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Income Tax Appellate Tribunal, MUMBAI BENCHES “SMC”, MUMBAI
Before: SHRI SHAMIM YAHYA (AM) & SHRI RAM LAL NEGI (JM)
O R D E R
PER RAM LAL NEGI, JM
This appeal has been filed by the revenue against the order dated 15.03.2019 passed by the Commissioner of Income Tax (Appeals)-26 (for short ‘the CIT(A), Mumbai, for the assessment year 2011-12, whereby the Ld. CIT(A) has partly allowed the appeal filed by the assessee against the assessment order passed u/s 143 (3) r.w.s. 147 of the Income Tax Act, 1961 (for short the ‘Act’).
2. In this case, assessment was reopened on the basis of information received from the Sales Tax Department through Directorate General of Income Tax (DGIT) (Investigation), Mumbai to the effect that during the previous year the assessee had obtained bogus entries for Rs. 14,99,063/- from M/s Real Steel (India) a bogus entity, which used to provide accommodation entries without supplying goods after taking commission. Accordingly, the AO made addition of 25% of the said amount to the income of the assessee and passed Assessment Year: 2011-12 assessment order u/s 143 (3) r.w.s. 147 of the Act. The assessee challenged the assessment order before the Ld. CIT (A). The Ld. CIT (A) after hearing the assessee restricted the addition to 12.5% of the alleged bogus purchases. Aggrieved by the impugned order passed by the Ld. CIT (A), the revenue is in appeal before this Tribunal. 3. The revenue has challenged the impugned order passed by the Ld. CIT (A) on the following effective grounds:- 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 25% addition made by the Assessing Officer on account bogus purchases without appreciating the facts that parties from whom these purchases were made proved accommodation entry providers, as concluded by Sales Tax Authorities pursuant to the investigation carried out by them?
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 Court has confirmed 100% addition made on account of bogus purchases?”
The Ld. Departmental Representative (DR) submitted before us that the Ld. CIT (A) has wrongly restricted the addition to 12.5% without appreciating the fact that the assessee could not establish the genuineness of the purchases. The Ld. DR further pointed out that the Ld. CIT (A) has restricted the addition ignoring the fact that as per the enquiry conducted by Maharashtra Sales Tax Authorities the said bogus entity did not sell any material to anybody. The Ld. DR further submitted that since the findings of the Ld. CIT (A) are contrary to the ratio laid down by the Hon’ble Apex Court in the case of N.K. Protein Ltd. Vs. DCIT in SLP (Civil) No. 769/2017 the same is liable to be set aside.
On the other hand, the Ld. counsel for the assessee submitted that the facts of the cases relied upon by the revenue are different from the facts of the present case. The Ld. counsel further pointed out that the Hon’ble Gujarat Assessment Year: 2011-12 High Court in the case of CIT vs. Simit P. Sheth 356 ITR 451, has upheld the addition of 12.5% of bogus purchases shown by the assessee holding that in such cases only profit element embedded in such purchases could be added to the income of the assessee. The Ld. counsel further submitted that since the findings of the Ld. CIT (A) are based on the ratio laid down by the Hon’ble Gujarat High Court and the decisions of the Mumbai Benches of the Tribunal, there is no infirmity in the order passed by the Ld. CIT (A) to interfere with. 6. We have heard the rival submissions of the parties and perused the material on record including the cases relied upon by the parties and the authorities below. As pointed out by the Ld. counsel, the Ld. CIT (A) has restricted the addition to 12.5% of the alleged bogus purchases by following the ratio laid down by the Hon’ble Gujarat High Court in the case of CIT vs. Simit P. Sheth (supra). The concluding paras of the Ld. CIT (A) read as under:-
Grounds No. 2 & 3 if the appeal are against addition being 25% of the purchases of Rs. 14,99,063/-. 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 of issuing notice u/s 133 (6) which were returned unserved by the postal authorities. This party was found to 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 not 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 Assessment Year: 2011-12 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 façade of genuineness and does not necessarily mean that the purchases from these parties are genuine. The Courts have held that payment by cheque by itself is not sacrosanct so as to prove genuineness of purchases when the surroundings 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 and purchases were shown as being made from the impugned parties to suppress its profits.. In such a situation, the various Courts including the Hon‟ble Gujarat High Court in the case of CIT vs Simit P. Sheth, 356 ITR 451 have held that not the entire purchases but only the profit element embedded in these purchases was to be disallowed. The Hon‟ble Gujarat High Court in this case has held that profit margin of 12.5% of the bogus purchases will be reasonable. Respectfully following the order inn the case of Simit P. Sheth the addition is restricted to 12.5% of the bogus purchases of Rs. 14,99,063/-. These grounds of appeal are „Partly Allowed.‟