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Income Tax Appellate Tribunal, MUMBAI BENCH “H”, MUMBAI
Before: Shri C.N. Prasad & Shri G Manjunatha
O R D E R Per G Manjunatha, AM : This appeal filed by the assessee is directed against order of the CIT(A)- 17, Mumbai dated 06-06-2017 and it pertains to AY 2010-11. The assessee has raised the following grounds of appeal:-
“Ground No. 1: On the facts and in the circumstances of the case and in Jaw, the Learned CIT(A) erred in confirming the action of AO in passing the order u/s 143(3) r.w.s 347 of the Act in assessing total income of Rs.1,01,71,420/- as against returned income of Rs. 1,27,8207-.
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Ground No. 2: On the facts and in the circumstances of the case and in law, the Learned CIT(A) erred in confirming the action of AO in reopening the assessment u/s 147 of the Act and issuing notice u/s 148 of the Act. Ground No. 3: On the facts and in the circumstances of the case and in law, the Learned CIT(A) erred in confirming the action of AO by not disposing off objection as raised by appellant against the reason of reopening without appreciating the fact in terms of the Hon. Supreme Court decision in the case of GKN Driveshafts (India) Ltd. v. ITO and Ors reported in 259 ITR 19 (SC). The Appellant Company prays that the said re-opening . may please be treated as bad in law. Ground No. 4: On the facts and in the circumstances of the case and in Jaw, the Learned CIT(A) erred in confirming the action of AO in rejecting the books of account by invoking provision of Section 145(3) of the Act without appreciating the fact that books of account has been audited by a chartered accountant as per provision of the Act. The Appellant Company prays that the said rejection of books of may please be treated as invalid. Ground No. 5: On the facts and in the circumstances of the case and in law, the learned C1T (A) grossly erred in upholding the addition of Rs. 1,00,43,6017- on account of alleged purchases without appreciating the fact that these purchases from various parties were genuine. The appellant prays that the said disallowance may please be deleted. Ground No. 6: On the facts and in the circumstances of the case and in law, the learned CIT (A) grossly erred in taking addition on account of bogus purchases u/s 69C of the Act without any valid reasons and which was not raised whiling filing appeal before Ld. CIT(A). The appellant prays that the said addition u/s 69C of the Act may please be deleted as it was made by Ld. CIT(A) by consideration own assumption and without any valid reasons. Ground No. 7: On the facts and circumstances of the case the Learned AO erred in initiating penalty proceedings u/s 271(1) (c) of the Income Tax Act, 1961.”
The brief facts of the case are that the assessee company is engaged in the business of manufacturing and trading of transformer parts, filed its return of income for AY 2010-11 on 11-10-2010 declaring total income at Rs.1,27,820.
Subsequently, the case has been reopened u/s 147 of the Income-tax Act, 1961 for the reasons recorded, as per which, income chargeable to tax had been 3 ITA 6160/Mum/2017 escaped assessment on account of obtaining accommodation entries in the form of bogus purchases from hawala dealers, as per the information received from DGIT(Inv), Mumbai. Therefore, a notice u/s 148 dated 10-04-2014 was issued. In response to notice, the assessee has filed a letter dated 02-04-2014 and stated that return filed u/s 139(1) on 11-10-2010 may be treated as return filed in response to notice issued u/s 148 of the Income-tax Act, 1961.
Thereafter, the case was selected for scrutiny and notices u/s 143(2) and 142(1) of the Act, alongwith questionnaire were issued. In response to notices, the authorised representative of the assessee appeared from time to time and filed various details, as called for. During the course of assessment proceedings, the AO noticed that the assessee was the beneficiary of accommodation entries provided by hawala dealers. Therefore, he called upon the assessee to furnish complete details of purchases alongwith confirmations from the parties. In response, the assessee has filed copies of purchase bills alongwith proof of payment against such purchases by cheques; however, no confirmation from the parties has been filed. The AO, in order to verify genuineness of transactions, issued notices u/s 133(6) to all parties. Except in one case, notices were returned by the postal authorities with a remark ‘not known’.
Therefore, based on the information received from the DGIT(Inv) coupled with the fact that notices u/s 133(6) were returned by the postal authorities, the AO
4 ITA 6160/Mum/2017 came to the conclusion that purchases from certain parties were bogus in nature and accordingly made addition of Rs.1,00,43,601 u/s 69C of the Act.
Aggrieved by the assessment order, assessee preferred appeal before the CIT(A). Before the CIT(A), the assessee submitted that purchases from the alleged hawala dealers are supported by proper tax invoices and payments of such purchases have been made through proper banking channels. The AO has made additions only on the basis of report of DGIT(Inv) ignoring the fact that the assessee has filed complete set of documents in order to prove purchases from those parties. The Ld.CIT(A), after considering submissions of the assessee and also relying upon certain judicial precedents, came to the conclusion that although the assessee has filed certain basic details like purchase bills and payment proof, but failed to file further evidences in the backdrop of clear findings from the DGIT(Inv) which was supported by the report of Sales-tax Department where it was categorically stated that the parties were involved in providing accommodation entries of purchase bills without there being any actual business activity. Therefore, he came to the conclusion that purchases from those parties were bogus in nature and accordingly there was no reason to interfere with the finding of facts recorded by the AO. Accordingly, he confirmed addition made by the AO towards disallowance of bogus purchases u/s 69C of the Act.
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The Ld.AR for the assessee, at the time of hearing, submitted that the Ld.CIT(A) was erred in confirming addition made by the AO towards alleged bogus purchases u/s 69C of the Act without any valid reasons. The Ld.AR further submitted that the assessee has filed complete details of purchases from the so-called hawala dealers including purchase bills and payments for such purchases have been made through proper banking channels. The AO, neither pointed out any discrepancy in books of account nor made out a case of sales outside books of account. In absence of any finding as to incorrectness in books of account, no adverse inference can be drawn against the assessee only on the basis of third party information, more so, when assessee has filed complete details of purchases.
The Ld.DR, on the other hand, strongly supporting the order of the Ld.CIT(A) submitted that the AO has brought out clear facts to the effect that purchases from those parties were bogus in nature which is further supported by the report of MVAT department, where the parties have admitted that they were involved in providing accommodation entries. The Ld.DR further submitted that in this case, in addition to issue of notices u/s 133(6), the AO has brought out further clinching evidence in the form of analysis of bank statements, where the assessee claims to have issued cheques to X party, but the bank statement shows cheques were issued to Y party. The assessee has 6 ITA 6160/Mum/2017 failed to contradict any of the findings of fact recorded by the AO in order to claim that purchases from those parties are genuine, which are supported by evidence. Therefore, the Ld.CIT(A) was right in confirming addition made by the AO and his order should be upheld.
We have heard both the parties, perused the materials available on record and gone through the orders of authorities below. The AO has made addition towards alleged bogus purchases on the basis of information received from DGIT(Inv), Mumbai, which was further supported by report of MVAT which established the modus operandi of certain dealers, who were involved in providing accommodation entries. The AO, on the basis of information received from DGIT(Inv) coupled with further enquiries conducted during the course of assessment proceedings, came to the conclusion that purchases from the above parties were bogus in nature. According to the AO, mere filing purchase bill and payment by cheque against such purchases are not sufficient to prove genuineness of transaction, when the evidences collected during the course of assessment proceedings proved otherwise. It is the claim of the assessee that merely for the reason that parties were not responded to notice u/s 133(6), no adverse inference could be drawn against the assessee when assessee has discharged its initial burden by filing purchase bills and payment proof.
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Having heard both the sides and considered material on record, we find that the AO has not concluded his investigation by reaching to a conclusion by carrying out required enquires to ascertain the true nature of transactions between the assessee in light of report of MVAT. On the other hand, the assessee also failed to file further evidences except purchase bills and bank statement to prove the genuineness of transactions between parties in the backdrop of clear findings from MVAT coupled with enquiries conducted during the course of assessment proceedings, where none of the parties were found.
Under these facts, it is difficult to accept the arguments of the assessee that purchases from the alleged hawala dealers were genuine which were supported by necessary evidence. At the same time, it is difficult to accept the findings of the AO in toto only on the basis of issue of notice u/s 133(6) to the alleged hawala dealers. Under these facts, the only way out is to settle the dispute by estimating certain percentage of income out of alleged bogus purchases. The co-ordinate benches of ITAT, Mumbai in a number of cases, by following the decision of Hon’ble Gujarat High Court in the case of CIT vs Simit P Sheth (2013) 356 ITR 451 (Guj) has directed the AO to estimate net profit of 12% to 15% depending upon facts of each case. In this case, the assessee is into the business of manufacturing and trading of transformer spare parts.
Therefore, considering the nature of business of the assessee and also the fact
8 ITA 6160/Mum/2017 that neither of the parties has conclusively proved the fact in their favour, to resolve the dispute, we are of the considered view that a reasonable amount of profit on alleged bogus purchases needs to be estimated. Hence, we direct the AO to estimate 12.5% net profit on alleged bogus purchases.
The assessee has raised a legal ground challenging validity of reopening of assessment in light of decision of Hon’ble Supreme Court in the case of GKN Driveshafts India Ltd vs ITO and Ors 259 ITR 19 (SC). The Ld.AR for the assessee, at the time of hearing submitted that if the bench has considered estimation of reasonable profit on alleged bogus purchases, he would not press the legal ground taken challenging validity of reopening of assessment. Since we have already directed the AO to adopt 12.5% profit on alleged bogus purchases, the legal ground taken by the assessee challenging validity of reopening of assessment is dismissed, as withdrawn.
In the result, the appeal filed by the assessee is partly allowed.
Order pronounced in the open court on 27-03-2019.