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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SRI MAHAVIR SINGH
AadoSa / O R D E R महावीर स ुंह, न्याययक दस्य/ PER MAHAVIR SINGH, JM:
This appeal of the assessee is arising out of the order of Commissioner of Income Tax (Appeals)-2, Mumbai [in short CIT(A)], in Appeal No. PN/CIT(A)-2/ITO WD-3(1)/THN/105/2017-18, THN/ CIT(A)- 2/ITO WD-3(1)/THN/191/2014-15 vide order dated 08.01.2018. The Assessment was framed by the Income Tax Officer, Ward 3(1), Thane (in short ‘ITO/ AO’) for the A.Y. 2009-10 vide order dated 18.03.2014 under 2 section 143 read with section 147 of the Income Tax Act, 1961 (hereinafter ‘the Act’).
The first issue in this appeal of assessee is against the order of CIT(A) confirming the disallowance made by AO off non-genuine and bogus purchases. For this assessee has raised the following ground No. II: - “II. Addition of ₹ 9,51,296/- as Bogus Purchases.
2. The learned CIT (A) erred in confirming the addition of Rs.9,51,296/- was made on the basis of information received from Sales tax department treating the purchases as bogus, without appreciating that the Appellant had submitted explanation during assessment proceedings, thus the addition of Rs.9,51,296/- may be deleted.
The Learned CIT(A) failed to appreciate that all the payments were made to the purchase party through banking channels. Therefore, addition of Rs.9.51,296/- may be deleted.
Without prejudice to the above, when the sales are accepted as genuine then purchases of the Appellant cannot be said to be as bogus purchase, merely on some alleged information received from sales tax department, therefore addition may be deleted.”
3 3. Briefly stated facts are that the assessee is engaged in the business of manufacturing and fabrication. The AO received information from DGIT (Investigation), who in turn received information from Sales Tax Department, Mumbai that the assessee has made purchases from hawala parties, as listed in hawala dealers by the Maharashtra Sales Tax Department who are providing bogus bills of purchase amounting to Rs.9,51,296/- as admitted by these hawala dealers in their deposition before the authorities. The same reads as under: - Name Amount Purav Enterprise 431618 Deep Enterprises 410504 KRC Trading Co. Pvt. 109174 Ltd. Total 951296 4. During the course of assessment proceedings and during appellate proceedings, the assessee submitted documentary evidences such as payment received against such sales, receipt of material purchases, account payee cheque. According to the AO, the assessee failed to establish the genuineness of the purchase and accordingly, he made addition of the whole amount of unproved purchase to the returned income of the assessee. Aggrieved, assessee preferred the appeal before CIT(A), who confirmed the action of the AO by observing in paras 4.9 and 4.10 by observing as under:
4.9 In the above case, Hon'ble ITAT had given the finding that entire purchases were claimed in the P& L account on the basis of fictitious invoices. The finding was based on seized materials and other documents. Hon’ble ITAT had confirmed only 25% of the purchases as disallowable and not 100% as made by the AU. Hon'ble Court in view of these facts held that 4 once the entire purchases were found to be bogus then restricting the disallowance only to the extent of 25% goes against the principle of Section 69C of the IT Act. It is further noticed that SLP filed against the decision of Hon'ble High Court was dismissed by the Hon’ble Supreme Court in CC No. 769/2017 vide order dated 16.01.2017. 4.10 In the light of the aforesaid discussion on the facts of the case, I find no merit in the arguments taken on behalf of the appellant. On the face of adverse finding by the Sales Tax Department with regard to the alleged suppliers which were further corroborated during the assessment proceedings, it is held that the appellant was involved in hawala transaction to the extent of purchases of Rs. 9,51,296/-. The appellant just procured accommodation bills without any actual transaction and therefore the addition made by the Assessing Officer is confirmed. The grounds raised are accordingly dismissed.'
I have considered the issue and gone through the facts and circumstances of the case. I find from the facts of the case and argument of both the sides. The CIT(A) has confirmed the action made by the AO by applying whole amount of bogus purchases to the return of income of the assessee. I noted from the facts of the case that the Revenue has not disputed that the assessee has not carried out any sales out of the bogus purchases made by assessee from grey market. Hence, I am of the view that only a reasonable profit can be estimated. Going by the nature of the 5 business and fact that the assessee’s profit rate has already been included in the sales made out of bogus purchases, the profit rate at the rate of 8% can be estimated of the bogus purchases. Hence, I direct the AO to re-compute the income after applying profit rate at the rate of 8% of the bogus purchases and compute the income accordingly. The issue of assessee’s appeal is partly allowed.
The next issue in this appeal is as regards to the adhoc disallowance of expenses of Rs.1,25,122/- being 20% of the expenses of Rs. 6,25,610/-. For this assessee has raised the following ground No. III: - “III. 20% Adhoc disallowance of expenditure of ₹ 1,25,122/-
5. The learned CIT (A) erred in confirming 20% adhoc disallowance of Rs.1,25,122/- without appreciating that the Appellant had incurred said expenditure for the business. hence the same be allowed.”
I have heard the rival contentions and gone through the facts and circumstances of the case. I noted that the assessee has claimed expenses of Rs. 6,25,610/-. The AO disallowed the 20 % of the expenses to ₹ 1,25,122/- on adhoc basis for not submitting documents / evidences for proof of expenses. Aggrieved, assessee preferred the appeal before CIT(A), who also confirmed the action of the AO. Now, aggrieved is in second appeal before Tribunal.