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Income Tax Appellate Tribunal, “D” Bench, Mumbai
Before: Shri Shamim Yahya & Shri Ravish Sood
P a g e | 2 & 4704/Mum/2017 AY. 2010-11 Mr. Ramesh Bhurmal Jain Vs. CIT(A)-29 O R D E R
PER RAVISH SOOD, JM
The present cross appeals filed by the assessee and the revenue are directed against the order passed by the CIT(A)-29, Mumbai, dated 24.04.2017, which in turn arises from the order passed by the A.O under Sec.143(3) r.w.s 147 of the Income Tax Act, 1961 (for short ‗Act‘), dated 21.01.2016. The assessee has assailed the order of the CIT(A) by raising the following grounds of appeal before us:
―1. The learned Commissioner of Income- tax (Appeals) —29, Mumbai failed to appreciate that the Income Tax Officer has wrongly added 100% of bogus purchases amounts to Rs. 2,09,88,544/- to the total income of the appellant reduced to 6% only instead of 2% of alleged bogus purchases.
The learned assessing officer has wrongly charged interest under section 234B & 234C of the Income tax Act, 1961.
3. Your appellant reserves the right to add, amend delete or alter any or all the above ground of appeal
each of which without prejudice to the order.‖
2. On the other hand, the revenue has assailed the order of the CIT(A) by raising the following grounds of appeal:
―1. Whether on the facts and in the circumstance of the case and in law, the Ld. CJT('A) has erred in directing AO to restrict the estimation of the profit @ 6% instead of 100% of Rs. 2,09,88,544/- the total non-genuine purchases when the assessee did not discharge the onus to prove that the purchases made from the twenty three parties were genuine and did not produce any delivery challans, transport receipts, goods inward register maintained at goodown etc.
2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is justified in not appreciating the fact that during the investigation made by sales tax department of Maharashtra Government, directors/Prop./Partners of such parties have accepted on oath that they are providing only accommodation entries and not doing any real business, the treatment of such purchases as being genuine does not hold ground? 3. Whether on the facts and in the circumstance of the case and in law, the Ld. CIT(A) has erred in directing AO to restrict the estimation of the profit 6% instead of 100% of the total non- genuine purchases without accepting the fact that on similar issue in the case of N.K Protein Ltd. Vs. DCIT(SLA-CC No. 769 of 2017 dated 16.01.2017), the Hon'ble Supreme Court has confirmed the decision of High Court for addition of entire income on account of bogus purchases.
4. The Appellant prays that the order of the Ld. CIT(A) on the above Grounds be set aside and that of the A.O. be restored.
P a g e | 3 & 4704/Mum/2017 AY. 2010-11 Mr. Ramesh Bhurmal Jain Vs. CIT(A)-29 5. The appellant craves leave to amend or alter or add a new ground which may be necessary.‖
Briefly stated, the assessee who is engaged in the business of trading in ferrous and non-ferrous metals had filed his return of income for A.Y. 2010-11 on 19.09.2010, declaring an income of Rs.3,71,603/-. On the basis of information received from the DGIT (Inv.), Mumbai, which in turn was based on the information received by him from the Sales Tax Department, Maharashtra that the assessee as a beneficiary had obtained bogus purchase bills from certain parties, his case was reopened under Sec.147 of the Act.
During the course of the assessment proceedings, it was observed by the A.O that the assessee had claimed to have made purchases from the following parties:
Sr. No. Name of the Parties F.Y. Amount 1. SURACHI MULTITRADE PRIVATE LIMITED 2009-10 4,21,990 2. SHIVRAJ TRADERS 2009-10 82,025 3. AMBIKA TRADE IMPEX 2009-10 2,02,756 4. DEEPALI ENTERPRISES 2009-10 2,24,370 5. SIDDHIVINAYAK TRADING COMPANY 2009-10 3,04,567 6. STHAPNA TRADE IMPEX PVT. LTD. 2009-10 4,56,670 7. LAXMAN SALES PRIVATE LIMITED 2009-10 7,80,040 8. MIHIR SALES PRIVATE LIMITED 2009-10 8,26,454 9. SMARTLINK TRADEX PRIVATE LIMITED 2009-10 5,88,554 10. K.C. ENTERPRISES 2009-10 8,72,607 11. SHREE SARASVATI ENTERPRISES 2009-10 9,48,848 12. MOTION TRADERS PRIVATE LIMITED 2009-10 12,95,518 13. YASH CORPORATION 2009-10 38,377 14. ABHLASHA SALES P. LTD. 2009-10 7,84,181 15. EVERREADY MARKETING PRIVATE LIMITED 2009-10 21,47,914 16. SEVA ENTERPRISES 2009-10 42,98,502 17. ASHLEY TRADERS PRIVATE LIMITED 2009-10 8,94,559 18. KALPATRU TRADING CO. 2009-10 43,27,485 19. SACHI MERCANTILE PVT. LTD. 2009-10 4,76,824 20. BIG TRADE AGENCY 2009-10 2,19,391 21. MARUTI SALES CORPORATION 2009-10 1,79,198 22. SAMBHAV TRADERS 2009-10 2,49,657 P a g e | 4 & 4704/Mum/2017 AY. 2010-11 Mr. Ramesh Bhurmal Jain Vs. CIT(A)-29 23. PRADIP CORPORATION 2009-10 3,68,057 TOTAL 2,09,88,544/- In order to verify the authenticity of the aforesaid purchase transactions the A.O called upon the assessee to place on record documentary evidence in support of its aforesaid claim, as well as produce the parties for necessary examination before him. On the pretext that the books of accounts were seized by the Sales Tax Department, the assessee expressed his inability to file the details/documents required in order to substantiate the veracity of the aforesaid purchase transactions. In the backdrop of the fact that the assessee could not file documentary evidence in support of the genuineness of the purchase transactions under consideration viz. purchase invoices, corresponding sale invoices, delivery challans, transport receipts, octroi receipts, receipts of weighbridge for weighing of goods, excise gate pass, goods inward register maintained at godown/warehouse/storage house etc., or any other clinching documents which would irrefutably prove the genuineness of the purchases which were claimed by him to have been made from the aforementioned parties, therefore, the A.O concluded that the assessee had merely obtained accommodation bills from the aforesaid parties. Accordingly, the A.O added the entire amount of purchases aggregating to Rs.2,09,88,544/- and assessed the income of the assessee at Rs.2,13,60,150/-.
Aggrieved, the assessee carried the matter in appeal before the CIT(A). It was observed by the CIT(A) that as the alleged bogus purchases were more than 93% of the total purchases, therefore, disallowance of the entire amount of such purchases would be extremely high and would lead to unrealistic results. Accordingly, the CIT(A) being of the view that as the VAT rate in respect of the P a g e | 5 & 4704/Mum/2017 AY. 2010-11 Mr. Ramesh Bhurmal Jain Vs. CIT(A)-29 commodities, viz. ferrous and non-ferrous metals traded by the assessee was 4%, therefore, addition to the extent of 6% of the aggregate value of the aforesaid unverified/bogus purchases would be justified. On the basis of his aforesaid deliberations the CIT(A) restricted the addition to the extent of 6% of the aggregate value of the aforesaid purchases.
That both the assessee and the revenue being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. As the assessee despite having been put to notice about the date of hearing of the appeal had failed to put up an appearance before us, therefore, we are constrained to dispose off the appeal after hearing the Departmental Representative (for short ‗D.R‘), and perusing the orders of the lower authorities before us. The ld. D.R relied on the order passed by the A.O. It was submitted by the ld. D.R that as the assessee had failed to substantiate the purchases claimed to have been made by him from the aforementioned parties, therefore, the same were rightly disallowed by the A.O. It was submitted by him that the CIT(A) was in error in restricting the addition to 6% of the aggregate value of such purchases.
We have heard the ld. D.R and perused the orders of the lower authorities. A perusal of the orders of the lower authorities reveals beyond any scope of doubt, that the assessee had not been able to substantiate on the basis of irrefutable documentary evidence the genuineness of the purchases which was claimed by him to have been made from the aforementioned parties. As is discernible from the assessment order, the A.O had no occasion to verify the books of accounts of the assessee, for the reason, that the same were stated to have been seized by the Sales Tax Department. Independent of the aforesaid fact, we find that the documentary evidence to support the P a g e | 6 & 4704/Mum/2017 AY. 2010-11 Mr. Ramesh Bhurmal Jain Vs. CIT(A)-29 veracity of the purchase transactions under consideration viz. purchase invoices, corresponding sales invoice, delivery challans, transport receipts, octroi receipts, receipts of weighbridge for weighing of goods, excise gate pass, goods inward register maintained at godown/warehouse/storage house etc., were also never produced by the assessee before the A.O. Further, the specific direction by the A.O to produce the aforementioned supplier parties for necessary examination was also not complied by the assessee. In our considered view, the aforesaid facts duly establishes that the assessee had failed to substantiate the authenticity of the purchases claimed to have been made from the aforementioned parties.
We though are in agreement with the view taken by the A.O that the assessee had failed to discharge the onus as regards proving the genuineness of the purchase transactions under consideration, however, at the same time we are unable to find ourselves to be agreement view the view taken by him, that the entire value of purchases made from the aforementioned parties were liable to be disallowed. We are persuaded to subscribe to the view taken by the CIT(A), that now when the alleged bogus purchases constituted 93% of the total purchases, therefore, the disallowance of the entire amount of such purchases would not only be extremely high, but would result to an unrealistic situation. As the A.O had not dislodged the sales of the assessee, therefore, we are of the considered view that the CIT(A) had rightly restricted the addition to the extent of the profit element involved in making of such purchases by the assessee from the open/grey market.
Insofar the quantification of the profit element involved in making of such purchases is concerned, we find that the Hon’ble High Court of Bombay in its recent judgement in the case of Pr.
P a g e | 7 & 4704/Mum/2017 AY. 2010-11 Mr. Ramesh Bhurmal Jain Vs. CIT(A)-29 Commissioner of Income Tax-17 Vs. M/s Mohhomad Haji Adam & Company (ITA No. 1004 of 2016, dated 11.02.2019) while upholding the order of the Tribunal, had observed that the addition in the hands of the assessee as regards the bogus/unproved purchases was to be made to the extent of bringing the G.P rate of such purchases at the same rate of other genuine purchases. The Hon‘ble High Court while concluding as hereinabove, had observed as under:
―8. In the present case, as noted above, the assessee was a t r a d e r o f f a b r i c s . Th e A O f o u n d t h re e e n t i t i e s who w e r e 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 sale declared. That being the position, the Tribunal was correct in coming to the conclusion that the purchases cannot be rejected without disturbing the sales in case of a trade. The Tribunal, therefore, correctly restricted the additions limited to the extent of bringing the G.P. 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 as the question regarding addition of Rs.3,70,78,125/- as gross profit on sales 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 Financial Year 1997-98 is concerned, we are of the view that the assessee cannot 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 levied on the same price. We have to reduce the selling price accordingly as a result of which profit comes to 5.66% Therefore, considering 5.66 % of Rs.3,70,78,125/- which comes to Rs.20,98,62 1.88 we think it fit to direct the revenue to add Rs.20,98,621.88 as gross profit and make necessary deductions accordingly. Accordingly, the said question is answered partially in favour of the assessee and partially in favour of the revenue.‖ In these circumstances, no question of law, therefore, arises. All 9. Income Tax Appeals are dismissed, accordingly. No order at costs.‖