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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
Before: SHRI R.C. SHARMA, HONBLE & SHRI C.N. PRASAD, HONBLEShri Kapil Harilal Gala
O R D E R PER C.N. PRASAD (JM) 1. This appeal is filed by the revenue against the order of the Learned Commissioner of Income Tax (Appeals) – 48, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 31.12.2018 for the Assessment Year 2009-10.
Revenue has raised the following grounds in its appeal: - 1. "On the facts and circumstances of the case and in law, the Ld.CIT(A) has erred in upholding only 20% addition of Rs.14,47,104/- on the bogus purchases as against the AO's stand of (A.Y: 2009-10) Shri Kapil Harilal Gala disallowing 100% of the bogus purchases, ignoring the fact that the action of the Assessing Officer was only based on credible information received from the Maharashtra Sales Tax Department, the assessee, during the course of assessment proceedings, failed to prove the genuineness of the purchase transactions" 2. "The appellant prays that the order of Ld. CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored."
3. "The appellant craves leave to amend or to alter any ground or add a new ground, which may be necessary."
Briefly stated the facts are that, the assessee is an individual engaged in the business of trading in packaging goods, plastic goods and general merchandise and filed its return of income for the A.Y.2009-10 on 30.09.2019 declaring income of ₹.4,49,350/- and the return was processed u/s. 143(1) of the Act. Subsequently, Assessing Officer received information from the DGIT(Inv.), Mumbai about the accommodation entries provided by various dealers and assessee was also one of the beneficiary from those dealers. The assessment was reopened U/s. 147 of the Act based on the information received from DGIT(Inv.), Mumbai, that the assessee has availed accommodation entries from various dealers who are said to be providing accommodation entries without there being transportation of any goods. In the re-assessment proceedings, the assessee was required to prove the genuineness of the purchases made from the above parties which are referred to in the Assessment Order. In reply assessee furnished copy of (A.Y: 2009-10) Shri Kapil Harilal Gala bills of the suppliers along with evidence of payment to them by cheque through bank account and submitted that the transactions made from the above party are genuine. However, the assessee failed to produce the parties and no explanation was offered.
Not convinced with the submissions of the assessee the Assessing Officer treated the purchases as non-genuine and he was of the opinion that assessee had obtained only accommodation entries. Assessing Officer observed that the notices issued u/s. 133(6) of the Act to the parties are returned unserved with a remark “left” and the assessee has not produced the parties before the Assessing Officer. Therefore, Assessing Officer treated entire purchases of ₹.14,47,104/- as non-genuine and added to the income of the assessee. On appeal the Ld.CIT(A) considering the evidences and various submissions of the assessee restricted the disallowance to the extent 20% of the non-genuine purchases.
Ld. Counsel for the assessee supported the order of the Ld.CIT(A) and on the other hand, Ld. DR vehemently supported the order of the Assessing Officer.
(A.Y: 2009-10) Shri Kapil Harilal Gala 6. We have heard the rival submissions, perused the orders of the authorities below. On a perusal of the order of the Ld.CIT(A), we find that the Ld.CIT(A) considered this aspect of the matter elaborately with reference to the submissions of the assessee and the averments in the Assessment Order and also the decision of the Hon'ble Gujarat High Court in the case of CIT v. Simit P. Sheth [356 ITR 451] restricted the disallowance to 20% of the non-genuine purchases, while holding so, the Ld.CIT(A) observed as under: - “5.2.3 Magnitude of profit: Only Profit Element Needs Addition: - AO had added the entire amount of bogus purchases of Rs. 14,47,104/-. But looking into entire facts of the case, it would be fair and logical to bring the profit element embedded is these bogus purchases. Assessee has taken bogus purchase bills from the various parties but would have purchased goods from some other person, may be from the grey market, it is a matter of human probability and circumstantial logic to estimate the magnitude of profit earned by assessee through such bogus transactions. If we go through the arguments of Hon'ble ITAT B Bench Ahmedabad in case of Simit P Sheth and ITAT C Bench, Ahd in case of Vijay Proteins Ltd., what was estimated was not the exact profit margin of that business but the fair estimation of the overall profit earned by assessee in this venture. The logic is simple: to venture into a risky proposition of taking bogus bills from a bogus concern and then purchasing the required goods from some other source would not be for the limited purpose of earning extra profit of 1 - 3% of bill's value. Such a conduct of an assessee would be ill-logical and in fact foolish. 5.2.4 Therefore, the profit rate of 20%, in these purchases for purchase of packaging goods, plastic good etc. is held to be reasonable. It would be relevant here to discuss the legal position regarding best judgement assessments and the extrapolation of the income/turn-over on estimation basis. Estimation and extrapolation are valid tools in the hands of A.O. while making assessment' of the income. However, it is settled position of law that such estimation or (A.Y: 2009-10) Shri Kapil Harilal Gala extrapolation must be logical and bonafide estimation. The ratio of judgement laid down by Hon'ble Supreme Court in the case of Commissioner of Sales Tax, M.P. v/s H. M. Esufali Ali H.M. Abdulali is relied upon while deciding this appeal. Hon'ble Supreme Court while deciding the Civil Appeal No. 1068 and 1069 of 1970 had held best judgement assessment/estimation as valid tool in the hands of officer which is made on the basis of material before him. Hon'ble Apex Court has held that so long as the estimate made by him is not arbitrary and has nexus with the facts discovered, it cannot be questioned. It is further held that, in estimating any escaped turnover it is inevitable that there is, some guesswork. The assessing authority while making the 'best-judgement' assessment no doubt should arrive at its conclusion without any bias and on rational basis. That authority should not be vindictive or capricious. If the estimate made by the assessing authority is a bona fide estimate and is based on a rational basis, the fact that there is no good proof in support of that estimate is immaterial. Prima facie, the assessing authority is the best judge of the situation. It is his 'best-judgement' and not of anyone else's. The ratio of the above decision of Hon'ble Supreme Court when applied to the facts of present case in appeal before the undersigned, would lead to inevitable conclusion that in the instant case, CIT(A) had to resort to fair estimation of the profit margin earned by assessee in the whole venture and such estimation is a valid tool in the hands of A.O/CIT(A). 5.2.5. In view of the above, the findings of the AO regarding purchases being bogus are upheld. However, the addition of entire amount of bogus purchase of Rs. 14,47,104/- made by the AO is unfair. Therefore, AO is directed to work out 20% of bogus purchase of Rs. 14,47,104/- and disallow accordingly the same. Thus the first ground of appeal of the assessee is partly allowed.”
7. On a careful perusal of the order of the Ld.CIT(A) and the reasons given therein, we do not find any infirmity in the order passed by the Ld.CIT(A). None of the findings and observations of the Ld.CIT(A) have been rebutted with evidences by the revenue and thus we do not see any (A.Y: 2009-10) Shri Kapil Harilal Gala infirmity in the order passed by the Ld.CIT(A) in restricting the addition/disallowance to the extent of 20% of the purchases. Grounds raised by the revenue are dismissed.
In the result, appeal of the Revenue is dismissed.
Order pronounced in the open court on the 13th March, 2020