TIMEX ART DECOR PRIVATE LIMITED,MUMBAI vs. ASSISTANT COMMISSIONER OF INCOME TAX 11(3)(1), MUMBAI

Date of Hearing 07/08/2019 Date of Pronouncement 18 /10/2019 आदेश आदेश / O R D E R आदेश आदेश PER G.MANJUNATHA (A.M):

These two appeals by the assessee and one appeal by the Reveune are directed against separate, but identical orders of the Commissioner of Income Tax (Appeals) -18, Mumbai, both dated 25/09/2017 and they pertain to Assessment Years (AY) 2009-10 and 2010-11. Since, the facts are identical and issues are common, for the sake of convenience, these appeals were heard together and are disposed-off by this consolidated order.

3. The brief facts of the case are that the assessee is a private limited company engaged in the business of manufacturing and trading in plywood, decorative laminates and other wood products, has filed its return of income for AY 2009-10 and 2010-11 on 9-9- 2009 and 9-9-2010, declaring total income of Rs. 14,88,250/- and Rs. 58,18,450/- respectively. Thereafter, the cases have been reopened u/s 147, 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. As per list of beneficiaries, the assessee is one of the beneficiary, who had taken accommodation bills of bogus purchases from five parties as listed by the AO in para 2 of his assessment order for Rs. 6,84,18,540/- for A.Y. 2009-10 and two parties as listed by the AO in para 5 of his assessment order for A.Y. 2010-11 for Rs. for Rs. 8,62,71,335/-. The cases have been selected for scrutiny and the assessment for both assessment years have been completed u/s. 143(3).r.w.s. 147 of the I.T.Act, 1961 on 27/03/2015 and 30/12/2015 and determined total income of Rs. 1,09,89,930/- and Rs. 1,66,02,370/- respectively, after making additions of 12.50% profit on alleged bogus purchases from above parties and made additions of Rs. 85,52,317 for A.Y. 2009-10 and Rs. 1,07,83,917 for A.Y. 2010-11/-.

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. The sum and substance of arguments of the assessee before the Ld.CIT(A) are that purchase from the above parties is genuine, which are supported by necessary evidences, including purchase bills, bank statements, ledger confirmation and VAT audit report of the parties specifying the VAT amount in respect of the purchases and quantitative details of goods traded. Therefore, no additions could be made on the basis of information received from third party. The Ld.CIT(A), after considering relevant submission of the assessee and also, on analysis of information collected during the course of search and also by following the decision of Hon’ble Gujarat High Court, in the case of CIT vs. Simith P. Sheth (356 ITR 451) scaled down profit estimated by the AO from 12.50% to 8.80% on alleged bogus purchases for both assessment years.

6 Having considered arguments of both sides and also, material available on record, we find that both the sides has failed to prove the case in their favour with necessary evidences. Although, assessee had filed certain basic evidences, but failed to file further evidences to conclusively prove purchases to the satisfactions of the Ld.AO. 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. Under these circumstances, it is difficult to accept arguments of both the sides.

Further, 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 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, had directed the Ld.AO to estimate profit of 2% to 12.50% on alleged bogus purchases. In this case, considering the nature of business of the assessee the Ld. AO has estimated 12.50% profit, whereas the Ld.CIT(A) has scaled down addition to 8.80% profit on total alleged bogus purchase. 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. In this case, the assessee is in the business of manufacturing and trading in playwood and other wood products. The assessee had declared 3.70% gross profit in regular books of accounts including on alleged bogus purchases. Further, the assessee claims that the ITAT, Mumbai Bench in case of Vaishali Prakash Muni vs. ITO, in had considerd an identical issue and considering fcats has diredted the AO to estimate 2% profit on alleged bogus purchases. The assessee further claims that fact of its case is idetical to facts of case considered by the Tribunal in case of Vaishali Prakash Muni vs. ITO(Supra) and hence requested to estimate 2% profit on aleged bogus purchases. We, therefore, considering facts and circumstances of this case and consistent with view taken by the Co- ordinate Bench in number of cases, including in the case of Vaishali Prakash Muni vs. ITO (Supar) direct the Ld.AO to estimate 2% profit on alleged bogus purchases. Accordingly, we direct the AO to reduce additions to 2% profit on alleged bogus purchases.

Order pronounced in the open court on this 18/10/2019