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Income Tax Appellate Tribunal, MUMBAI BENCH “B”, MUMBAI
Before: SHRI C.N. PRASAD, HONBLE & SHRI MANOJ KUMAR AGGARWAL, HONBLEShri Banwarilal Maheshwari
O R D E R PER C.N. PRASAD (JM) 1. This appeal is filed by the Revenue against the order of the Ld.Commissioner of Income–tax (Appeals)–45, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 06.06.2017 for the Assessment year 2010-11.
Revenue has raised the following grounds of appeal: - 1. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting addition made in bogus purchases and restricting the addition to 0.75% of bogus purchases whereas the assessee could not substantiate the claim of genuine purchases. The CIT(A) could have made inquiry or directed the AO to (A.Y: 2010-11) Shri Banwarilal Maheshwari conduct inquiry to established the correct fact in this case while the assessee failed to established genuineness of purchase. 2. "The appellant prays that the order of Ld.CIT(A) on the above ground be set aside and that of the Assessing Officer be restored."
3. The only issue is that the Ld. CIT(A) erred in restricting the addition to @0.75% on alleged bogus purchases. The Assessing Officer while completing the assessment required the assessee to prove the genuineness of the purchases made from nine dealers as referred to in the Assessment Order, as these dealers were reported to be only accommodation entry providers based on the report form DGIT(Inv.), Mumbai and the investigation department of the Sales Tax Department of Maharashtra. Assessing Officer also issued notices u/s. 133(6) of the Act to all these dealers and the notices returned unserved from postal authorities. The Assessing Officer also observed that assessee did not file documents as delivery challans, transport receipts, goods inward register etc.,
The assessee produced purchase bills, ledger accounts, bank statements and contended that all these purchases were made in the regular course of business, payments were made through account payee cheques, goods have purchased and sold, assessee maintains stock register and therefore the purchases made by the assessee from these dealers are genuine.
(A.Y: 2010-11) Shri Banwarilal Maheshwari 5. Not convinced with the evidences furnished by the assessee the Assessing Officer opined that assessee has failed to establish the genuineness of the purchases shown to have been made from the nine parties mentioned in the Assessment Order. Assessing Officer also stated that the assessee has not given any evidences which leads to conclusion that there were actual purchases from the parties and the parties are in existence. Therefore, he concluded that purchases made from the above parties are not genuine. Assessing Officer also concluded that assessee was a beneficiary of the accommodation bills issued by the parties without physical delivery of the goods and therefore he concluded that assessee might have purchased goods from gray market and obtained accommodation bills from these parties. The Assessing Officer observing that though assessee produced certain details but could not produce the parties, stock register, delivery challans, lorry receipt, transportation details etc., and following the decision of the Hon'ble Gujarat High Court in the case of CIT v. Simit P. Seth [356 ITR 451] and the decision in the case of Bholanath Polyfab Pvt. Ltd [355 ITR 290], Assessing Officer estimated the profit element @12.5% from such unverifiable purchases and added to the total income of the assessee.
Assessee preferred appeal before the Ld. CIT(A) and the Ld. CIT(A) considering the submissions of the assessee and the findings of the (A.Y: 2010-11) Shri Banwarilal Maheshwari Assessing Officer sustained the action of the Assessing Officer in treating the purchases as non-genuine and estimating the profit element from such purchases. However, the Ld.CIT(A) restricted the disallowance to 0.75% of bogus purchases as against 12.5% disallowed by the Assessing Officer. Against which order the Revenue is in appeal before us.
Ld. DR vehemently supported the orders of the Assessing Officer.
The Ld. Counsel for the assessee reiterated the submissions made before the lower authorities.
We have heard the rival submissions, perused the orders of the authorities below. On a perusal of the orders of the lower authorities, we find that the assessee could not produce the confirmations nor parties for verification. Ld. CIT(A) and Assessing Officer held that the assessee could not prove the genuineness of the claim of the purchases. The Ld. CIT(A) considering the submissions of the assessee and the findings of the Assessing Officer held that Assessing Officer is justified in estimating the addition from the purchases from these nine dealers. However, he restricted the addition/disallowance to 0.75% of the bogus purchases from these dealers observing as under: -. “6.2 I have gone through the assessment order and submissions made in this regard. It is noted that the AO had disallowed an amount of Rs.67,74,41/ out of total purchases to the tune of Rs.5,41,95,335/- on the basis of the information received from the Sales Tax Department. The appellant has vehemently opposed the addition and submitted that the purchases were genuine.
(A.Y: 2010-11) Shri Banwarilal Maheshwari 6.3 It is seen that the assessee has made purchases which is evidenced by the purchase bills and payment made by the assessee by cheque. Further enquiry was conducted by AO which suggested that the purchase bills were bogus. The AO had noted that parties from whom the purchases were claimed to be made, were not available at the given address. In view of this, it is noted that the claim of the assessee cannot be accepted in entirety and also the details filed indicate that purchases were made without which the assessee could not have declared the sales made. 6.4 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 vs 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) 107 TTJ 395 (Jd) (Trib.) 5. Shri Madhukant B. Gandhi vs ITO Bench 'B' dt. 23-02-2010 (AY 2005-06) (Mum.) (Trib.) 6. Sanjeev Woolen Mills vs CIT (2005) 279 ITR 434 (SC) In view of the above discussion, it is seen that the addition made by the A.O on account of alleged bogus purchase cannot be sustained fully in appeal. 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 G.P addition of 0.75% on the alleged bogus purchase of Rs.5,41,95,335/- which comes to Rs.4,06,465/. Accordingly, these grounds of appeal are partly allowed.”
10. 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
(A.Y: 2010-11) Shri Banwarilal Maheshwari 171] held that simply because the parties were not produced the entire purchases cannot be added.
In view of the above decisions and since the assessee being a civil contractor, taking all the facts and circumstances into consideration, we direct the Assessing Officer to estimate the profit element from such non- genuine purchases @8% as against 0.75% estimated by the Ld.CIT(A). We order accordingly.
In the result, appeal of the Revenue is partly allowed.
Order pronounced in the open court on the 12th April, 2019