ITO - 25(3)(4), MUMBAI vs. SONIKA P. SHETTY, MUMBAI

Date of Hearing 16/10/2019 Date of Pronouncement 16/10/2019 आदेश आदेश / O R D E R आदेश आदेश PER G.MANJUNATHA (A.M):

These two appeals filed by the revenue are directed against separate, but identical orders of the Ld. Commissioner of Income Tax (Appeals) -37, Mumbai, both dated 02/07/2018 for the Assessment Years (AY) 2010-11& 2011-12. 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.5509/Mum/2018:- 2. The revenue has raised following grounds of appeal:-

1. "On the facts and 111 the circumstances of the case and in law, the Id. CIT(A) erred in restricting the disallowance @12,5% of the total amount of bogus purchase transaction @ 100% added by the AO in the assessment order. " 2. "On the facts and in the circumstances of the case and in law, the Id. CIT(A) failed to consider the fact that the Hawala Dealers had confirmed on oath before the Sales Tax Department that purchases made by the assesse were without supplying the goods." - 3. "On the facts and in the circumstances of the case and in law, the Id. CIT(A) failed to consider that the assessee has not discharged the onus upon him to prove (he genuineness of the purchase transaction claimed by it. 4. "On the facts and in the circumstances of the case and in law, the Id. CIT(A) failed to appreciate the fact that provisions of section 40A(3) are attracted in the case of assessee and 100% bogus purchase amount is to be disallowed." 5. "On the facts and in the circumstances of the case and in law, the Id. CIT(A) failed to appreciate the fact that the decision of Hon’ble Apex Court in the case of N K Proteins Ltd., Vs DCIT in SLP (Civil) No.769/2017 dated 16-01-2017 has confirmed the 100% addition on this issue." 6. The appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored." 7. "The appellant craves leave to amend or to alter any ground or add a new grounds, which may be necessary,"

3. The brief facts of the case are that, the assessee is an individual derives income from business and profession, filed her return of income on for AY 2011-12 on 15/09/2011, declaring total income of Rs.5,92,600/-. 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. 3,54,016/-. 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 3 & 5509/Mum/2018 Sonika P.Shetty 16/10/2017 and determined total income of Rs. 9,46,620/-, after making 100% additions towards alleged bogus purchase and made additions of Rs. 3,54,016/-.

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 elaborated written submissions, on the issue, which has been reproduced at Para 4 on pages 2 to 5 of Ld.CIT(A) order. The sum and substance of 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 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) has scaled down addition to 12.50% profit on alleged bogus purchases. The relevant findings of the Ld.CIT(A) are as under:-

5.8 The A.O. had made the addition as some of the suppliers were declared hawala dealers by the VAT Department. This may be a good reason for making further investigation but the AO did not make any further Investigation and merely completed the assessment on suspicion. Once the assessee has brought on record the details of payments by account payee cheque, It was incumbent on the AO to have verified the payment details from the bank of the assessee and also from the bank of the suppliers to verify whether there was any immediate cash withdrawal from their account. No such exercise has been done or findings recorded. There was no detailed Investigation made by the AO himself. It is also found that the payments have been made by account payee cheque which are duly reflected in the bank statement of the assessee. There is no evidence to show that the assessee has received cash back from the suppliers. Merely because the suppliers did not filed some confirmation and documents, one cannot conclude that the purchases were not made assessee* This view is supported by the decision of Nikunj Eximp Enterprises vs 216 Taxman 171 (Bom). To this extent I am in view with the appellant, if appellant has fulfilled its onus making the payment by cheque and has supplied the addresses of the sellers then it cannot be 4 & 5509/Mum/2018 Sonika P.Shetty presumed that supplier were bogus simply because the sellers were not found at the given address. There is a considerable time gap between the period of purchase transaction and period of scrutiny proceedings. The AO has not brought any material on record to show that there is suppression of sales. It is basic rule of accountancy as well as of taxation laws that profit from business cannot be ascertained without deducting cost of purchase from sales. Estimation of profit ranging from 12.5% to 15% has been upheld by the Hon'ble Gujarat High Court In the case of CIT vs. Simt P. Sheth 356 TTR 451 (Guj,) depending upon the nature of business. 5.9 Considering the totality of the facts before me, as well as the judicial opinion available, I am inclined to agree with the appellant's stand that the addition is excessive. The A.O. has disallowed the amount of Rs.3,54,016/- on account of bogus purchases. The total purchase debited to the trading account from these parties are Rs.3,54,016/-. I am of the view that estimation of profit at 12.5% would meet the ends of justice. Therefore, I direct the AO to estimate profit of 12.5% on the total purchases in question which works out to Rs. 44,252/- (12.5% of Rs.3,54,016/-). The appellant therefore gets relief of Rs. 3,09,764/- of Rs.3,54,016 minus Rs.44,252/-) , The grounds raised are partly allowed.

5 & 5509/Mum/2018 Sonika P.Shetty 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 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 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 100% profit, whereas the Ld.CIT(A) has scaled down estimation of 6 & 5509/Mum/2018 Sonika P.Shetty profit to 12.50% 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 are of the considered opinion that the ld. CIT(A) has taken one of the possible method for estimation of profit to settle dispute between the parties and hence, we are inclined to uphold order of the ld. CIT(A) and dismiss appeal filed by the Revenue

ITA.No.5508/Mum/2018:-

Order pronounced in the open court on this 16 /10/2019