ITO 33(1)(4), MUMBAI vs. DE & NEPHEW, MUMBAI

PER PAWAN SINGH, JUDICIAL MEMBER; 1. These two appeals by revenue are directed against the order of ld.

CIT(A)-45, Mumbai dated 10.09.2018 & 11.09.2018 for Assessment

Year 2009-10 & 2010-11 respectively. In both the appeals, the revenue

has raised the identical grounds of appeal except variation of figures

deleting the addition on account of bogus purchases. The revenue has

raised the identical grounds of appeal on both the appeals, therefore,

both the appeals were clubbed, heard and are decided by common

order. The revenue has raised the following grounds of appeal:

ITA No. 7422 & 7423 Mum 2018-M/s De & Nephew

(1) "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in restricting GP percentage to 12.5% of the bogus purchases without appreciating the fact that the AO has held it to be non- genuine after carrying out proper independent investigation in the case. (2) "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in ignoring the fact that investigation were carried out by the AO and it was the finding of independent investigation which proved that the purchases were bogus.

manufacturing of rubber product for industrial use, filed its return of

income for Assessment Year 2009-10 on 25.09.2009 declaring total

income of Rs. 4,28,041/-. The return of income was processed under

section 143(1). The assessment was re-opened under section 147 on the

basis of information received from Sale Tax Department, Government

of Maharashtra that certain hawala operators are indulging in providing

accommodation bills without actual delivery of goods. The Sale Tax

Department, Government of Maharashtra referred the list of such

hawala dealers and the beneficiary to the DGIT (Investigation),

Mumbai. The name of assessee appeared in the list of beneficiary. On

the basis of information, the Assessing Officer made a belief that the

income of the assessee escaped assessment, therefore, re-opened the

assessment under section 147. The notice under section 148 dated

14.03.2014 was served upon the assessee. The assessee in response to

the notice under section 148 filed its reply dated 16.04.2014 and stated

ITA No. 7422 & 7423 Mum 2018-M/s De & Nephew

that return filed originally be treated as return in response to the notice.

The Assessing Officer after serving notice under section 143(2)

proceeded for re-assessment. During the assessment, the Assessing

Officer noted that the assessee has shown purchases of Rs. 15,55,398/-

from the following eight parties, which were declared as hawala dealers

by the Sale Tax Department, Government of Maharashtra.

Name of the party Bill amount (Rs.) 1 Raj Traders 1,35,460 2 Nisha Enterprise 1,49,750 3 Shubham Enterprises 4,80,610 4 Real Traders 79,076 5 Deep Enterprises 2,45,924 6 Hi-Tech Industries East India Co. 57,251 7 Riddhi Dyechem Corporation International 1,47,669 Chemicals 8 Arihant Corporation 2,59,658 Total 15,55,398

under section 133(6) to all the parties. The notice sent through

registered post was returned back. The assessee was asked to show-

cause as to why the purchases shown from all the parties should not be

treated as non-genuine. In response to the show-cause notice, the

assessee filed reply dated 13.03.2015 wherein the assessee stated that

he is ready to accept the addition of income as deemed income from all

suspicious purchase at 5 to 6% and undertake to pay the due tax. The

ITA No. 7422 & 7423 Mum 2018-M/s De & Nephew

contention of assessee was not accepted by Assessing Officer by taking

view that from the records furnished by assessee that assessee has

furnished only ledger account, cheque payments, sales invoices and no

proof of delivery challan, purchase party, lorry receipt or proof of

transportation not furnished. On this observation, the AO took his view

that purchases shown by assessee from these firms are bogus. The AO

rejected the books of account of the assessee. The AO estimated 33%

of bogus purchases for disallowance of purchases from said hawala

dealers. On appeal before the ld. CIT(A), the addition was restricted to

12.5% of the impugned/hawala purchases. The ld. CIT(A) while

restricting the addition relied upon the decision of Hon’ble Gujarat

High Court in CIT vs. Simith P. Sheth (356 ITR 451). Thus, aggrieved

by the order of ld. CIT(A), the revenue has filed the present appeal

before us. 4. We have heard the submission of ld. Departmental Representative

(DR) for the revenue and ld. Authorized Representative (AR) of the

assessee and perused the material available on record. The ld. DR for

the revenue supported the order of Assessing Officer. The ld. DR

further submits that Investigation Wing of Income-tax Department has

made full-fledged investigation in respect of hawala traders. The

hawala traders were/are engaged in providing bogus bill without actual

delivery of goods. The assessee has shown bogus purchases only to 4

ITA No. 7422 & 7423 Mum 2018-M/s De & Nephew

inflate the profit. The ld. DR for the revenue submits that the Assessing

Officer has brought sufficient material on record to prove that the

purchases shown by assessee were bogus. The assessee is not entitled

for any relief. The ld. DR for the revenue prayed for setting-aside the

order of ld. CIT(A) and to restore the order of Assessing Officer. 5. On the other hand, the ld. AR of the assessee submits that the assessee

furnished all details of purchases and the corresponding sales made

against the purchases. The Assessing Officer has not disputed the

consumption of material and further sale of the finished goods. The

Assessing Officer made the disallowance of 33% of the alleged bogus

purchases. The Assessing Officer has not considered the Gross Profit

Ratio for earlier years as well as for the year under consideration. The

additions made on account of alleged bogus purchases by Assessing

Officer was unreasonable. The ld. CIT(A) after considering the Gross

Profit declared in three earlier consecutive years restricted the

disallowance to 12.5%. Though, the purchases of assessee are genuine,

however, the assessee offered reasonable disallowance before AO, only

to buy peace. The ld. AR prayed for dismissal of present appeal. 6. We have considered the submissions of both the representatives and

perused the record. The Assessing Officer made the disallowance of

33% of the alleged bogus purchases. The Assessing Officer has not

disputed the sales of the assessee. The Assessing Officer solely relied 5

ITA No. 7422 & 7423 Mum 2018-M/s De & Nephew

upon the report of Investigation Wing of Sale Tax Department. The

Assessing Officer has not rejected the books of account of the assessee.

Before the ld. CIT(A), the assessee urged that the purchases shown by

assessee are genuine. The payments of purchases were made through

account payee cheques. Before the ld. CIT(A), the assessee made the

similar submission as made before us. The ld. CIT(A) after considering

the decision of Hon’ble Gujarat High Court in Simith P. Seth (supra)

held that the addition made by AO on estimated profit is on higher side

and restricted the same to 12.5%. We are also of the view that under

Income Tax Act, the revenue is entitled to tax the profit element only

and not the transaction, therefore, we affirm the order of ld. CIT(A). 7. In the result, appeal of the revenue is dismissed.

ITA No. 7423/Mum/2018 for A.Y. 2010-11 8. As we have noted above that the assessee has raised the identical

grounds of appeal as raised in appeal for A.Y. 2009-10, the facts for the

year under consideration is also identical. Considering the fact that we

have dismissed the appeal for A.Y. 2009-10, therefore, the appeal for

A.Y. 2010-11 is also dismissed with similar directions. 9. In the result, appeal of the revenue for this A.Y. is also dismissed.

Order pronounced in the open court on 03/03/2019.

Sd/- Sd/- R.C. SHARMA PAWAN SINGH ACCOUNTANT MEMBER JUDICIAL MEMBER

ITA No. 7422 & 7423 Mum 2018-M/s De & Nephew

Mumbai, Date: 03.03.2020 SK Copy of the Order forwarded to : 1. Assessee 2. Respondent 3. The concerned CIT(A) 4.The concerned CIT 5. DR “SMC” Bench, ITAT, Mumbai 6. Guard File

BY ORDER,

Dy./Asst. Registrar ITAT, Mumbai