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Income Tax Appellate Tribunal, MUMBAI BENCHES “SMC”, MUMBAI
Before: SHRI G. MANJUNATHA (AM) & SHRI RAM LAL NEGI (JM)
O R D E R PER RAM LAL NEGI, JM These appeals have been filed by the assessee against the two orders dated 29.06.2018 passed by the Commissioner of Income Tax (Appeals)-26 (for short ‘the CIT(A), Mumbai, for the assessment years 2010-11 and 2011-12 respectively, whereby the Ld. CIT(A) has dismissed the appeals filed by the assessee against the assessment orders passed u/s 143 (3) r.w.s 147 of the Income Tax Act, 1961 (for short the ‘Act’). Brief facts of the case are that the assessee a trader/retailer in various hardware tools and equipments used in plants and machinery, had filed its return of income for the assessment year under consideration declaring total income of Rs. 3,30,436/-. Subsequently, in the year 2016 the AO received information from sales tax department Maharashtra through DGIT (Investigation) to the effect that the assessee during the year relevant to the Assessment Years: 2010-11 and 2011-12 assessment year under consideration obtained bogus purchase bills amounting to Rs. 3,35,995/- from six parties, whose were listed as hawala parties by the sales tax department, without purchasing goods from them. On the basis of the said information, the AO reopened the assessment u/s 147 of the Act after issuing notice u/s 148 of the Act. Thereafter, the AO issued notices u/s 143 (2) and 142(1) of the Act. In response thereof the assessee submitted the details and contended that it had made genuine purchases from the said parties. In order to verify the genuineness of transactions, AO issued notice to the parties concerned u/s 133(6) of the Act. However, the notices were received back un- served. The AO rejected the claim of the assessee treated the purchases as bogus and added the said amount to the income of the assessee and determined the total income of the assessee at Rs.6,66,390/-. In the first appeal, the Ld. CIT(A) dismissed the assessee’s appeal and confirmed the addition made by the AO. Against the said findings, the assessee is in appeal before the Tribunal.
2. The assessee has challenged the impugned order passed by the Ld. CIT (A) on the following effective grounds:- 1. “On the facts and in the circumstances of the case, the learned CIT (A) has failed to consider that the books of accounts which were not rejected by the AO and ignored the submissions and details produced by the assessee, in dismissing the appeal and confirming the addition made by the AO in the reassessment order.
2. On the facts and in the circumstances of the case, the learned CIT (A) failed to consider the alternative submissions of the assessee that only the profit element @ 12.5% in those alleged hawala transactions.”
The Ld. counsel for the assessee submitted before us that since the AO had made addition of the total amount of alleged bogus purchases without taking into consideration the submissions made by the assessee in the light of the documentary evidence produced by the assessee to prove the genuineness of the purchases in question, the Ld. CIT(A) ought to have deleted the addition. Assessment Years: 2010-11 and 2011-12 The Ld. counsel further pointed out that AO has not rejected the sales made by the assessee but, rejected the purchases ignoring that there cannot be any sale without purchases. The assessee apart from the details of the whereabouts of the parties, has furnished the copies of invoices, payment details and statement of bank account before the authorities below in order to establish the genuineness of transaction of purchases. The Ld. counsel further pointed out the assessee in order to buy peace and avoid litigation made an alternative submission before the Ld. CIT(A) to make addition of 12.5% based on gross profit ratio, which was also no taken to consideration. The Ld. counsel further submitted that in view of the aforesaid facts, the addition may be deleted or in alternative addition may be restricted to 12.5% of the total amount of bogus purchases.
On the other hand, the Ld. departmental representative (DR) relying on the concurrent findings of the authorities below submitted that since the assessee has failed to discharge the onus of proving genuineness of the transaction, the Ld. CIT(A) has rightly dismissed the appeal of the assessee and confirmed the addition made by the AO. The Ld DR further submitted that the findings of the Ld. DR are based on the evidence on record and in accordance with the provisions of law, therefore the appeal of the assessee deserves dismissal being devoid of any merit. 5. We have heard the rival submissions of the parties and carefully gone through the relevant material on record in the light of the contentions of the parties. We are convinced from the material on record that the assessee has failed to establish the genuineness of the purchases in question by adducing cogent and convincing evidence. The notices issued by the AO were received back un-served. The assessee also failed to produce the parties before the AO for verification. Hence, in our considered view, the AO has rightly concluded that the assessee has not made the questioned purchases from the parties mentioned in the books of account of the assessee. However, the AO has not rejected the sale of the goods so purchased. The above-mentioned facts give rise to the conclusion that the assessee had purchased the goods in question Assessment Years: 2010-11 and 2011-12 from grey market and evaded the tax applicable during the relevant period. Under these circumstances, the AO had no option but to make an addition on estimation basis considering the applicable rate of VAT or other taxes and the profit embedded in the said transaction. But, he instead of doing so, made addition of the entire amount in question to the income of the assessee. In the first appeal, the Ld. CIT(A) affirmed the findings of the AO.
The Ld CIT(A) has confirmed the addition mainly on the ground that the assessee has failed to discharge his onus of proving the genuineness of the purchases made from the six hawala parties . The Hon’ble Gujarat High Court in the case CIT vs. Simit P. Seth 356 ITR 451(Guj), while dealing with the similar issue, has upheld the decision of the Tribunal and sustained the addition 12.5% of the total amount of bogus purchases determined by the Tribunal, holding that only profit element embedded in such purchases can be added to income of the assessee. Hence, in our considered view, the order passed by the Ld. CIT(A) is not based on the principles of law laid down by the Hon’ble Gujarat High Court in the said case. Moreover, in the present case the assessee had made an alternative submission to make addition of 12.5% of the total amount of bogus purchases determined by the AO, we are of the considered view that the findings of the Ld. CIT(A) are not sustainable in law as 100% addition is not justified in the light of the ratio of law laid down by the Hon’ble Gujarat High Court discussed above. Hence, we find merit in the assessee’s appeal. Accordingly, we set aside the order of the Ld. CIT (A) and partly allow the appeal and direct the AO to make addition of 12.5% of the total amount of questioned purchases. The facts and the issues involved in the present case are identical to the facts and the issues involved in assessee’s own case pertaining to the assessment year 2010-11 aforesaid except the amount of bogus purchases and the No. of parties from whom the assessee had obtained bogus purchase bills during the year relevant to the assessment year under consideration. Hence, Assessment Years: 2010-11 and 2011-12 we do not consider it necessary to state the facts of the case. In this case also, the AO made addition of the total amount of bogus purchases i.e, Rs. 1,81,501/- to the income of the assessee and the addition was confirmed by the first appellate authority. Against the said order, the assessee is in appeal before the Tribunal.
2. The assessee has challenged the impugned order passed by the Ld. CIT (A) on the following effective grounds:- 1. “On the facts and in the circumstances of the case, the learned CIT (A) has failed to consider that the books of accounts which were not rejected by the AO and ignored the submissions and details produced by the assessee, in dismissing the appeal and confirming the addition made by the AO in the reassessment order.
On the facts and in the circumstances of the case, the learned CIT (A) failed to consider the alternative submissions of the assessee that only the profit element @ 12.5% in those alleged hawala transactions”.