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Income Tax Appellate Tribunal, “D” Bench, Mumbai
These are cross appeals by the assessee and Revenue arising out of common order of learned CIT(A) dated 30.1.2017 pertaining to A.Y. 2008-09, 2009-10 & 2011-12. The Issue relate to restriction on account of bogus purchases to the extent of 15% by learned CIT(A) as against 100% done by the Assessing Officer as under :-
2 Shri Deven Ashwin Sanghvi
Assessment year Addition by the Assessing Sustained by Officer @ 100% learned CIT(A)
2008-09 3,92,15,251/- 58,82,288 2009-10 19,81,64,201 2,97,24,650 2011-12 3,92,31,775 58,84,766
At the outset, learned Counsel of the assessee Shri Hiro Rai submitted that the issue is squarely covered in favour of the assessee by the decision of ITAT in assessee’s own case for A.Y. 2010-11 in order dated 15.5.2019 & Miscellaneous application order for the same year in M.A.No. 504/Mum/2019 order dated 7.2.2020.
Per contra, learned Departmental Representative Shri Sanjay Singh, CIT-DR and Shri Vinodkumar, Senior AR-CIT could not dispute this proposition that in assessee’s own case the ITAT has taken a decision which has not been reversed by Hon'ble Jurisdictional High Court.
Since the facts are identical we are referring to facts and figures for A.Y. 2008-09.
Brief facts are that the assessee is in the business of supply of iron & steel. As per information which was received from the DDIT(lnv.), Mumbai to the effect that Shri Deveri Ashiwn Sanghavi, Prop, of M/s. Devdhar Steel had obtained accommodation purchase bills from various entities listed in Sales Tax Website which were declared as Hawala dealers by the Sales Tax Department, Mumbai. A survey u/s 133A of the Act was conducted in the assessee case on 21.11.2012 at Ginraj Building Sant Tukaram Road, Carnac Bunder, Mumbai, by the DDIT(Inv.), Unit-III, Mumbai. The list of suspicious dealers who indulge in issuing only bills without delivering any goods or materials is given on the official website of the Sales Tax Department, Government of Maharashtra. As per state Sales Tax Department the modus operandi of these dealers is to sell bills on commission basis. They issue bills and take a commission out of payment made to them and returned the remaining amount. On Perusal of the P&L A/c, it was seen that the assessee
3 Shri Deven Ashwin Sanghvi has claimed to have purchases from the following parties listed as hawalla dealer in the official website of MAHAVAT. Sr.No. Name of the Party | Amount
1 J.B. Interlink 90,75,162 2 Jindal Steel Corporation 79,20,106 3 P.K. Trading co. 75;30,065 4 Revika Trade Impex Pvt. Ltd. 67,79,933 5 N.B. Enterprises 79,09,985 TOTAL 3,92,15,251
The Sales Tax Department had taken statements, depositions and affidavits of hundreds of persons who were running entities whose names were appearing in the list of parties, which gave bogus bills, in the website www.mahavat.gov.in. All such statements etc. were provided to the Income Tax Department also."A perusal of the material provided by the Sales Tax Department showed that there are many documents which relate to above mentioned parties from whom appellant made purchases. In view of these facts, a notice u/s 148 of the Act was issued on 09.01.2014 after duly recording reasons. Reasons were provided to the appellant. Appellant submitted objections vide letter dated 18.07.2014. AO rejected the objections filed by the appellant vide his office letter dated 13.01.2015 arid proceeded to complete the assessment proceedings.
7. During the course of assessment proceedings, notice u/s 142(1) of the Act was issued on 11.02.2015 and 19.02.2015 asking the appellant to personally produce above mentioned parties along with following documents/explanation: (i) Confirmation letter from the above parties that they have sold and delivered goods to the appellant, (H) Details of the goods which are sold to the appellant along with delivery details receipts and lorry receipts/Transportation bills, (iii) Ledger account of Shri Deven A Sanghvi in their books of accounts, (iv) Bank statement of the parties reflecting the payment received for the goods sold to the appellant, (v) Statement of corresponding sales/consumption if any alongwith the stock register, (vi) Copy of the bills/invoices in respect of purchase parties in question along with the 4 Shri Deven Ashwin Sanghvi bank statement showing payment to the above mentioned parties, and (vii) Bank statement showing payment made to the parties mentioned in the reasons of reopening. In response to above notices, the appellant has submitted letter dated 20.02.2015 with regard to thirteen parties listed in the aforesaid notice considered by Assessing Officer as to be ‘bogus’ based on MVAT' list and providing a show cause for not considering transactions with them as sham and to add back the amount involved of the transactions to appellant income, he submitted as follows:
“(i) AO has referred to the list placed by the MVAT Department on their site listing the names of parties who are considered by the said Department as "Hawala or Suspicious Dealers". These parties have been listed by the said department based on their suspicious deals or behaviors or providing declarations to the said department about their having indulged in Havala Transactions. That it is well known that the said department has provided the list for caution to the public in dealing with them since they have had defaults in their compliances about filing of the returns or payment of the dues under MVAT. However, the said department has not confirmed the fact by making the assessment of their dealings as Hawala dealers. If there is any contrary information, that may be provided to the appellant with the conclusive assessment of these thirteen parties for rebuttal of the matter and further actions, (ii) Appellant ;s a trader and a dealer in M.S. Plates, T.M. T. Bars, M.S. Angles, M.S. Channel, M. S. Square ad M. S. Wires etc. He has purchased goods as per the bills issued by the stated parties, (iii) The goods purchased by him from each of these-parties have been resold by him to his customers. (iv)He enclosed transaction wise information about purchases by him from these parties and their respective sales to his customers, (v) Complete name, address, particulars about the registration of the said parties with the MVAT authorities, their PAN under Income Tax Act, etc. are being provided by appellant along with a copy of the ledger account of each of them, (vi) All the parties held a valid registration (TIN) numbers under MVAT Act when appellant entered into the transactions with them. (vii) Payment of the bills of each supplier was made by cheque as per details provided in the ledger account of the respective party, (viii) Bank accounts through which the payment to each of these parties has been made is enclosed, (ix) Similarly, the payment of all the sales, more particularly, identified against the purchase from these parties as mentioned has also been received by him by cheque. The same could also be traced in appellant's bank accounts submitted, (x) All the parties have been granted valid TIN number after detailed scrutiny of their records and deals, (xi) Appellant asked to call the said parties for 5 Shri Deven Ashwin Sanghvi confirmation by issuing summons under section 131/133A of the Income Tax Act and have a direct confirmation.”
8. The Assessing Officer did not make any direct inquiry from the said alleged bogus suppliers. He rejected the submission of the assessee and made 100% disallowance of the said purchase. He did not doubte the sales.
Against the above order assessee appealed before learned CIT(A) challenging both validity and reopening as well as merits of the addition sustained by Assessing Officer.
Learned CIT(A) dismissed the issue as regards the issue of validity of reopening. However, as regards the issue of merits of addition learned CIT(A) found that 100% addition was not justified and he followed his decision for A.Y. 2010-11 in assessee’s own case and restricted the disallowance to 15%. Learned CIT(A) observed as under :-
“6. The Grounds of Appeal from 4 to 8, the appellant has challenged the addition of Rs.3,92,15,251/- on account of bogus purchases that are treated as unexplained expenses on purchases u/s 69C of the Act. Similar issue has been decided on similar facts and grounds in the Appeal No. CIT(A)-31/IT-18/ITO-20(2)(1)/13-14 vide order dated 15.03.2016 FOR A.Y. 2010-11 in appellant's own case at para
5. Keeping in mind the totality of circumstances as discussed above and the fact that the appellant has not brought on record any evidence to corroborate his arguments during appellate proceedings, and by following my own order in appellant's case for AY 2010-11, it is adequate to meet the ends of justice, when the disallowance has been restricted, to 15 percent of the bogus purchases of Rs.3,92,15,251/- which amounts to Rs.58,82,288/-. The AO is, therefore, directed to restrict the disallowance as above. The appellant, therefore gets a relief of Rs.3,33,32,963/-. The AO is therefore directed to restrict the disallowance as above. The grounds of appeal are partly allowed. This ensures that only the real income gets subjected to tax and not a notional income or an exaggerated amount determined in an arbitrary manner.”
As against the above order the Revenue and assessee are in cross appeals before us.
6 Shri Deven Ashwin Sanghvi
We have heard both the counsel and perused the records. As stated earlier learned counsel of the assessee has submitted that for A.Y. 2010-11 on similar order of learned CIT(A) the ITAT has restricted the addition to 6.5%. In a Miscellaneous Application by the assessee thereafter upon noting that the assessee has already paid 4% MVAT, the ITAT vide order in Miscellaneous Application as above further restricted the addition to 2.5%. Learned counsel pleaded that the facts being identical the same should be followed. In this regard he submitted that he is also submitting application for admission of additional evidence dated 7.9.2020 enclosing details and challans of Maharashtra VAT paid by the assessee relevant to assessment years 2008-09, 2009-10 & 2011-12. It has been prayed that the same could not be furnished earlier since the importance of same was not realised by learned authorised representative, who appeared on behalf of the assessee before the lower authorities. Learned Counsel of the assessee further pointed out that the assessee has furnished all the documentary evidence in support of purchase and Assessing Officer has not done any inquiry himself. In this regard learned CIT(A)-DR submitted that the additional evidence has been furnished at this stage and he objected to admission of the same.
Upon careful consideration, we note that there is no difference in the facts and circumstances of the case as mentioned in ITAT order for A.Y. 2010- 11. Learned CIT(A) has also relied upon his order for A.Y. 2010-11 which was adjudicated by the Tribunal as under :- “6. We notice that the Ld. CIT (A) has restricted the 100% addition made by the AO on account of bogus purchases in the light of the decisions of the Hon’ble High Court of Bombay in the case of CIT vs. Nikunj Eximp Enterprises Pvt. Ltd. 372 ITR 619 (Bom), decision of the Hon’ble Gujarat High Court in the case of Vijay Proteins Ltd., Bholanath Polyfab, Simit P. Sheth, Sanket Steel Traders, Satyanarayan P. Rathi etc. in which the additions were restricted to 25 to 12.5%. In the case of Nikunj Eximp Enterprises (supra), the Hon’ble High Court has held that merely because the supplier had not appeared before the Assessing Officer or the CIT (A), one could not conclude that the purchases were not made by the assessee. In the case of CIT vs. Simit P. Sheth 38 taxman.com 385 (Guj), the Hon’ble Gujarat High Court upheld the addition of 12.5% sustained
7 Shri Deven Ashwin Sanghvi by the Tribunal (applicable VAT @ 10% plus profit of 2.5%) on the ground that in the case of bogus purchases only profit element embedded in sale of such purchases should be added. We further notice that the AO has made addition of the entire amount of bogus purchases determined during the assessment proceedings, which is contrary to the findings of the Hon’ble Gujarat High Court. The AO has not rejected the sales made by the assessee. Once the sales are admitted the purchases cannot be rejected as there cannot be any sale without purchases. In the present case, the evidence on record is not sufficient to prove the genuineness of the purchases from the 13 hawala entities, therefore, Ld. CIT (A) has rightly sustained the addition estimating the profit element embedded in the questioned purchases and the corresponding sales. Now the question arises as to whether 15% addition of the total amount of bogus purchases is reasonable in the light of the facts of the present case? In order to answer the said question, it is necessary to go through the decisions of the Hon’ble High Courts and the Tribunals on the similar issues. In the case of Simit P. Sheth (supra), the assessee engaged in the business of trading in Steel obtained accommodation bills showing purchase of steel without actually purchasing the steel. In the present case also, the assessee is engaged in the business of supply of Iron & Steel. Since, the facts of the present case are similar to the facts of the case of Simit P. Sheth (supra), we following the decision of the Hon’ble Gujarat High Court restrict the addition to 6.5% (applicable VAT @ 4% plus profit @ 2.5%) of the total amount of bogus purchases.”
Thereafter in order in Miscellaneous Application for the same year the ITAT further modified its direction as under :-
“5. We have heard the rival submissions and perused the material on record including the cases relied upon by the Ld. counsel. As pointed out by the Ld. counsel, the Tribunal has omitted to consider the details of MVAT paid by the assessee while passing the impugned order. Since the assessee has submitted the documentary evidence to prove payment of applicable MVAT and since the Tribunal has overlooked the said fact, we are of the considered view that the assessee should get the benefit of MVAT paid. We accordingly allow this issue and allow this benefit to the assessee.
6. So far as the submission regarding benefit of profit rate of 1.19% declared by the assessee is concerned, since we have sustained the addition @ 6.5% (MVAT @ 4% + profit @ 2.5%) by following the ratio laid down by the Hon’ble Gujarat High Court in the case of Simit P Seth 38
8 Shri Deven Ashwin Sanghvi taxmann.com 385(Guj) 2.5% , we do not find merit in the contention of the assessee.
Hence, in view of the aforesaid facts and the submissions made by the Ld. counsel, we partly allow the Miscellaneous Application filed by the assessee and direct the AO to make addition of 2.5% of the total amount of bogus purchases made by the assessee after reducing 4% MVAT already paid by the assessee. Consequently, we sustain the addition of 2.5% of the total amount of bogus purchases made by the assessee during the previous year.
This order may be read as a part of the order dated 15.05.2019 passed by the “D” Bench of the ITAT in the assessee’s case ITA No. 3756/Mum/2016.
In the result, misc. application filed by the assessee for assessment year 2010-11 is partly allowed.”
We find that the facts in the present case are identical. The ITAT for A.Y. 2010-11 on same facts as directed that the addition should be restricted to 6.5% of the bogus purchases. Thereafter in Miscellaneous Application the ITAT has taken note of assessee’s payment of 4% MVAT and thereafter it has directed that addition should be restricted to 2.5%.
We note that no case has been made out of the above decision of the ITAT in assessee’s own case in Income tax appeals as well as Miscellaneous Application have been reversed by Hon'ble Jurisdictional High Court. In this view of the matter, we have to respectfully follow the Coordinate Bench decision.
In this view of the matter, we admit additional evidence being MVAT paid by the assessee for the concerned assessment years on the impugned purchases. We direct the Assessing Officer to examine the veracity of these MVAT paid @ 4% by the assessee. If the same are found in order, in accordance with the ITAT decision as above addition should be restricted to 2.5% of the impugned purchases.
9 Shri Deven Ashwin Sanghvi
In the result, these appeals by the assessee are partly allowed and appeals by the Revenue stand dismissed. Order pronounced under Rule 34(4) of the ITAT Rules on