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Income Tax Appellate Tribunal, “SMC” Bench, Mumbai
Before: Shri Shamim Yahya & Shri Ravish Sood
O R D E R
PER RAVISH SOOD, JM
The present appeal filed by the assessee is directed against the order passed by the CIT(A)-24, Mumbai, dated 09.05.2018, 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 „I-T Act‟), dated 18.02.2016 for A.Y. 2010-11. The assessee assailing the order of the CIT(A) has raised before us the following grounds of appeal:
“1. On the facts, and in circumstances of the case, and in law, learned Commissioner of Income-tax (Appeal) erred in upholding action of the Assessing Officer of making disallowance of purchases amounting to Rs.4,90,884/- being 12.5% of alleged bogus purchases of Rs.39,27,073/- without appreciating that the Assessing Officer made no independent inquiry while treating the purchases as bogus in nature and made disallowance on mere P a g e | Amit L. Kothari Vs. Income Tax Officer Ward-27(1)(1) suspicion that the parties were listed on website of MVAT Department as Suspicious dealers.
On the facts, and in circumstances of the case, and in law, learned Commissioner of Income-tax (Appeal) erred in coming to conclusion while dealing with the matter of cross examination of respective parties that such parties did not exist without appreciating that there were affidavits of these parties before MVAT Department on which the Assessing Officer as well as learned Commissioner of Income-tax (Appeal) relied while dealing with issue of purchases, and without appreciating that if these parties could appear before the VAT authorities, there was no reason why their attendance could not be enforced by the Assessing Officer as these parties were witness of the Assessing Officer.
3. On the facts, and in circumstances of the case, and in law, the Assessing Officer erred in not appreciating the fact that what could at the best be added was reasonable difference in applicable gross profit made on the purchases made.
4. Your Appellant craves leave to add to, amend, alter, modify, and/ or delete any of the above grounds of appeal
at or before final disposal of the appeal.”
2. Briefly stated, the assessee who is engaged in the business of trading in chemicals and dyes had filed his return of income for A.Y. 2010-11, declaring total income of Rs.2,59,828/-. Subsequently, on the basis of information received from the investigation wing of the department that the assessee was one of the beneficiary who had taken accommodation purchase bills from certain hawala parties, his case was reopened under Sec.147 of the I.T. 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 tainted parties:
Hawala Name Hawala PAN Hawala TIN F.Y. Amount (Rs.) Donear Trading Pvt. Ltd. AACCD4946k 27910623885V 2009-10 2,18,400/- J.B. Interline ADVPT2496H 27800298365V 2009-10 55,131/- Classic Enterprises AHGPM4137R 27130343596V 2009-10 4,78,125/- New Era Enterprises AAGFN2188N 27290614332V 2009-10 24,700/- Rishabh Enterprises AFVPD1905R 27290504528V 2009-10 6,71,450/- Dipali Enterprises ALDPD0349R 27330610624V 2009-10 24,79,267/- Total 39,27,73/- In order to verify the authenticity of the aforementioned purchase transactions the A.O issued notices under Sec. 133(6) to the aforesaid parties, which however were returned unserved by the postal P a g e | Amit L. Kothari Vs. Income Tax Officer Ward-27(1)(1) authorities with the remarks “left”. Further, necessary inquiries made by the Inspector of Income Tax to verify about the whereabouts of the aforementioned parties also did not lead anywhere. The aforesaid facts were brought to the notice of the assessee. The assessee in order to substantiate the genuineness of the purchase transactions took support of the fact that the said transactions were duly accounted for in its books of accounts and the payments to the parties were made through cheques. The A.O after deliberating on the aforesaid explanation of the assessee was not persuaded to accept the same. It was noticed by the A.O that the assessee had failed to furnish documentary evidence viz. delivery challans, transportation details etc, which would have substantiated the authenticity of his claim of having purchased the goods from the aforementioned parties. Insofar the claim of the assessee that he had made the payments to the aforementioned parties through banking channels was concerned, it was observed by the A.O that the same was not sacrosanct and did not conclusively prove the genuineness of the purchase transactions under consideration. In the backdrop of the aforesaid facts the A.O directed the assessee to produce the aforementioned parties for necessary examination, which the latter failed to do. Apart there from, it was observed by the A.O that as was discernible from the „audit report‟ that no stock register was maintained by the assessee, therefore, the quantitative details of the purchases claimed by the assessee to have been made from the aforementioned parties could not be summarily accepted on the very face of it. On the basis of his aforesaid deliberations, it was concluded by the A.O that the assessee had failed to substantiate the authenticity of the purchase transactions on the basis of irrefutable documentary evidence. It was thus concluded by the A.O that the assessee had purchased the goods under consideration from the open/grey market and not from the P a g e | Amit L. Kothari Vs. Income Tax Officer Ward-27(1)(1) aforementioned parties. As the assessee in the course of the assessment proceedings had correlated the aforesaid purchase transactions with the corresponding sales, therefore, the A.O was of the view that the addition in the hands of the assessee in respect of the aforementioned unproved purchase transactions was liable to be restricted to the extent of the profit element embedded in making of such purchases. As such, the A.O estimated the profit element @ 12.5% of the aggregate value of the aforesaid unproved purchases of Rs.39,22,073/- and made an addition of Rs.4,90,884/-.
Aggrieved, the assessee carried the mater in appeal before the CIT(A). However, the CIT(A) not finding favour with the contentions advanced by the assessee dismissed the appeal.
As the assessee appellant has failed to put up an appearance at the time of hearing of the appeal, therefore, we proceed with as per Rule 24 of the Appellate Tribunal Rules, 1962 and dispose off the appeal after hearing the respondent department and perusing the orders of the lower authorities.
Admittedly, the assessee in the present case had failed to substantiate the genuineness and veracity of the purchases aggregating to Rs. 39,27,073/- that were claimed by him to have been made by him from the aforementioned parties viz. (i) Donear Trading Pvt. Ltd.; (ii) J.B. Interline; (iii) Classic Enterprises; (iv) New Era Enterprises; (v) Rishabh Enterprises; and (vi) Dipali Enterprises. As is discernible from the orders of the lower authorities, the assessee except for stating that the purchase transactions were recorded in his books of accounts and the payments to the aforementioned parties were made by cheques, had however failed to place on record any irrefutable documentary evidence which would prove the authenticity of the purchase transactions to the hilt. In fact, even the notices which P a g e | Amit L. Kothari Vs. Income Tax Officer Ward-27(1)(1) were issued by the A.O under Sec.133(6) to the aforementioned parties were returned unserved by the postal authorities, with the remarks “Left”. As observed hereinabove, even the local inquiries carried out by the Inspector of Income Tax also did not throw any light on the whereabouts of the aforesaid parties. Apart there from, the assessee had also failed to substantiate the genuineness of the purchase transactions by placing on record any clinching documentary evidence viz. delivery challans, transportation details etc. In sum and substance, we are of the considered view that the lower authorities had rightly concluded that the assessee had failed to discharge the onus as regards proving the genuineness of the purchase transactions under consideration. Insofar the quantification of the profit element embedded in the purchases under consideration @ 12.5% of the aggregate value of such purchases is concerned, we find that no cogent reason has been given by the lower authorities for adopting the said rate and estimating the resultant profit element.
We have given a thoughtful consideration to the facts involved in the case before us and are in agreement with the view taken by the lower authorities that as the assessee had correlated the purchases under consideration with the corresponding sales, therefore, the addition in his hands was liable to be restricted only to the extent of the profit element which he would have generated by making of such purchases from the unorganised sector operating in the open/grey market. Insofar the quantification of such profit element is concerned, we find that the Hon’ble High Court of Bombay in its recent judgement in the case of Pr. 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 P a g e | Amit L. Kothari Vs. Income Tax Officer Ward-27(1)(1) 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 . T h e A O f o u n d t h r e e e n t i t i e s w h o 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.” As such, the Hon‟ble jurisdictional High Court had observed that the addition in respect of purchases which were found to be bogus in the case of the assessee before them, who was a trader, was to be worked out by bringing the G.P. rate of such bogus purchases at the same rate of other genuine purchases. We thus respectfully following the aforesaid judgment of the Hon‟ble High Court direct the A.O to restrict the addition insofar the bogus/unproved purchases aggregating to