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Per Pawan Singh, Judicial Member :
1. These two appeals by assessee are directed against the order of CIT(A)-24, Mumbai dated 28-02-2017 and 31-05-2017 for assessment years (AY) 2009-10 and 2010-11, respectively. In both the appeals, the assessee has raised identical grounds of appeal; facts in both the appeals are also almost identical except variation in figures of disallowance on account of bogus purchases.
Therefore, with the consent of parties, both the appeals were clubbed, heard together and are decided by this common order.
For appreciation of facts, the appeal for AY 2009-10 is treated as lead case. The assessee has raised the following grounds of appeal:-
The delay in filing of present appeal may kindly be condoned and appeal may be decided accordingly.
2 ITA 1818 & 1819/Mum/2018
On facts and circumstances of the case and in law, the Hon'ble CIT [A] has erred in confirming the disallowance of 20% of so- called bogus purchases.” 2. The brief facts of the case are that the assessee is engaged in the business of manufacturing of chemical process equipments, filed its return of income for AY 2009-10 on 24-09-2009 declaring total income of Rs.27,15,269 which was processed u/s 143(1) of the Income Tax Act (Act) on 25-05-2011. Subsequently, on the basis of information received by Director General Investigation of Income tax (DGIT), from Sales-tax department Government of Maharashtra the certain traders were indulging in providing accommodation entries of sales and purchases invoices without actual delivery of goods. The list of such hawala dealers was sent to the (DGIT) (investigation), wherein the assessee was shown as one of the beneficiary of certain purchases. On the basis of such information the assessment of the assessee for AY 2009-10 was reopened u/s 147 of the Act, by issuing notice u/s 148. In response to the notice under section 148 the assessee contended that return filed under section 139(1) be treated as return in response to the said notice. In the re-assessment proceedings, the assessing officer noticed that the assessee has shown bogus purchases from following parties for the amounts shown against each:
1) Bright Corporation Rs. 8,840 2) Kameshwar Trading Pvt Ltd Rs. 21,53,948 3) Mehta Enterprises / Sweta
3 ITA 1818 & 1819/Mum/2018
Enterprises Rs. 14,960 4) Naman Enterprises Rs. 2,288 5) Sheetal Trading Co. Rs. 1,575 6) Trichipuram Trading Pvt Ltd Rs. 21,95,768 7) Victor Traders Rs. 52,942 Total Rs. 44,30,321 3. The assessing officer further noticed that these hawala parties were indulged in issuing of only bills and not delivering any goods, not maintaining any stock and not keeping stock register, not effecting any purchases; there was no transaction of goods; and entries were being provided for commission.
The assessee was asked to prove the purchases shown to have been made from these hawala parties. The assessee submitted that purchases shown from these parties were not bogus purchases; that the goods purchased from these parties were sold to the customers; that payments were made through account payee cheques and that they received amount for the corresponding sales through account payee cheques. The assessee vide reply dated 22-03-2016, furnished statement along with the purchase bills and ledgers reflecting the purchases and the bank statement showing payments to the said purchase parties. The assessee further stated that out of the above purchases, the major purchase was made from M/s Shree Ganesh Trading Company, payments were made during the year and the balance payment of M/s Shree Ganesh Trading Company was made in FY 2010-11.
However, the assessee expressed its inability to produce the 4 ITA 1818 & 1819/Mum/2018 parties for confirmation. The explanations of the assessee did not find favour with the assessing officer. According to him, except for purchase invoice, statement of purchases and bank statement, the assessee failed to furnish corroborative evidences, viz. delivery challans, transportation details, etc. to substantiate the claim of purchases from aforesaid parties. No documentary evidences establishing the receipt of goods purported to have been purchased from the aforesaid parties were produced by the assessee. The AO concluded that the assessee has furnished copies of bank statements and has tried to substantiate that the purchases made were genuine as the payments have been made through banking channel. The AO further concluded that the payment through banking channel does not give certificate to the assessee that the purchases were from genuine parties. Further with regard to the contention of the assessee that goods came into the business of the assessee and were consumed in manufacturing Carbon and Graphite which have been subsequently shown in sales, the assessing officer observed that the assessee has not produced transportation bill or delivery challans or any confirmations from the alleged purchasers but has produced some goods receipts notes in support of their claim of receipt of goods. The assessing officer has also concluded that before the sales-tax authorities the hawala parties have clearly stated that they have not done any business activities and were involved merely in providing
5 ITA 1818 & 1819/Mum/2018 accommodation entries, though on record they showed themselves as traders in the particular items shown in the invoices raised.
However, the AO accepted that that the assessee has shown sales against the consumption of goods purchases. Therefore, AO considering the overall facts and circumstances of the case concluded that the assessee has intentionally inflated the value of purchase by taking accommodation bills to reduce the gross profit and thereby reduced the taxable income and thus, even if the purchase of goods was considered to be good, the value shown by the assessee was not accepted. The AO concluded that by showing purchases the assessee suppressed profit. Therefore, the assessing officer made estimated disallowance of 20% of aggregate of purchases of Rs.44,30,321/-. The AO worked out disallowance of Rs.8,86,064/- and added to the total income for the assessment year 2009-10.
On appeal before ld CIT(A) the action of AO in reopening as well as disallowance on account of bogus purchase on estimate basis was upheld. Further aggrieved, the assessee is in appeal before the Tribunal.
We have heard the submission of learned authorised representative (AR) of the assessee and the learned departmental representative (DR) for the revenue and perused the material available on record.
The learned AR of the assessee submits that there is delay of 232 days in filing the present appeal. The order impugned in the appeal
6 ITA 1818 & 1819/Mum/2018 was passed by ld CIT(A) on 28th February 2017, the appeal was filed before the tribunal on 20th March 2018, therefore, there is a delay of 232 days in filing the present appeal. In support of condonation of delay the assessee has filed the affidavit of Mr Sudheer Saxena. The learned AR of the assessee submits that the due to wrong belief that the Chartered Accountant (CA) of assessee may have filed appeal before the Tribunal, the delay occurred in filing the appeal. However, soon after coming to know that his CA has not file appeal, the assessee immediately filed this appeal. The assessee came about non-filing of appeal, when the revenue started the recovery of the tax. On coming to know about the fact that no appeal in time is filed, the assessee immediately filed the appeal before the tribunal. There was no intentional or deliberate act for causing delay in filing the appeal. The delay may be condoned and the appeal of the assessee may be heard and decide on the merit and that the assessee has good case on merit.
On merit the learned AR the assessee submits that the purchases made from those parties are not bogus. The purchases made from these parties were consumed in manufacturing and were sold in the market. The assessee made the payment of all purchase through banking channel. The assessing officer has not rejected the books of account nor disputed the consumption and sales of assessee. The assessing officer disallowed 20% of the purchases on account of suppressed profit on ad-hock basis. The learned
7 ITA 1818 & 1819/Mum/2018 Commissioner (Appeals) confirmed the action of assessing officer by following the decision of Hon’ble Gujarat High Court in case of Smith P. Sheth (356 ITR 451). The learned AR further submits that once the AO accepted the consumption and sales of the assessee, no disallowances were warranted. In without prejudice and in alternative the ld AR for the assessee submits that the ad-hock disallowance of 20% of the alleged bogus purchases is excessive, however, to end the litigation the Tribunal may considering the facts of the case may reasonably disallowed some percentage of the impugned/ alleged bogus purchases.
On the other hand the learned DR for the revenue supported the order of lower authorities. The learned DR for the revenue further submits that not only the Sales tax Department of Government of Maharashtra but Investigation wing of Income tax Department made full-fledged investigation about the modus operandi of Hawala traders who were indulging in providing the bogus bill without actual delivery of material. The assessee is one of the beneficiaries who have availed such accommodation entries. The assessee is manufacturer and obtained the bogus bill to inflate the profit. The learned DR for the revenue further submits that the assessing officer has given sufficient relief to the assessee and that the assessee is not entitled for any further relief. The learned DR for the revenue prayed for dismissal of the appeal. On the condonation of delay the ld DR submits that the assessee has not 8 ITA 1818 & 1819/Mum/2018 shown sufficient cause and the affidavit of the assessee is self serving and no cognizance of the affidavit may be taken.
We have considered the rival submission of the parties and perused the material of available on record. We have noted that the present appeal is filed beyond prescribed period of limitation.
The assessee has filed application for condoning of delay which is supported by the affidavit of Sudheer Saxena. In the affidavit it is contended that he came to know about non-filing of appeal when recovery proceedings were initiated by revenue. It is further stated that he was under the impression that their C.A. has already filed appeal before the Tribunal. On coming to know that no appeal is filed before the Tribunal, the assessee immediately filed the present appeal. We have noted that the approach of assessee is very casual in filing appeal before the Tribunal. However, keeping in view the cause shown by assessee and the fact that in non-filing of appeal before the Tribunal in time, the assessee would not get any benefit rather the assessee has suffered as recovery proceeding were initiated. Considering the submission of the learned AR of the assessee and the contents of affidavit of Sudheer Saxena the delay in filing of the present appeal has not benefited the assessee, hence the delay in filing of the appeal is condone.
We have also considered the submission of the parties on merit and perused the material available on record. We have noted that in the re-assessment order the assessing officer disallowed 20% of 9 ITA 1818 & 1819/Mum/2018 the bogus purchases by taking view that the assessee is one of the beneficiaries of the accommodation bills. The assessee by availing accommodation bills has inflated the value of purchase. The assessing officer by following the decision of Gujarat High Court in Bholanath Poly Fab (supra) took the view that reasonable percentage of disputed but purchases would be sufficient to avoid the revenue leakage. The learned Commissioner (Appeals) also confirmed the action of assessing officer on similar lines. Before us the learned AR of the assessee vehemently submitted that the purchase shown by assessee were genuine. The assessee had furnished sufficient evidence to prove the genuineness of purchase.
The learned AR submitted that, though, the assessing officer has restricted the disallowance at the rate of 20% of the alleged bogus purchases; however the same is on very higher side. We have noted that the AO accepted that that the assessee has shown sales against the consumption of goods purchases. Considering the fact and circumstances of the case and submissions of the ld. AR for the assessee that to avoid the further litigation a reasonable percentage may be disallowed by the Tribunal. Therefore, in our view to avoid the revenue leakage on the alleged bogus purchases, if 5% of the bogus purchases is disallowed that would meet the end of justice. Therefore, we direct the AO to restrict the disallowance of the bogus purchases accordingly. In the result the ground No. 2 of the appeal is partly allowed.
10 ITA 1818 & 1819/Mum/2018
In the result appeal of the assessee is partly allowed.
I.T.A. No. 1819/Mum/2018 for AY 2010-11
In the appeal for assessment year 2010-11, the assessee has raised identical grounds of appeal as raised in appeal for AY 2009- 10 in . The facts in the appeal under consideration are also similar except variation of figure of disallowance on account of bogus purchases. The appeal for the year is also filed after prescribed period of limitation. The assessee has shown similar cause for condonation of delay. Considering the facts that we have condoned the delay in filing of appeal for AY 2009-10, hence, the delay is condoned in this appeal as well with similar observation. On merit we have seen that the has raised identical grounds as raised in appeal for earlier year. The facts and circumstances being pari materia, the decision arrived at therein shall apply mutatis mutandis to this appeal also.
In the result, both the appeals filed by the assessee are partly allowed.
Order pronounced in the open court on 07-08-2019.