DEPUTY COSIONER OF ICOME TAX 9(1)(1), MUMBAI vs. M/S.ABHISHEK MILLENNIUM CONTRACTS PRIVATE LIMITED, MUMBAI

M/s Abhishek Mellennium DCIT 9(1)(1), R. No. 260a, 2ND floor, Contracts Pvt. Ltd. बिधम/ A-206, Oberoi Chambers, Aayakar Bhavan, Opp-SAB Tv Off, New Vs. Mumbai-400 020 Link road, Andheri West, Mumbai-400 005 स्थायीलेखासं./जीआइआरसं./ PAN No. AAECA7004P (अपीलाथी/Appellant) (प्रत्यथी / Respondent) : अपीलाथीकीओरसे/ Appellant : Shri Satishchandra Rajore, DR by प्रत्यथीकीओरसे/Respondentby : Shri Ravindra Poojari, AR सुनवाईकीतारीख/ : 22.01.2019 Date of Hearing घोषणाकीतारीख / : 20.03.2019 Date of Pronouncement आदेश / O R D E R

Per Sandeep Gosain, Judicial Member:

M/s Abhishek Mellennium Contracts Pvt. Ltd. 1. Whether in the facts and circumstances of the case and in law, the Id.CIT(A) erred in restricting the addition at Rs. 9,85,338/- which is @12.5% of disputed purchase of Rs. 78,82,704/- and giving relief amounting to Rs. 68,97,366/-to the assessee?

2. Whether in the Id. CIT (A) has failed appreciate the judgement of the Hon’ble Apex Court in the case of N.K. Proteins Vs. DCIT SLP Nos. 769 of 2017 dated 16.01.2017 wherein the addition on account of bogus purchase has been enhanced to 25% ?

The appellant prays that the order of the CIT(A) on the above ground above set aside and that of the A.O. be restored.

The appellant craves leave to amend or alter any grounds or add a new ground which may be necessary.

M/s Abhishek Mellennium Contracts Pvt. Ltd. and an order u/s.143(3) r.w.s.147 of the Income tax Act, 1961 was passed on 30.03.2015 assessing the total income of the assessee at Rs. 3,70,67,8207- whereby the purchases for an amount of Rs.78,82,704/- were disallowed by the A.O. by treating them as bogus purchases.

M/s Abhishek Mellennium Contracts Pvt. Ltd.

6.28 The facts in the present case are similar to the facts in the above mentioned case. In the present case, the Ld. AO has shown that the party in question was nonexistent. The appellant has not been able to disprove the findings of the Ld. AO regarding the non- existence of the party. However, Ld. AO after examining the evidences did not give any adverse finding that the appellant had not shown consumption/sales of the goods and that it had not offered the income on such sale of goods. In this case, Ld. A.O. not having doubted the genuineness of sales

M/s Abhishek Mellennium Contracts Pvt. Ltd. could not have gone ahead and made addition in respect of the entire purchases as it would lead to absurd profits. Thus, the issue would boil down to finding out the element of suppressed profit embedded in purchases which the appellant would have made from some unknown or bogus entities. Hence, following the decision of the Hon'ble Gujarat High Court in Bholanath Polyfab Pvt. Ltd. (supra), the estimated suppressed profit margin embedded in such amounts of purchases could only be disallowed and subjected to tax.

6.29 Similarly, in yet another decision of Hon'ble Gujarat High Court in the case of CIT vs. Simit Sheth (2013) 38 Taxmann.com 385 (Guj), Hon'ble Court was seized with a similar issue where the A.O. had found that some of the alleged suppliers of steel to the assessee had not supplied any goods but had only provided sale bills and hence, purchases from the said parties were held to be bogus. The A.O. in that case added the entire amount of purchases to gross profit of the assessee. Ld. CIT(A) having found that the assessee had indeed purchased though not from named parties but other parties from grey market, partially sustained the addition as probable profit of the assessee. The Tribunal however, partly sustained the addition. Taking into account the above facts, the Hon'ble

M/s Abhishek Mellennium Contracts Pvt. Ltd. Gujarat High Court held that since the purchases were not bogus, but were made from parties other than those mentioned in books of accounts, only the profit element embedded in such purchases could be added to the assessee's income and as such no question of law arose in such estimation. While arriving at the above conclusion, the Hon’ble Court also relied on the decision in the case of Vijay M. Mistry Construction Ltd. 355 ITR 498 (Guj) and further approved the decision of Ahmedabad Bench, IT AT in the case of Vijay Proteins 58 ITD 428.

6.30 In the case of Vijay Proteins (supra), the Hon'ble ITAT was seized with a case of bogus suppliers of oil cakes where 33 parties were found to be bogus by the departmental authorities even though payments were made to the said parties by cross cheques and in fact the A.O, in that case had brought adequate material on record to prove that the cross cheques had not been given to parties from whom supplies were allegedly procured but these were encashed from a bank account in the name of another entity, possibly hawala dealer. Subsequently, the money deposited in that account was withdrawn in cash almost on the same day. The Tribunal however, held that if the purchases were made from open market without insisting for genuine bills, the suppliers may be willing to sell the product at M/s Abhishek Mellennium Contracts Pvt. Ltd. a much less rate as compared to a rate which they may charge in which the dealer has to give genuine sale invoice in respect of that sale. Keeping all such factors in mind, the Tribunal estimated an element of profit percentage of the overall purchase price accounted for in the books of accounts through fictitious invoices,

6.31 As narrated earlier, the Ld. A.O. in this case has held that the parties from whom the purchases were made by the appellant were found to be bogus and that is the reason for which it was not produced during the assessment proceedings. Not having doubted the consumption/sales, the motive behind obtaining bogus bills thus, appears to be inflation of purchase price so as to suppress true profits. Considering the facts of the case as well as the various case laws cited (supra), I estimate the suppressed profit to the extent of 12,5% of the purchases made from the bogus entities, as the suppressed profit element embedded in such purchases. This estimation is in addition to the GP shown by the appellant. Accordingly, this ground of appeal is partly allowed.

7. After having gone through the facts of the present case and hearing the parties at length, we find that although the Ld. CIT(A) had considered all the judgments referred by both the M/s Abhishek Mellennium Contracts Pvt. Ltd. parties, but as per the facts of the present case, the AO had shown the parties from whom the assessee had purchased material as ‘non-existence’. At the same time, the AO after examining the evidences produced by the assessee could not give any adverse finding that the assessee had not shown consumption/sales of the goods and that it had not offered the income on such sale of goods.

8. In our view, once the AO had not doubted the genuineness of sales, then in that eventuality, AO could not have gone ahead and made addition in respect of the entire purchases as it would lead to absurd profits. Ld. DR although had specifically argued that Ld. CIT(A) had failed to appreciate the judgment of Hon’ble Apex Court in the case of N. K. Proteins Vrs. DCIT, wherein addition on account of bogus purchase has been enhanced to 25%. But at the same time, after considering the facts of the present case, we find that Ld. CIT(A) had discussed and relied upon all the judgments which are on the identical grounds containing similar circumstances. Since in the present case, Ld. CIT(A) had held that since the purchases were made from the M/s Abhishek Mellennium Contracts Pvt. Ltd. parties other than those mentioned in books of accounts, therefore in such circumstances, only the profit element embedded in such purchases could be added to the assessee's income. On this proposition, we draw strength from the judgment in the case of CIT vrs. Simit Shet (2013) 38 taxmann.com 385 (Guj). We have also considered the judgment of Hon’ble Apex Court in the case of N. K. Proteins Vrs. DCIT, but the facts of that case was altogether different. We have also considered the judgment in the case of Vijay M. Mistry Construction Ltd. 355 ITR 498 (Guj) and in that case also, the facts of the case are different from the facts of the present case. In that case, A.O had brought adequate material on record to prove that the cross cheques had not been given to parties from whom supplies were allegedly procured but these were encashed from a bank account in the name of another entity, possibly hawala dealer. Further, as per the facts of that case, the money deposited in that account was withdrawn in cash almost on the same day. Therefore, in the said case, it was held that if the purchases were made from open market without insisting for genuine bills, the suppliers may be willing to sell the product at a much less rate as compared to a M/s Abhishek Mellennium Contracts Pvt. Ltd. rate which they may charge in which the dealer has to give genuine sale invoice in respect of that sale. Hence keeping all these factors in mind, the court estimated an element of profit percentage of the overall purchase price accounted for in the books of accounts through fictitious invoices, therefore all the facts in that case are also distinguishable.

9. The AO in this case had held that the parties from whom the purchases were made by the assessee were found to be bogus, but at the same time the AO had not doubted the consumption/sales. Therefore under such circumstances, Ld. CIT(A) had rightly concluded that motive behind obtaining bogus bills thus, appears to be inflation of purchase price so as to suppress true profits. Hence Ld. CIT(A) had rightly estimated the suppressed profit to the extent of 12.5% of the purchases made from the bogus entities, as the suppressed profit element embedded in such purchases.

10. Moreover, no new facts or contrary judgments have been brought on record before us in order to controvert or rebut the M/s Abhishek Mellennium Contracts Pvt. Ltd. findings so recorded by Ld CIT (A). Therefore, there are no reasons for us to interfere into or deviate from the findings recorded by the Ld. CIT (A). Hence, we are of the considered view that the findings so recorded by the Ld. CIT (A) are judicious and are well reasoned. Resultantly, this ground raised by the revenue stands dismissed.