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Income Tax Appellate Tribunal, “SMC”, BENCH MUMBAI
Before: SHRI MAHAVIR SINGH & SHRI G. MANJUNATHA
Date of Hearing 17/10/2019 Date of Pronouncement 17/10/2019 आदेश आदेश / O R D E R आदेश आदेश PER G.MANJUNATHA (A.M):
These two appeals filed by the assessee are directed against common order passed by the Ld. Commissioner of Income Tax (Appeals) -3, Nasik, dated 25/05/2018 for the Assessment Years (AY) 2009-10 & 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.
ITA.NO.4682/Mum/2018:
The assessee has, more or less filed common grounds of appeal for both Assessment Year’s. Therefore, for the sake of
1. The Learned CIT(A) has erred in facts and law by disallowing 8% of the value of alleged non-genuine purchases of Rs 1, 00,04, 992/- amounting to Rs 8,00,399 by completely ignoring various documentary evidences submitted in support of subject transactions such as invoices (containing vehicle nos. wherever possible), ledger extracts, stock tally and entries in bank statement in respect of payments made by account payee cheque 2. The Learned CIT(A) has erred in facts and law by not realizing that our of alleged non-genuine purchases of Rs 1 ,00,04, 992/-; only purchases amounting to Rs 10,33,032 has been resold during die year and balance amount of Rs 89,71,960 is forming part of closing stock. Therefore, without prejudice to the other grounds, the additions, if any, should have been restricted on the profit element on purchases (i,e. claimed as expenses)of Rs 10,33, 032/- and not on entire amount of Rs.1,00,04992/-.
3. The CIT(A) has ignored the track record of the assesses whose GP Ratio in the earlier three years were less than 1% of sales.
The brief facts of the case are that, the assessee is engaged in the business of manufacturer of iron and steel goods, filed its return of income for AY 2009-10 on 29/09/2009, declaring total income of Rs.4,56,250-. Thereafter, the case has 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 to reduce profits. 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 his assessment order amounting to Rs. 1,00,04,992/-. 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 16/02/2015 and determined
Aggrieved by the assessment order, the assesee preferred an appeal before the Ld.CIT(A). Before the Ld.CIT(A), the assesse has reitrated its arguments made before the AO. The sum and substance of the 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 Ld.CIT(A), after considering relevant submission of the assessee and also, on analysis of information collected during the course of appellate proceedings 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 estimation of profit from 12.50% to 8%. The relevant findings of the Ld.CIT(A) are as under:-
I have carefully considered the appellant's submissions, observations of the AO in the assessment order and the facts of the case The appellant had shown purchases amounting to Rs 1,00,04992/- in AY 2009-10 and Rs 49,07,280/- in AY 2010-11 which appeared in the list of Sales-tax Department who had indulged in Hawala transactions i.e providing only bills without there is being any actual purchase or sale transaction 7.1. Before the case is discussed, it is important to know the background in which the case of the appellant was selected for scrutiny. As per Section 3 of the MVAT Act, 2002, every registered dealer, is liable to pay Tax on a sale transaction with a purchasing dealer whose turnover of sales or purchases has exceeded rupees five lakh The selling dealer issues a tax invoice, which shows the amount of lax recovered from the purchasing dealer The sale made by the selling dealer needs to be accounted in his turnover of sales while filing The tax return and pay the due taxes Further, the purchasing dealer is also entitled to claim by way of a set off under Section 48 the tax paid on his purchases as ITC (Input Tax Credit). The Sales Tax Authorities found that a large number _of selling dealers, had .neither filed their, returns nor paid the taxes collected by them from purchasing dealers The Sales Tax Authorities denied the benefit of set-oft of Input Tax Credit to purchasing dealers, who went into appeal before Hon’ble Bombay High Court against the said orders. The same was rejected by the 4 & 4683/Mum/2018 Anil Agarwal Bombay High Court in WRIT PETITION No.33 OF 2012 in case of M/S Mahalaxmi Cotton Ginning vs The State Of Maharashtra & Ors on 11 Way, 2012 and other similar cases. In the said appeals, the purchasing dealers look a plea before the High Court that as he has paid the tax to the selling dealer, he should not be denied the benefit of a set off of taxes paid, which is arbitrary However the State government in an affidavit before the court submitted that investigations revealed that there was a existence of large- scale Hawala racket, wherein the selling dealers merely issued tax invoices to the purchasing dealer without any sale of goods The court did not accept the plea of the purchasing dealer and held that if the set off is allowed to the purchasing dealer though the tax has not been paid actually, it would defeat the legitimate interests of the Revenue. The Sales Tax Department recovered The Tax from such purchasing dealers The Sales Tax Department accordingly passed on the information of such purchasing dealers to the Income Tax Department to verify the purchases made by them.
In this background the case of the assessee needs to be examined. The appellant had shown purchases amounting to Rs. 1,00,04,992/- in AY 2009- 10 and Rs. 49,07,280/- in AY 2010-11 from various parties which appeared in the list of Sales-tax Department who had indulged in Hawala transactions i.e. providing only bills without there is being any actual purchase or sale transaction. The AO was required to examine the veracity of such purchases and to see a) whether the purchases have actually been made or not, b) the end use of such purchases and c) the genuineness of the parties from whom the purchases are made. In assessment proceedings, the assessee could show that there are corresponding sales against these purchases However the assessee was unable to produce the parties During appellate proceedings also he pleaded inability to produce them. Further the assessee has also paid the sale tax on behalf of these parties Therefore AO has rightly held that this is not a case of Bogus purchases but purchases from bogus parties, wherein the bills are taken from hawala dealers and purchases from other parties and has correctly applied the ratio of various Case Laws and came to the conclusion that only the profit element embedded in the transactions needed to be taxed. Therefore ground of appeal to delete the addition is dismissed.
8.1. With regard to the appellant's reliance on various decisions, there are large number of cases, wherein the appellate authorities have held that it would not be to consider that purchases were genuine only because the assessee made the payment by cheque and The assessee received bills. It is held by various courts that where the assessee could show Thai he has made the purchases and there are corresponding sales against these purchases, it would be appropriate to tax the possible profit out of purchases made through non- genuine parties In various case laws available on the issue including decision of the Hon'ble Gujarat High court m The case of CIT vs Simith P Sheth, 356 ITR 451 the appellate authorities have restricted (he additions based on certain percentage of such unvenfiabfe purchases. The appellate authorities have also stressed upon the reasonability of the profit shown by The traders while making any such disallowance Hon’ble High Court in Smith P Sheth held that the estimation of the rate of profit must necessarily vary with the nature of business. In this background, the plea of the assessee that the profit element applied by the AO is very high needs to be examined He submitted GP rates for different years which are reproduced as under 51801882 55388096 8,11,47,045 15,65,63,683 Sales 831243 397730 528735 2395676 Gross profit
276128 494413 543897 498561 Net profit 077 GP% 0.95 1.02 1 53 NP% 0.53 0.89 0.67 0.32 2010-11 Particulars 2009-10
Gross profit as per books 8,31.243 23,95,676
Net profit as per books of a/c 5,43,897 4,98P561 Addition made by AO 12,50,624 6,13,410 Gross profit after addition 20,81,867 30,09,086 17,94.521 11,11,971 Net profit after addition 2.51 1.92 Revised GP% 2.21 0.71 Revised NP %
6 2. On going Through the submission of The assessee, il is noticed that the GP has been increasing from AY 2007-08 To AY 2010-11 despite the increase in sales. In AY 2009-10, the Gross Profit was Rs B31.243/- on sales of Rs 8,11,47,045^- and the AO has added an amount of Rs 12.50.624/- on purchases of Rs 1 .QO.Q4.492/-, which has resulted m increase m GP from 1.02% lo 2 51% In AY 2010-11. the component of hawala purchases is only Rs 49.07 lacs out of total sales of Rs 15.65 Crs, therefore after applying 12 5% of the purchases and making addition of Rs 6,13,410/-. The GP has increased to 1.92% In view of these findings, it is noticed that the GP of the business varies vanes according To the component of hawala purchases to the total sales of the business. In AY 2009-10, The GP increase to 2.51%, which is much higher than the GP in earlier years and even higher than A.Y 2010-11 when the GP after addition was 1 92% As discussed above, by entering into such transactions the assessee has benefited as the price at which the actual purchases were made and the price at which bill was taken cannot be ascertained as these were collusive transactions. Moreover in such type of Transactions, there has to be estimation Various Courts have upheld addition ranging from 10% to 25% depending upon the quantum of hawala purchases and nature of business. For AY 2010-11, even after the addition, the GP increases to 1 92% and NIP to 0 71% even after the addition which is very reasonable Therefore for AY 2010-11, the plea of the assessee that the 6 & 4683/Mum/2018 Anil Agarwal percentage of purchases disallowed by the AO is high is not correct needs to be rejected. The appeal for AY 2010-11 is therefore dismissed.
9. In AY 2009-10, !t can be seen that the GP increases to 2.5%, which is much higher than the GP in AY 2010-11, therefore it would be appropriate if addition of 8% of Rs. 1,00,04,992 is made which would result in addition of Rs. 6,00.399/- and the GP after addition would be Rs 16,31,642/-, resulting in GP of 2%, which would be reasonable The ground of appeal is partly allowed. 9.1 The assessee has also taken a plea that the sales of only Rs 9.93.300/- were made out of total hawala purchases of Rs 1,00,04,492/- and therefore addition should not be made in the year under consideration. The submission of the appellant is not acceptable as the purchase account has been debited with inflated purchases during the year and the relevant year to tax would be the year in which the purchases are made and not the year in which the sales are made. Therefore the plea of the assessee is rejected and ground of appeal is dismissed.
We have heard both the parties, perused the material available on record and gone through orders of the authorities below. We find that the Ld. AO has made additions towards alleged bogus purchases @ 12.50% of such purchases, on the ground that the assessee is one of the beneficiary of accommodation entries of bogus purchase bills issued by Hawala dealers. According to the Ld. AO, although assesee has filed certain basic evidences, but failed to file further evidence in the backdrop of clear finding by the Sales Tax Department, Maharashtra that those parties are involved in providing accommodation entries without actual delivery of goods. The Ld. AO had also taken support from the investigation conducted during the course of assessment proceedings, as per which notice issued u/s 133(6) to the party were returned un-served by the postal authorities. Therefore, he came to the conclusion that purchase from the said party is bogus in nature. It is the contentions of the assessee before the lower authorities that purchases from the above party are supported by necessary evidences. It has furnished all possible evidences, including books of accounts, stock details and bank statement to prove that payment against said purchases have been made through proper banking channels.
6 Having considered arguments of both sides and also, material available on record, we find that both the sides 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. 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, directed the Ld.AO to estimate 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 estimated 12.50% profit, whereas the Ld.CIT(A) has scaled down estimation of profit to 8% 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 8 & 4683/Mum/2018 Anil Agarwal comparable cases. Therefore, considering facts and circumstances of this case and also considering nature of business of the assessee, we are of the considered view that 5% profit on alleged bogus purchases would be reasonable and end dispute between the parties. We, therefore direct the AO to estimate 5% profit on alleged bogus purchases.
7. In the result, appeal filed by the assessee is partly allowed.
ITA.No.4683/Mum/2018:-
8. The assessee has raised the following grounds of appeal:
The Learned CIT(A) has erred in facts and low by disallowing 12.5% of the value of alleged non-genuine purchases of Rs 49,07,280/- amounting to Rs 6,13,410 by completely ignoring various documentary evidences submitted in support of subject transactions such as invoices (containing vehicle nos. wherever possible), ledger extracts, weigh bridge receipts, lorry vouchers, stock tally and entries in bank statement in respect of payments made by account payee cheques.
2. The Learned CIT(A) has ignored the track record of the assessee whose GP Ratio in the earlier three years were around 1% of sales.
The facts and issues are involved in this appeal are identical to facts and issues, which we had already considered in ITA.No4682/Mum/2018. The reasons given by us in preceding paragraph in shall mutatis mutandis apply to this appeal also. WE, therefore for similar reasons, direct the AO to estimate 5% profit on alleged bogus purchases
In the result, appeal filed by the assessee is partly allowed.
As a result, both appeals filed by the assessee for AY’s 2009- 10 & 2010-11 are partly allowed.
Order pronounced in the open court on this 17 /10/2019