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Income Tax Appellate Tribunal, “SMC”, BENCH MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI G. MANJUNATHA
Date of Hearing 06/02/2020 Date of Pronouncement 14 /02/2020 आदेश आदेश / O R D E R आदेश आदेश PER G.MANJUNATHA (A.M):
This appeal filed by the revenue is directed against, the order of the Ld. Commissioner of Income Tax (Appeals)–26, Mumbai, dated 07/12/2018 and it pertains to Assessment Year 2010-11.
The revenue has raised the following grounds of appeal: (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 fact that parties from whom those purchases were made proven accommodation entry providers as concluded by Sales Tax Authorities pursuant to the Investigation carried out by them" ? (2) "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. DC1T (769 of 2017),
wherein the Hon'ble Supreme Court has confirmed 100% addition made on account of bogus purchases"? (3) The appellant prays that the order of Ld.CIT(A) on the above grounds be reversed and that of the Assessing officer be restored,
The brief facts of the case are that the assessee is engaged in the business of trading in iron and steel, filed his return of income for AY 2010-11 on 3/08/2010, declaring total income at Rs. 7,84,505/-. The case has been subsequently reopened u/s 147 of the I.T.Act, 1961 and the assessment has been completed u/s 143(3) r.w.s. 147 of the I.T.Act, 1961, determining the total income at Rs. 36,15,570/- by making additions towards 25% profit on alleged bogus/non genuine purchases from certain parties. The assessee carried the matter in appeal before the first appellate authority. The Ld.CIT(A), vide its order dated 07/12/2018, has scaled down additions made by the Ld. AO towards alleged bogus purchases from 25% to 12.5% profit on total purchases from those parties. Aggrieved, by the Ld.CIT(A) order, the assessee, as well as the revenue have filed appeal before the ITAT. The ITAT has disposed-off appeal filed by the assessee, vide its order dated 23/01/2020 in and directed the AO to estimate GP on alleged bogus purchases by taking note of GP declared by the assessee on normal purchases by following the decision of Hon’ble Bombay High Court, in the case of PCIT vs Mohammad Hazi Adom & Company in ITA No.1004 of 2016, dated 11/02/2019, however the appeal filed by the assessee is remained pending for disposal.
The Ld. AR for the assesee, at the time of hearing submitted that the appeal of the assessee has been disposed off, where the Tribunal has directed the Ld. AO to follow the decision of Hon’ble Bombay High Court, in the case of M/s Mohammad Hazi Adom & Company (supra) and reduce the GP on alleged bogus purchases to the extent of GP declared on normal purchases. In this regard, he has filed copy of order of the Tribunal in ITA No. 337/Mum/2019. The Ld. DR, on the other hand strongly supporting order of the Ld. AO submitted that, the Ld.CIT(A) has estimated GP on alleged bogus purchases @12.5% without considering the fact that the assessee is one of the beneficiary of accommodation entry of bogus purchases, as concluded by sales tax authorities, pursuant to the investigation carried out by them.
5. Having heard both the sides and considered material on record. We find that the assessee, as well as the revenue have filed appeal against order of the Ld.CIT(A). As, it appears, the fact that revenue has also filed an appeal, was not brought to the notice of the Tribunal, when assessee’s appeal came up for hearing. Therefore, the Tribunal disposed off assessee’s appeal by directing the Ld. AO to estimate GP on alleged bogus purchases at the rate of GP declared by the assessee on normal purchases in books of accounts by following the decision of Hon’ble Bombay High Court, in the case of Mohammad Hazi Adom & Company (supra). The relevant findings of the Tribunal are as under:-
I have considered the rival contentions and carefully gone through the orders of the authorities below. With respect to issue regarding addition in respect of bogus purchases, the Hon’ble Jurisdictional High Court in the case of Pr.CIT Vs M/s Mohommad Haji Adam & Co. in of 2016 vide its order dated 11/02/2019 have held as under: “8. In the present case, as noted above, the assessee was a trader of fabrics. The A.O. found three entities who were indulging in bogus billing activities. A.O. found that the purchases made by the assessee from these entities were bogus. This being a finding of fact, we have proceeded on such basis. Despite this, the question arises whether the Revenue is correct in contending that the entire purchase amount should be added by way of assesses additional
income or the assessee is correct in contending that such logic cannot be applied. The finding of the CIT(A) and the Tribunal would suggest that the department had not disputed the assessee' s sales . T here w as n o discrepancy between t he purchases shown by the assessee and the sales declared. That being the position, the Tribunal was correct in coming to the conclusion that the purchases cannot be rejected without disturbing the sales in case of a trader. The Tribunal, therefore, correctly restricted the additions limited to the extent of bringing the G.P. rate on purchases at the same rate of other genuine purchases. The decision of the Gujarat High Court in the case of N.K. Industries Ltd.. (supra) cannot be applied without reference to the facts. In fact in paragraph 8 of the same Judgment the Court held and observed as under:-
So far as the question regarding addition of Rs.3,70,78,125/- as gross profit on sales of Rs.37.08 Crores made by the Assessing Officer despite the fact that the said sales had admittedly been recorded in the regular books during Financial Year 1997-98 is concerned, we are of the view that the assessee cannot be punished since sale price is accepted by the revenue. Therefore, even if 6% gross profit is taken into account, the corresponding cost price is required to be deducted and tax cannot be levied on the same price. We have to reduce the selling price accordingly as a result of which profit conies to 5.66%. Therefore, considering 5.66% of Rs.3,70,78,125/which comes to Rs.20,98,621.88 we think it fit to direct the revenue to add Rs.20,98,621.88 as gross profit and make necessary deductions accordingly. Accordingly, the said question is answered partially in favour of the assessee and partially in favour of the revenue 6. The Coordinate Bench of the ITAT, Mumbai in the case of Shri Rameshkumar Daulatraj Vs ITO in order dated 07/05/2019 after following the above decision of Hon’ble Bombay High Court held as under: “9. When these facts were confronted to the learned Sr. DR, he requested for application of reasonable profit rate and according to him the profit rate applied by the AO and confirmed by CIT(A) is quite reasonable in view of the decision of Hon’ble Gujarat High court in the case of Smith P.Seth (supra). We have considered the rival contentions ITA No. 4192/Mum/2018 and are of the view that Hon'ble Bombay High Court in the case of Mohammad Haji Adam & Co. and Ors. (supra) has considered this issue and respectfully following the same, we direct the AO to restrict the profit rate only to the extent of differential percentage as declared on the bogus purchases and as declared on the regular purchases, Hence, we direct the AO accordingly.”
7. It is clear from the above decisions that in case of bogus purchases where sales are accepted, the addition is required to be made only to the extent of difference between the GP declared by the assessee on normal purchases vis a vis bogus purchases. Respectfully following the order of the Hon’ble Jurisdictional High Court and the Coordinate Bench of the ITAT, Mumbai, I direct the A.O. to restrict the addition to the extent of lower GP declared by the assessee in respect of bogus purchases as compared to GP on normal purchases. The assessee is also directed to give full details to the A.O. with regard to GP earned on normal purchases and also GP earned on alleged bogus purchases. I direct accordingly.
The facts of the present case are identical to the facts, which have been considered by the Tribunal in ITA No.337/Mum/2019. Hence, we direct the Ld. AO to follow the findings of the Tribunal given in filed by the assessee and estimate the GP on alleged on non genuine purchases at the rate of GP, as declared by the assessee on normal purchases in books of accounts for the impugned assessment year.
In the result, appeal filed by the revenue is dismissed.
Order pronounced in the open court on this 14 /02/2020