VIPUL P SHAH ,MUMBAI vs. ITO 27 (3)(5), MUMBAI

अपीलाथ� ओर से / Appellant Shri Sanjay R. Parikh, AR by : ��यथ� क� ओर Shri Sourabh Deshpande, DR से/Respondent by : सुनवाई क� तारीख / / / / Date of 04/02/2020 Hearing घोषणा क� तारीख /Date of 14/02/2020 Pronouncement आदेश / O R D E R PER SHRI G. MANJUNATHA- AM:

These three appeals filed by two different assessee’s are directed against separate, but identical orders of the CIT (A)-25, Mumbai, all dated 19/12/2018 for the A.Y 2009-10 & 2010-11. Since, the facts are identical and issue is common, for the sake of convenience, these appeals were heard together and are disposed of by this consolidated order.

“A. Reopening of assessment.

2. The appellant prays that your honours hold that the reopening of assessment by the AO u/s 147 was bad in law and the consequent order passed u/s 143(3) r.w.s 147 is also bad in law.

B. Principles of Natural Justice Violated

C. Addition of gross profit alleged bogus purchases of Rs. 5,39,484/-

5. The Ld. CIT(A) erred on facts and in law in confirming the addition made by the AO on account on bogus purchases to the extent of Rs. 5,39,484/- being estimated gross profit @ 12.50 of the bogus purchases amounting to Rs. 43,15,874/-.

7. Without prejudice to the above, the Ld. CIT(A) erred on facts and in law in adopting the estimated gross profit @ 12.50% without any basis.

8. The appellant prays that if your hours are not inclined to delete the entire addition, the estimated gross profit on the alleged bogus purchases may be estimated considering the facts of the appellant’s case and the past history of the appellant’s case.

D. General

9. The above grounds of appeal are without prejudice to one another and the appellant craves leave to add, alter, amend, delete or modify any of the above grounds of appeal.

3. The brief facts of the case extracted from IT No. 752/Mum/2019 are that the assessee is engaged in the business of Whosellers and Resellers of Chemicals, filed his return of income for AY 2009-10 on 26/09/2009, declaring total income of Rs. 3,68,490/- and said return was processed u/s 143(1) of the I.T.Act, 1961. The case has been subsequently, reopened u/s 147 of the Act, on the basis of information received from DGIT, investigation, Mumbai, as per which, Sales Tax Authorities of Government of Maharashtra had taken actions against number of Hawala dealers, who had issued bogus purchase bills to various parties in Mumbai and other places. As per list of beneficiaries, the assessee is one of the beneficiary, who had taken accommodation bills of bogus purchases from various parties as listed by the AO in para 4 of his assessment order amounting to Rs. 43,15,874/-. The case was selected for scrutiny and the assessment has been completed u/s. 143(3).r.w.s. 147 of the I.T.Act, 1961 on 18/03/2015 and determined total income of Rs. 10,15,870/-, after making 15% profit additions on alleged bogus purchase from those parties and made additions of Rs. 6,47,381/-.

4. Aggrieved by the assessment order, the assesee preferred an appeal before the Ld.CIT(A). Before the Ld.CIT(A), the assesse has filed elaborate written submissions, on the issue, which has been reproduced at Para 4 on pages 3 to 8 of Ld.CIT(A) order. The sum and substance of arguments of the assessee before the Ld.CIT(A) are that purchase from the above party is genuine, which is supported by necessary evidences. Therefore, no additions could be made on the basis of information received from third party. The assessee had also challenged reopening assessment u/s 147 of the Act. The Ld.CIT(A), after considering relevant submission of the assessee and also, by following the decision of Hon’ble Gujarat High Court, in the case of CIT vs. Simith P. Sheth (356 ITR 451) has scaled down addition made by the AO towards alleged bogus purchases to 12.50% gross profit on total purchases from those parties. The ld. CIT(A) has also rejected legal ground taken by the assessee challening reopening assessment u/s 147 of the Act.

6 Having considered arguments of both the parties and also, considered material available on record, we find that both the sides have failed to prove the case in their favour with necessary evidences.

Although, assessee has filed certain basic evidences, but failed to file further evidences to conclusively prove purchases to the satisfactions of the Ld.AO. Further, mere payment by cheque does not prove the genuineness of purchase, more particularly when other circumstantial evidence says otherwise. At the same time, the Ld. AO had also failed to take the investigation to a logical conclusion by carrying out necessary enquires, but he solely relied upon information received from investigation wing, which was further supported by information received from Maharashtra Sales Tax Department. The AO neither pointed out any descrepanices in books of accounts nor made out a case of sales outside books of accounts. In fact, the AO did not disputed sales declared for the year. Under these circumstances, it is difficult to accept arguments of both the sides. Further, in a case where purchases are considered to be purchased from suspicious/hawala dealers, various High Courts and Tribunals had considered an identical issue in light of investigation carried out by the Sales Tax Department and held that in case of purchases claims to have made from alleged hawala dealers, only profit element embedded in those purchases needs to be taxed, but not total purchase from those parties. The Hon’ble Gujarat High Court, in the case of CIT vs Simith P.Sheth 356 ITR 451 had considered a similar issue and held that at the time of estimation of profit from alleged bogus purchases no uniform yardsticks could be adopted, but it depends upon facts of each case. The ITAT, Mumbai, in number of cases had considered an identical issue and depending upon facts of each case, directed the Ld.AO to estimate gross profit of 10% to 15% on total alleged bogus purchases. In this case, considering the nature of business of the assessee the Ld. AO has made 15% profit additions, whereas the ld. CIT(A) has scaled down addition to 12.50% profit on alleged bogus purchases. Although, both authorities have taken different rate of profit for estimation of income from alleged bogus purchase, but no one could support said rate of gross profit with necessary evidences or any comparable cases, but said esimation is supported by certain judicial precedents where under identical cases, the Courts and Tribunal have upheld estimation of profit. In this case, the CIT(A) has adopted 12.50% profit. It is the contention of the ld. AR for the assessee that rate of profit adopted by the ld. CIT(A) is on higher side when compared to nature of business of the assessee. In this regard, he has relied upon the decision of Hon’ble Bombay High court in case of PCIT vs. Mohamed Haji Adam & Co (Supra), where it was held that GP on alleged bogus purchases should be brought on far with GP declared on normal purchases. Therefore, considering facts and circumstances of this case and by respectfully following the decision of Hon’ble Bombay High court in case of PCIT vs. Mohamed Haji Adam & Co (Supra), we set aside the issue to the file of the ld. AO and direct him to follow the findings of Hon’ble High court while estimating GP on alleged bogus purchases.

- 8 - and 754/Mum/2019:-

This Order pronounced in Open Court on: 14 /02/2020