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Income Tax Appellate Tribunal, “SMC” BENCH,
Before: SHRI SHAMIM YAHYA, AM & SHRI AMARJIT SINGH, JM
O R D E R
PER AMARJIT SINGH, JM:
The assessee has filed the present appeal against the order dated 20.04.2018 passed by the Commissioner of Income Tax (Appeals) -3, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y.2010- 11.
The assessee has raised the following grounds: - “I. On the facts and circumstance of the case and in law the Ld CIT(A) erred in confirming the initiation of the reassessment proceeding under section 147.
ITA No. 4773/M/2018 A.Y.2010-11 2. On the facts and circumstances of the case and in law the 1.4 CIT(A) failed to consider that reassessment proceeding cannot be initiated. a) No reassessment can he made just to make an enquiry or verification. b) Reassessment proceeding cannot be initiate merely on the information received from investigation wing. c) Reassessment proceeding cannot be initiated when the LD. CIT(A) have reason to suspect and not reason to believe.
On the facts and circumstances of case and law the IA CITA(A) erred in confirming assessment order under section 143 sub section r w s 147 of income tax Act which is passed against the principal of natural justice.
4. The Ld CIT(A) erred in confirming and rejecting the books of accounts under set 145(3) of the income tax Act.
5. The Ld CIT(A) erred in confirming and treating Rs.7,13,251/ being 12.5% percent of the total purchases by estimating the same as ad-hoc profit of the genuine total purchases Rs.57,05,999/- and thereby treated the same as suspicious purchases and thereby erred adding the same to the total income of the assessee.
The Ld. CIF(A) erred in confirming the charging of interest under section 234A. L 234C and 234D of the Income Tax Act 1961.
The Ld. CIT(Ai erred in confirming the initiation of the penalty proceeding under section 274 r.w.s. 271(1)(c of the Income Tax Act 1961.
The Assessee craves leave to add further grounds on amend or alter the existing grounds of appeal
on or before the date of hearing”.
3. The brief facts of the case are that the assessee filed its return of income declaring total income to the tune of Rs.21,560/- for the A.Y. 2010-
11. The return was processed u/s 143(1) of the I.T. Act, 1961 accepting the returned income. Thereafter an information was received from the DGIT(Inv.) Wing, Mumbai in which it was conveyed that the assessee has A.Y.2010-11 taken the entry of bogus purchase of Rs.57,05,999/- from the following three parties.
Name of the Hawala party/parties FY Amount New Era Enterprises 2009-10 11,09,535 Rishabh Enterprises 2009-10 13,64,743 Kank Guru Tubes & Metals 2009-10 32,31,721 Total 57,05,999 Thereafter, the assessment of the assessee was reopened by issuance of notice u/s 147/148 of the Act. In pursuance of notice, the assessee filed the return of income which he had already filed earlier. Thereafter, the notices u/s 143(2) and 142(1) of the Act were issued and served upon the assessee. The AO raised the addition @ 12.5% of the bogus purchase in sum of Rs.7,13,251/-. The total income of the assessee was assessed to the tune of Rs.7,34,810/-. Feeling aggrieved, the assessee filed an appeal before the CIT(A) who confirmed the addition, therefore, the assessee has filed the present appeal before us.
We have heard the argument advanced by the Ld. Representative of the Department and perused the record. In the instant case, the sale is not doubted. It is settled law that when the sales are not doubted then the100% disallowance for bogus purchase cannot be done. No sale could be done without actual purchases. The proposition is supported by decision of the Jurisdictional High Court in case of Nikunj Eximp Enterprises (in writ petition no 2860 order dated 18.06.2014). The facts and circumstances of the present case, indicate that the assessee purchase from the grey market. Making purchases through the grey market gives the assessee savings on A.Y.2010-11 account of non-payment of tax and others at the expenses of the exchequer. As regards the quantification of the profit element embedded in making of such bogus/unsubstantiated purchases by the assessee. We find that the Hon’ble High Court of Bombay has recently decided the matter of controversy in case of PCIT Vs. M. Haji Adam & Co. (ITA. No. 1004 of 2016 dated 11.02.2019). The relevant para no. 8 is hereby reproduced as under: - “8. In the present case, as noted above, the assessee was a trader of fabrics. The A.O. found three entities who were 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 between the purchases shown by the assessee and the sales declared. That being the position, the Tribunal was correct in coining to the conclusion that the purchases cannot be rejected without disturbing the sales in case of a trader. The Tribunal, therefore, correctly restricted the additions limited to the extent of bringing the G.I. 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 the question regarding addition of Rs.3,70,78,125/- as gross profit on sale 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 F.Y. I997-98 is concerned; we are of the view that the assessee 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 A.Y.2010-11 levied on the same price. We have to reduce the selling price accordingly as result of which profit comes to 5.66%. Therefore, considering 5.66% of Rs.3,70,78,125% which comes to Rs.20,98,621.88 we think if fit to direct the revenue to add Rs.20,98,621.88 as gross profit and made necessary deductions accordingly. Accordingly, the said question is answered partially in favour of the assessee and partially in favour of the revenue.”
In the said judgment, the addition in connection with the bogus purchase was to be limited to the extent of bringing the gross profit rate on such purchases at the same rate as of other genuine purchases. We respectfully following the order of the Hon’ble High Court set aside the finding of the CIT(A) on this issue and restored the issue before the AO to decide the matter of controversy afresh with the direction to the AO to restrict the addition as regards to the bogus purchases by bringing the gross profit rate on such bogus purchases at the same rate as that of the other genuine purchases. Needless to say that an opportunity of being heard is required to be given to the assessee in accordance with law.