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Income Tax Appellate Tribunal, MUMBAI BENCH “A”, MUMBAI
Before: SHRI C.N. PRASAD, HONBLE & SHRI MANOJ KUMAR AGGARWAL, HONBLE
2 & 5358/MUM/2017 (A. Y: 2010-11) M/s. Ami Riddhi Chem Pvt. Ltd., O R D E R PER C.N. PRASAD (JM) 1. These two appeals are filed by the Assessee and Revenue against the order of the Learned Commissioner of Income Tax (Appeals)–20, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 12.05.2017 for the A.Y.2010-11 in partly sustaining the addition made towards bogus purchases.
Briefly stated the facts are that, during the assessment proceedings the Assessing Officer noticed that the assessee made purchases from six parties as mentioned in the Assessment Order and these parties were only accommodation entry providers as per Maharashtra Sales Tax Department and therefore the assessee was required to prove the genuineness of the purchases made from them. Assessee produced various evidences to prove that the purchases were genuine. Not convinced with the submissions and evidences furnished by the assessee, the Assessing Officer treated the purchases to the extent of ₹.5.61 Crores as unexplained expenditure.
On appeal the Ld.CIT(A) considering the evidences and various submissions of the assessee estimated the Gross Profit element from 3 & 5358/MUM/2017 (A. Y: 2010-11) M/s. Ami Riddhi Chem Pvt. Ltd., such purchases at 8% following various High Court decisions, against which the Revenue as well as the assessee are in appeal.
Assessee strongly placed reliance on the order of the Ld.CIT(A) and the Ld. DR strongly placed reliance on the order of the Assessing Officer.
We have heard the rival submissions, perused the orders of the authorities below. Considering the evidences furnished by the assessee and the submissions, the Ld.CIT(A) concluded that only the profit element in the purchases have to be considered when the sales have been accepted by the Assessing Officer. He followed the decision of the Hon'ble Gujarat High Court in the case of CIT v. Bholanath Poly Fab Ltd., [355 ITR 290], CIT v. Simit P. Sheth [356 ITR 451], CIT v. Sanjay Oil Cake Industries [316 ITR 274] and various other decisions, while holding so he observed as under: - “5.3. I have gone through the assessment order and submissions made in this regard. I have also gone through the survey report submitted by A.O. along with the remand report. It is noted that the A.O. had made addition out of purchase made by the assessee to the tune of Rs.4,60,40,356/-. The A/R of the assessee has vehemently opposed the additions and submitted that the purchases were genuine, it was also submitted that payment was all made through banking channel and the delivery of materials was supported by delivery challans. It is stated that the A.O. had made addition on the basis of information received from VAT authorities without affording opportunity of cross examination to the assessee. It is noted that the entire matter pertains to hawala purchases from so called suspicious dealers as per the information of VAT authorities. The A.O. has disallowed these purchases as the assessee could not produce these parties for verification. It is noted that primary onus to establish that the purchases were genuine was on the assessee. The assessee is only partly able to discharge the complete onus. It is also noted that A.O. has simply made addition on the basis of statement without much enquiry into the facts of the case. On the other hand assessee has filed copies of bills, bank Statement etc, to establish that purchases were genuine. On the face of these evidences the entire purchases cannot be held to be bogus merely on the basis of a statement of seller who was never cross examined by the assessee. It is also noted that the items purchased were used as part of 4 & 5358/MUM/2017 (A. Y: 2010-11) M/s. Ami Riddhi Chem Pvt. Ltd., assessee's sales which have been accepted by the department. It is noted that under the Income Tax Act only the real income is taxable. In the present case the assessee has not proved the transaction with regard to all the six parties. Moreover the assessee has not proved the delivery and stock regarding the material purchased. It is next a case where it is established that the payment made by assessee was immediately siphoned and returned to appellant. In such a situation, if the assessee would have purchased the goods by investing unaccounted cash by making purchase from gray market and availed the accommodation bill, the addition of entire purchase amount cannot be made. 5.4. It is noted that only profit element is liable to tax in such cases as was held in the case of:- 1. CIT vs. Bholanath Poly Fab Ltd. (2013) 355 ITR 290 (Guj). (HC) 2. CIT v Simit P. Sheth (2013) 356 ITR 451 (Guj) (HC) 3. CIT vs. Sanjay Oil Cake Industries (2009) 316 ITR 274 (Guj) (HC) 4. ITO vs. Permanand (2007) 1.07 TTJ 395 (Jd)(Trib.) 5. Shri Madhukant B. Gandhi vs. ITO ITA No. 1950/M/2009 Bench “B" dt. 23.02.2010 (AY 2005-06) (Mum.)(Trib.) 6. Sanjeev Woolen Millls Vs. CIT (2005) 279 ITR 434 (SC) 5.5. In view of the above discussion, it is seen that the addition made by the AO on account of alleged bogus purchase cannot be sustained fully in appeal. The appellant has effected purchases from hawala dealers in four years from A.Y. 2009-10 to 2012-13 adopting same modus operandi. Therefore profit/loss arising from these transactions gets spread amongst aforesaid four years. Under the circumstances, the peak method as agued by the AR cannot be adopted as reliable for working out the embedded profits in these years. The assessee had claimed that the corresponding sale against the suspected purchase is partly with delivery and partly without delivery. The sale with delivery is neither disputed by A.O, nor DDI However, it is seen from survey report that the sale claimed by appellant without delivery was not confirmed in the course of cross examination of these parties by assessee before DDI as they confirmed having received delivery. Therefore, on facts these sales claimed as without, delivery are to be considered as sale and no set off can be granted to assessee. In number of cases decided by Hon'ble Mumbai tribunal and High court, as discussed above it was held that the addition by way of applying appropriate GP ratio to such unproven purchases meets the end of justice when purchases are made from grey market and same is substantiated by procuring invoices from hawala parties and at the same time corresponding sale is not doubted. The appellant has submitted GP ratio for the years from A.Y. 2013-14 to A.Y. 2016-17 with average GP ratio of 4.57%. The assessee had commenced business from F.Y. relevant to A.Y. 2009-10. Therefore G.P, ratio of first four years where purchases are effected from suspected parties are ignored being erratic. The assessee claimed the reason of lower GP ratio as being wholesale trading of chemicals and industrial raw material where supply is from business to business, and not to ultimate customer resulting in limited margin of profit. The A.O. has accepted the appellant's GP ratio for A.Y. 2013-14 and A.Y. 2014-15 while assessing the income u/s. 143(3). Having regard to facts of the case and submissions made, it would be fair and reasonable if the addition made by the A.O. is restricted to 8% on the alleged bogus purchases being the difference between 12.5% GP as per the various court rulings in such cases and the GP of 4.57% as declared by the appellant in the books, the working of which comes to Rs. 36,83,228/-,. being 8% of impugned purchases of Rs. 4,60,40,356/- for the year. Accordingly, this ground of appeal
is partly allowed.
6. Ground no.2 pertains to the addition of gross profit of ₹.57,55,045/- on non-proven purchases. 6.1. In this regard the A.O. has added an amount of ₹.57,55,045/- on account of undisclosed profit on the purchases as taxable in the hands of assessee by 5 & 5358/MUM/2017 (A. Y: 2010-11) M/s. Ami Riddhi Chem Pvt. Ltd., adopting the disclosed GP @ 12.50% being the suppressed profit equivalent to MVAT rate. 6.2 I have gone through the assessment order, submissions made in this regard and the remand report of the AO. It is noted that the A.O. had made addition of undisclosed profit on the purchases amounting to Rs. 4,60,40,356/- which was found taxable in the hands of assessee by adopting the GP @ 12.50% being the suppressed profit equivalent to MVAT rate. The A/R of the assessee has vehemently opposed the additions and submitted that the all the purchases of the appellant are genuine purchases. The Learned A.O. is grossly in error while stating that the appellant has made purchase from someone else which were regularized by taking bills from entry providers. We would like to submit that this observation of the A.O. is merely on the basis of presumption, surmises and conjecture. At this juncture, we would also like to submit that the Learned A.O. is himself taking the two different views in the same assessment order. The Learned A.O. has disallowed the entire purchases from the said parties by treating the same as Bogus and at the second point he is stating that the appellant had made the purchases from someone else which is regularized by taking bills from entry providers and in the course, the appellant is benefited by 12.50% MVAT and hence the same has been added to the income of the appellant. We would like to submit that since the entire amount of purchases has been disallowed, addition @ 12.50% of such purchases by treating the same as suppressed profit in the form of MVAT will lead to double addition of the same amount, which is not in accordance with the law and hence requires to be deleted. Without prejudice to our above submission of genuineness of purchases, the above proposition itself proves that A.O. has accepted the purchases as genuine and at most addition can be made in that case @ 12.50%. In view of our above submission, we would like your honour to delete the said addition of Rs. 57,55,045/- which is alleged to be undisclosed profit element on purchases from suspicious dealers. It is noted that the entire matter pertains to hawala purchases from so called suspicious dealers as per the information of VAT authorities. The A.O. has disallowed these purchases as the assessee could not produce these parties for verification. It is noted that primary onus to establish that the purchases were genuine was on the assessee. The assessee is only partly able to discharge the complete onus. It is also noted that A.O. has simply made addition on the basis of statement without much enquiry into the facts of the case. On the other hand assessee has filed copies of bills, bank statement etc. to establish that purchases made from creditors were genuine. On the face of these evidences the entire purchases cannot be held to be bogus merely on the basis of a statement of seller who was never cross examined by the assessee. It is also noted that the items purchased were used as assessee's product for sales which have been accepted by the department. It is noted that the addition of GP has been made in para 5.5 above on the issue of bogus purchase. It is noted that there are several decisions available of Hon'ble High Court and Tribunal are available on this issue where the Hon'ble Courts and Tribunals have held that only profit element imbedded in the form of GP in such cases of suspicious purchases is required to be brought to tax and added to the income of the assessee. It is noted that once the GP addition is already made on this issue there is no cause to make any further addition of undisclosed profit on the purchases amounting to Rs. 57,55,045/- by adopting the disclosed GP @ 12.50% being the suppressed profit equivalent to MVAT rate as done by the AO. Having regard to full facts of the case the addition of Rs. 57,55,045/- made by the AO by adopting the GP @ 12.50% being the suppressed profit equivalent to MVAT rate in respect of alleged bogus purchases cannot be sustained in appeal and is directed to be deleted. Accordingly, this ground of appeal is allowed.
6 & 5358/MUM/2017 (A. Y: 2010-11) M/s. Ami Riddhi Chem Pvt. Ltd., 6. We find that the Ld.CIT(A) applied the Gross Profit rate of 8% net of VAT on the purchases of ₹.4,60,40,356/- and in so far as the purchases to the extent of ₹.55,57,045/- Ld.CIT(A) applied Gross Profit rate at 12.5%. On a careful perusal of the order of Ld.CIT(A) and the reasons given therein, we do not find any infirmity in the order passed by the Ld.CIT(A). The Ld. DR also could not point out how the order of the Ld.CIT(A) is wrong. We further find that in assessee’s own case for the A.Y. 2009-10 this Tribunal in ITA.No. 4910/Mum/2017 dated 08.02.2019 dismissed the appeal of the Revenue upholding the action of the Ld.CIT(A) in estimating the profit element in such non-genuine purchases at 8%. Similar view has been taken by the Tribunal for the A.Y. 2011-12 and 2012-13 in ITA.No. 5897 & 5898/Mum/2017 by order dated 01.01.2019. Thus, we sustain the order of the Ld.CIT(A) in estimating the profit element in such purchases and reject the grounds raised by the Revenue as well as the assessee.
In the result, both the appeals are dismissed.