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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SRI MAHAVIR SINGH
आदेश / O R D E R
महावीर स िंह, उपाध्यक्ष / PER MAHAVIR SINGH, VP: This appeal of Revenue is arising out of the order of the Commissioner of Income Tax (Appeals)]-26, Mumbai, [in short CIT(A)], in ITA No. CIT(A)-26/IT/06/2014-16 dated 07.12.2018. The assessment was framed by the Income Tax Officer, Ward 22(3)(1) (in short ACIT/ITO/ AO) for the A.Y. 2009-10 vide
ITA No. 1364/Mum/2019 AS Electric Corporation Page | 2 order dated 30.09.2014 under section 143(3) r.w.s 147 of the Income-tax Act, 1961 (hereinafter ‘the Act’).
The only issue in this appeal of Revenue is against the order of CIT(A) restricting the addition made by the Assessing Officer by applying the profit rate at 12.5% of the bogus purchase. For this Revenue has raised following ground: -
“On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in allowing relief to the assessee to the extent Impugned in the grounds enumerated below:
(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 A.O., relying on the decision of Hon'ble Gujarat High Court in the case of CIT vs. Simit P Sheth, 356 ITR 451".
(2) 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
ITA No. 1364/Mum/2019 AS Electric Corporation Page | 3 Court has confirmed 100% addition made on account of bogus purchases"?
(3) The appellant prays that the order of Ld. CIT(A) on the above grounds be reversed and that of the Assessing officer be restored.”
Briefly stated facts are that the assessee engaged in the business of supply, installation, erection of electrical systems like street lights, DG sets, transformer, High Mass, electrical sub-station. The AO received information from DGIT (Investigation), who in turn received information from Sales Tax Department, Mumbai that the assessee has made purchases from hawala parties, as listed in hawala dealers by the Maharashtra Sales Tax Department who are providing bogus bills of purchase. The assessee also made alleged purchases from these hawala dealers amounting to ₹10,99,057/- as admitted by these hawala dealers in their deposition before the authorities. The same reads as under: -
“Sl Name of party Amount No. 1. Deepali Enterprises 3,29,056 2. Siddhivinayak Trading Co. 4,03,385 3. Renuka Sales Corporation 3,66,616 Total 10,99,057 4. The AO issued noticed under section 133(6) to the parties which returned back with the remark as “left” and assessee failed to produce these parties. During the course of assessment proceedings and during appellate proceedings, the assessee submitted all the documentary evidences such as inward
ITA No. 1364/Mum/2019 AS Electric Corporation Page | 4 register, stock register, payment received against such sales, receipt of material purchases, account payee cheque. But the assessee failed to produce transportation bills, delivery challans and weighment slips. According to the AO, the assessee failed to establish the genuineness of the purchase and accordingly, he made addition of unproved purchase at Rs. 10,99,057/- to the return income of the assessee. Aggrieved, assessee preferred the appeal before CIT(A), who restricted the disallowance at 12.5% of the bogus purchases by observing in para 6.1 by following the decision of Hon’ble Gujarat High court in the case of CIT vs. Smith P. Seth (2013) 356 ITR 451 (Guj) by observing as under: -
“6.1. Grounds No.1 & 2 of the appeal are against addition of Rs. 10,99,057/- as unexplained expenditure u/s. 69C of the Act. As per the investigations carried out by the Sales Tax Authorities, the aforementioned parties were found to be involved 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 enquiries by issuing notices u/s 133(6) which were returned unserved by the postal authorities. This party was found to
ITA No. 1364/Mum/2019 AS Electric Corporation Page | 5 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 riot been 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 purchase bills, payments by cheques, etc. would all have been orchestrated to present a facade of genuineness and does not necessarily mean that the purchases from these parties are genuine. The
ITA No. 1364/Mum/2019 AS Electric Corporation Page | 6 Courts have held that payment by cheque by itself is not sacrosanct so 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’. 5. I have considered the issue and gone through the facts and circumstances of the case. I find that the CIT(A) has rightly applied the profit rate at the rate of 12.5% and now, before me Revenue could not find any fault in the order of CIT(A) in estimating the profit at the rate of 12.5% of the bogus purchases. Hence, I confirm the same. This issue of Revenue’s appeal is dismissed. 6. In the Result, the appeal of Revenue is dismissed. Order pronounced in the open court on 01.06.2020. Sd/- (महावीर स िंह /MAHAVIR SINGH) (उपाध्यक्ष / VICE PRESIDENT) म िंबई, दििािंक/ Mumbai, Dated: 01.06.2020 ुिीप रकार, व. निजी चिव/ Sudip Sarkar, Sr.PS
ITA No. 1364/Mum/2019 AS Electric Corporation Page | 7
आदेश की प्रतिललपप अग्रेपिि/Copy of the Order forwarded to : 1. अपीलार्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आयुक्त(अपील) / The CIT(A) 4. आयकर आयुक्त / CIT 5. ववभागीय प्रनतनिचर्, आयकर अपीलीय अचर्करण, मुिंबई / DR, ITAT, Mumbai 6. गार्ा फाईल / Guard file. आदेशान सार/ BY ORDER, त्यावपत प्रनत //True Copy// उप/सहायक पुंजीकार (Asstt. Registrar) आयकर अपीलीय अधिकरण, मुिंबई / ITAT, Mumbai