considered view, the end of justice will be met in the instant case if GP is estimated to tune of 12.5% of the purchases from these alleged hawala operators which will cover any leakage of Revenue by way of VAT, commission etc. . Thus, as compared to the GP ratio at 7.11% declared by the assessee, we are estimating GP ratio at the rate of 12.5% on the said bogus purchases wherein the assessee will be allowed credit of declared GP ratio of 7.11% and net addition to GP ratio shall be to the tune of 5.39% on bogus purchases, hence, we allow partial relief to the assessee. We order accordingly.

It can be seen that in the above the Hon. ITAT has reduced addition further vis-a-vis the originally accepted figure of 12.5%. Further in case of M/s Geolife Organics vs. ACIT 4276, 4917, 4760/Mum/2016 of Hon. ITAT, Mumbai dated 05.05.2017, despite all deficiencies in assessment procedure, as against 12.5% disallowance made by Assessing Officer, the Hon. ITAT fixed the rate of disallowance at a lower level.

We have heard the Ld. DR and perused the relevant materials on record. We find merit in the order of the Ld. CIT(A), wherein he has considered the nature of business of the assessee and the nature of investigation done by the AO and thereafter, held that disallowance be kept at 6.75% (being gross profit rate) of transactions covered by accommodation entries. The Ld. CIT(A) has taken note of the fact that the AO has not issued notice u/s 133(6) to the said parties to verify the genuineness of purchases.

We agree with the above findings of the Ld. CIT(A) and affirm his order.

Again considering the facts and circumstances of the case for AY 2010- 11, the Ld. CIT(A) has restricted the disallowance to 8.25% (being a rate higher than gross profit rate on account of fact that deficiency is reasonably proved by the Assessing Officer) of transactions covered by accommodation entries.

For AY 2011-12, the Ld. CIT(A) has followed the rate applied for AY 2009-10 i.e. 6.75% of value of accommodation entries found to be bogus on the ground that the facts for AY 2011-12 are similar to AY 2009-10.

Shri Jatin Shankarlal Doshi 6 5092 & 5095/M/2019

Order pronounced in the open Court on 16/03/2021.