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Income Tax Appellate Tribunal, “SMC”, BENCH MUMBAI
Before: SHRI G. MANJUNATHA & SHRI RAM LAL NEGI
Date of Hearing 01/10/2019 Date of Pronouncement 01 /10/2019 आदेश / O R D E R आदेश आदेश आदेश PER G.MANJUNATHA (A.M):
These three appeals filed by the revenue are directed against common order of the Commissioner of Income Tax (Appeals) -3, Nasik, dated 29/062018 and they pertains to Assessment Years (AY) 2009-10, 2010 -11 and 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.
The revenue has more or less filed common grounds of appeal
for all assessment years. Therefore, for the sake of brevity, grounds of appeal filed for AY 2009-10 are reproduced as under:- 1. "Whether on the facts and in the circumstances of the case and in law: the Ld. CIT(A) was justified in not appreciating the law correctly that once the purchases are unverifiable/not genuine/bogus, the same should haw been disallowed in entirety?”.
2. Whether on the facts and in the circumstances of the case and in law, the Ld, CIT(A) has erred in law by not appreciating the fact that the assessee could not establish the genuineness of the purchases from the non-existent vendors?
3. Whether on the (acts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law by not appreciating the fact that the onus lo justify the claim of expenses is on the assessee and the same has tailed to discharge it in relation to the purchases made from the non- existent vendors?
4. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law by ignoring, the fact that the assessee could not substantiate its claim of purchases from non-existent vendors by means of relevant supporting documents related to movement and delivery of goods, stock, register, etc. to arrive at disallowance at 12.5% of the purchases from the non-existent vendors?
5. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in not appreciating the 1a\v correctly that once the purchases are unverifiable / not genuine / bogus, the same should have been disallowed in entirety, particularly in view of the ratio of the decision of the Hon'ble Gujarat High Court in Tax Appeal No.242 of 2003 dated 20/06/2016 in the case of N. K. Proteins Ltd. against which the SLP was dismissed by the Hon'ble Apex Court?.
6. The appellant craves leave to add, amend, alter or delete any ground of appeal.
7. The order of the CIT(A) may be vacated and that of the assessing officer may he restored.
3. The brief facts of the case are that the assessee is engaged in the business of dealing in industrial items, Hardware, Pipe Fittings and Electrical/Rubber Goods, filed his return of income for AY 2009- 10 on 29/09/2009, declaring total income of Rs. 3,03,449/-.
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. 6,34,503/-. 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 19/02/2015 and determined total income of Rs. 9,37,950/-, after making 100% additions towards alleged bogus purchase and made additions of Rs. 6,34,503/-.
Aggrieved by the assessment order, the assessee preferred an appeal before the Ld.CIT(A). Before the Ld.CIT(A), the assessee has reiterated his submissions made before the Ld. AO to argue that purchases from above parties are genuine, which are supported by necessary evidences. The assessee has filed all details, including books of accounts, but the Ld. AO has made additions, only on the ground that parties did not respond, in response to 133(6) notices. The Ld. CIT(A) after considering relevant submissions of the assessee and also by relied upon various judicial precedents, including the decision of Hon’ble Gujarath High Court, in the case of Simith P. Sheth vs CIT 356 ITR 451 scaled down additions made by the Ld. AO to 12.5% of alleged bogus purchases. The relevant findings of the Ld.CIT(A) are reproduced as under:-
I have carefully considered the appellant's submissions, observations of the AO in the assessment order and the facts of the case The appellant had shown purchases amounting to Rs. 6,34,503/- from various parties, which appeared in the list of Sates tax Department who had indulged in Hawala transactions i.e providing only bids without there is being any actual purchase or sale transaction. 7.1. Before the case is discussed, it is important to know the background in which the case of the appellant was selected for scrutiny As per Section 3 of the MVAT Act,2002, every registered dealer, is liable to pay tax on a sale transaction with a purchasing dealer whose turnover of sales or purchases has exceeded rupees five lakh. The selling dealer issues a tax invoice, which shows the amount of lax recovered from the purchasing dealer. The sale made by the selling dealer needs to be accounted in turnover of sales while filing the tax return and pay the due taxes. Further, the purchasing dealer is also entitled to claim by way of a set off under Section 48 the tax paid on his purchases as ITC (Input Tax Credit). The Sales Tax Authorities found that a large number of selling dealers had neither filed their returns nor paid the taxes collected by them from purchasing dealers. The Sales Tax Authorities denied the benefit of set-off of Input Tan Credit to purchasing dealers, who went into appeal before Hon'ble Bombay High Court against the said orders The same was rejected by The Bombay High Court in WRIT PETITION NO 33 OF 2012 in case Of M/S Mahalaxmi Cotton Ginning vs The Slate Of Maharashtra & Ors on 11 May, 2012 and other similar cases In the said appeals, the purchasing dealers took a plea before the High Court that as tie has paid the lax to !he selling dealer he should not be denied the benefit of a set off of laves paid, which is arbitrary. However the Slate government in an affidavit before the court submitted that investigations revealed that there was a existence of large-scale Hawala racket wherein the selling dealers merely issued tax Invoices to the purchasing dealer without any sale of goods The court did not accept the plea of the purchasing Dealer and held that if the set off is allowed to the purchasing dealer though the lax has not been paid actually it would defeat the legitimate interests of the Revenue The Sales Tax Department recovered the Tax from such purchasing dealers. The Sales Tax Department accordingly passed on the information o! such purchasing dealers to the Income Tax Department to verity the purchases made by them.
7.2. In this background, the case of the assesses needs to be examined. The AO was required to examine the veracity of such purchases and to see a) whether the purchases have actually been made or not. b) the end use of such purchases and c) the genuineness of the parties from whom the purchases are made. The assessee submitted copies of the purchase and sale bills and copy of the bank statement showing that he had made the purchases and payments are made by cheque The assessee has also submitted details of corresponding sates against the purchases. It is seen that The only ground for making the addition is that the parties who have made the sales are not traceable and assessee could not produce the parties who have issued bills.
Hence, this is not a case of Bogus purchases but purchases from bogus parties, wherein the bills are taken from hawala dealers and purchases from other parties. The facts of the case are also differentiate from NK Proteins as stated by the assesses. In N K Protiens, It was established mat the assessee had inflated She purchases as during search at the office premises, blank signed cheque books, vouchers, blank bill books, letter heads of various concerns were found and it was established that these concerns were floated by the assesses. Relying upon the of Vijay Proteins 58 ITD 428 Ahmadabad, the ITAT restricted the addition to 25%, whereas Hon'ble Gujarat High Court held mat once the purchases are bogus and fictitious having given only bill entries, the entire purchases should be added, which by confirmed by the Hon'ble Supreme Court by dismissing nu SLP of NKPL on 16.01 .2017.
7 3. From above it is apparent that the ratio of decision of N K, Protein cannot be applied in appellant's case as it is distinguishable on fads It is distinguishable on facts. It is held by Hon’ble Supreme Court that the appellate authorities while applying the decision of the Higher Court should examine the facts of each case i. The decision of the Hon'ble Supreme Court in Padmasundara Rao (Decd.) and Ors. v State of Tamil Nadu. Civil Appeal No 2226 of 1997, order dated 13 03.2002 ii. The Hon’ble Supreme Court in the case of ClT Vs Sun Engineering Works (P) Ltd reported in 198 ITR 297. iii. The Hon’ble I TAT. Mumbai Bench ‘G’ [Tird Member], in the case of M/s. Grindwell Norton Ltd. vs. DCIT [2004] 91 ItD 412 [MUM] [TM] iv. Hon’ble ITAT Mumbai in the case of Kanchan FerroMet order dated 05.06.2017 has discussed judgment of Hon'ble Supreme Court in NK Proteins and held as under.
6 The Learned Counsel of the assessee pleaded that addition in this case be restricted to 12 5% of the bogus purchases as field by the Hon’ble Gujarat High Court in the case of CIT v Simit P.Sheth [{2013) 38 taxmann 385 (Guj.)]
7. Per Contra, learned Departmental Representative referred to the decision of the Hon’ble Gujarat High Court decision in the case of N.K. Industries v DCIT vide order dated 26.06.2016 wherein addition on account of bogus purchase were restricted to 25% by he ITAT. The Hon’ble High Court has upheld the addition of entire bogus purchase on the reasoning that such restriction of bogus claim goes against the principles of sections 68 and 69C of the Income-tax Act, 1961, SLP against the decision was dismissed by Hon’ble Apex Court vide order dated 16.01.2017.
8. upon careful consideration, I find that the Revenue has not disputed the sales it is settled law that when the sales are not disputed, the entire purchases to make the sales cannot be disallowed. It is true that assesses has not at all been able to prove that the purchase from the parties booked on the accounts are genuine. No book and records have been shown. However in the absence of any fidning that tsales are also bogus, the purchases to maek the corresponding sales cannot be held to be completely bogus. This points out to the practice tht assessee ahd made purchases from grey market. Operating in the grey market leads to various savings on account of non-payment of various taxes by use of unaccounted money to the assessee. On a similar situation, Hon’ble Gujarat High Court in the case of Simit P. Sheth (supra) has upheld the disallowance of 12.5% of the bogus purchases. Since the proposition that when sales are not disputed, entire purchases cannot be held to be bogus supported by Hon’ble Jurisdictional High Court decision in Nikunj Exim Enterprises, in my considered opinion, the interest of justice will be served if the addition in the case is restricted to 12.5% of the bogus purchases.
9.It is to be borne in mind that the decision of Hon’ble jurisdictional High Court in the case Nikunj Exim Enterprises where no addition out of the bogus purchases was confirmed, is not fully applicable on the facts of the present case. In the facts of NIkunj Exim Enterprises, the substantial sales were made to government agencies, books were not rejected and stock reconciliation was given. In the present case learned Counsel of the assessee has himself agreed for 12.5% disallowance out of the bogus purchases. It is further noted that dismissal of SLP by a non speaking order does not merge the decision of Hon’ble Gujarat High Court in the case of N.K. Industries with that of Hon’ble Apex Court. 7.4. With regard to the appellant's reliance on various decisions, there are large numbers of cases wherein the appellate authorities have held that it would not be appropriate to consider that purchases were genuine only because the assesse made the payment by cheque and the assesee received bills It is held by various courts that where the assessee could show that he has made the purchases and there are corresponding sales against these purchases, it would be appropriate to tax the possible profit out of purchases made through non-genuine parties. In view of the facts stated above. I am of the considered opinion that the appellant has made purchases of Rs 6,34,503/- in the open market which were sold lo various parties and me bills were taken from the Hawala operators. Further the verification in respect of these parties could not be made and assesses has also paid sales It is not known at price the appellant actually made the purchases from third parties. Under such circumstances the likelihood of the purchases being inflated cannot be ruled out and there is no material lo dislodge such findings In this process the appellant saved on the sales-Tax / VAT and enhanced his profit by manipulating the purchases On similar facts Smith P. Sheth 356 ITR 451. Gujarat, the courts have restricted addition of percentage basis The appellate authorities have also stressed upon the reasonability of the profit shown by the purchaser white making any such disallowance. Keeping the GP of The assesses concern in mind and the facts of the case, it would be appropriate if the addition is restricted to 12.5% of bogus purchases of Rs 6,34,503, amounting to Rs 79, 312/- is disallowed
This addition will be over arid above the profits shown by the appellant in his return of income.
We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. We find that the Ld. AO has made 100% additions towards alleged bogus 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 parties were returned un-served by the postal authorities. Therefore, he came to the conclusion that purchase from the said parties is bogus in nature. It is the contentions of the assessee before the lower authorities that purchases from the above parties 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 both sides and also, material available on record, we find that both the sides have 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 the 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, 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%, whereas the Ld.CIT(A) has scaled down estimation of 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 dismissed appeal filed by the Revenue.
7. In the result, appeal filed by the revenue is dismissed.
ITA.No.5311 & 5312/Mum/2018:
The facts and issues involved in these two appeals are identical to the facts and issues, which we had already considered in ITA.No.5310/Mum/2018. The reasons given by us in preceding paragraph shall mutatis mutandis apply to these appeals also. Therefore, for detailed reasons given in preceding paragraphs, in ITA.No 5310/Mum/2018, we dismissed appeals filed by the revenue.
As a result, all appeals filed by the revenue are dismissed.
Order pronounced in the open court on this 01 /10/2019