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Income Tax Appellate Tribunal, “SMC”, BENCH MUMBAI
Before: SHRI MAHAVIR SINGH & SHRI G. MANJUNATHA
Date of Hearing 16/10/2019 Date of Pronouncement 16/10/2019 आदेश / O R D E R आदेश आदेश आदेश PER G.MANJUNATHA (A.M):
These cross appeals filed by the revenue as well as the assessee are directed against order of the Ld. Commissioner of Income Tax (Appeals) -26, Mumbai, dated 25/06/2018 for the Assessment Years (AY) 2010-11. Since, the facts are identical and
The brief facts of the case are that, the assessee is engaged in the business of whole seller and dealer of solvents & chemicals, filed its return of income on 13/09/2010 for AY 2010-11, declaring total income of Rs.16,39,390/-/-. 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 or suppress 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. 3,04,013/-. 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 30/12/2015 and determined total income of Rs. 19,43,400/-, after making additions towards alleged bogus purchase @ 100% of total purchases from those parties and made additions of Rs. 3,04,013/-.
Aggrieved by the assessment order, the assesee preferred an appeal before the Ld.CIT(A). Before the Ld.CIT(A), the assesse has filed elaborated written submissions, on the issue, which has been reproduced at Para 4.4 on pages 3 to 5 of Ld.CIT(A) order. 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
3 & 5499/Mum/2018 Krutarth Atul Shah 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 addition to 15% profit on alleged bogus purchases. The relevant findings of the Ld.CIT(A) are as under:-
4.5 I have considered the facts of the case and the appellant's submissions. As per the investigations carried out by the Sales Tax Authorities, the above mentioned two parties were found to be involved in giving accommodation entries only without actually supplying the goods The logical inference is that the purchases made by the appellant from them would also be in the nature of accommodation entries only. To verify the same, the AO had issued notices u/s 133(6) to the parties which was returned un-served by the postal authorities with the remarks 'left1 This fact was communicated to the appellant who was asked to produce the parties which the appellant failed to do. The appellant submitted purchase invoices, delivery challan and details of cheque payments in support of its claim that the purchases were genuine. The appellant also submitted that the goods purchased from these parties were further sold to other parties. As far as the genuineness of purchases made from these parties is concerned, it has to be kept in mind that these parties had admitted on oath before the Sales Tax Authorities that they had given accommodation entries only without actually supplying the goods The documentation submitted by the appellant in support of its claim would , therefore, have been orchestrated to present a facade of genuineness and does not necessarily mean that the purchases from these parties are genuine The Courts have held (hat payment by cheque itself is not sacrosanct so as to prove genuineness of purchases when the surrounding circumstances are suspect. However, the appellant has shown onward sales of the goods purchased which has not been doubted by the Assessing Officer. Since there can be no sales without corresponding purchases, the only logical explanation is that the appellant would have made purchases from undisclosed patties in the grey market at lower rates and purchases were shown as being made from the impugned parties to suppress its profits. In such a situation, the various Courts including the Hon'ble Gujarat High Court in the case of CIT vs Simit P. Sheth. 356 ITR 451 have held that not the entire purchases but only the profit element embedded in these purchases was to be disallowed. The estimation would vary with the nature of business and no uniform yardstick could be adopted The appellant's GP ratio for the last three years ranged from 8.47% lo 14.36% In view of this decision of the Hon’ble Gujarat High Court (supra), the addition of the entire purchase amount of Rs. 3,04,013/- made by the AO is restricted to 15% of the same which should sufficiently cover the profit element embedded in the impugned purchases. The appellant's grounds of appeal are partly allowed.
4 & 5499/Mum/2018 Krutarth Atul Shah 4. 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 @ 100% of such purchases, on the ground that the assessee 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.
5 Having considered arguments of the Ld. DR 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 satisfactions of the Ld.AO. At the same time, the Ld. AO had also failed to take the investigation to a logical conclusion by carry out necessary enquires, but he solely relied upon information received from investigation wing, which was further supported by information received from Maharashtra Sales
5 & 5499/Mum/2018 Krutarth Atul Shah 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 made 100% additions to bogus purchases, whereas the Ld.CIT(A) has scaled down estimation of profit to 15% 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. Therefore, considering facts and circumstances of this case and consistent with view taken by the Co-ordinate Bench in number of cases, we direct the AO to estimate 12.50% profit on alleged bogus purchases.
In the result, appeal filed by the revenue is dismissed and appeal filed by the assessee is partly allowed.
Order pronounced in the open court on this 16 /10/2019