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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
Before: SHRI C.N. PRASAD, HONBLE
O R D E R PER C.N. PRASAD (JM) 1. These three appeals are filed by the assessee against different orders of the Ld. Commissioner of Income–tax (Appeals)-9, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 25.07.2016 for the A.Ys. 2009-10, 2005-06 & 2006-07.
2 & 3137/MUM/2018 M/s. Shree Govind Silk Mills Pvt. Ltd. 2. The assessee in all these appeals challenged the order of the Ld.CIT(A) in sustaining the disallowance at 50% of the bogus purchases by estimating the profit element in such purchases.
(A.Y: 2009-10) 3. First I take up the appeal of the assessee for the A.Y. 2009-10 and briefly stated the facts are that, the assessment was re-opened by issue of notice u/s. 148 dated 04.01.2011 on getting information about outcome of survey action u/s 133A conducted on 13.02.2009 in the case of Shri Rakesh Kumar Gupta and other family members involved in providing bogus accommodation entries. During survey action, Shri Rakesh Gupta had admitted in statement on oath that he was only providing accommodation entries in lieu of commission @1%. Assessing Officer in the Assessment Order passed u/s 143(3) r.w.s. 147 of the Act on 29.09.2011 held that the purchases of ₹.12,84,579/- from M/s Shree Manoj Mills (proprietor Shri Rakesh Kumar Gupta) to be accommodation entries, and added back to the income of assessee. The Ld.CIT(A) vide order dated 01.11.2012 held that an estimated profit @10% of disputed purchases will be fair and reasonable to cover up the difference of GP of purchases from M/s.Shree Manoj Mills and deleted the balance addition. The assessee filed further appeal and the Revenue also filed cross objections before Hon'ble ITAT, Mumbai against the order of the 3 & 3137/MUM/2018 M/s. Shree Govind Silk Mills Pvt. Ltd. Ld.CIT(A) dated 01.11.2012. During the course of appellate proceedings in ITAT, the learned counsel for assessee submitted various decisions of the Tribunal involving the said Shri Rakesh Kumar Gupta and his statement, wherein the Tribunal had accepted that the said statement is not credible and the additions made are not sustainable. The case laws relied on by the Ld. Counsel for the assessee are as under: - (1) M/s JitendraHarshadkumar& co. v. AC1T [ITA Nos. 3141/M/2012 and others (AY. 2005-06, 2006-07 and 2007-08), dated 13.11.2013] (2) M/s C. Chotalal& Co. v. ITO [ITA No. 3960 to 3967/ Mum/ 2012 (AYs 2002-03 to 2009-10], dated 24.09.2013] (3) M/s Pramit Textiles v. ITO [ITS Nos 3948 to 3953/Mum/2012 (AYs 2002-03 to2007-08, dagted 01.10.2013] (4) ACIT v. M/s. New Meena Bazar in ITA No. 888/Hyd/2012 (AY 2007- 08), dated 11.01.2013 of ITAT Hyderabad Bench. In assessee’s case the ITAT remanded the issue to the file of Assessing Officer with a direction to compare the facts of the case in the above cited cases and apply the ratio after granting a reasonable opportunity of being heard to the assessee. Subsequently, the Assessing Officer passed order u/s.143(3) r.w.s. 254 on 24.06.2016 making similar addition of ₹.12,84,579/- u/s.69C of the Act treating the purchases from M/s. Shree Manoj Mills as non-genuine. On appeal Ld.CIT(A) considering various judicial pronouncements and further taking note of the Gross Profit shown by the assessee restricted the addition/disallowance to 50% of the bogus purchases.
Before me, Ld. Counsel for the assessee reiterated the submissions made before the lower authorities and submits that the profit element
4 & 3137/MUM/2018 M/s. Shree Govind Silk Mills Pvt. Ltd. calculated by the Ld.CIT(A) is relatively high compared to the Gross Profit submitted by the assessee. In support of his contentions he relied on the decision of the Coordinate Bench in the case of M/s. Jitendra Harshadkumar & Company v. ACIT in ITA.Nos. 3141 to 3144 /Mum/2012 dated 13.11.2013.
Ld. DR vehemently supported the orders of the Authorities below. Ld. DR further submits that the assessee has not brought any new facts on record to substantiate purchases as genuine. Referring to Para No.3.7 of the assessment order the Ld. DR submits that the statement given by Shri Rakesh Kumar Gupta was not retracted and it is the finding of the Assessing Officer that it is not known as to who has supplied the goods to the assessee. The assessee has not maintained any stock register nor he has furnished the same to the Assessing Officer or Ld.CIT(A). Ld. DR placing reliance on the decision of the Hon'ble Bombay High Court in the case of Shoreline Hotel (P.) Ltd. v. CIT [98 taxmann.com 234] submitted that the entire purchases should have been treated as non-genuine by the Ld.CIT(A) but however he has estimated the profit element at 50% of the purchases which is very much reasonable. below. The Ld.CIT(A) restricted the addition/disallowance to 50% observing as under: - “3.3. I have perused facts of the case and appellant's submissions carefully. The Hon'ble ITAT has taken cognizance of various Tribunal orders involving the case of Shri Rakesh Kumar Gupta, and set aside the present appeal to the file of AO with a direction that he should compare the facts of the case in said orders of the Tribunal and apply the ratio. The AO has principally relied upon the statement of Shri Rakesh Gupta on 28.01.2011 which is given after the retraction statement of Shri Rakesh Gupta on 20.02.2009 and 27.04.2009. In this regard, I refer to the assessment order u/s 143(3) r.w.s. 147 dated 29.09.2011 wherein it is stated that Shri Rakesh Gupta had admitted on Oath that he was in the business of providing bogus accommodation entries. 3.4. Shri Rakesh Kumar Gupta in his statement recorded on Oath admitted that he was in business of issuing accommodation entries in the form of sales bills as per the requirements of various parties which paid him for such bogus purchases the requisite amount by cheque whereupon he used to withdraw an equal sum from the bank account and after deducting his commission of 1% used to return the cash to the issuer of the cheque. It is also on record that the said statement was subsequently retracted by Shri Rakesh Kumar Gupta as referred in various case laws relied upon by the counsel of assessee before Hon'ble ITAT. To my mind, the frequent change of stand by Smt. Hema Gupta/ ShriRakesh Kumar Gupta does not give credence to their statements or the so-called retraction. However, AO has also given other points of difference in his order trying to prove that the facts of the present case are indeed different from the various cases cited in ITAT order and as relied by the appellant. 3.5. As regard the movement of goods, the AO has differentiated the present case from the various Tribunal orders, on the basis of statement of Shri Suresh Adukia, proprietor of Ms Shree Satguru Transport, Bhiwandi. While the assessee claimed that M/s Shree Manoj Mills delivered the goods to the Godown of M/s Shree Satguru Transport at Bhiwandi with delivery challan, the said party stated that all the material were handed over to them by assessee only and they had no knowledge about Shree Manoj Mills or any related party. I find that this may not be a conclusive evidence, since as explained by Shri Narendra Sharma, Accountant of assessee, during assessment proceedings u/s 143 [3] r.w.s. 147 that Shree Satguru Transport is merely an intermediary who had no knowledge from whom the goods were purchased. Therefore, this by itself may not differentiate the present case from the various case laws cited in ITAT order. 3.6. I however find an important fact from the assessment order u/s 143(3) r.w.s. 147 dated 29.09.2011 whereby Shri Narendra Sharma, the accountant of assessee, had admitted during said assessment proceedings that the Stock Register was not maintained by assessee. Neither there is any evidence on records that any such Stock Register was placed on records during said assessment proceedings u/s 143(3} r.w.s.
147. Hence, the fault was on part of assessee to produce evidence as required during assessment proceedings u/s 143(3) r.w.s.
On this very fact, in my opinion, the present case can be differentiated with the various case laws cited in ITAT order. The AR has on the other hand relied upon various case laws and claimed that when sales against the purchases are accepted, then addition cannot be made. The AR has further stated that the payments are made by account payee cheques, and the addition cannot be made without evidence.
6 & 3137/MUM/2018 M/s. Shree Govind Silk Mills Pvt. Ltd. 3.7. In the totality of circumstances of present case, I find that it would not be fair to confirm the addition of entire purchases, while at the same time it would also not be fair to delete the entire addition made. To give benefit of doubt to the assessee, one possible logical inference can be taken that the assessee might have made purchases from open market and obtained accommodation bills from the aforesaid concern. Two more things require consideration here. Firstly, assessee is a trading concern and not a manufacturing one. Hence, entire addition is not justified. Secondly, GP shown by the appellant otherwise is around 24%. So, GP on unaccounted purchases would naturally be more, at least twice the GP on accounted purchases. Otherwise, why would anybody take so much botheration! So, in my opinion, an estimated profit @50 % of disputed purchases can be considered to be fair and reasonable to cover the difference of GP from alleged party as well as to plug any leakage of revenue. I also find that in several case laws involving bogus purchases additions have been confirmed in the like manner to the extent of estimted Gross Profit on alleged bogus purchases wherein the percentage of profits on unaccounted purchase has been held to be higher than on accounted purchases. Accordingly, I confirm the addition @ 50 % of disputed purchases i.e. Rs.6,42,290/-, and delete the balance disallowance of Rs. 6,42,290/-. Accordingly, the ground is partly allowed.”
The Hon'ble Gujarat High Court in the case of Bholanath Polyfab Pvt. Ltd [355 ITR 290] held that when the assessee made purchases and sold the finished goods as a natural corollary not the entire amount covered under such purchases would be subject to tax but only the profit element embedded therein. The Hon'ble High Court confirmed the order of the ITAT in estimating the profit element from purchases at 12.5%. Similar view has been taken by the Hon'ble Gujarat High Court in the case of CIT v. Simit P. Seth [356 ITR 451] and confirmed the order of the ITAT in estimating the profit element from the purchases at 12.5%. The Bombay High Court in the case of CIT v. Nikunj Eximp [216 Taxman.com 171] held that simply because the parties were not produced the entire purchases cannot be added.
The case law relied on by the Ld. DR in the case of Shoreline Hotel (P.) Ltd v. CIT (supra) has no application to the facts of the assessee’s
7 & 3137/MUM/2018 M/s. Shree Govind Silk Mills Pvt. Ltd. case. The Hon'ble High Court in that case on facts found that the Assessing Officer failed to abide by the statutory mandate and by making an estimate and accepting the vague and general explanation of the assessee, such an assessment will undoubtedly be erroneous in so far it is prejudicial to the interest of the Revenue. Thus, the Hon'ble High Court upheld the action of the Ld.CIT(A) in revising the assessment u/s. 263 of the Act.
In view of our above discussion and respectfully following the decision of the Hon'ble Gujarat High Court in the case of Bholanath Polyfab Pvt. Ltd (supra) and CIT v. Simit P. Seth (supra), we direct the Assessing Officer to restrict the disallowance of purchases which were treated as non-genuine for the A.Y. 2009-10 to 12.5% bringing to tax the profit element from these purchases. & 3137/MUM/2018 (A.Ys: 2005-06 & 2006-07)
Facts and circumstances being identical, the decision rendered for the A.Y. 2009-10 is applicable Mutatis-Mutandis to the appeals for the A.Ys. 2005-06 & 2006-07. Thus, the Assessing Officer is directed to restrict the disallowance to 12.5% of the purchases which were treated as non-genuine for these two Assessment Years.