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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
Before: SHRI PRAMOD KUMAR & SHRI PAVAN KUMAR GADALE
09/11/2020 सुनवाई क" तार"ख / Date of Hearing घोषणा क" तार"ख /Date of Pronouncement 20/11/2020 आदेश / O R D E R PER PAVAN KUMAR GADALE - JM: These are the appeals filed by the Revenue against the separate orders of the Commissioner of income Tax (Appeals) passed u/s 143(3) r.w.s 147 and 250 of the Act and (ii) U/sec 271(1)(c) and 250 of the Act. Since the appeals pertains to the same assessee, & 5410 /Mum/2018 Parth Traders, Mumbai. and the issues are interlinked,hence they are clubbed, heard and consolidated order is passed.
The revenue has raised the following grounds of appeal:
“1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in not appreciating the law correctly that once the purchases are unverifiable/not genuine/bogus, the same should have been disallowed in entirety.
2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law by not appreciating the fact that the assessee could not establish the genuineness of the purchases from the non-existent vendors?
Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law by not appreciating the fact that the onus to justify the claim of expenses is on the assessee and the same has failed to discharge it in relation to the purchases made from the non-existent vendors.
4. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law by ignoring the fact that the assessee could not substantiate its claim of purchases from non-existent vendors by means of relevant supporting documents related to movement and delivery of goods, stock register, etc., to & 5410 /Mum/2018 Parth Traders, Mumbai. arrive at disallowance at 12.5% of the purchases from the non-existent vendors.
5. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in not appreciating the law correctly that once the purchases are unverifiable / not genuine / bogus, the same should have been disallowed in entirety, particularly in view of the ratio of the decision of the Hon’ble Gujarat High Court in Tax Appeal No. 242 of 2003 dated 20.06.2016 in the case of N.K proteins Ltd., against which the SLP was dismissed by the Hon’ble Apex Court. 6. The appellant craves leave to add, amend alter or delete any ground of appeal
7. The order of the CIT(A) may be vacated and that of the A.O may be restored.
3. The Brief facts of the case are that, the assessee is a partnership firm engaged in the business of trading in iron and steel and filed the return of income on 07.09.2010 with total income of Rs. 4,78,130/-and the assessment proceedings are completed on 27.11.2012 with the total income ofRs.6,38,280/-. Subsequently, the A.O had reason to believe that the income has escaped assessment and issued notice u/sec148 of the Act because the assesseefirm has obtained bogus purchase bills from entry operators as per the information received from & 5410 /Mum/2018 Parth Traders, Mumbai. the sales tax authorities. Subsequently, the A.O. has issued notice u/s 143(2) and 142(1) of the Act along with the questioner to the assessee. In compliance, the Ld. AR of the assessee appeared from time to time and filed the details. The A.O on perusal of auditor’s report and balance sheet furnished during in the assessment proceedings, found that the assessee has obtained bogus purchase bills from 7 entities aggregating to Rs. 1,56,26,544/- as per the information received from the Maharashtra Sales Tax Department. The A.O. has called for information u/s 133(6) of the Act from the parties as per letter dated 26.11.2014.The A.O found that the notices u/s 133(6) of the Act were returned unserved with the postal authorities and the assessee was informed.Further A.O wanted the assessee to produce the parties but the assessee has failed to comply with directions, therefore A.O. made 100% addition of bogus purchasesand determined total income of Rs1,62,64,820/- and passed the order u/s 143(3) r.w.s 147 of the Act on 25.03.2015.
Aggrieved by the order, the assessee has filed an appeal with the CIT(A). The CIT(A) considered the ITA No.5400 & 5410 /Mum/2018 Parth Traders, Mumbai. grounds of appeal and submissions of the assessee and finding of the A.O and relied on the judicial decisions referred at para 7.1 to 7.3 of the order and restricted the disallowance @12.5% of bogus purchases relying on the assessee’s own case for the A.Y 2011-12 referred at para 7.4 to 7.5 of the order which is read as under and partly allowed the assessee’s appeal:
“7.4 With regard to the appellant’s reliance on various decisions, there are large number of cases, wherein the appellate authorities have held that it would not be appropriate to consider that purchases were genuine only because the assessee made the payment by cheque and the assessee received bills. It is held by various courts that where the assessee could show that he has made the purchases and there are corresponding sales against these purchases, it would be appropriate to tax the possible profit out of purchases made through non-genuine parties. In appellant’s own case Hon’ble ITAT vide order dated 20.03.2018 for A.Y 2011- 12 has held as under: 14. Upon careful consideration we find that sales in this case have not been doubted. As held by the Hon'ble jurisdictional High Court Nikunj Eximp Enterprises (in writ petition no 2860, order dt. 18.6.2014) that when sales are not doubted, hundred percent disallowance of purchasers as bogus is not permissible. However the facts of that case were a little different inasmuch as the sales- was to the government departments. Be as it may, ITA No.5400 & 5410 /Mum/2018 Parth Traders, Mumbai. we find that in this case, the facts of the case indicate that assessee has engaged into the grey market for making purchases. Making such purchases gives the assessee various benefits in the form of tax saving etc at the expense of Exchequer. In similar facts and circumstances following the decision of Hon’blee Gujarat High Court in the case of CIT vs Simit P. Sheth [2013] 356 ITR 451 (Guj) a disallowance of 12.5% has been held to be meeting the end's of justice in various decisions of the ITAT Mumbai in such cases. Accordingly, we hold that in the present case the disallowance should be restricted to 12.5% of the bogus purchase. The counsel of the assessee fairly agreed to the above proposition.
7.5 In view of facts stated above, I am of the considered opinion that the appellant has made purchases of Rs. 40,70,920/- in the open market which were subsequently sold and has obtained bills from the Hawala operators. It is not known at what price the appellant actually made the purchases from third parties. Further the assessee could not produce parties during the assessment and appellate proceedings and has paid sales tax on behalf of defaulter suppliers. Under such circumstances the likelihood of the purchases being inflated cannot be ruled out and there is no material to dislodge such findings. Hon’ble ITAT Mumbai in appellant own case upheld disallowance of 12.5%. As the facts of the assessee’s case are similar, therefore respectfully following the judgment of Hon’ble ITAT in case of assessee 12.5% of the amount of unproved purchases of Rs. 40,70,920/-, amounting to Rs. 5,08,865/- is disallowed. This addition will be over and above the profits shown by the appellant in his return of income. & 5410 /Mum/2018 Parth Traders, Mumbai.
Aggrieved by the CIT(A) order, the revenue has filed an appeal with the Tribunal.
At the time of hearing none appeared on behalf of the assessee. We heard the Ld.DR and considered the material on record. The Ld. DR submitted that the CIT(A) has erred in restricting the disallowance to 12.5% of Bogus purchase bills, irrespective of the fact that the notices u/s 133(6) of the Act were not served on the parties and the assessee has failed to produce parties in the Assessment proceedings and supported the orders of the A.O.
6. We heard the submissions of the Ld. DR and perused the material available on record. We find the sole crux of the disputed issue envisaged by the LdDR with respect to restriction of addition to 12.5% of bogus purchase bills by the Ld CIT(A). The Ld CIT(A) considered the factual aspects and dealt on the provisions of the Sales Tax Act and relied on the decision of Hon’ble Tribunal in assessee’s own case and partly allowed the appeal. The Ld. DR could not controvert the findings of the CIT(A) with any cogent material or new information and relied on the order & 5410 /Mum/2018 Parth Traders, Mumbai. of the Assessing officer.We do not find infirmity in the order of the CIT(A) and upheld the same and dismiss the grounds of appeal of the revenue.
In the result the appeal filed by the revenue is dismissed.
ITA No. 5410/Mum/2018, A.Y 2011-12
The A.O has levied penalty u/s 271(1)(c) of the Act, and the facts in brief were discussed in above paragraphs and explanations were furnished. But, the penalty was levied and order was passed on 31.03.2017.In the quantum appeal against the addition made by the A.O, the CIT(A) has estimated the income at 12.5% of the bogus purchases and the addition was accepted by the assessee. In the penalty appeal, the contention of the Ld.DR that the CIT(A) has erred in deleting the penalty levied by the A.O without appreciating the findings. We find that the CIT(A) has dealt on the provisions of law and the decisions of the coordinate Bench of the Hon’ble Tribunal at para 6 to 7.3 of the order and judicial decisions. We are of the opinion that, when the addition is sustained on estimation/ adhoc basis, no & 5410 /Mum/2018 Parth Traders, Mumbai. penalty u/s 271(1)(c) of the Act can be levied. We find that the LdCIT(A) relied on the Coordinate Bench of Hon’ble tribunal decisions and passed a reasoned order in directing the Assessing Officer to delete the penalty. Accordingly, we are not inclined to interfere with the order of the Ld CIT(A) and upheld the same and dismiss the grounds of appeal of the revenue.
In the result both the appeals filed by the revenue are dismissed.