MAFATLAL H. BOTHRA HUF,MUMBAI vs. ITO 19(2)(3), MUMBAI

The present appeals filed by the assessee are directed against the respective orders passed by the CIT(A)-29, Mumbai, dated 15.06.2018, which in turn arises from the respective assessment orders passed by the A.O under Sec. 143(3) r.w.s 147 of the Income Tax Act, 1961 (for short „Act‟) for A.Y. 2009-10 and A.Y. 2010-11, respectively. As common issues are involved in the aforementioned appeals, therefore, the same are being taken up and disposed off together by way of a consolidated order. We shall first advert to the appeal of the assessee for A.Y. 2009-10. The assessee has assailed the impugned order on the following grounds of appeal before us:

On the basis of information received from the office of DGIT (Inv.) Wing, Mumbai, that as per the details received from the Sales Tax Department, the assessee was found to be one of the beneficiary who had obtained bogus purchase bills from certain hawala parties, its case was reopened under Sec.147 of the Act. In the course of the assessment proceedings, it was observed by the A.O that the assessee had claimed to have made purchases from the following two tainted parties:

Aggrieved, the assessee carried the matter in appeal before the CIT(A). However, the CIT(A) not finding favour with the contentions advanced by the assessee upheld the view taken by the A.O and dismissed the appeal.

The assessee being aggrieved with the order passed by the CIT(A) has carried the matter in appeal before us. At the very outset of the hearing of the appeal, it was submitted by the ld. Authorized Representative (for short „A.R‟) for the assessee, that the addition as regards the value of the unsubstantiated purchases claimed by the assessee to have been made from the aforementioned parties was liable to be restricted to the extent of the profit rate of the assessee, insofar its regular trading transactions were concerned. In support of its aforesaid contention the ld. A.R had relied on the order of the Hon‟ble High Court of Bombay in the case of Pr. CIT-17 Vs. M/s Mohhomad Hazi Adam & Co. (ITA No.1004 of 2016, dated 11.02.2019). Accordingly, it was submitted by the ld. A.R, that the addition insofar the bogus/unproved P a g e | 4 & 5365/Mum/2018 AYs.2009-10 & 2010-11 Mafatlal H. Bothra HUF Vs. I.T.O-19(2)(3) purchases were concerned, the same was liable to be made to the extent of bringing the GP rate of such purchases at the same rate as that of the other genuine purchases which were booked by the assessee in its regular „books of accounts‟.

Per contra, the ld. Departmental Representative (for short „D.R‟) relied on the orders of the lower authorities. It was submitted by the ld. D.R, that as the assessee had failed to substantiate the authenticity of the purchase transactions under consideration, therefore, the A.O had in all fairness, considering the fact that the corresponding purchase were also duly accounted for in the regular books of accounts of the assessee, had already restricted the addition to the extent of 12.5% of the aggregate value of such purchases. It was thus averred by the ld. D.R, that as the appeal filed by the assessee was devoid and bereft of any merit ,therefore, the same did not merit acceptance and was liable to be dismissed.

We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record, and also the judicial pronouncements relied upon by them. Admittedly, there is no dispute on the fact that the assessee had failed to substantiate the genuineness and veracity of the purchases which were claimed to have been made from the aforementioned parties. The only issue which has been assailed by the assessee before us is as regards the quantification of the profit element involved in making of such unsubstantiated purchases by the assessee from the undisclosed sources. Insofar the quantification of such profit element is concerned, we find, that the Hon’ble High Court of Bombay in its recent judgement in the case of Pr. Commissioner of Income Tax-17 Vs. M/s Mohhomad Haji Adam & Company (ITA No. 1004 of 2016, dated 11.02.2019) while upholding the order of the Tribunal, had observed, that the addition in the hands of the assessee as regards the bogus/unproved purchases was to be made to the extent of bringing the G.P rate of such purchases at the same rate as that of the other genuine purchases. The Hon‟ble High Court while concluding as hereinabove, had observed as under: “8. In the present case, as noted above, the assessee was a t r a d e r o f f a b r i c s . T h e A O f o u n d t h r e e e n t i t i e s w h o w e r e 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 P a g e | 5 & 5365/Mum/2018 AYs.2009-10 & 2010-11 Mafatlal H. Bothra HUF Vs. I.T.O-19(2)(3) between the purchases shown by the assessee and the sale 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 trade. 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 Ltd.(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 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.20,98,62 1.88 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.”

In these circumstances, no question of law, therefore, arises. All Income Tax Appeals are dismissed, accordingly. No order at costs.” Accordingly, the Hon‟ble jurisdictional High Court had observed, that the addition in respect of purchases which were found to be bogus in the case of the assessee before them, who was a trader, was to be worked out by bringing the G.P. rate of such bogus purchases at the same rate of other genuine purchases. We thus respectfully following the aforesaid judgment of the Hon‟ble High Court, direct the A.O to restrict the addition insofar the bogus/unproved purchases aggregating to Rs.82,65,015/- in the case before us are concerned, by bringing the G.P. rate on the amount of such bogus purchases at the same rate as that of its other genuine purchases. Needless to say, the assessee in the course of the set aside proceedings shall furnish the requisite details before the A.O, who shall after making necessary verifications restrict the additions in terms of our aforesaid observations. The order passed by the CIT(A) is set aside and the matter is restored to the file of the A.O to give effect to our aforesaid directions.

The appeal of the assessee is allowed for statistical purposes. A.Y.2010-11 9. We shall now take up the appeal of the assessee for A.Y. 2010-11. The assessee has assailed the order of the CIT(A) on the following grounds of appeal before us:

That the Id.C.I.T.(Appeals) has erred in confirming the disallowance of Rs.1,54,791/- being 12.5% of the purchases of trading goods from the alleged suspicious hawala dealers of Rs. 12,38,328/- without properly appreciating the facts of the case and law. That both the appeal grounds are independent grounds & without prejudice to each other. That the appellant craves the leave to amend, alter, substitute and or to raise new or additional grounds of appeal at the time of hearing.”

Briefly stated, the assessee had filed its return of income for A.Y. 2010-11 on 10.09.2010, declaring its total income at Rs.5,88,953/-. The return of income filed by the assessee was processed as such under Sec.143(1) of the Act. On the basis of information received by the A.O from the office of the DGIT(Inv.), Mumbai, that the assessee as a beneficiary had obtained accommodation purchase bills from certain hawala parties, its case was reopened under Sec.147 of the Act.

In the course of the assessment proceedings, it was observed by the A.O, that the assessee had claimed to have made purchases of Rs.12,38,328/- from a tainted party viz. M/s Anand Deep Metals. As the assessee could not substantiate the authenticity of the purchase transactions to the satisfaction of the A.O, therefore, it was concluded by him that the assessee had not made any genuine purchases from the aforementioned party. At the same time, taking cognizance of the fact, that the sales corresponding to the said purchases had been accounted for by the assessee in its regular books of accounts, therefore, the A.O confined the addition to 12.5% of the aggregate value of purchases of Rs.12,38,328/- (i.e the profit element involved in making of the aforesaid purchases from the open/grey market). On the basis of his aforesaid deliberations, the A.O restricted the addition to the extent of Rs.1,54,791/- (12.5% of Rs.12,38,328/-). 12. Aggrieved, the assessee carried the matter in appeal before the CIT(A). However, the CIT(A) not finding favour with the contentions advanced by the assessee dismissed the appeal. 13. The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. We find that as the facts and the issue involved in the present appeal remain the same as were there before us in the appeal of the assessee for the immediately preceding P a g e | 7 & 5365/Mum/2018 AYs.2009-10 & 2010-11 Mafatlal H. Bothra HUF Vs. I.T.O-19(2)(3) year i.e A.Y. 2009-10 in , therefore, our order therein passed would apply mutatis mutandis for the disposal of the present appeal of the assessee for A.Y. 2010-11. Accordingly, on the basis of our aforesaid observations recorded while disposing off the appeal of the assessee for A.Y. 2009-10, the A.O on the same terms is directed to restrict the additions insofar the bogus/unproved purchases of Rs.12,38,328/- in the case before us are concerned, by bringing the G.P rate on the amount of such bogus purchases at the same rate as that of its other genuine purchases. 14. The appeal of the assessee is allowed for statistical purposes in terms of our aforesaid observations. 15. The appeals of the assessee for A.Y.2009-10 in ITA No.5364/Mum/2018 and A.Y. 2010- 11 in ITA No.5365/Mum/2018 are allowed for statistical purposes in terms of our aforesaid observations. Order pronounced in the open court on 11.10.2019 Sd/- Sd/- (N.K. Pradhan) (Ravish Sood) ACCOUNTANT MEMBER JUDICIAL MEMBER भ ुंफई Mumbai; ददन ुंक 11.10.2019 PS. Rohit आदेशकीप्रतिलऱपिअग्रेपिि/Copy of the Order forwarded to : 1. अऩीर थी/ The Appellant प्रत्मथी/ The Respondent. 2. आमकयआम क्त(अऩीर) / The CIT(A)- 3. 4. आमकयआम क्त/ CIT 5. विब गीमप्रतततनधध, आमकयअऩीरीमअधधकयण, भ ुंफई/ DR, ITAT, Mumbai 6. ग र्डप ईर / Guard file. सत्म वऩतप्रतत //True Copy// आदेशानुसार/ BY ORDER, उि/सहायकिंजीकार (Dy./Asstt. Registrar) आयकरअिीऱीयअधिकरण, भ ुंफई / ITAT, Mumbai.