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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SHRI B. R. BASKARAN, AM & SHRI AMARJIT SINGH, JM
O R D E R
PER AMARJIT SINGH, JM:
The assessee has filed the present appeal against the order dated 02.08.2016 passed by the Commissioner of Income Tax (Appeals)-29 Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the AY. 2009- 10.
The assessee has raised the following grounds: - “1. In the facts and circumstances and in law, the impugned assessment order is patently illegal passed in violation of provisions of section 143(2), non-compliance of mandate given by Hon. SC [259 ITR 10 pg. and non-compliance of principle of natural justice and thus liable to be quashed.
ITA. No.494/M/17 A.Y.2009-10
2. In the facts and circumstances and in law, the Ld. AO erred in adding Rs.78,19,735/- u/s 69C of the Act as unexplained expenditure and thus the said addition is l liable to be 3. In the facts arid circumstances and in law. the Ld. AO erred in initiating penalty proceedings u/s 27l(l)(c) for furnishing of inaccurate particulars of Income and for concealment of income on addition made u/s 69C as unexplained expenditure. 4. The CIT(A) erred in deleting the first grounds of appeal
regarding impugned assessment order which is illegal passed in violation of provisions of section 143(2). Thus the order passed is liable to declared as non-est. 5 The CIT (A) erred in making addition @ 12.5% of alleged bogus purchases of Rs,78,19,735/- as profit element embedded in the said purchases. The addition made is bad in law and liable to be deleted.
6. The Ld. Assessing officer erred in levying interest u/s, 234B and u/s.234C.
7. The appellant craves leave to add. amend, alter or delete any of the above grounds of appeal.”
3. The brief facts of the case are that the assessee filed its return of income for the A.Y.2009-10 on 23.09.2009 declaring total income to the tune of Rs.5,43,214/-. The return was processed u/s 143(1) of the I.T. Act. Thereafter, the case of the assessee was reopened after the issuance of notice u/s 143(1) of the Act. Statutory notices u/s 143(2) and 142(1) of the Act were issued and served upon the assessee. The case was reopened on the basis of information received from DGIT, Mumbai in which it was conveyed that the assessee took the accommodation entries to the tune of Rs.78,19,735/- from M/s. Om Shanti Trading Co. Thereafter, considering the reply of the assessee, the said bogus purchase to the tune of Rs. 78,19,735/- was added to the income of the assessee. Thereafter, the assessee filed an appeal before the CIT(A) who restricted the bogus A.Y.2009-10 purchase to the extent of 12.5%, the assessee was not satisfied, therefore, the assessee has filed the present appeal before us.
ISSUE NOs.1, 3 & 4:- 4. At the time of argument, these issues have not been pressed by the assessee, therefore, these issues are being decided in favour of the revenue against the assessee being not pressed.
ISSUE NOs.2 & 5:- 5. Under these issues the assessee has challenged the addition to the extent of 12.5% of alleged bogus purchase to the tune of Rs. 78,19,735/-. The Ld. Representative of the assessee has argued that the assessee is in the business of wholesale and retail in gold bullion and gold jewellery ornaments in which the profit ratio is very less, therefore, restricting the addition to the extent of 12.5% of the bogus purchase is very higher side, therefore, the same is liable to be reduced or set aside in view of the decision of Hon’ble ITAT in the case of CIT Vs. Nikunj Eximp Enterprises (P.) Ltd (2015) 372 ITR 0619. However, on the other hand, the Ld. Representative of the Department has refuted the said contentions. In view of the argument advanced by the Ld. Representative of the parties and perusing the record, we noticed that the assessment of the assessee was reopened on the basis of the information received from the Sales Tax Department in which it was conveyed that the assessee took the accommodation entries with regard to bogus purchase to the tune of Rs. 78,19,735/- from M/s. Om Shanti Trading Co. After the receipt of the information, the AO nowhere sent the notice to M/s. Om Shanti traders in A.Y.2009-10 view of the provision of Section 133(6) of the Act. In support of the notice issued by the AO, the assessee submitted the ledger of the parties with tax invoices, bank statement etc., which nowhere considered and discussed by the AO in his order. The AO raised the addition fully to the tune of Rs. 78,19,735/-. However, in appeal the CIT(A) has restricted the addition to the extent of 12.5%. The assessee is in the profession of wholesale cum retailer in gold bullion and gold jewellery ornaments. The books of account was not rejected by the AO. The existing gross profit ratio was @ 0.82% in the relevant assessment year. In the last year gross profit ratio was 0.98%. In case CIT Vs. Nikunj Eximp Enterprises (P.) Ltd (2015) 372 ITR 0619 it is held that when the assessee have filed letter of confirmations of the suppliers, Bank statements highlighting the payment entries through account payee cheque, copies of invoices, stock reconciliation statements before the AO and merely because the suppliers did not appear before the AO, one cannot conclude that the purchases were not made by the assessees. The AO cannot disallow the purchases on the basis of suspicion because the suppliers were not produced before them. The Ld. Representative of the assessee has also relied upon the case titled as Jitendra M. Kitavat Vs. ITO Mumbai in ITA. No.7049 & 7050/M/2016 dated 13.04.2018. The relevant portion is hereby reproduced below.;- “We have considered the issue and examined the facts on record. It is noticed that the Assessing Officer disallowed the entire purchases from 35 parties for the reason that they are not verifiable holding them as non-genuine parties in this Assessment Year, whereas purchases from similar parties/same parties in earlier years and later year were not disallowed but, GP was assessed on the entire turnover at 4.5%. The CIT (A) while deleting the A.Y.2009-10 entire purchases disallowed this year. In other years GP was restricted to 3% of the tainted purchases. This issue was considered by the ITAT in a batch of appeals in ITA Nos.3024 to 3028/Mum/2008 vide Para 7 as under: "7. We have carefully perused and considered the facts of the case, rival submissions and relevant record. The Assessing Officer applied the G.P.@ 4.5% on the entire sales turnover including the alleged bogus sales and consequently, made addition to the total income of the as, over and above the net profit shown, in the P&L account, for the respective Assessment Years. Such addition made by the Assessing Officer on the basis of GP rate applied to the entire sales is not legally and factually tenable. The element of inflation in purchases can be possible only in respect of such bogus purchases. The estimation and application of uniform G.P @ 4.5% on the entire sales of the assessee is not reasonable and not in consonance with the facts of the present case, as the entire purchases and entire sales were not non- genuine. The said G.P rate may not be applicable, in respect of export business. The Assessing Officer has treated the purchases from the alleged 16 parties as bogus purchases. No adverse finding has been given by the Assessing Officer in respect of remaining purchases. Therefore, uniform estimation and application of GP @ ITA NO.6178 of 2007 Jitendra S Motani Mumbai 4.5% is not sustainable. In view of this, we are of the considered opinion that the GP rate applied by the learned CIT (A) at 3% in respect of tainted purchases is fair and reasonable. Therefore, the findings of the learned CIT (A) in respect of all the assessment involved in the present appeals are upheld and the appeals of the revenue for all the Assessment Years are dismissed".
In view of this, disallowance of purchases by the AO is not correct and to that extent the CIT (A) order is to be upheld. Not only that the details of the verification of PAN of some cases have been placed on record which do indicate that the PAN is matching in many of the confirmations filed by the assessee. There may be certain ITA. No.494/M/17 A.Y.2009-10 name differences due to reason that those assessee's may be operating under a different proprietorship name where as PAN might have been in individual name, like the case of the assessee. The assessee is running business in the name and style of Nitin Impex and bills are being issued in this name, whereas the PAN is in the assessee's own name. So if there is verification, only the name of the assessee would come on record and not M/s Nitin Impex. This sort of differences in name cannot be a reason for holding that the parties are not genuine. Only when a non existing PAN is reported, then only the requirement of the complete verification is required. There are very few entries of such nature in the list. Therefore disallowance of purchases in its entirety is not justified unless it is established that those parties are nonexistent and bogus. No such enquiry was done to establish.
It is also noticed that the Assessing Officer himself has estimated the income at 4.5% of the GP in all the years AY 2000-01 to AY 2006-07 except in this year. The estimation of GP was ultimately confirmed at 3% on the tainted purchases. To be consistent with orders in other years, in this year GP estimation at 3% on the entire amount of tainted purchases would justify the facts of the case. of 2007 Jitendra S Motani Mumbai 8. In the course of the arguments the learned Counsel however, submitted that the assessee has furnished confirmations to a large extent and purchases to the extent of `1,02,51,203/- should be excluded in case estimation was resorted to. We find that the confirmations filed by the assessee includes an enterprise M/s Nisha Enterprise in whose case the CIT vide page 10 of the order gave a finding that the purchases cannot be accepted as genuine. Even though, purchases from the above Nisha Enterprises was considered as non genuine, the CIT (A) however deleted the entire amount considered by the Assessing Officer. Therefore, considering these fact of purchases from M/s Nisha Enterprises to the tune of `.7,07,975/-, we are of the opinion that estimation of 3% GP on the total ITA. No.494/M/17 A.Y.2009-10 purchases so disallowed at `.7,48,42,474/- would justify on the given facts and is consistent with the orders in other years. 9. The assessee raised a ground as per rule 27 of the Appellate Tribunal Rules in respect of set off of additions sustained under section 69 against the addition made on the reason that if the above contention is not raised there would be double addition. The ground raised
under rule 27 is as under: "1. The assessee submits that set-off of `.16,76,200/- (Peak cash credit) may be allowed against gross profit addition (if any) to avoid double addition".
10. The assessee claimed set off of peak cash deficit and suppressed the cash balance against the addition on account of bogus purchases vide Ground No.4 (S.No.11) before the CIT (A). The CIT (A) dismissed the ground stating as under:- "6.1 According to the appellant, the learned Assessing Officer erred in making double addition on account of bogus purchases and then peak of cash deficit and again on suppressed cash balance which cannot be sustained. I have considered this argument. I find that since the addition on account of bogus purchases have not been sustained, this ground of appeal becomes infructuous. Hence it is dismissed". of 2007 Jitendra S Motani Mumbai
11. It was the submission of the learned Counsel that in case the GP addition is considered as in other years in the revenue appeal, the assessee can contest the double addition made on the amount of peak cash deficit sustained by the CIT (A) on which the assessee has not preferred any appeal. It was his contention that if any addition is made on GP basis to the returned income, the peak cash deficit taxed at `.16,76,200/- should be given set off. The learned Departmental Representative however submitted that the dates of peak cash deficit and the GP ITA. No.494/M/17 A.Y.2009-10 on the bogus purchases vary and set off can not be allowed in the absence of co-relation between the GP income and income brought to tax as peak cash deficit.
12. We have considered the issue. As per rule 27 of the ITAT Rules the respondent though may not have appealed may support the order appealed against on any ground decided against him. Since the ground of double addition was dismissed by the CIT (A) on the reason that the addition of bogus purchases was deleted, the assessee has a right to contest that ground under rule 27. Accordingly, the assessee's objection on rule 27 is to be considered. The details of peak cash deficit and the dates on which the same were worked out and also the GP profits which might be earned in the case of the assessee could not be correlated before us. Therefore, we are not in a position to direct the Assessing Officer to give telescoping benefit of this amount which was taxed as peak cash deficit to the GP addition being made in the Revenue appeal. However, the assessee is free to furnish the revised working before the Assessing Officer to claim any set off, if the assessee is in a position to explain the earnings of GP to the cash availability with the assessee. The Assessing Officer is directed to examine the same before considering the benefit of telescoping.
13. With these directions, the appeal is considered partly allowed. The Assessing Officer is directed to bring to tax 3% of the of 2007 Jitendra S Motani Mumbai GP on the tainted purchases, as was done in earlier years and later year as upheld by the ITAT. The grounds are determined accordingly.” In the said case also the assessee is in the profession of Wholesaler cum retailer in gold bullion and gold jewellery. The existing GP ratio is 0.82% and last year GP ratio was 0.98%. On bogus purchase, the VAT if any involved @ 1%. The profit embedded to the bogus purchase should not be more than 5%. We are of the view that it would be justifiable if, the ITA. No.494/M/17 A.Y.2009-10 addition be restricted to the extent of 5% bogus purchase. Accordingly, we set aside the finding of the CIT(A) on the issue and restricted the addition to the extent of 5% of Rs. 78,19,735/-. Accordingly, these issue are decided in favour of the assessee against the revenue.