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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Before: SHRI PRAMOD KUMAR, VP & SHRI AMARJIT SINGH, JM
O R D E R
PER AMARJIT SINGH, JM:
The revenue has filed the present appeal against the order dated 29.06.2018 passed by the Commissioner of Income Tax (Appeals) -38, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y.2011- 12.
The revenue has raised the following grounds: - "1 Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in restricting the disallowance to 12.5% of the total amount of bogus purchase transaction instead of 25% of the total amount of bogus purchase made by the AO?"
ITA No. 7043/M/2018 A.Y.2011-12 "2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in not considering that the addition was made on the basis of information received from DIT(lnv.) and Sales Tax Department, Maharashtra with regard to bogus purchase made by the assessee from dealers without supply of actual goods?" "3. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in not considering that the hawala operators have admitted on oath before the Sales Tax Authorities that they have not sold any material to anybody?" "4. Whether on the facts and in the circumstances of the case and in law, the Ld CIT (A) has erred in not considering that the assessee could not prove the genuineness and creditworthiness of purchase transactions during the course of assessment proceedings?" "5. The Ld. CIT (A) failed to uphold the decision of Hon'ble Apex Court in the case of N K Proteins Ltd. vs. DCIT in SLP (Civil) No.769/2017 dated 16.01.2017 where 100% of addition was confirmed by the Apex Court?" "6. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in not appreciating the fact that applicability of provisions of section 40A(3) attracts 100% bogus purchases to be held as profit." The appellant craves leave to aid, to amend, alter, substitute or modify any of the above ground or add a fresh ground as and when found necessary either before or at the time of hearing."
The brief facts of the case are that the assessee filed its return of income on 10-09-2011 declaring a total income of Rs.6,48,560/- for the A.Y.2011-12. The return was processed u/s 143(1) of the I.T Act. Thereafter the case of the assessee was reopened u/s 148 by issuance of notice dated 21.01.2016. The notice was served upon the assessee. The assessee was an individual and was proprietor of M/s. Upkar Metal Works and was engaged in the business of manufacturing of M. S. Washer. The case of the assessee was reopened on the basis of the information received A.Y.2011-12 from the Office of Director General of Income Tax (Inv.), Mumbai wherein it was conveyed that the assessee has taken the bogus purchase entry of Rs.60,64,688/- from the following seven parties which is hereby mentioned as under: - S. No. Hawala Tin Hawala Name F.Y. Amounts 1 27860638123V S. K. Trading Co 2010-11 2,00,017 2 27050389521V Siddhivinayak Steel 2010-11 17,85,784 3 27860638123V Chanchal Tube Corporation 2010-11 9,61,557 4 27550304371V Surat Tube Corporation 2010-11 7,86,576 5 27860346638V Asian Steel 2010-11 10,56,182 6 27910508261V Gulab Trading Co 2010-11 2,60,052 7 27810282985V Vijay Steels 2010-11 10,14,520 Total 60,64,688 After the reply of the assessee, 25% of the bogus purchase of Rs.60,64,688/- was added to the income of the assessee. The total income of the assessee was assessed in a sum of Rs.21,64,730/-. Feeling aggrieved, the assessee filed an appeal before the CIT(Appeals) who restricted the addition to the extent of 12.5%. The Revenue was not satisfied, therefore, filed the present appeal before us.
We have heard the argument advanced by the Ld. Representative of the parties and perused the record. Before going further, we deemed it necessary to advert the finding of the CIT(A) on record: - “9.13 In the present facts and circumstances of the case, the case of the AO is that the appellant only took bills from the above parties to explain the purchases made albeit from open market. Identical issue came up before the Hon'ble High Court of Gujarat in the case of CIT vs. Bholanath ITA No. 7043/M/2018 A.Y.2011-12 Poly Fab Pvt. Ltd. Reported in 355 ITR 290 (GUJ). The assessee was engaged in the business of trading in finished fabrics. The AO disallowed purchases as bogus/unexplained. The CIT(A) confirmed the action of the AO. The issue was carried in appeal before the Hon'ble Tribunal which concurred with the finding of the revenue authorities below that such purchase was made from bogus parties. After adverting to the facts and data placed before it, the Hon'ble Tribunal noted that the entire cloth of 1,02,514 metres was sold during the year and therefore, accepted the assessee's contention that the finished goods purchased by the appellant may not be from the parties shown in the accounts but from other parties. In view of this, the Hon'ble ITAT was of the view that only profit margin embedded in such purchases would be subjected to tax. The Hon’ble Tribunal relied on its earlier decision in the case of M/s Saket Steel Traders vs ITO (ITA No. 2801/Ahd/2008 dated 20/05/2008) and also made reference to the decision in the case of Vijaya Protein Vs CIT 58 ITD 428 (Ahd). On appeal by the department filed in the case of Bholanath Poly Fab Pvt. Ltd, the Hon’ble High Court dismissed the appeal and concurred 'with the findings of Hon’ble Tribunal that not entire purchase price but profit element embedded in such purchases would be liable to tax. 9.14 Thus in view of the above facts and circumstances of the case and the recent judgments quoted as above, it is observed that the likelihood of the purchase price being inflated cannot be ruled out and therefore in view of the above, the AO has not treated the entire purchases from the aforesaid parties to be bogus but held to have been made from the parties other than those mentioned in the books of accounts and that being the position, not the entire purchase price but only the profit element embedded in such purchases has been taxed by the AO 25% which is considered justifiable. However, the Hon’ble ITAT, Mumbai, `SMC Bench in the case of Smt. Noorjahan Niyaz Ahmed Khan wife of the appellant, in & 5057/M/2017 for A.Y.2009-10 & 2010-11 in its order dated 30.11.2016 wherein similar issue of alleged bogus purchase was adjudicated and the nature of manufacturing activity that of making M.S.washers is identical with that of the instant appellant respectfully following the maxim laid down by the Hon’ble Gujarat High Court in the case of CIT vs. Simit P. Sheth reported in 356 ITR 451 directed the AO to take GP at 12.5% to compute the profit embedded in the alleged bogus purchases. With due respect to the rulings of the Judicial Authorities, the AO is hereby directed to adopt 12.5% to work out the profit embedded in the alleged bogus purchase of Rs.60,64,688/- over and above what has been declared by the appellant in the return filed for the assessment year under consideration and add the same to total income of the appellant. This ground of appeal
is Partly Allowed. A.Y.2011-12
10. The next ground of appeal is against the levy of interest u/s.234B and 234C. It is contended that on the facts and circumstances of the case and in law, the Learned Assessing Officer erred in charging interest u/s.2348 and 234C of the Income-tax Act, 1961. 10.1 I have perused the materials available on record. It is found that this ground is only consequential in nature. The levy of interest under section 234B and 234C of the Act has been held to be mandatory and the AO has no discretion to waive or reduce the same. Further, the appellant has not shown as to how the interest charged by the AO u/s.234B and 234C was erroneous. However, the AO is directed to charge interest under 234B and 234C on the consequential effect of this order as directed above. Accordingly, this ground raised by the appellant is accordingly dismissed.
11. The third ground is against initiation of penalty proceedings u/s. 271(1)(c ) of the Income Tax Act, 1961. It is contended that on the facts and in the circumstances of the case and in law, the Id. AO erred in initiating penalty proceedings u/s. 271(1)(c) of the Income Tax Act, 1961. 11.1 The Ld. AR of the appellant submitted that the appellant has neither concealed any income nor furnished any inaccurate particulars of income. The disallowance of alleged bogus purchase is made arbitrarily and without appreciating the facts of the case. Hence, the AO may please be directed to drop the proceedings initiated. 11.2 This ground of appeal is premature. The matter relating to penalty can be raised only when penalty is levied under an order u/s 271(1)(c) of the Act, 1961 passed by the Assessing Officer and not at the stage of initiation. Therefore, this ground of appeal is not maintainable and is accordingly dismissed.
12. In the last ground of appeal the Appellant craved for leave, to add, amend, alter or withdraw any of the above grounds of appeal before or at the time of hearing of the appeal, if necessary. 12.1 The appellant has not added and altered any of the above mentioned grounds of appeal. Accordingly, such mention by the appellant in its ground is treated as general in nature, not needing any specific adjudication and is accordingly disposed off as dismissed.”
5. On appraisal of the above mentioned finding, we find that the CIT(Appeals) has decided the matter of controversy on the basis of the decision of Gujarat High Court in the case of CIT vs. Simit P. Sheth 355 A.Y.2011-12 ITR 290 (Guj.), and CIT Vs. Bholanath Poly Fab Pvt. Ltd. reported in 355 ITR 290 (Guj), Vijaya Protein Vs. CIT 58 ITD 428 (Ahd). In the mentioned law, it is well-settled that the profit ratio embedded to the transaction is required to be added to the income of the assessee. In the instant case, sale is not doubted, therefore, the CIT(A) has restricted the addition to the extent of 12.5% of the total bogus purchase in sum of Rs.60,64,688/-. Taking into account, all the facts and circumstances, we are of the view that the CIT(A) has decided the matter of controversy judiciously and correctly which is not liable to be interfere with at this appellate stage. Accordingly, we upheld the finding of the CIT(A) on this issue and decide these issues in favour of the assessee against the revenue.
6. In the result, the appeal filed by the revenue is hereby dismissed. Order pronounced in the open court on 12 /11/2020 Sd/- Sd/- (PRAMOD KUMAR) (AMARJIT SINGH) न्यधनिक सदस्य/JUDICIAL MEMBER उपधध्यक्ष / VICE PRESIDENT मुंबई Mumbai; ददनांक Dated : 12/11/2020 Vijay Pal Singh (Sr. P.S.)