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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SHRI SHAMIM YAHYA, AM & SHRI AMARJIT SINGH, JM
O R D E R
PER AMARJIT SINGH, JM:
The revenue has filed the present appeal against the order dated 24.11.2017 passed by the Commissioner of Income Tax (Appeals) -37, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y.2010- 11.
The revenue has raised the following grounds: - “
1. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the 12.5% of alleged purchases of Rs.4,18,65 330/ - amounting to Rs.52,33,166/-and restricting the A.Y.2010-11 addition to 2% e alleged purchases of Rs.4,65,330/- amounting to Rs.8,37,307/-. 2. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in not considering the facts that the appellant has failed to establish genuineness of transaction. Therefore, the A.O. has disallowed 12.5% of alleged purchase i.e. Rs.52,33,166/- and added to the total income of the assessee." 3. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in not considering the facts that in this case, it is found that the assessee cannot substantiate its correct book result shown by producing the quantitative details of consumption of materials. It is further noticed that the parties from whom the assessee has claimed to have made purchases could not be identified and their address have been found to be bogus. Hence, the purchases could not be verified." 4. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred not considering the facts that in this case, O/o DGIT(Inv.) have also made efforts to identify the bogus purchases and the parties who are issuing bogus bills. The names of all the above purchases in whose case notices u/s 133(6) have been returned back and have been reported to be bogus and giving bogus bills. This proves that the purchases from these parties are not genuine and books of accounts of the assessee are not correct. Hence, no alternative was left but to reject the book result shown by the assessee and estimate the gross profit." 5. "The appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored." 6. "The appellant craves leave to amend or to alter any ground or add a new ground, which may be necessary".
3. The brief facts of the case are that the assessee filed its return of income on 30.09.2010 declaring total income to the tune of Rs.10,10,089/-. The return was processed u/s 143(1) of the I.T. Act, 1961. Thereafter, the case of the assessee was reopened after recording the reasons. Notice u/s 148 of the Act was issued and served upon the assessee on 20.02.2015. Notices u/s 143(2) and 142(1) of the Act were issued and served upon the 2 A.Y.2010-11 assessee. The following reasons have been recorded for reopening the assessment u/s 148 of the Act.:-
“ Information has been received from the DGIT(Inv.), Mumbai relating to providing bogus purchase entries received from the Sales Tax Department, Government of Maharashtra. The name of the assessee is appearing in the said list and has taken entries from the following parties during the F.Y. 2009-10 relevant to A.Y. 2010-11:
Hawala Tin Name of the PAN F.Y Amount hawala purchase party 27880639276V Padmalaxmi AAECP4310M 2009-10 12,581,580 Steel and Alloys Pvt. Ltd. 27430732692V Macos Iron and AAGCM1142A 2009-10 4,205,694 Steel Pvt. Ltd 27720732387V Ceeport Irom & AADCC7117N 2009-10 1,889,052 Stel Pvt. Ltd. 27382389873V Om Traders AADPM9807E 2009-10 23,189,004 Total 4,18,65,330 Since there is reason to believe that the income to the extent of Rs.4,18,65,330/- chargeable to tax in the case of the assessee for the A.Y. 2010-11 has escaped taxation, the assessment is reopened u/s 147 of the I.T. Act, 1961 to bring to tax the income which has escaped assessment.”
The assessee was a firm doing the business of reselling of steel sheets and plates. After the reply of the assessee, the AO restricted the bogus purchase in sum of Rs.4,18,65,330/- to the extent of 12.5%. The addition was raised in sum of Rs.52,33,166/-. The total income of the assessee was assessed to the tune of Rs.62,43,260/-. Feeling aggrieved, the 3 A.Y.2010-11 assessee filed an appeal before the CIT(A) who restricted the addition to the extent of 2% of the bogus purchase. Feeling aggrieved, the revenue has filed the present appeal before us.
ISSUE NOS. 1 to 4:-
We have heard the argument advanced by the Ld. Representative of the parties and perused the record. The Ld. Representative of the revenue has argued that the assessee has failed to prove the bogus purchase as genuine but the CIT(A) has restricted the addition to the extent of 2% which is not justifiable, hence, the finding of the CIT(A) is wrong against law and facts and is liable to be set aside. However, on the other hand, the Ld. Representative of the assessee has strongly relied upon the order passed by the CIT(A) in question. Before going further, we deemed it necessary to advert the finding of the CIT(A) on record: - “5.6 The AO had made the addition as some of the suppliers were declared hawala dealers by the VAT Department. This may be a good reason for making further investigation but the AO did not make any further investigation and merely completed the assessment on suspicion. Once the assessee has brought on record the details of payments by account payee cheque, it was incumbent on the AO to have verified the payment details from the bank of the assessee and also from the bank of the suppliers to verify whether there was any immediate cash withdrawal from their account. No such exercise has been done or findings recorded. There was no detailed investigation made by the AO himself. It is also found that the payments have been made by account payee cheque which are duly reflected in the bank statement of the assessee. There is no evidence to show that the assessee has received cash book from the suppliers. Merely because the suppliers did not file some confirmation and documents, one cannot conclude that the purchases were not made by the assessee. To this extent I am in view with the appellant, if appellant has fulfilled its onus making the payment by cheque and has supplied the addresses of the sellers then it cannot be presumed that supplier were bogus simply because the sellers were not found at the given address. There is a considerable time gap between 4 A.Y.2010-11 the period of purchase transaction and period of scrutiny proceedings. The AO has not brought any material on record to show that there is suppression of sales. It is basic rule of accountancy as well as of taxation laws that profit from business cannot be ascertained without deducting cost of purchase from sales. During the appellate proceedings, appellant has stated that the appellant has filed appeal before the Hon'ble ITAT in the A.Y.200910 on similar issue. The Hon'ble ITAT has restricted the addition to the extent of 2% of alleged bogus purchase vide dated 15-11-2017. The relevant part of decision are as under:- From the record, we found that after finding that suppliers were suspicious, AU estimated profit of 12.5% with respect to such alleged purchases and added the some in assessee s income. It is clear from the order of the A U that he has accepted the corresponding sales and was only disputing profit element on such purchases. The CIT(A) has confirmed the action of the AO estimating profit at 12.5% by relying on the decision of Gujarat High Court in the case of Simit P Seth 256 ITR 451. It was argued by learned AR that in the case of Simit P Seth estimation of profit of 12.5% by the High Court was made on the plea that rate of VAT was 10% in Gujarat and additional 2.5% profit was estimated However, in the State of Maharashtra, where assessee carries on its business, the VAT is 4%, therefore, in place of 10%, 4% should be taken into account. It was contended that tax amount on account of VAT was also recovered from the assessee thereby leaving no benefit of VAT We also found that assesse has already declared GP of 3.9% on the sales so made during the year. Therefore, keeping in view the totality of facts and circumstances of the case vis-à-vis nature of assessee 's business, GP offered by the assesse and also rate of VAT prevailing in Maharashtra, having been recovered from assessee, we direct the addition to the extent of 2% of such purchases. 5.7 After considering the totality of facts, rival submissions, the applicable law and on the basis of discussion mentioned above, I find force in the argument of the appellant. The A.O. has disallowed the amount of Rs.52,33,166/- on account of bogus purchases. The total purchase debited to the trading account from these parties are Rs.4,18,65,330/-. The A.O. has disallowed 12.5% of alleged purchases of Rs.4,18,65,330/-. Considering the totality of the facts before me, as well as decision the Hon'ble ITAT, Mumbai in the appellant's case on similar 5 A.Y.2010-11