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Income Tax Appellate Tribunal, MUMBAI BENCH “B” MUMBAI
Before: SHRI MAHAVIR SINGH & SHRI N.K. PRADHAN
ORDER PER N.K. PRADHAN, A.M. This is an appeal filed by the assessee. The relevant assessment year is 2009-10. The appeal is directed against the order of the Commissioner of Income Tax-28, Mumbai [in short ‘CIT(A)’] and arises out of the assessment completed u/s 143(3)r.w.s. 147 of the Income Tax Act 1961, (the ‘Act’). 2. The grounds of appeal filed by the assessee read as under:
1. Ld. CIT(A) erred in enhancing addition of alleged bogus purchase from 3 parties by Rs.1,02,81,940/- [original disallowance by AO was Shri Bharat Talakchand Doshi Rs.14,68,848/- being 12.5% of total alleged bogus purchase of Rs.1,17,50,778/-from 3 parties] without appreciating that the grounds tor enhancement were incorrect and unsustainable in law and hence, the enhancement of Rs.1,02,81,940/- maybe deleted.
The Ld. CIT(A) and A.O. erred in making addition of alleged bogus purchases merely on the basis of sales tax enquiry and hence the disallowance of Rs.1,17,50,778/- may be deleted. 3. The Ld. CIT(A) and A.O. failed to appreciate that the alleged bogus purchases are made wholly and exclusively for business purposes and the payments were made through banking channels, suppliers had Pan No. VAT No, TIN No., sales are not doubted, the books of accounts are not rejected by A.O. and hence disallowance of Rs1,17,50,778/- may be deleted. 4. The Ld. CIT(A) and AO failed to appreciate that assessee had proved quantity tally by linking the alleged bogus purchases with the sales and hence disallowance of Rs.1,17,50,778/- may be deleted. 5. The Ld. CIT(A) and A.O. erred in not providing opportunity of cross- examination of third parties to the assessee thereby violating principles of natural justice and hence disallowance of Rs.1,17,50,778/- may be deleted. 6. The learned CIT(A) failed to appreciate that Assessee has disclosed Gross Profit of 10.612 % which is reasonable and hence entire purchases from three parties cannot be disallowed. 3. Briefly stated the facts are that the assessee filed his return of income for the assessment year (AY) 2009-10 on 27.09.2012 declaring income of Rs.40,98,411/-. The said return of income was processed u/s 143(1) of the Act. The Assessing Officer (AO) received intimation from the Director General of Income Tax (Inv), Mumbai that as per the information received from the Sales Tax Department, Government of Shri Bharat Talakchand Doshi Maharashtra, the assessee had obtained bogus purchase bills from the following hawala operators :
Beneficiary Beneficiary Name-PAN- Hawala Hawala PAN FY Amount Name PAN Beneficiary Name Rs. Bharat AABPD9162B Bharat Asian Steel AWZPS2908L 2008- 27,19,668 Enterprises TalakchandDoshi 09 Bharat AABPD9162B Bharat Perfect AGEPT0871G 2008- 15,57,556 Enterprises TalakchandDoshi Trading 09 Corporation Bharat AABPD9162B Bharat Sharad AQGPB8903P 2008- 74,73,564 Enterprises TalakchandDoshi Enterprises 09 On the basis of the above information, the AO reopened the assessment by issuing notice u/s 148. In response to a query raised by the AO during the course of reassessment proceedings to explain as to why the above purchases from the hawala operators should not be added back to the total income, the assessee submitted that the payments to the said parties were made through account payee cheques/electronic fund transfer and the amount is received from the sales parties to account payee cheques/electronic fund transfer. The assessee also furnished before the AO statement reflecting purchase of the items and corresponding sales and the bank statements, evidencing the payments in support of its claim that the purchases were genuine.
The AO noted that the assessee, however, expressed his inability to produce the said parties as they were not available at the address as per the purchase invoices and also since there is no transaction with the said parties, it would be difficult to locate them.
Shri Bharat Talakchand Doshi The AO has recorded that the assessee failed to produce any of the suppliers, brokers or transporters before him in spite of opportunity being given. Considering the facts of the case, the AO held that only profit element being embedded in such purchases can be brought to tax. Accordingly, following the decision in the case of CIT v. Simit P. Sheth (2013) 356 ITR 451 (Guj), the estimated the profit @ 12.5% on the non- genuine purchases of Rs.1,17,50,788/- and it comes to Rs.14,68,848/-.
Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). We find that the Ld. CIT(A) had given an enhancement notice u/s 251(1)(a) r.w.s. 251(2) of the Act proposing enhancement of Rs.1,02,81,940/- (Rs.1,17,50,788/- minus Rs.14,68,848/- already added by the AO). In response to it, the assessee filed a reply before him stating that (i) the AO has merely doubted purchases which cannot lead to inference of bogus purchases, (ii) transaction settled long back with these parties and the assessee cannot be expected to keep their current whereabouts, (iii) these parties are departmental witnesses, so cross examination thereon should have been allowed, (iv) significantly, it was admitted that there may be cases of genuine sales but VAT default, (v) due to recent judgment of Bholenath Poly Fab and Simit P. Sheth, the assessee accepted to be assessed @ 12.5% without conceding the facts of bogus purchase, (vi) ledger account of the parties duly submitted.