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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
Before: Shri R.C. Sharma (A.M.) & Shri Pawan Singh (JM)
O R D E R PER PAWAN SINGH, JM : 1. This set of three appeals by assessee are directed against the independent orders of CIT(A)-3, Thane dated 2-11-2016, 22-06- 2016, and 15-03-2018, for assessment years 2009-10, 2010-11 and 2011-12, respectively. In all appeals, the assessee has raised identical / common grounds of appeals except for variation in figures of disallowance u/s 69C / bogus purchases. Facts in all appeals are also common, therefore, with the consent of parties, all appeals were clubbed, heard and are decided by consolidated order. For appreciation of facts, the appeal for assessment year
2 ITAs 7164 to 7166/Mum/2018 2009-10 is treated as lead case. In this appeal, the assessee has raised the following grounds of appeal:-
“I. REOPENING OF ASSESSMENT PROCEEDINGS U/S 147 BAD IN LAW 1. The assessment proceedings ought not to have been re-opened u/s 147 of the I. T. Act 1961.
2. The reopening u/s 147 is bad in law and the order is required to be quashed. II. ADDITION U/S 69C OF RS.15.10,042/- ON ACCOUNT OF NON GENUINE PURCHASES 1. The Learned CIT (A) erred in confirming total purchases amounting to Rs. 15,10,042/- as non genuine u/s 69C.
2. The Learned CIT(A) ought not to have confirmed the total purchases amounting to Rs. 15,10,042/-but G.P. Addition should have been confirmed.
3. The addition of Rs.15,10,042/- treating total purchases as non genuine u/s 69C required to be deleted and estimation based on G.P. be decided.”
Brief facts of the case are that assessee is proprietor of Balaji Energy Resources, filed her return of income for assessment year 2009-10 on 30-09-2009 declaring total income at Rs.7,18,031/-. Initially, the return was processed u/s 143(1) on 31-08-2010. Subsequently, the case was reopened on the basis of information received from sales-tax department that certain dealers were engaged in providing accommodation entry without actual delivery of goods. The sales-tax department also forwarded the list of such dealers and the beneficiaries.
In the list of beneficiaries, the name of assessee was also appearing.
On the basis of such information, the AO reopened the assessment for 3 ITAs 7164 to 7166/Mum/2018 the year under consideration. Notice u/s 148 dated 30-04-2013 was served upon the assessee. During the assessment, the AO noted that the assessee has shown purchases from following five parties:-
S.No Name of the entry provider amount Amount in the bills the bills taken by the assessee taken by the assessee 1 N B Enterprises Rs.1,99,551 2 Manibhadra Trading Co Rs.2,06,192 3 Sivmani Traders Pvt Ltd Rs. 52,9494 Chandranand Trading Pvt Ltd Rs. 43,205 4 5 Ambeshwar Trading Pvt Ltd Rs.33,282 Total Rs.5,35,179
In order to verify the transaction, the AO issued notices u/s 133(6) to all the parties. The notices were returned unanswered with the remark by postal authorities “not found”. The assessee was also given opportunity to prove the genuineness of transaction. The AO recorded that no response was made by assessee. The assessee ultimately filed its reply dated 21-10-2013 and furnished party-wise details of purchases. The assessee was again served notice dated 23-12-2014 to provide the details of purchases, copy of bills and other documentary evidence to substantiate the purchases. The AO noted that no further reply was furnished by assessee. The AO disallowed the entire purchases.
4 ITAs 7164 to 7166/Mum/2018
On appeal before CIT(A), the assessee challenged the reopening of the assessment as well as the addition made on account of bogus purchases.
The Ld.CIT(A) while passing the appellate order noted that assessee was given numerous opportunities. The assessee neither replied nor provided any details; only ledger accounts of the parties without supporting documentary evidences were furnished. The Ld.CIT(A) upheld the reopening as well as the addition made by AO. Thus further aggrieved, the assessee has filed present appeal before us.
We have heard the submission of Ld.AR of the assessee and Ld. DR for revenue and perused the material available on record.
Ground I relates to validity of reopening. During the argument, the Ld.AR for the assessee has not argued anything on the issue.
Therefore, this ground of appeal is treated as not pressed and dismissed. 7. Ground II relates to addition on account of alleged bogus purchases.
The Ld.AR of the assessee submits that assessee is a proprietor of Balaji Energy Resources and engaged in trading and manufacturing of textile machinery and labour contracts. The AO made the reopening on the basis of information received from sales-tax department. The assessee has shown sufficient evidence to the assessing officer. The assessee filed its reply dated 21-10-2013 before the AO. The AO
5 ITAs 7164 to 7166/Mum/2018 disregarded the submission of assessee. The AO relied upon the information of third party without considering the documentary evidences furnished by the assessee. The AO has not rejected the books of account nor disputed the sale of assessee. The sales of assessee were not possible without purchases. The AO made disallowance of entire aggregate of purchases shown from the tainted / alleged hawala parties. The Ld. CIT(A) confirmed the addition by taking view that the assessee not complied with his notices. The Ld.AR of the assessee submits that assessee has shown gross profit @8.7%, 8.72% and 12.64% for assessment years 2009-10, 2010-11 and 2011-12, respectively. The Ld.AR furnished the copy of following 12 decisions and would submit that in all cases additions were made on gross profit ratio:-
Sr.No List of Case Laws I List of Case Laws Relied Upon II Case Laws on GP ratios where Additions are made on the basis of GP Ratio : 1 Sanjay Shah vs. ITO - (Mum ITAT) 2 Mirage Creations vs. DCIT (Mum ITAT) 3 Narendra Choudhary vs. ITO - dated 7.07.2017 (Mum ITAT) 4 Mehul K Mehta I .T.A. No.3227/Mum/2016 (Mum ITAT) (2017) 6 ITAs 7164 to 7166/Mum/2018
5 Ratnagiri Stainless Steel Pvt. Limited I .T.A. No. 4463/Mum/2016 (Mum ITAT) (2017) 6 Deepak Mehta I .T.A. No.3019/Mum/2014 (Mum ITAT) (2016) 7 Yogesh Pandya, I .T.A. No. 2893, (Mum ITAT) (2015) 8 M/s. Geolife Organics, Mumbai and others (Mum ITAT) (2017) 9 Sumit Jaiswal, (ITAT Kolkata) (2018) 10 Vaishali Prakash Muni, I.T.A. No. 378-380/Mum/2018 (Mum ITAT) (2018) 11 M/s Steel Line (India), I.T.A. No.l321-1323/Mum/2016 (Mumbai ITAT) (2017) 12 Suman Gupta, I.T.A. No. 4774/Mum/2014 (Mum ITAT) (2017)
The Ld.AR further submits that only profit element of bogus purchases should be added back to the income of assessee and relied upon the following decisions:-
Pr.CIT vs ITO – (Mum ITAT0 2. CIT vs Bholanath Poly Fab (P) Ltd 40 taxmann.com 494 (Guj) 3. ACIT vs. Haware Construction (P) Ltd (2019 101 taxmann.com 168 4. Batliboi Environment Engg.Ltd vs DCIT (2017) 88 taxmann.com 645 5. Vijay Trading Co vs ITO 76 taxmann.com 366 (Guj) 6. CIT vs Simit P Sheth 38 taxmann.com 385 (Guj)
On the other hand, the Ld. DR for the revenue supported the orders of lower authorities. The Ld. DR submits that the assessee not provided
7 ITAs 7164 to 7166/Mum/2018 sufficient documentary evidence to prove the genuineness of purchases.
The assessee failed to substantiate that the material purchased by assessee was transported to the assessee as no receipt of transportation was furnished by assessee. The assessee has neither substantiated the genuineness of purchases before AO nor filed any substantive evidence before Ld. CIT(A). The Ld. CIT(A) passed the ex-parte order. The Ld. DR further submits that the sales-tax department as well as the Investigation Wing of income-tax department made full-fledged enquiry / investigation about the modus operandi of the hawala traders, who were indulging in providing accommodation entries without actual delivery of goods. The assessee is one of the beneficiaries of such hawala traders. The assessee has shown purchases only to inflate the expenses to reduce the profit ratio.
The Ld. DR further submits that appeals of the assessee are time barred. In respect of appeal for AY 2009-10, ld. CIT(A) passed order on 21-11-2016 whereas the appeal is filed only on 13-12-2018.
Similarly in respect of appeal for AY 2010-11, appeal is filed on 13-12- 2018; however, the impugned order is shown to have been passed on 22-06-2017. Also for assessment year 2011-12, the appeal is filed on 13-12-2018 though the impugned order was passed on 15-03-2018.
8 ITAs 7164 to 7166/Mum/2018
In the rejoinder submission, the Ld.AR of the assessee submits that the impugned orders were received / communicated to the assessee on 16- 10-2018. The assessee, in form 36 has clearly mentioned that impugned orders in all appeals were received on 16-10-2018 and the appeals before the Tribunal were filed within the period of limitation.
We have considered the submissions of both the parties and have gone through the orders of authorities below. We have also deliberated on the various case law relied by the ld. AR for the assessee. The first objection of Ld. DR for the revenue is that appeals were filed beyond the prescribed period of limitation. On the contrary, the Ld.AR of the assessee submits that the impugned orders were received only on 16- 10-2018 and the appeals were filed within the period of limitation.
Considering the fact that while deciding the cases on merit, the technical objection should not take precedence over the merit of the case; rather, we are of the view that when substantial justice and technical considerations are pitted against each other, substantial justice should prevail over the technical consideration. Therefore, considering this principle, we, instead of going into the controversy as to when the orders impugned were communicated, in absence of any evidence, we treat the submission of assessee in form 36 as prima facie, correct.
9 ITAs 7164 to 7166/Mum/2018
13. Now turning to the validity of addition on account of alleged bogus purchases. There is no dispute that in the re-assessment order, the AO made addition on account of bogus purchases. The AO made 100% of the alleged bogus purchases. The AO solely relied upon the report of sales-tax department without conducting any independent enquiry. The AO has neither disputed the sale nor consumption of assessee nor rejected the books of assessee. It is an admitted position under the business parlance that no sale is possible in absence of any purchases.
The Ld. CIT(A) confirmed the action of AO in ex-parte order. The Ld.CIT(A) at para 3 of the order has recorded that despite granting five opportunities, neither the assessee nor his representative attended. The case was lastly listed on 21-11-2016. However, at para 4 of the impugned order, the Ld.CIT(A) recorded that “in the appellate proceedings, without letter of authority from the appellant, director of Sairaj Accounting Solutions Pvt Ltd filed part details in the Tapal and also sought for an adjournment in Tapal without giving any reason on what capacity they represent on behalf of the appellant.”. we have noted that the Ld. CIT(A) neither considered the alleged pa detail while passing the ex-parte order nor discussed anywhere the details of description of alleged part details and affirmed the action of the AO.
10 ITAs 7164 to 7166/Mum/2018 Now before us, the Ld.AR of the assessee categorically contended that the assessee has shown that they have declared gross profit at 10.37% and if the addition at 100% of the alleged bogus purchases is sustained, gross profit would raise to 24.44% and ultimate net profit would raise to 20.61% which is impossible. The Ld.AR for the assessee has also relied on a number of decision as referred above including the recent decision of Honourable jurisdictional High Court in PCIT vs Rishabdev Technocable Ltd (supra) where the Hon’ble jurisdictional High Court in case of assessee, who was engaged in business of manufacturing and dealer of industrial power drilling instrument for AY 2010-11, while considering the question of law on disallowance of similar bogus purchases, upheld the addition on estimate basis by following the decision of Hon’ble Gujarat High Court in CIT vs Bholanath Poly Fab (P) Ltd 255 ITR 290 (Guj) wherein it was held that when purchases were not traceable, profit element embedded in such purchases would be subjected to tax and not the entire amount.
We are also of the view that in case the transaction is not verifiable or the parties were failed to prove the entire transaction, only profit embedded in such transaction is liable to be taxed and not the entire transaction. Thus, considering the nature and activities of the assessee
11 ITAs 7164 to 7166/Mum/2018 and the fact that the lower authorities have recorded that assessee failed to produce sufficient evidence to prove the genuineness, we are of the view that in order to check the possibility of revenue leakage, a reasonable disallowance of purchases / amount / disputed purchases would be sufficient to meet the ends of justice. Therefore, considering the nature of business, the disallowances are restricted to 12.5% of the amount / disputed purchases. The AO is directed accordingly.
In the result, appeal of the assessee is partly allowed. & 7166/Mum/2018 (AYs 2010-11 & 2011-12) 16. The facts and circumstances in these two appeals are pari materia with the facts and circumstances discussed in appeal for AY 2009-10 above.
Therefore, the decision arrived at therein shall apply mutatis mutandis to these appeals also. These appeals are also partly allowed.
In the result, all the three appeals are partly allowed.
Order pronounced in the open court on 25-02-2020.