DCIT CENTRAL CIRCLE-1(2), MUMBAI vs. M/S.SHORELINE HOTELS PRIVATE LIMITED, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES “G”, MUMBAI BEFORE SHRI RAJESH KUMAR (AM) AND SHRI RAM LAL NEGI (JM) Assessment Year: 2008-09 The Dy. Commissioner of Income M/s Shoreline Hotels Pvt. Ltd., Tax, Central Circle- 1(2), Prop. M/s Marine Plaza, Dur-ul- R. No. 906, 9th Floor, Old CGO habib, 29, Marine Drive, Bldg., Annex Bldg., M.K. Road, Vs. Churchgate, Mumbai - 400020 Mumbai - 400020 PAN: AABCS1380B

(Appellant) (Respondent) CO No. 97/MUM/2019 (Arising out of ITA No. 2094/Mum/2018) Assessment Year: 2008-09 M/s Shoreline Hotels Pvt. Ltd., The Dy. CIT, Central Circle- 1(2), Prop. M/s Marine Plaza, Dar-ul- Room No. 906, 9th Floor, Old CGO habib, 29, Marine Drive, Bldg., Annex Bldg., M.K. Road, Churchgate, Vs. Mumbai - 400020 Mumbai - 400020 PAN: AABCS1380B (Appellant) (Respondent) Assessment Year: 2009-10 The Dy. Commissioner of Income M/s Shoreline Hotels Pvt. Ltd., Tax, Central Circle- 1(2), Prop. M/s Marine Plaza, Dur-ul- R. No. 906, 9th Floor, Old CGO habib, 29, Marine Drive, Bldg., Annex Bldg., M.K. Road, Vs. Churchgate, Mumbai - 400020 Mumbai - 400020 PAN: AABCS1380B

(Appellant) (Respondent) CO No. 98/MUM/2019 (Arising out of ITA No. 2095/Mum/2018) Assessment Year: 2009-10

2 ITA No. 2094 to 2100/Mum/2018 & CO No. 97 to 103/Mum/2019 Assessment Year: 2008-09, 2009-10, 2010-11, 2011-12, 2012-13, 2013-14 & 2014-15 M/s Shoreline Hotels Pvt. Ltd., The Dy. CIT, Central Circle- 1(2), Prop. M/s Marine Plaza, Dar-ul- Room No. 906, 9th Floor, Old CGO habib, 29, Marine Drive, Bldg., Annex Bldg., M.K. Road, Churchgate, Vs. Mumbai - 400020 Mumbai - 400020 PAN: AABCS1380B (Appellant) (Respondent) Assessment Year: 2014-15 The Dy. Commissioner of Income M/s Shoreline Hotels Pvt. Ltd., Tax, Central Circle- 1(2), Prop. M/s Marine Plaza, Dur-ul- R. No. 906, 9th Floor, Old CGO habib, 29, Marine Drive, Bldg., Annex Bldg., M.K. Road, Vs. Churchgate, Mumbai - 400020 Mumbai - 400020 PAN: AABCS1380B

(Appellant) (Respondent) CO No. 103/MUM/2019 (Arising out of ITA No. 2096/Mum/2018) Assessment Year: 2014-15 M/s Shoreline Hotels Pvt. Ltd., The Dy. CIT, Central Circle- 1(2), Prop. M/s Marine Plaza, Dar-ul- Room No. 906, 9th Floor, Old CGO habib, 29, Marine Drive, Bldg., Annex Bldg., M.K. Road, Churchgate, Vs. Mumbai - 400020 Mumbai - 400020 PAN: AABCS1380B (Appellant) (Respondent) Assessment Year: 2013-14 The Dy. Commissioner of Income M/s Shoreline Hotels Pvt. Ltd., Tax, Central Circle- 1(2), Prop. M/s Marine Plaza, Dur-ul- R. No. 906, 9th Floor, Old CGO habib, 29, Marine Drive, Bldg., Annex Bldg., M.K. Road, Vs. Churchgate, Mumbai - 400020 Mumbai - 400020 PAN: AABCS1380B

(Appellant) (Respondent)

3 ITA No. 2094 to 2100/Mum/2018 & CO No. 97 to 103/Mum/2019 Assessment Year: 2008-09, 2009-10, 2010-11, 2011-12, 2012-13, 2013-14 & 2014-15 CO No. 102/MUM/2019 (Arising out of ITA No. 2097/Mum/2018) Assessment Year: 2013-14 M/s Shoreline Hotels Pvt. Ltd., The Dy. CIT, Central Circle- 1(2), Prop. M/s Marine Plaza, Dar-ul- Room No. 906, 9th Floor, Old CGO habib, 29, Marine Drive, Bldg., Annex Bldg., M.K. Road, Churchgate, Vs. Mumbai - 400020 Mumbai - 400020 PAN: AABCS1380B (Appellant) (Respondent) Assessment Year: 2012-13 The Dy. Commissioner of Income M/s Shoreline Hotels Pvt. Ltd., Tax, Central Circle- 1(2), Prop. M/s Marine Plaza, Dur-ul- R. No. 906, 9th Floor, Old CGO habib, 29, Marine Drive, Bldg., Annex Bldg., M.K. Road, Vs. Churchgate, Mumbai - 400020 Mumbai - 400020 PAN: AABCS1380B

(Appellant) (Respondent) CO No. 101/MUM/2019 (Arising out of ITA No. 2098/Mum/2018) Assessment Year: 2012-13 M/s Shoreline Hotels Pvt. Ltd., The Dy. CIT, Central Circle- 1(2), Prop. M/s Marine Plaza, Dar-ul- Room No. 906, 9th Floor, Old CGO habib, 29, Marine Drive, Bldg., Annex Bldg., M.K. Road, Churchgate, Vs. Mumbai - 400020 Mumbai - 400020 PAN: AABCS1380B (Appellant) (Respondent) Assessment Year: 2011-12 The Dy. Commissioner of Income M/s Shoreline Hotels Pvt. Ltd., Tax, Central Circle- 1(2), Prop. M/s Marine Plaza, Dur-ul- R. No. 906, 9th Floor, Old CGO habib, 29, Marine Drive, Bldg., Annex Bldg., M.K. Road, Vs. Churchgate, Mumbai - 400020 Mumbai - 400020 PAN: AABCS1380B

4 ITA No. 2094 to 2100/Mum/2018 & CO No. 97 to 103/Mum/2019 Assessment Year: 2008-09, 2009-10, 2010-11, 2011-12, 2012-13, 2013-14 & 2014-15

(Appellant) (Respondent) CO No. 100/MUM/2019 (Arising out of ITA No. 2099/Mum/2018) Assessment Year: 2011-12 M/s Shoreline Hotels Pvt. Ltd., The Dy. CIT, Central Circle- 1(2), Prop. M/s Marine Plaza, Dar-ul- Room No. 906, 9th Floor, Old CGO habib, 29, Marine Drive, Bldg., Annex Bldg., M.K. Road, Churchgate, Vs. Mumbai - 400020 Mumbai - 400020 PAN: AABCS1380B (Appellant) (Respondent) Assessment Year: 2010-11 The Dy. Commissioner of Income M/s Shoreline Hotels Pvt. Ltd., Tax, Central Circle- 1(2), Prop. M/s Marine Plaza, Dur-ul- R. No. 906, 9th Floor, Old CGO habib, 29, Marine Drive, Bldg., Annex Bldg., M.K. Road, Vs. Churchgate, Mumbai - 400020 Mumbai - 400020 PAN: AABCS1380B

(Appellant) (Respondent) CO No. 99/MUM/2019 (Arising out of ITA No. 2100/Mum/2018) Assessment Year: 2010-11 M/s Shoreline Hotels Pvt. Ltd., The Dy. CIT, Central Circle- 1(2), Prop. M/s Marine Plaza, Dar-ul- Room No. 906, 9th Floor, Old CGO habib, 29, Marine Drive, Bldg., Annex Bldg., M.K. Road, Churchgate, Vs. Mumbai - 400020 Mumbai - 400020 PAN: AABCS1380B (Appellant) (Respondent) Revenue by : Shri T.S. Khalsa (DR) Assessee by : Shri Vijay Mehta (AR)

5 ITA No. 2094 to 2100/Mum/2018 & CO No. 97 to 103/Mum/2019 Assessment Year: 2008-09, 2009-10, 2010-11, 2011-12, 2012-13, 2013-14 & 2014-15

Date of Hearing: 02/12/2020 Date of Pronouncement: 30/12/2020

O R D E R PER BENCH These are the appeals and cross objections filed by the revenue and the assessee respectively, against the separate orders dated 22.01.2018 passed by the Ld. Commissioner of Income Tax (Appeals)-47, (for short CIT (A) Mumbai pertaining to the Assessment Years 2008-09, 2009-10, 2010-11, 2011-12, 2012-13, 2013-14 & 2014-15, whereby the Ld. CIT (A) has partly allowed the appeals filed by the assessee against the assessment orders passed u/s 143 (3) r.w.s.147 of the Income Tax Act, 1961 (for short ‘the Act’.) Since these appeals and cross objections pertain to the same assessee and the issues raised by the parties are identical, these were clubbed, heard together and are being disposed of by this common and consolidated order for the sake of convenience. 2. In these cases, the AO reopened the assessment order passed u/s 143(3) of the Act, on the basis of information received from the DGIT (Inv.) Mumbai to the effect that during the previous year the assessee had obtained fake purchase bills from bogus parties who used to provide accommodation entries on commission basis. During the reassessment proceedings, the assessee failed to establish the genuineness of the transactions to the satisfaction of the AO. Accordingly, the AO made additions of the amounts of bogus purchases to the income of the assessee and passed assessment orders u/s 143(3) r/w section 147 of the Act. The assessee challenged the assessment orders before the CIT(A). The Ld. CIT(A) after hearing the assessee restricted the addition to 17% of the bogus purchases. Aggrieved by the action of the Ld. CIT(A), the revenue has filed the present appeals and the assessee has filed the cross objection.

6 ITA No. 2094 to 2100/Mum/2018 & CO No. 97 to 103/Mum/2019 Assessment Year: 2008-09, 2009-10, 2010-11, 2011-12, 2012-13, 2013-14 & 2014-15 3. The revenue has challenged the impugned orders passed by the Ld. CIT(A) by raising the following common grounds of appeal:

(i) “Whether on the facts and circumstances of the case and in law, the Ld. CIT (A) was justified in restricting the disallowance on bogus purchases of revenue only to the extent of G.P. of 17% as against 100% in respect of purchase made form persons who were neither confirmed the same nor exist at the address given.

(ii) Whether on the facts and circumstances of the case and in the law, the Ld. CIT (A) was justified in restricting the disallowance on bogus purchases of revenue only to the extent of G.P. 17% as against 100% to be made as held by the Hon’ble Gujarat High Court in the case of N.K. Proteins Ltd. and Pwanraj B. Bokadia.” 4. On the other hand, the assessee has filed cross objections by raising the following common grounds:- 1. “In the facts and circumstances of the case and in law the learned CIT (A) erred in confirming the re-assessment proceedings u/s 147 not appreciating the fact that the respondent has submitted all the details in connection with purchases and as such the re-opening of the assessment on issues which have been already been examined amounts to change of opinion which is not permitted under law.

7 ITA No. 2094 to 2100/Mum/2018 & CO No. 97 to 103/Mum/2019 Assessment Year: 2008-09, 2009-10, 2010-11, 2011-12, 2012-13, 2013-14 & 2014-15 by the assessee. The Ld. DR further submitted that the findings of the Ld. CIT(A) are contrary to the ratio laid down by the Hon’ble Gujarat High Court in the case of N.K. Proteins and Pawanraj B. Bokadia. Therefore, the impugned orders are liable to be set aside. 6. On the other hand, the Ld. counsel for the assessee fairly admitted that the findings of the Ld. CIT(A) are based on the decision of the Mumbai Bench of the Tribunal in the case of M/s Hotel Mayfair Pvt. Ltd, a Group concern of the appellant company, for the A. Y. 2011-12, wherein the addition of 17% of the total amount of bogus purchases made by the AO was sustained by the Tribunal in an appeal filed by the assessee against the order passed by the Ld. CIT u/s 263 of the Act. However, the Ld. counsel further submitted that a reasonable percentage of profit may be sustained considering the fact and circumstances of the present cases. 7. The Ld. counsel further submitted that so far as the Cross Objections filed by the assessee is concerned, since the assessee intends to settle the dispute under Vivad se Vishwash Act, 2020, it does not want to press the same. Hence, the Ld. counsel submitted that the COs may be dismissed as withdrawn. 8. We have heard both the parties and perused the material on record including the cases relied upon by the revenue and the authorities below. We notice that the assessee challenge the assessment orders on legal ground as well as on merits. The Ld. CIT (A) dismissed the legal ground i.e., reopening of assessment orders passed u/s 143 (3) of the Act, however, partly allowed the ground raised on merits by restricting the addition to 17% of the total amount of bogus purchases determined by the AO in each of the cases. The Ld.CIT (A) has based his findings on the decision of the coordinate Bench, rendered in the case of M/s Hotel Mayfair Pvt. Ltd., a group company of the present assessee in appeal filed by the assessee against the order passed by the Ld. CIT u/s 263 of the Act, in which the AO had made addition of 17% of the total amount of bogus purchases. The findings of the Ld. CIT(A) in the present cases read as under:-

8 ITA No. 2094 to 2100/Mum/2018 & CO No. 97 to 103/Mum/2019 Assessment Year: 2008-09, 2009-10, 2010-11, 2011-12, 2012-13, 2013-14 & 2014-15 "Decision on Ground No. 2 11.0. In Ground of Appeal No. 2, the appellant has challenged the 100% addition made by the AO in respect of alleged bogus purchases, instead of making a GP rate addition on such purchases. 11.1. On this issue, it is important to refer to the details of the assessment proceedings, in the case of M/s Hotel Mayfair Pvt. Ltd., which is a Group concern of the appellant company for the A. Y. 201112. It is important to mention here that both M/s Hotel Mayfair Pvt. Ltd. and the appellant company are engaged in the same business of running a hotel and hence, the facts and circumstances of both the case are same. 11.2. In the assessment proceedings of M/s Hotel Mayfair Pvt. Ltd. for the A.Y. 2011-12, the AO has rejected the books of account of the appellant u/s 145(3) of the Act and has added back 1796 of the bogus purchases to the total income. The Gross Profit rate of 17% was worked out on the basis of the average of the A. Y. 2011-12 and the preceding 2 assessment years. The AO has also relied on the statement of the director, Mr. Karim Maredia recorded on oath u/s 131 of the LT. Act 1961 on 24.03.2014, wherein he has agreed to offer the G.P. rate on such unverifiable purchases for the A.Y. 2007-08 to A.Y. 2012-13 on the ground that the matter is old and further, the appellant is unable to produce the alleged purchase panics. Thus, GP rate addition has been offered by Mr. Karim Maredia, the Director of the appellant company in order to have peace of mind and to avoid protracted litigation. On these facts, the AO has finally passed the assessment order on 28.03.2014, wherein an addition of Rs. 14,43,560/- has been made, being 17% of the alleged bogus purchases amounting to Rs. 84,91,5251-. The total income was assessed by the AO on an amount of Rs. 1,11,91,100/-, after taking into account the addition of Rs. 14,43,560/- made on account of bogus purchases. 11.3. However, in the case of M/s Hotel Mayfair Pvt. Ltd. relevant to the A.Y. 2011-12, the CIT exercised the revisionary powers u/s 263 of the Act, holding that the AO should have disallowed the entire bogus purchases, amounting to Rs. 84,91,525/- and the order of the AO was accordingly, set aside. The matter travelled to the ITAT, Mumbai and the Hon’ble ITAT has in ITA No. 1921/Mum/2015, vide it's order dated 01.07.2015 quashed the order of the CIT passed u/s 263 of the Act. The 9 ITA No. 2094 to 2100/Mum/2018 & CO No. 97 to 103/Mum/2019 Assessment Year: 2008-09, 2009-10, 2010-11, 2011-12, 2012-13, 2013-14 & 2014-15 relevant concluding pan of the Hon'ble ITAT being important is reproduced hereunder- "4. We have heard the rival submissions and perused the material before us. We find that the AO had made inquiries about the purchases made by the assessee in pursuance of the information received from the Sales tax department, that he had issued a detailed notice to the assessee in that regard, that he had also recorded the statement of the director of the company, that he made certain disallowance with regard to purchases. In these circumstances, we are of the opinion that it was not case of no inquiry. The AO had adopted a particular method to deal with the alleged purchases. If the CIT was of the opinion that the assessment should have been passed after making inquiries in different manner then it cannot held that the order of the AO was erroneous or prejudicial to the interest of Revenue. Here, we would like to reproduce relevant portion of the decision of Jyoti Foundation (357 ITR 388) of Hon'ble Delhi High Court, which deals with the scope of the revisionary powers of the CIT and same read as under: "Revisionary power u/s. 263 of the Act is conferred by the Act on the CIT/Director of Income-tax when an order passed by the lower authority is erroneous and prejudicial to the interests of the Revenue. Orders which are passed without inquiry or investigation are treated as erroneous and prejudicial to the interests of the Revenue, but orders which are passed after inquiry/investigation on the question/issue are not per se or normally treated as erroneous and prejudicial to the interests of the Revenue because the revisionary authority feels and opines that further inquiry/investigation was required or deeper or further scrutiny should be undertaken. In cases where there is inadequate enquiry but not lack of enquiry, the CIT must record a finding that the order/ inquiry made is erroneous. This can happen if an enquiry and verification is concluded by the CIT and he is able to establish and show the error or mistake made by the AO, making the order unsustainable in law. An order of remit cannot be passed by the CIT to ask the AO to decide whether the order was erroneous." It was further held: "…….. that inquiries were certainly conducted by the AO. It was 10 ITA No. 2094 to 2100/Mum/2018 & CO No. 97 to 103/Mum/2019 Assessment Year: 2008-09, 2009-10, 2010-11, 2011-12, 2012-13, 2013-14 & 2014-15 not a case of no inquiry. The order u/s.263 itself recorded that the Director felt that the inquiries were not sufficient and further inquiries or details should have been called for. The inquiry should have been conducted by the Director himself to record the finding that the assessment order was erroneous. He should not have set aside the order and directed the AO to conduct the inquiry." It is possible that had the AO made the inquiries as desired by the CIT, he would have collected higher revenue. But, that alone would not justify the invoking of the revisionary powers by the CIT. As the AO had applied his mind and passed the order after rejecting the book of accounts u/s. 145(3) of the Act, so, we are of the opinion that the order of the AO was not neither erroneous nor prejudicial to the interest of the Revenue. Respectfully, following the above judgment of the Hon'ble Delhi High Court, we decide the effective ground of appeal in favour of the assessee. As a result appeal of the assessee stands allowed." 11.4 It is noted from above that the Hon'ble ITAT, Mumbai has clearly held that the AO had applied his mind and passed the order after rejecting the book of accounts u/s. 145(3) of the Act, and hence, the order of the AO was neither erroneous nor prejudicial to the interest of the Revenue. In view of these circumstances, it is seen that as on date, the original assessment order of the AO in the case M/s Hotel Mayfair Pvt. Ltd. for the A. Y. 2011-12 has attained finality, wherein a GP rate of 17% has been applied on the bogus purchases. 11.5 It is also seen that though the AO has heavily relied on the statement of Shri Karim Maredia for making a GP rate addition, but a perusal of his statement clearly reveals that he has not accepted the allegations of the Department regarding the parties being bogus and further, he has also stated that genuine business transactions have been carried out with the alleged bogus parties. The relevant excerpts of the statement of Shri Karim Maredia, in this regard are reproduced hereunder:-

"Q. I am showing you the information received from D. G.L T. (Investigation), Mumbai, and from Sales Tax Department in which the bogus billers have accepted that they have only issued the following bill to you without actually selling and delivering goods is as under: It is ascertained that the above mentioned parties/party are 11 ITA No. 2094 to 2100/Mum/2018 & CO No. 97 to 103/Mum/2019 Assessment Year: 2008-09, 2009-10, 2010-11, 2011-12, 2012-13, 2013-14 & 2014-15 indulged in issuing bogus purchase bills to various parties without actual!)' doing any sale/purchase themselves. These parties are declared by the D.G.LT.(Investigation) Mumbai as bogus dealers as they were not doing genuine business and were indulged only in issuing false bills. The billing entry providers are also declining the transactions of any kind with you stating it to be bogus entry billers and no any genuine sale to any of the beneficiary party. Please offer your explanation? Ans. I have perused and considered the details of the above parties mentioned by you. However, I do not accept your contention. We have been conducting genuine business transactions wit/i these parties. However, since the matter is old and we are unable to produce these parties and in order to be in peace and avoid protracted litigation, I hereby agree that the gross profit on the transactions with the above parties is offered to tax Sir, it is humbly requested that the above declaration is made by me to avoid litigation and to be in peace. As the declaration is made voluntarily, it is request that no penal action may be taken on this voluntary offer of Gross profit to tax." 11.6 Thus, there is no confessional statement on record, in the case of appellant, wherein the factum of purchases being bogus has been accepted. It is only because of the matter being old, that Shri Karim Maredia has offered the gross profit on the impugned purchases, with a view to avoid litigation and buy peace. 11.7 A note has also been taken of the following further facts emerging from the material placed on record, by the Appellant Company:- The appellant has filed before the AO, the ledger accounts of all parties, copies of invoices, details of Sales Tax TIN No., details of nature of items purchased, copy of Bank Statement etc. Further, all the payments have been made to the parties by a/c payee cheques. A perusal of the invoices reveals that the material purchased relates to repair and maintenance & consumables like table clothes, Shampoos, soaps, hair oil, toothpaste etc, which is used in the day to day running of hotel business and such material is mainly procured from the unorganized sector. The alleged purchases has been held non-genuine on the basis of the information on the website www.mahavat.gov.in and no evidence / statement was furnished to the appellant of the alleged parties, which have been treated as accommodation entry

12 ITA No. 2094 to 2100/Mum/2018 & CO No. 97 to 103/Mum/2019 Assessment Year: 2008-09, 2009-10, 2010-11, 2011-12, 2012-13, 2013-14 & 2014-15 providers by the Sales Tax Department. In this regard, no opportunity for cross-examination of such parties have been provided to the Appellant company. No specific defect has been pointed out in the books of accounts, except for the alleged bogus suppliers. The Hon'ble ITAT Mumbai in the case of M/s Hotel Mayfair Pvt. Ltd. for the A.Y. 2011-12 has upheld the addition made by the A. 0. based on 17% of the alleged bogus purchases. The overall GP Rate & NP Rate declared by the appellant company in the books of account is quite reasonable and fair in the hotel line business. 11.8 The issue of bogus purchases is not a new one and has come up for consideration before many Courts and the various judgments have been taken into consideration, while deciding the present case at hand. In the case of Nikunj Eximp Enterprises (P.) Ltd. (Born) (2015) 372 FIR 0619 (Born), the Hon'ble Bombay High Court has held as under- "7. We have considered the submission on behalf of the revenue. However, from the order of the Tribunal dated 30.04.2010, we find that the Tribunal has deleted the additions on account of bogus purchases not only on the basis of stock statement i.e. reconciliation statement, but also in view of the other facts. The Tribunal records that the Books of Accounts of the respondent- assessee have not been rejected. Similarly, the sales have not been doubted and it is an admitted position that substantial amount of sales have been made to the Government Department i.e. Defence Research and Development Laboratory, Hyderabad. Further, there were confirmation letters filed by the suppliers, copies of invoices for purchases as well as copies of bank statement all of which would indicate that the purchases were in fact made. In our view, merely because the suppliers have not appeared before the Assessing Officer or the CIT(A), one cannot conclude that the purchases were not made by the respondent- assessee. The Assessing Officer as well as CIT(A) have disallowed the deduction of Rs.1.33 crores on account of purchases merely on the basis of suspicion because the sellers and the canvassing agents have not been produced before them. We find that the order of the Tribunal is well a reasoned order taking into account all the facts before concluding that the purchases of Rs.1.33 crores was not bogus. No fault can be found with the order dated 30.04.2010 of the Tribunal."

13 ITA No. 2094 to 2100/Mum/2018 & CO No. 97 to 103/Mum/2019 Assessment Year: 2008-09, 2009-10, 2010-11, 2011-12, 2012-13, 2013-14 & 2014-15 11.9 Thus, the Jurisdictional High Court has held that when the sales turnover has been accepted, the mere fact that the suspected suppliers did not appear before the AO is not sufficient to conclude that the purchases were bogus. 11.10 It is further relevant to mention here that the Hon'ble Supreme Court in the case of Kachwala Gems vs. JC'IT (2006) 288 ITR 10, (2006) 206 CTR 0585: (2007) 288 ITR 0010: (2007) 158 TAXMAN 0071 has held that the rejection of books of accounts u/s. 145 in a bogus purchase case and completion of assessment to the best judgment u/s.144 of the Act was justified. The facts of this case are that the assessee was dealing in precious and semi-precious stones. The AO noticed certain defects in the books of accounts of the assessee, i.e. it had not maintained any quantitative details/stock register of the goods traded by it and there was no evidence/document or record to verify the basis of closing stock valuation shown by it and the G.P. rate declared by the assessee at 13.49% during the year did not match the results declared by the assessee itself in the previous assessment years. Therefore, the AO rejected the books of accounts of the assessee and resorted to best judgment assessment u/s.144 of the Act. On appeal, the CIT (Appeals), though reduced the quantum of profit estimated by the AO, yet upheld most of his findings. On appeal to ITAT, the Tribunal granted further relief to the assessee. In these circumstances, the Hon'ble Supreme Court held as under:- "6. In our opinion, whether there were bogus purchases or not, is a finding of fact, and we cannot interfere with the same in this appeal. As regards the rejection of the books of account, cogent reasons have been given by the IT authorities for doing so, and we see no reason to take a different view. 7. It is well settled that in a best judgment assessment there is always a certain degree of guesswork. No doubt the authorities concerned should try to make an honest and fair estimate of the income even in a best judgment assessment, and should not act totally arbitrarily, but there is necessarily some amount of guesswork involved in a best judgment assessment, and it is the assessee himself who is to blame as he did not submit proper accounts. in our opinion there was no arbitrariness in the present case on the part of the IT authorities. Thus, there is no force in this appeal, and it is dismissed accordingly. No costs." 11.12 In view of the above judgement of the Hon’ble Apex Court,

14 ITA No. 2094 to 2100/Mum/2018 & CO No. 97 to 103/Mum/2019 Assessment Year: 2008-09, 2009-10, 2010-11, 2011-12, 2012-13, 2013-14 & 2014-15 in the case of a best judgment assessment, an honest and fair estimate of the 7income needs to be made, based on the facts of the case. Thus, in the present case at hand the books of account of the appellant needs to be rejected u/s 145(3) of the Act and a fair and just estimate should be made to work out the profit embedded in such bogus purchases. 11.13 The observations made in the preceding paragraphs are also reinforced by the judgment of CIT vs. Bholanath Poly Fab P. Ltd. (2013) 355 ITR 290, wherein the Hon'ble Gujarat High Court has observed that despite of the ITAT's findings that the purchases may have been made from bogus parties, the entire amount covered under such purchases cannot be taxed but the profit element embedded therein would be subject to tax. The relevant observations of the Hon’ble Gujarat High Court, in this regard are reproduced hereunder- "6. We are of the opinion that the Tribunal committed no error. Whether the purchases themselves were bogus or whether the panics from whom such purchases were allegedly made were bogus is essentially a question of fact. The Tribunal having examined the evidence on record came to the conclusion that the assessee did purchase the cloth and sell finished goods. in that view of the matter, as natural corollary, not the entire amount covered under such purchase, but the profit element embedded therein would be subject to tax. This was the view of this Court in the case of Sanjay Oilcake Industries v. CIT, 316 ITR 274 (Guj.). Such decision is also followed by this Court in a judgment dated 16.8.2011 in Tax Appeal No.679 of 2010 in the case of CIT v. Kishor Amrutlal Patel. " 11.14 Further, in the case of CIT v Simit P. Sheth, 355 FIR 290 (GO), the Hon'ble Gujarat High Court has held that in the case of bogus purchases, it is vital to ascertain whether purchases were totally nonexistent or were actually made, but from grey market without proper billing, instead of from parties from whom it was claimed to be purchased. Once it is clear that purchases were actually made then only the profit embedded in it and not price of bogus purchases could be added in the income of assessee. The relevant portion of the judgment in this regard is reproduced hereunder:- 5. We are broadly in agreement with the reasoning adopted by the Commissioner (Appeals) with respect to the nature of disputed purchases of steel. It may be that the three suppliers from whom

15 ITA No. 2094 to 2100/Mum/2018 & CO No. 97 to 103/Mum/2019 Assessment Year: 2008-09, 2009-10, 2010-11, 2011-12, 2012-13, 2013-14 & 2014-15 the assessee claimed to have purchased the steel did not own up to such sales. However, vital question while considering whether the entire amount of purchases should be added back to the income of the assessee or only the profit element embedded therein was to ascertain whether the purchases themselves were completely bogus and non existent or that the purchases were actually made but not from the parties from whom it was claimed to have been made and instead may have been purchased from grey market without proper billing or documentation. 6. In the present case, CIT believed that when as a trader in steel the assessee sold certain quantity of steel, he would have purchased the same quantity from some source. When the total sale is accepted by the Assessing Officer, he could not have questioned the very basis of the purchases. In essence therefore, the Commissioner (Appeals) believed assessees theory that the purchases were not bogus but were made from the parties other than those mentioned in the books of accounts. 7. 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. So much is clear by decision of this Court. In particular, Court has also taken a similar view in case of Commissioner of Income Tax- IV vs. Vijay M Mistry Construction Ltd. vide order dated 10.01.2011 passed in Tax Appeal No. 1090 of 2009 and in case of Commissioner of Income Tax-I vs. Bholanath PolyFab Pvt. Ltd. vide order dated 23.10.2012 passed in Tax Appeal No. 63 of 2012. The view taken by the Tribunal in case of Vijay Proteins Pvt. Ltd. Vs. CIT reported in 58 IT!) 428 came to be approved. 8. If the entire purchases were wholly bogus and there was finding of fact on record that no purchase were made at all, counsel for the revenue would be justified in arguing that the entire amount of such bogus purchases should be added back to the income of the assessee. Such were the facts in case of ACIT (OSC) Ward 5(3) Nadiad Vs. Pawanraj B Bokadia (supra). 11.15 In the case of CIT Vs Satyanarayan P. Rathi (2013) 351 ITR 0150, the Hon’ble High Court of Gujarat has held as under- "5. From the record, we noticed that the Commissioner (Appeals) as well as the Tribunal found that the purchase of raw-material, in which the assessee was trading, were only made, but not from the disclosed sources. In other words, the case against the assessee was that the purchases were made in the grey market

16 ITA No. 2094 to 2100/Mum/2018 & CO No. 97 to 103/Mum/2019 Assessment Year: 2008-09, 2009-10, 2010-11, 2011-12, 2012-13, 2013-14 & 2014-15 through cash payment and some entries were obtained from certain suppliers who had not sold such goods. 6. The present case, thus, being one of only purchase but not from disclosed sources, it would be only profit element embodied in such purchase which could be added in the income of the assessee and thus, rightly so done by the Commissioner (Appeals) and the Tribunal. 7. If this be our conclusion, only question arises whether such profit element should be estimated at the rate of 30 percent or 12 1/2 percent. Whenever such a question arises, some reasonable estimation is always permissible. Hardly any question of law on such aspect would arise. Merely, it is pointed out that the assessee was a trader and that the Tribunal retained 12 1/12 percent of the purchase towards its possible profit, we do not find any reason to entertain the appeal. In the result, Tax Appeal is dismissed." 11.16 In a recent judgment in the case of Pr CIT Gandhinagar Vs. Jagdish H Patel, [2017] 84 taxmann.com 259 (Gujarat) in similar facts and circumstances, the Hon'ble Gujarat High Court has upheld the application of 8% profit rate on bogus purchases, on the basis of the 7% G.P. rate declared in the books and looking into the facts of that case. The relevant observations of the Hon'ble Gujarat High Court are as under:- "6. Having heard learned counsel for the Revenue and having perused the documents on record, we see no reason to interfere. The Commissioner of Income Tax (Appeals) as well as Tribunal both have accepted the assessees contention that adding the entire amount of bogus purchases would give a completely distorted figure and the gross profit would be higher than the total turnover. Such bogus purchases were for off-setting the purchases from producers and agriculturists directly who would not have the billing facility. Only question seriously paused before us was, was the Tribunal justified in adopting the gross profit rate of 8% as against 25% adopted by the Commissioner of Income Tax (Appeals)? 7. When additions are made on the basis of gross profit rates, a limited amount of estimation and gross work is always inbuilt. The assessee had pointed out that without the additions, the gross profit for the year under consideration was approximately 7%. The Tribunal therefore, did not commit any error in accepting the gross profit rate of 8% on the purchases which was otherwise

17 ITA No. 2094 to 2100/Mum/2018 & CO No. 97 to 103/Mum/2019 Assessment Year: 2008-09, 2009-10, 2010-11, 2011-12, 2012-13, 2013-14 & 2014-15 found not genuine." 11.17 In view of the several judicial pronouncements, it is held that (only the profit element embedded in the bogus purchases needs to be taxed. as tier the facts of the present case. Accordingly, the books of account of the appellant company are rejected u/s 145(3) of the Act and a flat gross profit is being applied on the alleged bogus purchases. 11.18 During the course of the appellate proceedings, the appellant has filed the GP & NP Rate for the various assessment years, which is tabulated as under- Particular A.Y. A.Y. A.Y. A.Y. A.Y. A.Y. Average 2007-08 2008- 2009- 2010- 2011- 2012- 09 10 11 12 13

Total 37.19 44.04 44.99 43.24 49.42 53.18 45.3 Income (Rs. In Crores)

Gross Profit 10.34 12.69 6.33 5.88 6.35 5.97 7.9 (Rs. In crores)

% of GP on 28 29 14 14 13 11 18.1 Income

Net Profit 6.37 7.76 3.75 3.96 3.62 3.56 4.8 (Rs. In crores)

% of NP on 17 18 8 9 7 7 11.0 Income

11.19 The above tabular data clearly shows that the appellant is showing a very healthy average GP Rate of 18.1% and average NP Rate of 11.0 %. This is contradictory to the assertion of the AO that the appellant company has been debiting bogus purchases to reduce their profits. In fact, the GP & NP rates are substantially higher, when compared to the industry average for hotel business. 11.20 Further, in view of the judgment of the Hon'ble ITAT, Mumbai upholding the application of 17% profit rate for the A. Y. 2011-12 in the case of sister concern, it is held that an application

18 ITA No. 2094 to 2100/Mum/2018 & CO No. 97 to 103/Mum/2019 Assessment Year: 2008-09, 2009-10, 2010-11, 2011-12, 2012-13, 2013-14 & 2014-15 of a profit rate of 17% is fair and reasonable in the facts of the present case. 11.21 Thus, out of the addition of Rs. 4,96,447/- made by the AO on account of non-genuine purchases, an amount of Rs. 84,396/- being 17% of alleged bogus purchases is confirmed and accordingly, the appellant gets a relief of Rs. 4,12,051/-. Thus, the Ground of Appeal No. 2, of the present appeal is partly allowed.” 6.19 1 have noted that the case of M/s Fariyas Hotel, referred supra, is also engaged in the business of running a Hotel and further belongs to the same group of cases. It has been noted that the Appellant Company has produced the complete stock details, which have been duly forwarded to the A.O. for comments. The A.O. has not pointed out any defect or discrepancy in such stock statements filed by the Appellant Company. There are a large number of judicial pronouncements, which holds that in such facts and circumstances, only the profit element embedded in the bogus purchases needs to be taxed. It has also been noted that the director of the appellant company, in his statement recorded on oath, has offered for taxation the GP rate on the bogus purchases. In view of the above stated factual & legal position, the books of account are rejected u/s 145(3) of the Act and a profit rate of 17% is applied on the unverifiable purchases debited in the P&L A/c. It may be noted that this addition is over & above the already declared profit in the books of account. 6.20 As far as the unverifiable purchases, which have been capitalised are concerned, the amount of depreciation claimed during the year under consideration, on such capitalised assets needs to be disallowed. 6.21 During the course of the appellate proceedings, the Appellant has submitted the bifurcation of unverifiable purchases into capital and revenue account. The complete details of unverifiable purchases in this regard are tabulated below:-

Sr. No. Assessment Unverifiable Correct figure, Revenue Capital Year Purchases, as as per Books Expenses (In Expenses (In per A.O. (In (In Rs.) Rs.) Rs.) Rs.)

1 2007-08 33,40,182 33,40,182 33,40,182 -

19 ITA No. 2094 to 2100/Mum/2018 & CO No. 97 to 103/Mum/2019 Assessment Year: 2008-09, 2009-10, 2010-11, 2011-12, 2012-13, 2013-14 & 2014-15 2 2008-09 139,79,631 139,79,631 117,58,267 22,21,364 3 2009-10 288,32,901 288,32,901 234,00,192 54,32,709 4 2010-11 252,27,535 252,27,535 193,42,871 58,84,664 5 2011-12 360,24,582 304,53,176 291,08,957 13,44,219 6. 2012-13 198,42,690 198,35,215 94,04,410 104,30,805 7. 2013-14 125,38,092 125,38,092 119,73,591 5,64,501 8. 2014-15 84,53,245 84,53,245 83,45,500 1,07,745 Total 1482,38,858 1426,59,977 1166,73,970 259,86,007

6.22 On the basis of the above summarized detail, the addition on account of unverifiable purchases debited in the P&L A/c calculated @ 17% & the disallowance on account of depreciation of the capitalized amount, for the various assessment years is tabulated below:-

S. No. Assessment Disallowance @17% Disallowance of Total Year of Purchases debited Depreciation (In Disallowance (In to P&L A/c (In Rs.) Rs.) Rs.)

1 2007-08 5,67,831 5,67,831

2 2008-09 19,98,905 1,31,417 21,30,322

3 2009-10 39,78,033 5,83,313 45,61,346

4 2010-11 32,88,288 11,78,565 44,66,853

5 2011-12 49,48,523 13,64,459 63,12,982

6 2012-13 15,98,750 15,83,406 31,82,156

7 2013-14 20,35,510 19,40,187 39,75,697

8 2014-15 14,18,735 22,63,828 36,82,563

9 2015-16 - 19,85,943 19,85,943

20 ITA No. 2094 to 2100/Mum/2018 & CO No. 97 to 103/Mum/2019 Assessment Year: 2008-09, 2009-10, 2010-11, 2011-12, 2012-13, 2013-14 & 2014-15 10 2016-17 - 17,43,571 17,43,571 11 2017-18 - 15,32,003 15,32,003 Total 198,34,575 143,06,692 341,41,267

6.23 Accordingly, an amount of Rs. 19,98,905/- being 17% of the bogus purchases claimed as revenue expenses and depreciation amounting Rs. 1,31,417/- in relation to the capitalized amount is upheld. The total disallowance on account of unverifiable purchases works out to Rs..21,30,322/-, which is accordingly confirmed for the current year under consideration. Hence, Ground of Appeal No. 2 of the present appeal is partly allowed.”

21 ITA No. 2094 to 2100/Mum/2018 & CO No. 97 to 103/Mum/2019 Assessment Year: 2008-09, 2009-10, 2010-11, 2011-12, 2012-13, 2013-14 & 2014-15 In the result, appeals filed by the revenue as well as the Cross Objections filed by the assessee are dismissed. Order pronounced on 30th December, 2020 under rule 34 (4) of the Income Tax Appellate Tribunal Rules, 1963. (RAJESH KUMAR) JUDICIAL MEMBER म ुंबई Mumbai; दिन ुंक Dated: 30/12/2020

Alindra, PS आदेश प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपील र्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आय क्त(अपील) / The CIT(A)- 4. आयकर आय क्त / CIT 5. दिभ गीय प्रदिदनदि, आयकर अपीलीय अदिकरण, म ुंबई / DR, ITAT, Mumbai 6. ग र्ड फ ईल / Guard file.

आदेशानुसार/ BY ORDER, सत्य दपि प्रदि //// उि/सहायक िंजीकार (Dy./Asstt.