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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC” MUMBAI
Before: SHRI RAVISH SOOD & SHRI N.K. PRADHAN
ORDER
PER N.K. PRADHAN, AM
The captioned appeals filed by the assessee are directed against the order passed by the Commissioner of Income Tax-(Appeals)-30, Mumbai [in short the ‘CIT(A)’]and arise out of assessment u/s143(3) r.w.s. 147 of the Income Tax Act 1961, (the ‘Act’). Facts being identical, we begin with the AY 2010-11.
Monjiram D. Patel 2 & 5367/Mum/2018 2. The grounds of appeal filed by the assessee read as under :
1. That on facts of the case and in law the Ld. CIT(A) has erred in upholding the validity of the reassessment proceeding initiated u/s 147 by issue notice u/s 148 on wrong facts and in unlawful manner.
That the Ld. CIT(A) has erred in confirming the disallowance of Rs.9,53,092/- being 12.5% of the purchase of trading goods made from the alleged suspicious hawala dealers of Rs.76,24,733/- without properly appreciating the facts of the case and law. 3. At the start of the hearing, the Ld. counsel for the assessee submits that the appellant would not like to press the 1st ground of appeal. Having considered the same, the 1st ground of appeal is dismissed as not pressed.
Now we turn to the 2nd ground of appeal
. Briefly stated, the facts of the case are that the assessee filed his return of income for the assessment year (AY) 2010-11 on 27.09.2010 declaring total income at Rs.5,42,140/-. The assessee herein deals with reselling in ferrous and non-ferrous metals. The return was processed u/s 143(1) of the Act. Thereafter, the Assessing Officer (AO) received information from the Director General of Income Tax (Inv.), Mumbai [in short ‘DGIT’] that as per the inquiry by the Sales Tax Department, Government of Maharashtra, the assessee was a beneficiary of bogus bills provided by the accommodation entry providers from the following parties : Sr. No Name of Hawala Party F.Y. Amount (Rs.)
1. Vardhman Trading Co. 2009-10 6,67,863 2. New Everest Steel 2009-10 2,40,968 Monjiram D. Patel 3 & 5367/Mum/2018 3. Konica tubes Industries 2009-10 7,80,827 4. Om Metal Industries 2009-10 11,54,207 5. Rajeshwari Metal Industries 2009-10 13,42,476 6. Suraj Enterprises 2009-10 12,76,312 7. Maruti Impex 2009-10 9,27,253
8. Harshil Ferromet Pvt. Ltd. 2009-10 12,34,827 TOTAL 76,24,733 On the basis of the above information that there is suppression of primary facts in the return of income filed by the assessee, the AO reopened the assessment by issuing notice u/s 148 dated 18.09.2014. During the course of reassessment proceedings, the AO issued notice u/s 133(6) to the above parties at the address provided by the assessee. However, those notices could not be served and were returned back un- served by the postal authorities with the remarks ‘not known’ or ‘no such address’, ‘left’.
Thereafter, the AO, in order to verify the genuineness of these parties and purchases made from them with adequate supporting evidence, requested the assessee to produce these parties before him along with their books of accounts. However, the assessee could not produce these parties nor furnish their new address but simply furnished copies of the ledger accounts in the books of the assessee, purchase bills and assessee’s bank statement showing the payment made through banks.
Monjiram D. Patel 4 & 5367/Mum/2018 Subsequently, the AO asked the assessee to furnish the details such as purchase details, the invoices/bills, ledger account, lorry receipts, documentary evidence reflecting the relevant entries of having received such goods in the premises of the assessee and having consumed such goods, details of payment made to these parties etc. In response to it, the assessee submitted purchase invoices of the said parties, copies of bank statements evidencing payments made through banking channels by issuing account payee cheques in respect of all the parties, highlighting the relevant entries, chart showing the details of purchases of the alleged parties, quantitative tally in respect of entire purchases of the alleged parties and the corresponding sales. However, the AO was not convinced with the above submissions of the assessee for the reason that the said hawala parties have confessed in the statement recorded on oath before the Sales Tax Authorities that they have not done any genuine business as well as there was no actual delivery of goods to the parties. Further taking into consideration the fact that the assessee could not file documents such as delivery challans, transport receipts, octroi receipts, receipt of weighbridge, excise gate pass, goods inward register, he estimated the profit embedded in such purchases @ 12.5% of Rs.76,24,733/- by following the decision in the case of CIT v. Simit P. Sheth (ITA No. 553 of 2012 dated 16.01.2013) and thus made an addition of Rs.9,53,092/-.
In appeal, the Ld. CIT(A) agreed with the reasons given by the AO and confirmed the above disallowance of Rs.9,53,092/-.
Monjiram D. Patel 5 & 5367/Mum/2018 5. Before us, the Ld. counsel for the assessee files a Paper Book containing copy of the documents filed before the AO and CIT(A). Further, he files a copy of the decision dated 11.02.2019 of the Hon’ble Bombay High Court in the case of Pr. CIT v. M/s Mohommad Haji Adam & Co. (ITA No. 1004 of 2016) and relies heavily on it.
On the other hand, the Ld. Departmental Representatives (DRs) submit that the decision in M/s Mohommad Haji Adam & Co. (supra) cannot be taken as a binding precedent as the facts in that case and the present appeal do not match fully. It is stated by the Ld. DRs that in the above decision, the Hon’ble High Court has clearly ruled that no question of law arose in the above decision and therefore, the ratio laid down cannot be applied uniformly. Further, it is stated that considering the value added tax (VAT) in the bogus purchases, the AO has rightly estimated the profit at Rs.9,53,092/- (12.5% of the disputed purchases of Rs.76,24,733/-) which has been confirmed by the Ld. CIT(A) and the same being based on the facts of the case be affirmed.
We have heard the rival submissions and perused the relevant materials on record. The reasons for our decision are given below. In the instant case, as per the information received from the Sales Tax Department, Government of Maharashtra, the assessee was a beneficiary of the bogus bills provided by the accommodation entry providers amounting to Rs.76,24,733/-. The notices issued by the AO u/s 133(6) to the parties were returned back un-served by the postal authorities with the remarks ‘not known’ or ‘no such address’ or ‘left’ etc. On request from the AO to produce the parties along with their Monjiram D. Patel 6 & 5367/Mum/2018 books of account, the assessee failed to produce them. Also the assessee could not file documents such as delivery challans, transport receipts, octroi receipts, weighbridge receipt, excise gate pass, goods inward register before the AO. However, as recorded by the AO at para 5.4 of the assessment order dated 9.02.2016 the assessee filed before him the purchase invoices of the specified parties, copies of the bank statement evidencing payments made through proper banking channels by issuing account payee cheques in respect of all the parties, highlighting the relevant entries, chart showing the details of purchases of the alleged parties, quantitative tally in respect of the entire purchases from the above named parties and the corresponding sales. The AO at least could have verified the payments through banks in respect of the purchases as the assessee had filed those details. The AO has not done so. In view of the above facts, we are of the considered view that the decision of the Hon’ble Bombay High Court in the case of M/s Mohommad Haji Adam & Co. (supra) has relevance to the present case. In that case, during the course of survey operations in the case of entities from whom the assessee had claimed to have made purchases, the Department collected information suggesting that such purchases were not genuine. The AO noticed that the assessee had shown purchases of fabrics worth Rs.29.41 lakhs from three group concerns, namely M/s Manoj Mills, M/s Astha Silk Industries and M/s Shri Ram Sales and Synthetics. On the basis of statement recorded during such Monjiram D. Patel 7 & 5367/Mum/2018 survey operations, the AO concluded that the selling parties were engaged only in supplying the bogus bills, that the goods in question were never supplied to the assessee, and therefore, the purchases were bogus. He, therefore, added the entire sum in the hands of the assessee as its additional income. The assessee carried the matter in appeal before the CIT(A), who accepted the factum of purchases being bogus. However, he compared the purchases and sales statements of the assessee and observed that the Department had accepted the sale, and therefore, there was no reason to reject the purchases, because without purchases there cannot be sales. He, therefore, held that under these circumstances the AO was not correct in adding the entire amount of purchases as the assessee’s income. He, therefore, deleted the addition refreshing it to 10% of the purchase amount. He also directed the AO to make addition to the extent of difference between the gross profit rate as per the books of accounts on undisputed purchases and gross profit on sales relating to the purchases made from the said three parties. The assessee carried the matter before the Tribunal. The Revenue also carried the issue before the Tribunal. The Tribunal allowed the appeal of the assessee partly and dismissed that of the Revenue. The Tribunal noted that the CIT(A) had not given any reasons for retaining 10% of the purchases by way of ad-hoc additions. The Tribunal, therefore, deleted such additions, but retained the portion of the order of the CIT(A) to that extent he permitted the AO to tax the assessee on the basis of difference in the GP rates. In further appeal before the Hon’ble Bombay High Court, the Revenue referred to the decision of the Division Bench of the Hon’ble Gujarat High Court in the case of N.K. Industries Ltd. v. DCIT in Monjiram D. Patel 8 & 5367/Mum/2018 Tax Appeal No. 240 of 2003 and connected appeals decided on 20.06.2016 and also pointed out that the SLP against such decision was dismissed by the Hon’ble Supreme Court. The Hon’ble Bombay High Court held : “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 coming 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 to the extent of bringing the G.P. 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 (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 as the question regarding addition of Rs.3,70,78,125/- as gross profit on sales 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 Financial Year 1997-98 is concerned, we are of the view that the assessee cannot 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 Monjiram D. Patel 9 & 5367/Mum/2018 and tax cannot be levied on the same price. We have to reduce the selling price accordingly as a 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 it fit to direct the revenue to add Rs.20,98,621.88 as gross profit and make necessary deductions accordingly. Accordingly, the said question is answered partially in favour of the assessee and partially in favour of the revenue.” We find that the facts in the instant case are similar to the above decision. Following the same, we set aside the order of the Ld. CIT(A) and direct the AO to restrict the additions limited to the extent of bringing the G.P. rate on disputed purchases at the same rate of other genuine purchases. We direct the assessee to file the relevant documents/evidence before the AO. Needless to say, the AO would give reasonable opportunity of being heard to the assessee before finalizing the order.
Facts being identical, our decision for the AY 2010-11 applies mutatis mutandis to AY 2011-12.