ASHOK INDUSTRIAL CORPORATION,MUMBAI vs. ITO 19(2)(1), MUMBAI

O R D E R

PER AMARJIT SINGH, JM:

I. On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeal) erred in (a) arriving at the conclusion that purchases made of Rs. 1,02,87,771/- from parties mentioned in assessment order are not genuine and not made from them but from other sources. (b) Confirming estimation of profit element 12.5% on alleged non genuine purchases of Rs. 1,02,87,771/- which is over and above the gross profit declared @7.24% in books of accounts. (b) Confirming addition of Rs.12,85,971/- made by the Assessing Officer to the total income of the appellant.

2. The CIT (A) failed to appreciate that the AO did not carry out any independent enquiry himself and did not point out any defect in the evidence furnished by the Appellant. Therefore, the addition is liable to be deleted.

3. The CIT (A) failed to appreciate that the AO had not provided the Appellant any material on which he placed his reliance in making the impugned addition thereby violating the principles of natural justice. The CII' (A) ought to have provided such material to the Appellant before adjudicating on the impugned addition. Therefore, the addition is not justified.

4. The appellant crave leave to add, amend, alter and / or vary any of the grounds of appeal before or at the time of hearing.”

4. The brief facts of the case are that the assessee filed its return of income on 14.10.2010 declaring total income to the tune of Rs.98380/- for the A.Y.2010-11. The return was processed u/s 143(1) of the I.T. Act, 1961. The case of the assessee was reopened on the basis of information received from the DGIT (Inv.), Mumbai in which it was conveyed that the & 4710/M/2018 A.Y. 2011-12 & 2010-11 assessee has taken the bogus entry of purchase in sum of Rs.1,02,87,771/- from the following 22 parties.

Name of the Party Amount M/s. Raj Deep Metal 328186 M/s. Redrose Steel P. Ltd. 425467 M/s. Rishika Metal Sales P. Ltd. 413293 M/s. Nimesh Steel P. Ltd. 644535 M/s. K.V. Trading Co. 280059 M/s. Kankguru Tubes & Metal P. Ltd. 711664 M/s. Prakash Steel Metal 612393 m/s. Ridhi Sales Corporation 433777 M/s. Sunrise Enterprises 557118 M/s. Chair Impex Trading P. Ltd. 323856 M/s. Alok Trading Co. 523764 M/s. Goodluck Impex India 132940 M/s. Deeplok Metal alloy P. Ltd. 506542 M/s. RK Steel & Marcantile P. ltd. 559875 M/s. Radius Alloys Pvt. Ltd. 383681 M/s. Harshil Ferromer P. Ltd. 400256 M/s. Suraj Steel India 688246 M/s. Excel Industrial Corporation 560431 M/s. Jagdish Enterprises 110479 M/s. Ujwal Enterprises 837585 M/s. Aniket Industries 403644 M/s. Shalaka International 395980 Total 10287771 & 4710/M/2018 A.Y. 2011-12 & 2010-11 5. After the reply of the assessee, the AO restricted the addition to the extent of 12.5% of the bogus purchase i.e. to the tune of Rs.12,85,971/-. Feeling aggrieved, the assessee filed an appeal before the CIT(A) who confirmed the addition to the extent of 12.5% of the bogus purchase, therefore, the assessee has filed the present appeal before us.

6. We have heard the argument advanced by the Ld. Representative of the parties and perused the record. At the very outset, the Ld. Representative of the assessee has argued that the case of the assessee has duly been covered by the decision of Hon’ble ITAT in the assessee’s own case for the A.Y.2009-10 in dated 12.05.2017, therefore, the addition is liable to be restricted to the extent of 2% of alleged bogus purchase. However, on the other hand, the Ld. Representative of the Department has refuted the said contentions. The copy of order dated 12.05.2017 in the assessee’s own case for the A.Y.2009-10 in ITA. No.647/M/2017 is on the file and relevant finding is hereby reproduced as under: - “3. It was argued by learned AR Mr. Shashank Dundu that merely on the information received from DGIT(Inv.), regarding the Sales Tax Department finding Hawala dealers involved in bogus transactions, AO made an addition of Rs.23,64,585.6/- @12.5% of the total alleged Bogus Purchases amounting to Rs.1,89,16,685/-, to the total income of the Assessee. He invited our attention to the copies of the purchase bills filed before the AO. As per learned AR, the stock Register also shows recording of all the purchases in the regular books of accounts. Copies of sales bills have also not been doubted by the AO and CIT(A). 4. My attention was also invited by learned AR to the bank statement evidencing the payments through Account Payee Cheques. Attention was also invited to the ledger copies of purchase parties in assessee’s books. Challenging the reopening, it was contended by learned AR that AO had not provided any reason or further information w.r.t. making the addition. The information from the Sales Tax Department is the sole ITA No. 4709 & 4710/M/2018 A.Y. 2011-12 & 2010-11 basis for the addition. AO had not called the parties for enquiry, hence the burden of proof lies on the AO.

8. Relying on the decision of Bombay Tribunal in case of Shri Rajeev G. Kalathil in learned AR contended that addition on the ground that one of the suppliers was declared a hawala dealers by the VAT Department was not justified. It is a good starting point for making further investigation and take it to a logical end, but the AO left the Job at the initial point itself. Suspicion of the highest degree cannot take place of evidence.

ITA No. 4709 & 4710/M/2018 A.Y. 2011-12 & 2010-11 12. I have considered rival contentions and carefully gone through the orders of the authorities below and found from record that in respect of alleged bogus purchases AO estimated profit at 12.5%. By the impugned order, CIT(A) restricted the addition to the extent of 6.5%. I found that since sales are accepted, the purchases cannot be rejected solely based on the information from sales tax department. Purchases cannot be added once sales are accepted and the books of accounts are not rejected. (ITO v. Shri Deepak Popatlal Gala ITATMumbai). In view of the decision of Bombay High Court in case of Nikunj Eximp Enterprises Pvt. Ltd., 216 Taxman 171 where Sales are supported by purchases and payment was made through banks, merely because suppliers had not appeared before the AO, purchases could not be rejected as bogus.

ITA. Nos. 4709/M/2018