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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY, JM & SHRI MANOJ KUMAR AGGARWAL, AM
Per Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by assessee for Assessment Year [AY] 2009-10 contest the order of Ld. Commissioner of Income-Tax (Appeals)-29 [CIT(A)], Mumbai, Appeal No.CIT(A)-29/IT-107/ITO-18(2)(4)/14-15 dated 23/11/2016 qua confirmation of certain addition on account of alleged ITA.No.107/Mum/2017 Nilesh Rameshchandra Shah Assessment Year-2009-10 bogus purchases. Although the assessee has raised multiple original grounds as well as additional grounds, however, only the following grounds have been urged before us during hearing by Ld. Authorized Representative [AR] for assessee, Shri N.M.Porwal:-
1. On the facts and in the circumstances of the case, the CIT(A) erred in confirming the addition at 12.5% of the alleged bogus purchases.
2. The CIT(A) erred in not appreciating that the information received from Director General of Income-tax, Mumbai was made the basis for reopening the assessment without there being any independent application of mind by the A.O.
3. The CIT(A) erred in not appreciating that except for assertion that there were bogus purchases, the A.O. has not referred to any material on the basis of which he proceeded to invoke the provisions of Section 147 of the Income-tax Act. The assertion made by the A.O. is a bare one, without any reference to the material on the basis of which he made such assertion.
4. On the facts and in the circumstances of the case and in law, the CIT(A) erred in not appreciating that if after issuing a notice u/s.148, A.O. accepted the contention of the assessee and holds that the income which he has initially formed a reason to believe had escaped assessment, has as a matter of fact not escaped assessment, it is not open to him to independently assess some other income (Bombay High Court judgment in the case of CIT vs. Jet Airways (I) Pvt.Ltd- 331 ITR 0236).
5. The CIT(A) erred in not appreciating that on the basis of statements recorded of Sales-tax Department, A.O. had reason to believe that the suppliers of the assessee are bogus and that purchases have been inflated whereas the A.O. has made additions towards unexplained cash u/s.69C instead of addl. Profits towards inflated purchases debited to P&L A/c. which is not permitted.
2.1 The assessment for impugned AY was framed by Ld. Income Tax Officer 14(1)(1), Mumbai [AO] u/s 143(3) read with section 147 vide order dated 27/08/2014 wherein the income of the assessee has been assessed at Rs.13.45 Lacs after certain addition of alleged bogus purchases u/s 69C for Rs.11.13 Lacs as against returned income of Rs.2.31 Lacs filed by the assessee on 15/09/2009. The original return was processed u/s 143(1). During impugned AY, the assessee being ITA.No.107/Mum/2017 Nilesh Rameshchandra Shah Assessment Year-2009-10 resident individual was engaged as trader of steel under proprietorship concern namely Niton Steel & Alloys. 2.2 The reassessment proceedings were initiated vide issuance of notice u/s 148 dated 14/03/2014 pursuant to receipt of certain information from the Sales Tax Department, Maharashtra wherein it was found that the assessee stood benefitted of alleged bogus purchases aggregating to Rs.28.61 Lacs from four parties, the details of which have already been extracted at para-2 of the quantum assessment order. The assessee offered the original return of income in response to notice u/s 148. The Ld. AR, before us, duly admitted that the copy of the reasons recorded to initiate reassessment proceedings were duly supplied to the assessee during re-assessment proceedings. 2.3 Accordingly, the assessee was asked to substantiate the purchase transactions as well as to produce the suppliers to confirm the purchase transactions. In response, the assessee while filing the copies of invoices, ledger account and bank statements evidencing payments to the supplier expressed inability to produce any of the party to confirm the transactions. The assessee also failed to provide last known addresses and residential addresses of the suppliers. The assessee defended the proposed addition u/s 69C by submitting that the goods were actually purchased and the same were accounted for in the stock register. The sales turnover achieved by the assessee was not disputed. The overall factual matrix led the Ld. AO to believe that the goods were sourced from unregistered dealers in the open market whereas the bills were procured from hawala dealers. It was also noted that the assessee paid Value Added Tax [VAT] of Rs.1.10 Lacs to the Sales Tax Authorities ITA.No.107/Mum/2017 Nilesh Rameshchandra Shah Assessment Year-2009-10 against wrong input credit claimed against these alleged bogus purchases. Finally, Ld. AO worked out the peak credit availed by the assessee from alleged hawala parties which came to Rs.11.13 Lacs and added the same to the income of the assessee u/s 69C. In other words, Ld. AO opined that the assessee used maximum unaccounted cash of Rs.11.13 Lacs to purchase the goods from the open market while booking a total purchase of Rs.25.61 Lacs from such hawala parties.
Aggrieved, the assessee agitated the same without any success before Ld. CIT(A) vide impugned order dated 23/11/2016 wherein the Ld. CIT(A), relying upon several judicial pronouncements, instead of peak credit, restricted the impugned additions to 12.5% of the alleged bogus purchases. Aggrieved, the assessee is in further appeal before us.
The Ld. Authorized Representative for Assessee [AR], Shri N.M.Porwal, drawing our attention to the documents placed in the paper book contested the addition which has been controverted by Ld. Departmental Representative [DR], Shri Asghar Zain VP.
We have carefully heard the rival contentions and perused the relevant material on record including documents placed in the paper book and judicial pronouncements as cited before us. We are of the considered opinion that there could be no sale without actual purchase of material since the assessee was engaged in trading activities. The sales turnover achieved by the assessee has not been disturbed by the revenue and the payments were through banking channels. The assessee was in possession of primary purchases documents. At the same time, the assessee could not produce even a single party to confirm the transactions and even failed to provide the addresses of the ITA.No.107/Mum/2017 Nilesh Rameshchandra Shah Assessment Year-2009-10 suppliers so as to enable further investigation by Ld. AO. The delivery of the material could not be substantiated despite the fact that the assessee was dealing in item like steel. All these factors cast a serious doubt on assessee’s claim. Therefore, in such a situation, the addition, which could be made, was to account for profit element embedded in these purchase transactions to factorize for profit earned by assessee against possible purchase of material in the grey market and undue benefit of VAT against such bogus purchases, which first appellate authority has rightly done. However, keeping in view the fact that the assessee was dealing in price sensitive item like Steel, we find the estimation of 12.5% to be on the higher side. We restrict the same to 8% of alleged bogus purchases of Rs.25,61,087/- which comes to Rs.2,04,887/-. Ground number-1 stand partly allowed.
The Ld. AR has also agitated the reassessment proceedings on legal grounds from various angles. So far as the reassessment jurisdiction is concerned, we find that the original return was processed u/s 143(1) and the reopening has been done within a period of four years. Therefore, the only requirement, in such a case, to acquire the valid jurisdiction was that the Assessing Officer had reasons to believe that certain income escaped assessment. The tangible material in the shape of information from Sales Tax Department came to the possession of Ld. AO which led the Ld. AO to form the requisite belief. The copies of reasons were duly supplied to the assessee during proceedings. By utilizing the tangible material, Ld. AO formed the belief that certain income escaped assessment and therefore, he proceeded to reassess the income on the basis of this tangible information. After ITA.No.107/Mum/2017 Nilesh Rameshchandra Shah Assessment Year-2009-10 analyzing the factual matrix, Ld. AO made addition of peak credit u/s 69C on the premise that material was purchased in cash from the open market whereas the accommodation purchase bills were procured from the alleged hawala dealers. The Ld. CIT(A) while confirming the stand of Ld. AO, estimated the additions @12.5% instead of peak credit keeping in view several judicial pronouncements and therefore, there was no new addition made by Ld. CIT(A) as is alleged by Ld. AR before us. Only the method of estimation has been modified by Ld. CIT(A) and nothing more. Nevertheless, the addition as made by both the lower authorities spring out of the fact that the assessee, as per the information of Sales Tax Authorities, was found to be indulging in procuring accommodation bills from certain parties. Therefore, we do not find any substance in the legal arguments as raised by Ld. AR before us. Ground numbers 2 to 5 stand dismissed.
Resultantly, the appeal stand partly allowed. Order pronounced in the open court on 10th October, 2018.