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Income Tax Appellate Tribunal, “H” BENCH, MUMBAI
Before: SHRI R.C. SHARMA, AM & SHRI AMARJIT SINGH, JM
Assessee by: None Department by: Shri Manoj Kumar Singh (DR) Date of Hearing: 13.03.2019 Date of Pronouncement: 04/06/2019 O R D E R
PER AMARJIT SINGH, JM:
The present appeal has been filed by the revenue against the order dated 29.06.2017 passed by the Commissioner of Income Tax (Appeals)-29, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the assessment year 2011-12.
The revenue has raised the following grounds: -
“1) "Whether in the facts and in the circumstances of the case and in law, the Ld. CIT(A) is justified in not confirming the addition @ 12.5% of total unexplained expenditure of Rs.8,18,91,993/- made on account of bogus purchase by the Assessing officer and limiting it to only 6% of the bogus purchases?"
ITA. No. 5718/M/2017 A.Y.2011-12 2 'Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is justified in confirming the addition @6% profit rate on total purchases of Rs.8,18,91,993/- made by the assessee from 21 parties when during the investigation made by sales tax department of Maharastra Government, it was conclusively proved beyond doubt that these parties are only into providing accommodation entries and do not do any real business.?" 3 Whether on the facts and in the circumstances of the case and in law, the Ld. C(T(A) is justified in not appreciating the fact that during the investigation made by sales tax department of Maharastra 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?" 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."
The brief facts of the case are that the assessee filed his return of income declaring total income to the tune of Rs.7,03,251/- on 29.09.2011 relevant to the A.Y. 2011-12. Thereafter, the return was processed u/s 143(3) of the Act, 1961 accepting the returned income. Thereafter, an information was received from the DGIT(Inv.) Wing, Mumbai-1 in which it was conveyed was that the assessee has taken the entry of bogus purchases of Rs.8,18,91,993/-. The assessee has taken the entry of bogus purchase from the following parties.:-
Name F.Y. Amount 1 Nisha Enterprise 2010-11 11,38,934 2 Chirag Corporation 2010-11 26,55,962
ITA. No. 5718/M/2017 A.Y.2011-12 3 Anmol Industries 2010-11 33,52,220 4 Mahavir Coporation 2010-11 504,972 5 Coral Trading co 2010-11 27,24,329 6 Maruti Impex 2010-11 24,99,978 7 Ujwal Enterprises 2010-11 15,47,289 8 Alok Traking Co 2010-11 17,41,564 9 Aniket Industries 2010-11 29,33,802 10 Axon Industries 2010-11 24,41,771 11 Shree Yamuna Impex 2010-11 16,02,818 12 Mahaveer Metal Corporation 2010-11 171,78,062 13 Kanak Metal Cor. 2010-11 12,98,555 14 Vinayak Sales Cor. 2010-11 14,71,602 15 Rajeshwari Metal Indusries 2010-11 15,79,715 16 Bhagyalaxmi Steel Industries 2010-11 17,86,406 17 Subham Steel Impex 2010-11 19,59,183 18 Vijay Trading Company 2010-11 46,34,511 19 Dinesh Steel (India) 2010-11 85,02,616 20 Devang Metal India 2010-11 93,40,998 21 Rajendra Impex India 2010-11 109,96,706 Total 8,18,91,993 Thereafter, the notice was given and finding no justifiable reply, 12.5% of the bogus purchase in sum of Rs.8,18,91,993/- i.e. in sum of Rs.1,02,36,500/- was disallowed and added to the income of the assessee. The total income of the assessee was assessed to the tune of Rs.1,09,39,750/-. Feeling aggrieved, the assessee filed an appeal before the CIT(A) who restricted the addition to the extent of 6% of the bogus purchase in sum of Rs.8,18,91,993/-. The revenue was not satisfied, therefore, filed the present appeal before us.
We have heard the argument advanced by the Ld. Representative of the Department and perused the record carefully.
ITA. No. 5718/M/2017 A.Y.2011-12 Before going further, we deemed it necessary to advert the finding of the CIT(A) on record.: -
“4.3 The submissions have been carefully considered. The Ld. Counsel has contended that he had submitted all the necessary details like day to day stock register, copies of purchase bills, delivery challans, bank statements etc and therefore, the purchase cannot be treated as bogus. However, the fact remains that the parties from whom the appellant was supposed to have made the purchase were not existing at the address given. Therefore, it could not be established beyond doubt that the purchases have been made from the above mentioned parties. In such a scenario, as the purchases have not been established as genuine, the AO had to estimate some profit which the assessee had failed to offer to tax. The Ld. Counsel also argued that the AO cannot hold 87.5% as genuine and 12.5% as bogus. The AO has nowhere certified that 87.50/0 of the alleged purchases are genuine and 12.5% are bogus. What the AO had done is to estimate the additional profit which the assessee would have earned by way of purchasing from the grey market instead of from the parties recorded in the books of account and therefore he made an estimate of 12.5% of the alleged bogus purchases. 4.3.1. The Ld. Counsel for the appellant also argued that the addition in this case cannot be made u/s.69. However, it is seen from the assessment order that the AO has not mentioned section 69 anywhere in his order. What the AO has done is only estimated the profit which the assessee would have evaded due to purchase of goods in the grey market instead of from the parties mentioned in his books. It is also the contention of the Ld. Counsel that the assessee has furnished all the evidences to prove that the purchases are genuine and the AO has not proved that the money has been returned to the assessee by the purchase parties. While it is true that the purchases are recorded in the books of account of the assessee and the payment have been made to the parties through cheques, the genuineness of the purchases could not be established beyond doubt as the purchase parties were not available in the given address. Moreover, they had stated to the sales tax department that they had not made sales but had issued only accommodation entries. In view of the above, the genuineness of the purchases could not be established. 4.3.2. Coming to the addition made, the Hon'ble ITAT, Ahmedabad 'C' Bench in the case of Vijay Proteins Ltd. Vs. ACIT 58 ITD 0428 held that in ITA. No. 5718/M/2017 A.Y.2011-12 similar circumstances, 25% of the purchase price accounted through fictitious invoices has to be disallowed. The Hon'ble High Court of Gujarat in the case of Sanjay Oil cakes v/s CIT 316 ITR 0274 dealt with similar case where some of the alleged suppliers who had issued bills to the assessee were not genuine as they were not traceable. The goods must have been received from other parties. The likelihood of the purchase price of these alleged purchases being inflated could not be ruled out and therefore the Hon'ble High Court has upheld the decision of OT(A) and the 1TAT disallowing 25% of the payments made to such parties. The Hon'ble High Court of Gujarat in the case of CIT vs. Simit P. Sheth 356 ITR 0451 held that once the sale is accepted by the AO, the very basis of purchases could not be questioned. Not the entire purchase price could be disallowed but only the profit element embedded in such purchases could be added to the income of the assessee. The estimation varies with the nature of business and no uniform yardstick could be adopted. 4.3.3. In the case of Simit P. Sheth, the estimated profit of 12.5% has been decided by the Court, as the VAT rate there is 10% and 2.5% has been taken as the additional margin making it 12.5%. In the instant case, the VAT rate is 4% and to cover up any defect, an additional margin of 2% should be added to 4% thereby taking it to 6%. Thus, the total addition made should be restricted to 6% instead of 12.5%. The AO is directed to restrict the addition to 6% instead of 12.5% of the alleged bogus purchases made. These grounds of appeal are partly allowed.”
5. On appraisal of the above said finding, we noticed that the CIT(A) has decided the matter of controversy on the basis of the decision of Hon’ble Gujarat High Court in the case of CIT Vs. Simit P. Sheth 356 ITR 0451. The CIT(A) has considered the profit embedded to the bogus purchase. The CIT(A) has also considered the VAT rate applicable at that time which was @ 4% and an additional margin @ 2.5% and added the 6% of the bogus purchase. The principle which has been adopted by the Hon’ble Gujarat High Court in case of CIT Vs. Simit P. Sheth 356 ITR 0451 has duly been applied. The facts are not distinguishable at this stage also. There is no ITA. No. 5718/M/2017 A.Y.2011-12