SHRI JABARSINGH D. RAJPUROHIT,MUMBAI vs. I.T.O. - 19(2)(1), MUMBAI

O R D E R

PER AMARJIT SINGH, JM:

The ground or grounds of appeal are without prejudice to one another.

1. On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in upholding the action of the AC in re-opening of the assessment u/ s. 147 of the Income Tax Act, 1961. A.Y. 2010-11 2.a) On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in confirming the addition to the extent of Rs.4,87,366/-, after set off of incremental gross profit @ 6.25% already shown by the Appellant out of the addition of Rs.9,74,733/-, made by the AC to the income of the Appellant on account of possible profit element @ 12.5% embedded in purchases made through alleged non-genuine parties on the basis of information of the Sales Tax Department about suspicious dealers having rejected the accounts u/s. 145(3). b) The Id. CIT(A) failed to appreciate that i) all the purchases are genuine beyond doubt and supported by sufficient materials; ii) all the goods purchased from these parties have been backed by corresponding sales which are accepted to be genuine; iii) the gross profit ratio shown by the Appellant is quite reasonable; iv) nothing has been brought on record by the AC that money has been exchanged in the hands in lieu of payment made for these purchases by account payee cheque; and (v) the AO had neither provided copy of materials and statements relied upon by him nor allowed any opportunity to the Appellant to cross examine those parties who have been alleged to have provided the accommodation entries of such purchases. c) In reaching to the conclusion and confirming such addition made by the AG, the Id. CIT(A) omitted to consider relevant factors, considerations, principles and evidences while he was overwhelmed, influenced and prejudiced by irrelevant considerations and factors. d) Without prejudice, the rate or percentage of profit element embedded in such purchases as confirmed by the CIT(A) is excessive and unreasonable on the facts of the ease.

3. The Id. CIT(A) erred in holding that levy of interest u/s.234B and 234C of the Income Tax Act, 1961 is mandatory. The Appellant denies his liability for such interest.

4. The ld. C1T(A) erred in holding that the ground raised disputing initiation of penalty proceedings u/s.271(1)(c) is premature. The Appellant denies his liability for such penalty. A.Y. 2010-11 The Appellant craves leave to add, alter, amend or delete any or all of the above grounds of appeal.”

3. The brief facts of the case are that the assessee filed his return of income on 28.09.2010 declaring total income to the tune of Rs.2,99,020/- for the A.Y.2010-11. The return was processed u/s 143(1) of the I.T. Act, 1961. The case of the assessee was reopened on the basis of information received from the DGIT(Inv.) Wing, Mumbai in which it was conveyed that the assessee has taken the accommodation entries of bogus purchase in sum of Rs.77.97.862/- from the following ten parties.

Ujjwal Sales Corporation ALKPP1442N 2009-10 1340580 Shivam Metal Industries BOHPS0089B 2009-10 132175 Rohant Steel Impex AISPC5681R 2009-10 372673 Madhur Steel Centre AUFPP3347Q 2009-10 153299 Texmo Metal Trading Pvt. Ltd. AACCT1058Q 2009-10 270743 Osian Steel Impex AANPD0203D 2009-10 619920 Neelam Industries APQPD6532B 2009-10 655621 Hirani Metal Industries APEPD0325C 2009-10 1280534 Avantika metal Industries ……PP7425P 2009-10 1452409 Pushpak Metak Industries AJEPD0395E 2009-10 1519908 Total 7797862 4. The assessee was engaged in the business of trading in Ferrous and Non-Ferrous metals. After the reply of the assessee, the AO raised the addition to the extent of 12.5% of the bogus purchase in sum of Rs.77,97,862/ i.e. to the tune of Rs.9,74,733/-. The total income of the assessee was assessed to the tune of Rs.12,73,750/-. Feeling aggrieved, the assessee filed an appeal before the CIT(A) who partly allowed the claim of the assessee, therefore, the assessee has filed the present appeal before us. A.Y. 2010-11 5. We have heard the argument advanced by the Ld. Representative of the parties and perused the record. We noticed that the assessee failed to substantiate his claim, therefore, the AO raised the addition to the extent of 12.5% of the bogus purchase. In the instant case, sale is not doubted. It is settled law that when the sales are not doubted then the 100% disallowance for the bogus purchase cannot be done. This proposition was supported from the decision of Hon’ble Jurisdictional High Court in the case of Nikunj Eximp Enterprises (in writ petition no.2860 dated 18.06.2014). The facts of the present case indicate that the assessee has made purchase from the grey market. Making purchases through the grey market gives the assessee savings on account of non-payment of tax and others at the expenses of the exchequer. As regards the quantification of the profit element embedded in making of such bogus/unsubstantiated purchases by the assessee, we find that the proposition as held by Hon’ble Jurisdictional High Court in the case of PCIT Vs. M. Haji Adam & Co. (ITA. No. 1004 of 2016 dated 11.02.2019) is liable to be applied. The relevant para no. 8 is hereby reproduced 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 assessee's 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. There was no discrepancy between the purchases shown by the assessee and the sales declared. That being the position, the Tribunal was correct in coining 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 A.Y. 2010-11 to the extent of bringing the G.I. 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 the question regarding addition of Rs.3,70,78,125/- as gross profit on sale 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 F.Y. I997-98 is concerned; we are of the view that the assessee 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 result of which profit comes to 5.66%. Therefore, considering 5.66% of Rs.3,70,78,125% which comes to Rs.20,98,621.88 we think if fit to direct the revenue to add Rs.20,98,621.88 as gross profit and made necessary deductions accordingly. Accordingly, the said question is answered partially in favour of the assessee and partially in favour of the revenue.”