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Income Tax Appellate Tribunal, MUMBAI BENCHES “SMC”, MUMBAI
Before: SHRI SHAMIM YAHYA (AM) & SHRI RAM LAL NEGI (JM)
O R D E R
PER RAM LAL NEGI, JM
This appeal has been filed by the revenue against the order dated 07.03.2019 passed by the Commissioner of Income Tax (Appeals)-26 (for short ‘the CIT(A), Mumbai, for the assessment year 2009-10, whereby the Ld. CIT(A) has partly allowed the appeal filed by the assessee against the assessment order passed u/s 143 (3) r.w.s. 147 of the Income Tax Act, 1961 (for short the ‘Act’).
2. In this case, the assessment was reopened on the basis of information received from the office of DGIT (Inv.), Mumbai to the effect that during the year relevant to the assessment year under consideration, the assessee had obtained accommodation bills from four bogus dealers for an amount of Rs. 19,16,034/-, without actually purchasing goods from them. During reassessment proceedings, the assessee failed to prove the genuineness of the Assessment Year: 2009-10 transaction to the satisfaction of the AO. Accordingly, the AO made addition of the said amount to the income of the assessee u/s 69C of the Act. The assessee challenged the assessment order before the Ld. CIT (A). The Ld. CIT (A) after hearing the assessee restricted the addition to 12.5% of the total amount of bogus purchases shown by the assessee. The revenue is in appeal against the said findings of the Ld. CIT (A). 3. The revenue has challenged the impugned order passed by the Ld. CIT (A) on the following effective ground:- “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 parties from these purchases were made proven accommodation entry providers, as concluded by Sales Tax Authorities pursuant to the investigation carried out by them?
Whether on the facts and in the circumstances of the case and in law, the Ld.CIT (A) has erred in 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?.”
This case was fixed for final hearing on 22.10.2020. However, when the case was called for hearing, none appeared on behalf of the assessee. We notice that the assessee has not appeared despite service of notice. Hence, we decided to dispose of this appeal on the basis of the material available on record, after hearing the Ld. Departmental Representative (DR). Accordingly, we asked the Ld. DR to present the case of the revenue.
The Ld. DR submitted before us that since the assessee failed to establish the genuineness of the transaction, the AO had rightly made addition of the total amount of the bogus purchases shown by the assessee. Therefore, the Ld. CIT (A) ought to have confirmed the addition made by the AO. The Ld. Assessment Year: 2009-10 DR further submitted that the findings of the Ld. CIT (A) are not in accordance with the law laid down by the Hon’ble Supreme Court in the case of N.K. Proteins Ltd. vs. DCIT, therefore, the impugned order is liable to be set aside. Accordingly, the Ld. DR submitted that the order passed by the Ld. CIT (A) may be set aside. 6. We have perused the material on record including the cases relied upon by the authorities below. The Ld. CIT (A) has restricted the addition to 12.5% of the total amount of bogus purchases shown by the assessee as against 100% addition made by the AO. The operative part of the order passed by the Ld. CIT
(A) reads as under:- “7. The only ground of the appeal is against the addition of Rs. 19,16,034/- as unproved., suspicious purchases. As per the investigations carried out by the Sales Tax Authorities, the aforementioned parties were found to be invoked in giving accommodation entries only without actually supplying the goods. The logical inference is that the purchases made by the appellant would also be in the nature of accommodation entries only. To verify the same, the AO had made enquires 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 inspite of opportunity being given. The appellant also failed to produce delivery challans or transportation details. The onus of proving the genuineness of such purchases is on the appellant which the appellant had not been also 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 these parties 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 as purchases bills, payments by cheque etc. would all have been orchestrated to present a façade of genuineness and does not necessarily mean that the purchases from these parties are genuine. The Assessment Year: 2009-10 Courts have held that payment by cheque by itself is not sacrosanct to as to 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 at lower rates and purchases were shown 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 Gujarat High Court in this case has held that profit margin of 12.5% of the bogus purchases will be reasonable. Respectfully following the order in the case of Simit P. Sheth the addition is restricted to 12.5% of the bogus purchases of Rs. 19,16,034/-. This ground of appeal is party Allowed.”