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Income Tax Appellate Tribunal, “D” Bench, Mumbai
O R D E R Per Shamim Yahya (AM) :- This is an appeal by the revenue wherein the revenue is aggrieved that the learned CIT-A has deleted the addition of Rs. 58,750/- by sustaining only Rs. 7344/- disallowance on account of bogus purchases, vide order dated 15.2.2018 pertaining to AY 2012-13. Another ground raised relates to deletion of addition u/s. 43B Rs. 2,08,69,087/- VAT and service tax. The assessee in this case is engaged into business of civil engineers works. The assessment was reopened upon information from sales tax department that assessee has made purchases from bogus dealers.
The assessing officer in this case has made hundred percent addition on account of bogus purchase amounting to Rs. 58,750/-.
Upon assessee's appeal learned CIT-A has noted that the sales has not been doubted. Accordingly placing reliance upon several case laws and up on 2 Rajiv R. Ahuja the facts of the case he sustained 12.5 % disallowance out of the bogus purchases. The learned CIT(A) held as under :-
“6.2.28 The facts in the present case are similar to the facts in the above mentioned case. In the present case, the Ld. AO has shown that the party in question was non-existent. The appellant has not been able to disprove the findings of the Ld. AO regarding the non-existence of the party. However, Ld. AO after examining the evidences did not give any adverse finding that the appellant had not shown consumption/sales of the goods and that it had not offered the income on such sale of goods. In this case, Ld. A.O. not having doubted the genuineness of sales could not have gone ahead and made addition in respect of the entire purchases as it would lead to absurd profits. Thus, the issue would boil down to finding out the element of suppressed profit embedded in purchases which the appellant would have made from some unknown or bogus entities. Hence, following the decision of the Hon'ble Gujarat High Court in Bholanath Polyfab Pvt. Ltd. (supra), the estimated suppressed profit margin embedded in such amounts of purchases could only be disallowed and subjected to tax.
6.2.29 Similarly, in yet another decision of Hon'ble Gujarat High Court in the case of CIT vs. Simit Sheth (2013) 38 Taxmann.com 385 (Guj), Hon'ble Court was seized with a similar issue where the A.O. had found that some of the alleged suppliers of steel to the assessee had not supplied any goods but had only provided sale bills and hence, purchases from the said parties were held to be bogus. The A.O. in that case added the entire amount of purchases to gross profit of the assessee. Ld. CIT(A) having found that the assessee had indeed purchased though not from named parties but other parties from grey market, partially sustained the addition as probable profit of the assessee. The Tribunal however, partly sustained the addition. Taking into account the above facts, the Hon'ble Gujarat High Court held that since the purchases were not bogus, but were made from parties other than those mentioned in books of accounts, only the profit element embedded in such purchases could be added to the assessee's income and as such no question of law arose in such estimation. While arriving at the above conclusion, the Hon'bie Court also relied on the decision in the case of Vijay M. Mistry Construction Ltd. 355 ITR 498 (Guj.) and further approved the decision of Ahmedabad Bench, ITAT in the case of Vijay Proteins 58 ITD 428.
6.2.30 In the case of Vijay Proteins (supra), the Hon’ble ITAT was seized with a case of bogus suppliers of oil cakes where 33 parties were found to be bogus by the departmental authorities even though payments were made to the said parties by cross cheques and in fact
3 Rajiv R. Ahuja the A.O. in that case had brought adequate material on record to prove that the cross cheques had not been given to parties from whom supplies were allegedly procured but these were en-cashed from a bank account in the name of another entity, possibly hawala dealer. Subsequently, the money deposited in that account was withdrawn in cash almost on the same day. The Tribunal however, held that if the purchases were made from open market without insisting for genuine bills, the suppliers may be willing to sell the product at a much less rate as compared to a rate which they may charge in which the dealer has to give genuine sale invoice in respect of that sale. Keeping all such factors in mind, the Tribunal estimated an element of profit percentage of the overall purchase price accounted for in the books of accounts through fictitious invoices.
6.2.31 As narrated earlier, the Ld. A.O. in this case has held that the parties from which the purchases were made by the appellant were found to be bogus and that is the reason for which it was not produced during the assessment proceedings. Not having doubted the consumption/sales, the motive behind obtaining bogus bills thus, appears to be inflation of purchase price so as to suppress true profits. Considering the facts of the case as well as the various case laws cited (supra), I estimate the suppressed profit to the extent of 12.5% of the purchases made from the bogus entities, as the suppressed profit element embedded in such purchases. This estimation is in addition to the GP shown by the appellant. Thus, addition of Rs.7,344/-(being 12.5% of Rs.58,750/-) is confirmed and the balance is deleted.”
Against above order Revenue is in appeal before the ITAT. We have heard Ld Dr and perused the records. We find that in this case the sales have not been doubted. It is settled law that when sales are not doubted, hundred percent disallowance for bogus purchase cannot be done. The rationale being no sales is possible without actual purchases. This proposition is supported from Honourable jurisdictional High Court decision in the case of Nikunj Eximp Enterprises (in writ petition no 2860, order dt 18.6.2014). In this case the Honourable High Court has upheld hundred percent allowance for the purchases said to be bogus when sales are not doubted. However the facts of the present case indicate that assessee has made purchase from the grey market. Making purchases through the grey market gives the assessee savings on account of non-payment of tax and others at the expense of the exchequer. In such situation in our considered opinion on the facts and circumstances of 4 Rajiv R. Ahuja the case the 12.5 % disallowance out of the bogus purchases done by the learned CIT-A meets the end of justice. Accordingly we uphold the order of learned CIT-A.
The decision of N.K. Proteins (Special Civil Application No. 24746 of 2006) referred by revenue in grounds of appeal has already been distinguished by Hon'ble Bombay high court in the case of M Haji Adam& Co. (ITA no 1004 of 20016 dt. 11/2/2019)
Apropos the issue of disallowance u/s 43B
Brief facts are that the Id. AO had mentioned that the assessee had not paid an amount of Rs.1,14,91,532/- on account of VAT before filing the return of income of the year under consideration. For further perusal of the balance sheet filed by the assessee the Id. AO pointed out that the assessee had not made payment of VAT payable for the current year to the tune of Rs.26,56,175/- and service tax for the Financial Year 2011-12 to the tune of Rs.2,08,69,087/-. In view of these facts during course of assessment proceedings the Id. AO issued a show cause asking the assessee why not the above mentioned amount payable to the tune of Rs.2,35,34,263/- should be added to the total income of the assessee u/s 43B of the I.T. Act, 1961. After considering the reply of the assessee, the Id. AO added the same to the total taxable income of the assessee company.
Upon assessee’s appeal learned CIT(A) relied upon assessee’s own case decided by the ITAT for A.Y. 2009-10 and held as under :-
“After considering the submissions of the assessee the Hon'ble Tribunal held as under: 18. We have heard the rival contentions of the both the parties. We find that the Ld. CIT (A) has deleted the addition on the ground that section 43B would attract only to a case where an item is allowable as deduction but because of failure to make payment such deduction would not be allowed. The section 43B is applicable in the case of sales tax and excise duty but same could not be in case of service tax: The Ld. CIT (A) held that assessee never allowed deduction on account of service tax which is collected on behalf of government and paid to 5 Rajiv R. Ahuja government account, therefore service provider is merely acting as the agent of the government and is not entitled to deduction on account of service tax. We find that the Ld. CIT (A) has also considered that as per rule 6 of Service Tax Rules, the service provider becomes liable to make payment of service tax by 5th of the month immediately following the calendar month in & ITA No.2867/M/2014 9 Shri Rajiv R. Ahuja which the payments are received towards value of taxable service. Therefore, Ld. CIT (A) has deleted the addition. The similar issue is covered by the decision of Chennai Bench of the Tribunal in the case of ACIT vs. Real Image Media Technologies (P) Ltd. - 114 ITD 573. Further, the assessee's service provider is merely acting as an agent of the government, he is not entitled to claim x deduction on account of service tax, therefore, no disallowance can be made on analogy of service tax and excise duty.
During the course of hearing, the Ld. D.R. could not produce any contrary decision. Therefore, we confirm the action of Ld. CIT (A)."
6.1.2 Respectfully following judgment of Hon'ble ITAT in appellant's own case for AY 2009-10, the addition made by AO u/ s 43B in respect to payable service tax amounting to Rs.2,08,69,087/- is allowed.
Appellant had not furnished any explanation regarding outstanding VAT except relying upon Hon'ble ITAT judgment in appellant's own case for AY 2009-10 in which issue of outstanding VAT was not before the Hon'ble ITAT, hence, addition made by AO u/s 43B on account of outstanding VAT amounting to Rs.26,65,175/- is confirmed.”
Upon careful consideration we find that learned CIT(A) has followed ITAT order in assessee’s own case. No contrary decision was shown to us. Hence, respectfully following the precedent we uphold learned CIT(A)’s order.
In the result, this appeal filed by the Revenue stands dismissed.