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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
Before: Shri Shamim Yahya (AM) & Shri Pawan Singh (JM)
O R D E R Per Pawan Singh, JM : 1. These two appeals by assessee are directed against the separate orders of ld. CIT(A)-30, Mumbai dated 08.08.2018 for Assessment Year 2009-10 and dated 30-07-2018 for AY 2010-11. In both the appeals, the assessee has raised identical grounds of appeal except variation of figure. Facts for all the Assessment Years are identical except variation of alleged bogus purchases and disallowances thereof @ 12.5% of such purchases. Therefore, both the appeals were clubbed, heard together and are decided by common order. For appreciation of facts, appeal for Assessment Year 2009-10 was 2 ITAs 5403 & 5404/Mum/2018 treated as lead case. In appeal for Assessment Year 2009-10, the assessee has raised the following grounds of appeal: 1 On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeal) erred in (a) arriving at the conclusion that purchases made of Rs. 1,47,04,183/- from parties mentioned in assessment order are not genuine and not made from them but from other sources (b) estimating rate of profit at 12.5% on alleged bogus purchases over and above gross profit declared of 4.32% by the appellant on such purchases.. (c) confirming addition of Rs. 1838022/- made by the Assessing Officer to the total income of the appellant.
2. On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals) failed to appreciate that (a) Proceeding initiated under section 147 7148 of the Act is on the basis of reason to suspect and not on reason to believe. (b) There is no new tangible material in possession of the Assessing Officer which justify issuance of notice u/s 148 of the Act (c) The initiation of proceeding under section 147 of the Act and issuance of notice under section 148 is bad in law and contrary to the provisions of the Act and liable to be cancelled / annulled
3. On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals) erred in confirming order made under section 143(3) rws 147 of the Act by the learned Assessing Officer which is illegal, bad-in-law, ultra vires and without allowing reasonable opportunity of the hearing, without appreciating the facts, submission and evidences in their proper perspective, without providing copies of material used against the appellant and without providing cross examination of parties is liable to be annulled.
4. The learned assessing officer erred in charging interest under section 234A, 234B, 234C and 234D of the Act.”
2. Brief facts of the case are that the assessee filed return of income for AY 2009-10 on 29-09-2009 declaring total income at Rs.4,65,946/-. The return of income was processed under section 143(1). The assessment was re-opened under section 147 on the basis of information received from Sale Tax Department, Government of Maharashtra that certain hawala operators are 3 ITAs 5403 & 5404/Mum/2018 indulging in providing accommodation bills without actual delivery of goods. The Sale Tax Department, Government of Maharashtra referred the list of such hawala dealers and the beneficiary to the DGIT (Investigation), Mumbai. The name of assessee appeared in the list of beneficiary. The assessee allegedly made the purchases of Rs. 1,47,04,183 /- from such hawala dealers. On the basis of information, the Assessing Officer made a belief that the income of the assessee escaped assessment, therefore, re-opened the assessment under section 147. Notice under section 148 dated 08- 03-2014 was issued and served upon the assessee. Reasons recorded were supplied to the assessee. The Assessing Officer after serving notice under section 143(2) dated 23.12.2014 proceeded for re- assessment. During the assessment, the Assessing Officer noted that the assessee has shown purchases from the following parties, which was declared as hawala dealers by the Sale Tax Department, Government of Maharashtra.
Bill amount Name of the parties (Rs.) 1 N B Enterprises 2,07,963 2 Paras Steel India 3,11,929 3 Shakti Trading Co 4,95,542 4 Reliant Metal Corp 14,03,099
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5. Ashok Metal 11,39,636 6. Padmavati Metal 145,38,792 7. Raj Star Metal 12,49,049 8. Prime Steel Impex 12,65,765 9. Asian Metal Inds 21,23,890 10. Anand Impex 4,67,534 11. Mahaveer Metal Corp 12,05,391 12. B R Corporation 2,09,040 13. Jindutt Corporation 4,42,943 14. Vandna Metal Syndicate 5,22,273 15. Avinash Enterprises 6,32,665 16. Apsara Enterprises 15,88,672 Total 1,47,04, 183
The assessee was asked to substantiate the purchases and issued show-cause notice as to why the aforesaid transaction should not be treated as non-genuine. The assessee filed its explanation and furnished the copy of ledger account and proof of payment through cheques. The Assessing Officer not accepted the explanation furnished by assessee and noted that the assessee has not produced Lorry Receipt, Transportation Details etc. The Assessing Officer rejected the books of account. The Assessing Officer after considering the material available before him and the submission made by assessee concluded that the assessee was in possession of 5 ITAs 5403 & 5404/Mum/2018 goods and has shown the sale against the purchases. The sale is not possible without purchases. The Assessing Officer concluded that the assessee may have purchased goods from other suppliers without bills, which is commonly known as grey market and the assessee is beneficiary of margin of grey market. The Assessing Officer on his abovesaid observation disallowed 12.5% of the aggregate of total of non-genuine/alleged hawala purchases in assessment order dated 14.03.2016 passed under section 143(3) r.w.s 147.
On appeal before the ld. CIT(A), the action of Assessing Officer was sustained. Further, aggrieved by the order of ld. CIT(A), the assessee has filed the present appeal before us.
We have heard the submission of ld. Authorized Representative (AR) of the assessee and ld. Departmental Representative (DR) for the revenue and perused the material available on record. The ld. AR of the assessee submits that the assessee furnished complete details of purchases and the sales made against the alleged bogus purchases. The Assessing Officer has rejected the books of account without mentioning specific reasons. The Assessing Officer made the disallowance of 12.5% of the alleged bogus purchases. The ld.
6 ITAs 5403 & 5404/Mum/2018 AR of the assessee further submits that assessee has already shown Gross Profit (GP) at 4.32%. The addition sustained on account of alleged bogus purchases is on higher side. The ld. AR of the assessee further submits that after addition sustained by ld. CIT(A), the GP of assessee would rise substantially which is extremely high.
The ld. AR of the assessee further submits that the Hon’ble Bombay High Court in a recent decision on similar set of fact in PCIT vs. M Haji Adam & Co. in of 2016 dated 11.02.2019 held that addition in respect of bogus purchases is to be limited to the extent of bringing the GP rate on such purchase at the same rate as on other genuine purchases. The ld. AR of the assessee submits that the disallowance of alleged bogus purchase may be restricted in accordance with the decision of Hon’ble jurisdictional High Court in PCIT vs. M Haji Adam & Co. (supra).
On the other hand, the ld. Departmental Representative (DR) for the revenue supported the order of lower authorities. The ld. DR further submits that Investigation Wing of Income-tax Department has made full-fledged investigation in respect of hawala traders. The hawala traders were/are engaged in providing bogus bill without actual delivery of goods. The assessee has shown bogus purchases
7 ITAs 5403 & 5404/Mum/2018 only to inflate the profit. The ld. DR for the revenue submits that the Assessing Officer has given sufficient relief. The Assessing Officer has reasonably estimated the disallowances. The assessee is not entitled for any further relief.
We have considered the submissions of both the representatives and perused the record. A short issue for our adjudication is whether the disallowance of alleged bogus purchase @ 12.5% is reasonable or not. The ld. AR of the assessee has vehemently relied upon the decision of Hon’ble jurisdictional High Court in M Haji Adam & Co.(supra). We have noted that on similar set of fact, the Hon’ble Bombay High Court in PCIT vs. M Haji Adam & Co. (supra) held that addition in respect of bogus purchase be limited to the extent of bringing the GP rate on bogus purchase at the same rate as other genuine purchases. We have further noted that the assessee has shown GP of 4.32%. It was argued that the GP percentage after addition of 12.5% would be on higher side, which is not possible in the business of assessee. Therefore, considering the fact of the present case and the nature of business activities of the assessee and by following the decision of Hon’ble Bombay High Court, we direct the Assessing Officer to restrict the addition with regard to 8 ITAs 5403 & 5404/Mum/2018 bogus purchases by brining the GP rate on such purchases at the same rate as that of other genuine purchases. Needles to order that before making addition, the Assessing Officer shall grant opportunity to the assessee before passing the order in accordance with law. In the result the e ground No. 1 of the appeal is partly allowed. 9. Ground No. 2 relates to validity of reopening and ground No.3 relates to denial of opportunity. The ld AR for the assessee not argued on these grounds of appeal
therefore, both the grounds of appeal are treated as not pressed and thereby dismissed. A.Y. 2010-11
10. As we have noted above, the assessee has raised the identical grounds of appeal as raised in appeal for Assessment Year 2009-10. The disallowances made by Assessing Officer on account of alleged bogus purchases are also similar except the fact that parties/alleged hawala dealers are different. Considering our order for Assessment Year 2010-11 on similar ground, the appeals for the year under consideration are also allowed with similar direction.
11. In the result, appeal of the assessee is partly allowed.
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