RATIONAL ART & PRESS P. LTD,MUMBAI vs. DCIT CEN CIR 8(1), MUMBAI

Date of Hearing 02/12/2019 Date of Pronouncement 02/12/2019 आदेश आदेश / O R D E R आदेश आदेश PER G.MANJUNATHA (A.M):

This appeal filed by the assessee is directed against, the order of the Ld. Commissioner of Income Tax (Appeals)–50, Mumbai, dated 24/08/2018 and it pertains to Assessment Year 2009-10.

1. The learned CIT(A) erred in confirming order of A.O. disallowing alleged bogus purchases of Rs. 5,07,507/- made from M/s. Jigna Enterprises without appreciating that the purchases were genuine and consideration was paid through banking channels and Assessee furnished copy of invoices, goods receipt note and also gave quantitative / consumption details and hence disallowance of purchases of Rs. 5,07,507/- may be deleted,

2. The learned CIT(A) erred in confirming order of A.O. disallowing alleged bogus purchases of Rs. 5,07,507/- made from M/s. Jigna Enterprises without appreciating the learned A.O. has not furnished copy of statement of M/s. Jigna Enterprises and no opportunity of cross- examination is afforded to the Assessee and thus there is violation of principles of natural justice and hence disallowance of purchases of Rs. 5.07,507/- may be deleted.

3. Without prejudice to above entire disallowance of purchases of Rs. 5,07,507/- is bad in law.

3. The brief facts of the case are that the assessee company is engaged in the business of manufacturing, trading & exports of Tobacco Products, filed its return of income for AY 2009-10 on 29/04/2008, declaring total income of Rs. 4,65,70,740/-. The assessment has been completed u/s 143(3) r.w.s. 153A of the Act, on 31/12/2010, determining total income at Rs. 12,48,70,740/-. 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. As per list of beneficiaries, the assessee is one of the beneficiary, who had taken accommodation bills of bogus purchases from M/s Jigna Enterprises as listed by the AO in his assessment order amounting to Rs. 5,07,507/-. 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 31/12/2014 and determined total income of Rs. 12,53,87,180/-, after making 100% additions towards alleged bogus purchase from M/s Jigna Enterprises and made additions of Rs. 5,07,507/-.

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 9 on page 6 to 8 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, by following the decision of Hon’ble Supreme Court, in the case of NK Proteins Ltd. in SLP 759 of 2017 dated 16-01-2017, confirmed addition made towards alleged bogus purchases. The relevant findings of the Ld.CIT(A) are as under:-

10.0 I have considered the facts of the case, submissions of the appellant, the observations of the AO contained in die assessment order and the other materials on record on this issue. 10.1 The facts are that the AO has made addition on account of purchases made from M/s. Jigna Enterprises amounting to Rs.507507/-. The A.O has in the assessment order relied on the information received from the Sales Tax that the appellant has obtained accommodation purchase bill from an entity listed on the sales tax website and declared as hawala dealer by the Sales Tax Department, Mumbai. 10.2 I have taken note of the fact that the A.O. has in order to verify the genuineness of the purchases, issued notice u/s 133(6) of the Act to M/s. Jigna Enterprises on 06.12.2013. But no response was received by the A.O. from the said party. The appellant has also failed to produce the said party for verification and hence, failed to discharge the burden which lies on It of proving the purchases. 10.3 The Appellant has not filed any transportation bills, challans, material inward receipts etc. to prove that the goods have actually been received by the Appellant. Thus, the factum of goods being physically received by the Appellant is not proved. Further, the appellant has also not filed .any consumption details for the goods purchased from M/s. Jigna Enterprises. In the absence of any details like stock register, consumption register etc., being produced for verification, the utilization / consumption of such goods is also in serious doubt. In these circumstances, it is dear that the purchase bills have gone to reduce the taxable profits. 10.4 In this regard, reliance is placed ON the decision of Hon'ble Supreme Court in the case of NK Proteins Ltd. in SLP 759 of 201,r dated I6-01-2017,Wherein it was held hat once it is proved that the purchases are bogus, then the addition should be made for the entire purchases and not for profit element embedded hi such purchases. Particularly, in the present case at hand, the appellant has failed to provide any evidence to show that goods have actually been received and actually been consumed 10.5 In view of these facts and circumstances, the action of the A.O in the bogus purchases claimed in the P&L A/c is upheld. Hence, the ground No. 1 of the present appeal is dismissed.

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 carrying 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, in a situation where purchase is made from alleged hawala dealers, 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, which was confirmed by the ld. CIT (A). Although, both authorities have considered 100% addition towards alleged bogus purchase, but no one could support said addition 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 view that a reasonable profit on alleged bogus purchases would meet ends of justice. Hence, we direct the AO to estimate 12.50% profit on alleged bogus purchases.

Order pronounced in the open court on this 02/12/2019