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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
Before: SHRI SHAMIM YAHYA & SHRI PAWAN SINGH
O R D E R PER PAWAN SINGH, JUDICIAL MEMEBR : 1. These two appeals by assessee are directed against the separate orders of ld. CIT(A)-29, Mumbai both dated 04.06.2018 for Assessment Years (AY) 2010-11 and 2011-12. In both the appeals, the assessee has raised identical grounds of appeal except variation of figure. Facts for both the Assessment Years are identical except variation of alleged bogus purchases and disallowances thereof @ 12.5% of such purchases. Therefore, both the appeals were clubbed, heard together and are decided by common order. For appreciation of facts, appeal for Assessment Year 2010-11 was treated as lead case. In appeal for Assessment Year 2010-11, the assessee has raised the following grounds of appeal:
2 ITAs 5315 5316/Mum/2018 The Presscopper Industries “Being aggrieved of an order passed by the Ld. Commissioner of Income Tax (Appeals) - 29, Mumbai (hereafter referred as the 'Ld. CIT (A)'), appellant prefers this appeal on one or more of the grounds which are independent and without prejudice to each other. (1) On the facts and in law, the Ld. CIT (A) erred in confirming additions made solely on the basis of list of "suspicious dealers" uploaded on website of Sales Tax Dept., without proving that alleged bogus parties have actually provided accommodation entries to appellant. (2) On the facts and in law, the Ld. CIT (A) erred in upholding purchases made from alleged bogus parties as accommodation entries, ignoring the fact that appellant is a trader and there are documentary evidences available to substantiate purchases i.e. payments were made by account payee cheques, quantitative records are maintained and for every purchase there was corresponding sales which has been accepted by AO. (3) On the facts and in law, the Ld. CIT (A) erred in sustaining an addition to the extent of 12.5% of the purchases, being the profit element embedded in purchases from the alleged bogus parties on the ground that the motive of obtaining the bogus bills was inflation of purchase price so as to suppress true profit.”
Brief facts of the case are that the assessee is a partnership firm, engaged in trading in ferrous and non ferrous metal, filed its return of income for AY 2010-11 on 15-09-2010 declaring total income at Nil.
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 were indulging in providing accommodation bills without actual delivery of goods. The Sale Tax
3 ITAs 5315 5316/Mum/2018 The Presscopper Industries 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 beneficiaries.
The assessee allegedly made the purchases of Rs. 14,68,973/- from such hawala dealers. 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. Notice under section 148 dated 31-10-2014 was issued and served upon the assessee.
Reasons recorded were supplied to the assessee. In reply, the assessee vide letter dated 11-04-2015 stated that the return already filed may be treated as return filed in response to notice issued u/s 148. The Assessing Officer after serving notice under section 143(2) dated 09.07.2015 preceded for re-assessment. During the assessment, the Assessing Officer noted that the assessee has shown purchases from the following parties, which was declared as hawala dealers by the Sale Tax Department, Government of Maharashtra.
Name of the parties Bill amount (Rs.) 1 M/s Sivamani Traders Pvt Ltd 14,68,973/- Total 14,68,973/-
The assessing officer issued notice under section 133(6) to the party from which the assessee shown the impugned purchases. The notice
4 ITAs 5315 5316/Mum/2018 The Presscopper Industries was return back unserved by the postal authorities. During the assessment the assessee was asked to substantiate the purchases and issued show-cause notice as to why the aforesaid transaction should not be treated as non-genuine. The assessee filed its explanation and furnished the copy of ledger account and proof of payment through cheques. The Assessing Officer not accepted the explanation furnished by assessee and noted that the assessee has not produced delivery challans, Lorry Receipt, Transportation Details etc. The Assessing Officer after considering the material available before him and the submission made by assessee concluded that the assessee was in possession of goods and has shown the sales against the purchases. The sale is not possible without purchases. The Assessing Officer concluded that the assessee may have purchased goods from other suppliers without bills, which is commonly known as grey market and the assessee is beneficiary of margin of grey market. The Assessing Officer on his above said observation disallowed 12.5% of the aggregate of total of non-genuine/alleged hawala purchases. The assessing officer worked out the disallowance of Rs.1,83,621/- in assessment order dated 28.11.2015 passed under section 143(3) r.w.s 147 of the I.T. Act, 1961.
5 ITAs 5315 5316/Mum/2018 The Presscopper Industries 4. On appeal before the ld. CIT(A), the action of Assessing Officer was sustained. Further, aggrieved by the order of ld. CIT(A), the assessee has filed the present appeal before us.
We have heard the submission of ld. Authorized Representative (AR) of the assessee and ld. Departmental Representative (DR) for the revenue and perused the material available on record. The ld. AR of the assessee submits that the assessee furnished complete details of purchases and the sales made against the alleged bogus purchases. The Assessing Officer has rejected the books of account without mentioning specific reasons. The Assessing Officer made the disallowance of 12.5% of the alleged bogus purchases. The ld. AR of the assessee further submits that assessee has already shown Gross Profit (GP) at 4.42%. The addition sustained on account of alleged bogus purchases is on higher side. The ld. AR of the assessee further submits that after addition sustained by ld. CIT(A), the GP of assessee would rise substantially, which is not possible in the trade of assessee.
The ld. AR of the assessee further submits that the Hon’ble Bombay High Court in a recent decision on similar set of fact in PCIT vs. M Haji Adam & Co. in of 2016 dated 11.02.2019 held that addition in respect of bogus purchases is to be limited to the extent of bringing the GP rate on such purchase at the same rate as on other
6 ITAs 5315 5316/Mum/2018 The Presscopper Industries genuine purchases. The ld. AR of the assessee submits that the disallowance of alleged bogus purchase may be restricted in accordance with the decision of Hon’ble jurisdictional High Court in PCIT vs. M Haji Adam & Co. (supra).
On the other hand, the ld. Departmental Representative (DR) for the revenue supported the order of lower authorities. 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 inflate the profit. The ld. DR for the revenue submits that the Assessing Officer has given sufficient relief. The Assessing Officer has reasonably estimated the disallowances. The assessee is not entitled for any further relief.
We have considered the submissions of both the representatives and perused the record. A short issue for our adjudication is whether the disallowance of alleged bogus purchase @ 12.5% is reasonable or not.
The ld. AR of the assessee has vehemently relied upon the decision of Hon’ble jurisdictional High Court in M Haji Adam & Co.(supra). We have noted that on similar set of fact, the Hon’ble Bombay High Court in PCIT vs. M Haji Adam & Co. (supra) held that addition in respect of 7 ITAs 5315 5316/Mum/2018 The Presscopper Industries bogus purchase be limited to the extent of bringing the GP rate on bogus purchase at the same rate as other genuine purchases. We have further noted that the assessee has shown GP of 4.42%. It was argued that the GP percentage after addition would rise substantially, which is not possible in the trade of assessee. Therefore, considering the fact of the present case and the nature of business activities of the assessee and by following the decision of Hon’ble Bombay High Court, we direct the Assessing Officer to restrict the addition with regard to bogus purchases by brining the GP rate on such purchases at the same rate as that of other genuine purchases. Needles to order that before making addition, the Assessing Officer shall grant opportunity to the assessee before passing the order in accordance with law.
In the result, appeal of the assessee is partly allowed.
ITA No. 5316/Mum/2018 A.Y. 2011-12
As we have noted above, the assessee has raised the identical grounds of appeal as raised in appeal for Assessment Year 2011-12, the facts for the year under consideration is also similar. The disallowances made by Assessing Officer on account of alleged bogus purchases are also similar except the fact that parties/alleged hawala dealers are different. Considering our order for Assessment Year 2010-11 on 8 ITAs 5315 5316/Mum/2018 The Presscopper Industries similar ground, the appeal for the year under consideration is also allowed with similar direction. 11. In the result, appeal of the assessee is partly allowed. 12. As a result, both the appeals of the assessee are partly allowed.
Order pronounced in the open court on 01-11-2019.