ACIT - 18 (1), MUMBAI vs. DEEPA P. MANSHANI, MUMBAI

All the issues are in connection with the restriction of the bogus purchase to the extent of 12.5% in sum of Rs.56,95,671/-, therefore, all the issues are being taken up together for the sake of convenience. We have heard the arguments advanced by the Ld. Representative of the Department and has gone through the case carefully. The Ld. Representative of the revenue has argued that the CIT(A) has wrongly restricted the addition to the extent of 12.5% of the bogus purchase in sum of Rs.56,95,671/-, therefore, the said order is not justifiable, hence, is liable to be set aside in the interest of justice. However, on the other hand, the Ld. Representative of the assessee has strongly relied upon the order passed by the CIT(A) in question. Before going further, we deem it necessary to advert the finding of the CIT(A) on record: - & 5640/M/2018 A.Ys. 2009-10 & 2010-11 “4.3. The submissions cited by the Ld. Counsel for the appellant have been carefully considered. When the expenditure has been claimed by the assessee, the onus is on the assessee to prove the genuineness of the same. The AO on his own tried to verify the genuineness by issuing notices u/s.133(6) of the I.T. Act which have been returned unserved. As it is the claim of the assessee that it has made purchases from the said party, the AO had requested the assessee to produce the party for examination. However, the assesses failed to do so. As the parties from whom the purchases were supposed to have been made are not found existing, the genuineness of the purchases from such non existing parties was not established. In such a situation, the AO is not left with any other option to make an addition. 4.3.1 Coming to the addition, in the case of M/s.Sanjay Oilcake Industries vs. Commissioner of Income tax reported in 316 1TR 274 (Guj), the Hon'ble Court had upheld the action of the CIT(A) and 1TAT in determining estimated addition of 25% of the purchases in cases involving bogus purchases. The head note is as under:- "Assessment income from undisclosed sources - Additions on account of inflated purchase price - Estimate- Not a question of law - No material produces by assessee to disprove inflated purchases - Tribunals order in accordance with law - Income Tax Act, 1961. Whether an estimate should be at a particular sum or at a different sum can never be a question of law. For the assessment years 1984-85 and 1985-86 the Assessing Officer made additions to the income of the assessee on account of inflated purchase price of oilcakes. The Commissioner (Appeals) held that 25 per cent of the value of the purchase price was not genuine and the addition made by the Assessing Officer was accordingly restricted to 25 percent of the amount paid to the parties from whom the assessing officer had disallowed the entire purchases. On cross appeals by the assessee and he revenue the Tribunal confirmed the order of the Commissioner (Appeals.) The assessee sought modification of the order on the ground that the tribunal had failed to consider various pieces of evidence enumerated by it in the application. The Tribunal rejected the application holding that there was no apparent error or record which would permit the Tribunal to undertake review of its own order. On a reference to the High Court: Held that the finding of the Assessing Officer had been accepted by the Commissioner (Appeals ) an the Tribunal that the apparent sellers who had issued sale bills were not traceable. The goods were received from the parties other than the persons who had issued bills for such goods. Though the purchases were shown to have been made by making payment therefore by account payee cheques and the cheques had been deposited in bank accounts ostensibly & 5640/M/2018 A.Ys. 2009-10 & 2010-11 in the name of the apparent sellers, thereafter the entire amounts had been withdrawn by bearer cheques and there was no trace or identity of the person withdrawing the amount from the bank accounts. Both the Commissioner (Appeals) and the Tribunal had come to the conclusion that in such circumstances the likelihood of the purchase price being inflated could not be ruled out and there was no material to dislodged such finding. The assessee had by evidence available on record made it possible for the recipients not being traceable for the purpose of inquiry as to whether the payment made by the assessee had been actually received by the apparent sellers. 4.3.2 Recently in the case of Commissioner of Income Tax V. Simit P. Sheth 356 ITR 451 (Guj), the Hon’ble Court has given a finding that estimation of rate of profit return must necessarily vary with the nature of business and no uniform yardstick could be adopted and finally confirmed the action of the ITAT in determining 12.5% of the bogus purchases as the profit embedded in such transaction. The head note is as under: Income from undisclosed sources - Assessee trading in steel- Finding that purchase recorded by it were not bogus but from other parties not recorded in books - Estimation of profit element embedded in purchases Tribunal justified in estimation on the basis of facts Income tax Act 1961. The assessee was engaged in the business of trading in steel on wholesale basis. During the course of the reassessment proceedings for the year 2006-07, the Assessing Officer noticed that some of the supplies of steel to the assessee had made their statements on oath to the effect that they had not supplied the steel to the assessee but had only provided sale bills. In turn they were receiving a small commission. The Assessing Officer concluded that the total purchase of Rs.41,04,903/- cumulatively made from the three parties were bogus. He thus treated such purchase as bogus purchases and added the entire amount of R.41,04,903/- to the gross profit of the assessee. He also rejected the books of account and estimated the assessee's business profit at Rs. 5 lakhs. The Commissioner (Appeals) held that the asessee had made purchases from other parties in the open market. Therefore, he retained 30 percent of the purchases cost at the probable profit of the assessee. He reduced the additions from Rs.41,04,903/- to Rs.12,31,471/- and deleted the balance of R.28,73,432/-. While doing so he deleted the addition of Rs. 5 lakhs as made by the assessing Officer on the ground that the addition on account of bogus purchase had already been made. The Tribunal was of the opinion that twelve and half percent of the disputed purchases should be retained in the hands of the assessee as business profits. On appeal to the High Court Held dismissing the appeal that the Commissioner (Appeals) & 5640/M/2018 A.Ys. 2009-10 & 2010-11 believed that the purchases were not bogus but were made from the parties other than those mentioned in the books of account. That being the position, not the entire purchase price but only the profit element embedded in such purchases could be added to the Income of the assessee." In essence Tribunal only estimated the possible profit out of purchases made through non genuine. The estimation of rate of profit return must necessarily vary with the nature of and no uniform yardstick could be adopted. On consideration of the facts available on record it is seen that information uploaded by the State Sales Tax authorities wherein the said Department put up lists of parties found to be engaged in issuing false bills without actual sale of goods, was the point of genesis for enquiry related to possible bogus purchases in a number of cases. In case of a manufacturer, if the purchases are bogus, it must be possible to produce the goods as shown, even without use of materials, the purchase of which is suspicious. If it is not possible to produce the goods as shown without consumption of these materials, these suspicious purchases cannot be held bogus unless production is also held bogus. Where purchase is held as bogus then the corresponding sales must also be held bogus as without the material being purchased, production/sales is not possible. Therefore, without the corresponding production/sales being held bogus, it cannot be a case of bogus purchases. In other words, in a case where the purchase is shown being bogus and it is not possible to complete the corresponding sale transaction without a genuine purchase of such material, the sale must also be bogus. However, if it is possible to complete the sales or the production as shown, even without the material involved in the suspicious purchases, it needs to be shown whether the sale transaction was effected or production was done even without using such material or whether such materials were also used. Unless it is shown that such materials were not used in corresponding sales or the production as shown, purchases cannot be held bogus and it will be a case of purchase from bogus parties. However if the material has been used in the sales, or as the case may be in production, it cannot be a case of bogus purchases. Rather it will be a case of purchase from bogus parties. Statements of hawala providers recorded by Sales Tax Authorities; affidavits filed by such suppliers before Sales Tax Authorities; absence of evidence in support of transportation/delivery of material etc., have been held less relevant as mere indicators and not decisive factors, to draw a conclusion regarding genuineness of purchases. 4.3.4. The suppliers were found to be engaged in providing bogus bill without actual dealing of goods. The appellant made payments for these purchases by account payee cheques duly cleared through normal banking channel; and are duly reflected in the appellant's bank statements. What is under dispute is the phases from the parties from ITA. Nos.5639 & 5640/M/2018 A.Ys. 2009-10 & 2010-11 whom bills have been taken and cheques have issued to them. Purchases are not in dispute but the parties from whom are shown to have been made are disputed and suspicious. 4.3.5. The A.O. had made the addition as some of the suppliers were declared hawala dealers by the VAT Department. This may be a good reason for making further investigation but the AO did not make any further investigation and completed the assessment on suspicion. It is also found that the payments have been made by account payee cheque which are duly reflected in the bank statement of the assessee. There is no evidence to show that the assessee has received cash back from the suppliers. Merely because the suppliers did not file some confirmation and documents, one cannot conclude that the purchases were not made by the assessees This view is supported by the decision of Nikunj Eximp Enterprises vs. CIT 216 Taxman 171 (Bom). To this extent I am in view with the appellant, if appellant has fulfilled its onus making the payment by cheque and has supplied the addresses of the sellers then it cannot be presumed that supplier were bogus simply because the sellers were not found at the given address. There is a considerable time gap between the period of purchase transaction and period of scrutiny proceedings. The AO has not brought any material on record to show that there is suppression of sales. It is basic rule of accountancy as well as of taxation laws that profit from business cannot be ascertained without deducting cost of purchase from sales. Estimation of profit ranging from 12.5% to 15% has been upheld by the Hon'ble Gujarat High Court in the case of CIT vs. Simit P. Sheth 356 ITR 451 (Guj.) depending upon the nature of business. 4.3.6. Considering the totality of the facts before me, as well as the judicial opinion available, I am inclined to agree with the appellant's stand that the addition Is excessive. The A.O. has disallowed the amount of Rs.56,95,671/- i.e 100% on account of bogus purchases. I am of the view that estimation of profit at 12.5% would meet the ends of justice. The AO is directed to restrict the addition to 12.5% of the alleged bogus purchases. This ground of appeal

In the result, appeals filed by the revenue are hereby dismissed.