SHIVAJI ANDHALE,MUMBAI vs ITO 28 (3)(2), MUMBAI

Income Tax Appellate Tribunal, “SMC”, BENCH MUMBAI

Before: SHRI MAHAVIR SINGH & SHRI G. MANJUNATHA

Hearing: 15/10/2019Pronounced: 15/10/2019

Date of Hearing 15/10/2019 Date of Pronouncement 15/10/2019 आदेश आदेश / O R D E R आदेश आदेश PER BENCH:

This appeal filed by the assessee is directed against, the order of the Ld. Commissioner of Income Tax (Appeals)–26, Mumbai, dated 12/06/2018 and it pertains to Assessment Year 2010-11.

2. The assessee has raised the following grounds of appeal:- The appellant company is aggrieved by the impugned order passed by Ld.CIT(A)-26, Mumbai confirming addition in returned income by estimating 12.5% of alleged bogus purchases amounting to Rs.8,16,935/- made vide assessment order dated 30/11/2015 passed by ITO 28(3}(2). Mumbai.

BECAUSE, on the facts and circumstances of case, assessment order dated 30/11/2015 based on which impugned order has been passed,

itself has no legs to stand in eyes of law, nugatory and without jurisdiction. WITHOUT PREJUDICE TO ABOVE GROUND APPELLANT RAISING GROUNDS MENTIONED HEREUNDER:-

BECAUSE, on the facts and circumstances of case, impugned order is void-ab-initio since same has been passed without providing plausible opportunity of being heard and thereby violating of principle of sudi alterm partem and natural justice.

3. BECAUSE, lower authorities failed to perceive that appellant has dutiful right to produce confirmation of parties which must be relied on before drawing any conclusion in the instant matter. 4 BECAUSE, it's a trite [aw that lower authorities are estopped from taking cognizance of alleged information received from Safes Tax Department, when appellant is in appeal before said department, which is pending disposal. Whereas addition amounting to Ra 8,16.935/- is made solely on said alleged information. 5. BECAUSE, assessment order and consequent first appellate order pa disrespecting the various judgments delivered by jurisdictional Hon’ble High Court and Hon’ble Mumbai ITAT Particularly in case of ACIT-25(2), MUMBAI VERSUS SHRl MAHESH K. SHAH 2017 (2) TMJ 108 - I MUMBAI, Hence the appeal. The Appellant Company craves to leave, add alter, modify or / and delete any of the above ground

The brief facts of the case are that the assessee is an individual engaged in the business of trading in building materials, filed his return of income for AY 2010-11, declaring total income of Rs. 1198,870/-. 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 suppres 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. 65,35,482/-. 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 30/11/2015 and determined total income of Rs. 20,65,810/-, after making additions towards alleged bogus purchase @ 12.50% of total purchases from those parties and made additions of Rs. 8,16,935/-.

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 5.2 on pages 4 to 6 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 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) confirmed addition made by the AO towards 12.50% profit on alleged bogus purchases. The relevant findings of the Ld.CIT(A) are as under:-

5.3 I have considered the facts of the case and the appellant's submissions. As per the investigations carried out by the Sales Tax Authorities, Ins above mentioned 6 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 notice u/s 133(6) to the parties which was returned un-served by the postal authorities. This fact was communicated to the appellant who was asked to produce the parties along with evidences to verify the genuineness of the transactions which the appellant failed to do. 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 that payment by cheque by itself is not sacrosanct So as to prove genuineness of purchases when the surrounding feels are suspect However, the appellant has shown onward sales of the goods purchased which has not been doubled 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 parties in the grey market at lower rates and purchases were shown as being made from the impugned parties to suppress its profits. In such & 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 AO has estimated the profit element embedded in the impugned purchases @ 12 5% which is reasonable and not excessive. In view of the decision of the Hon'ble Gujarat High Court (supra), since the AO has added only the profit element and not the entire purchases. I find no reason to interfere with the addition made by the AO and the same is sustained. The appellant's alternate submission that this profit element may be estimated on purchases of Rs.46,57,425 as against Rs.65,35,432/- taken by the AO Is not tenable as I have decided in Ground Nos, 1 and 2 that till such lime the quantum of purchases made by the appellant from the 6 parties as per his revised sales lax return Is decided by the Sales Tax Authorities, the existing reported amount of Rs. 65,35,482/- will have to be treated as the amount of purchases made by the appellant from the 6 parties. The appellant's grounds of appeal are dismissed,

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 @ 12.50% 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.

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 12.50% profit and the ld. CIT(A) has confirmed 12.50% profit on total alleged bogus purchase. Although, both authorities have taken 12.50% 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.

However, the assesee has disputed the amount of alleged bogus purchases considered by the Ld. AO, on the basis of information received from Sales Tax Department, Maharashtra, on the ground that although, information stated that total purchase from alleged hawala dealers is at Rs. 65,35,482/-, but as per his books of account, the purchase from those parties is only at Rs. 46,57,425/-. The assessee, further claims that in spite of producing necessary evidences, the Ld. AO has considered purchases as per information received from Sales Tax Department to make additions towards profit on alleged bogus purchases. We find that there is no clarity, in respect of purchase claims to have made from alleged hawala dealers. The assesee claims purchase from those parties is at Rs. 46,57,425/-, whereas the information received from authorities states that purchase from those parties is at Rs. 65,35,482/-. Therefore, we are of the considered view that the issue needs to go back to the file of the AO for the purpose of verification of facts with regard to total purchase from above parties and hence, we set aside the issue to the file of the AO and direct him to redo the assessment, in light of claim of the assessee that purchase from those parties is only at Rs. 46,57,425/-.

In the result, appeal filed by the assessee is allowed for statistical purposes.

Order pronounced in the open court on this 15/10/2019

SHIVAJI ANDHALE,MUMBAI vs. ITO 28 (3)(2), MUMBAI