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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Before: SHRI R. C. SHARMA, AM & SHRI AMARJIT SINGH, JM
सुनवाई की तारीख / Date of Hearing: 05-07-2018 घोषणा की तारीख /Date of Pronouncement: 29.08.2018 आदेश / O R D E R
PER AMARJIT SINGH, JM:
The revenue has filed the present appeal against the order dated 30.12.2016 passed by the Commissioner of Income Tax (Appeals)-25, Mumbai [hereinafter referred to as the “CIT(A)”]. relevant to the Assessment Year 2008-09.
The revenue has raised the following grounds: - “1) On the facts and in the circumstances of the case, the Ld. CIT(A) erred in deleting the addition of Rs.4,51,839/- on account of bogus purchases.
ITA. No.1712M/2017 A.Y. 2008-09 2} On the facts and circumstance of the case the Ld. ClT(A) erred in not considering the fact that the assesses was unable to prove the genuineness of the purchases and has Tailed to produce the hawala parties for examination before the AO despite having been given opportunity and time to do so. 3) On the facts and circumstance of the case the Ld. CIT(A) failed to appreciate the fact that the details furnished by the assesses are of the nature of secondary evidence and no primary evidence in the form of producing the relevant parties has been done to prove the genuineness of the purchases. 4} On the facts and circumstance of the case the Ld, ClT(A) has failed to appreciate the findings of the Assessing Officer that the purchases have been made out of undisclosed income and the same remained unexplained which required to be added to the total income of the assessee. 5) On the facts and circumstance of the case the Ld. ClTtA) erred in sustaining the addition only to the extent of Rs.1,12,960/- by taking the 20% of the bogus purchases of Rs,5,64,799 /- and not considering the fact that the entire purchases are bogus, 6) On the facts and circumstance of the case the Ld. CIT(A) has erred by asking the AO not to reduce only Rs.1.02.280/- from WIP instead of Rs.63,41,202/-. Since the AO has factually proved the non-genuineness of assessment proceedings. 35 unsecured Joan parties during the 7) On the facts and circumstance of the case the appellant craves leave to amend or 8) The appellant prays that the order of the CIT(A) on the above grounds be reversed and that of the Assessing Officer be restored.”
The brief facts of the case are that the assesse filed its return of income on 02.12.2008 declaring total income to the tune of Rs.22,58,203/- for the A.Y.2008-09. Notice u/s 148 of the Act dated 16.02.2012 was issued and served upon the assessee. In response to the said notice, the assessee filed the return income which he had filed on 02.12.2008. Thereafter, notice u/s 143(2) of the Act on 24.01.2013 and notice u/s 142(1) of the Act were issued and served upon the assessee. The assessee was engaged in the business of construction. On verification, it was noticed that the assessee has purchased the material from 3 parties to the tune of Rs.5,64,799/-. The assessee purchased the material from Shri Ajay Stone to the tune of Rs.3,09,818/-, Raj Traders to the tune of Rs.1,30,493/- & Riya Enterprises to the tune of Rs.1,24,488/- and the total to the tune of A.Y. 2008-09 Rs.5,64,799/-. Notice u/s 133(6) of the I.T. Act, 1961 were issued but no one responded to the said notice. The assessee was asked to prove the genuineness of the claim but the assessee failed to prove the identity of the parities and to prove the genuineness of the claim, therefore, the said purchase was treated as bogus and added to the income of the assessee. The assessee also secured the loan to the tune of Rs.2.28 crores in the A.Y. 2009-10 which was unexplained cash credit u/s 68 of the Act and added to the income of the assessee. The interest to the tune of Rs.1,22,57,847/- was disallowed and reduced from work-in-progress (WIP). The appeal was pending before the CIT(A). Under the year assessment, the assessee has debited an amount of Rs.99,88,766/- being interest paid. The interest also includes the interest paid on unsecured loan taken during the year to the tune of Rs.32,48,924/-. The assessee furnished the loan confirmation, therefore, the interest paid on these loans to the tune of Rs.32,48,924/- was allowed. It was also noticed that the assessee has squared the loan in respect of 11 parties which have not been carried forward to A.Y. 2009-10, therefore, the interest to the tune of Rs.3,98,640/- was allowed. In view of the facts that the appeal before the CIT(A) for the assessment year 2009- 10 was pending therfore the interest of Rs.63,41,202/- pertaining to the loans on which the interest was disallowed in the A.Y. 2009-10 was disallowed and reduced from the WIP following the same action which was taken in the A.Y. 2009-10. The gross total income of the assessee was assessed to the tune of Rs.39,71,232/-. Thereafter, the assessee filed an appeal the CIT(A) who allowed the claim of the assessee, therefore, the revenue filed the present appeal before us. A.Y. 2008-09 ISSUE NOs.1 to5:-
Issue Nos. 1 to 5 are inter-connected therefore are being taken up together for adjudication. Under these issues, the revenue has challenged the deletion of the addition to the tune of Rs.4,51,839/-. The Assessing Officer has raised the addition on account of non- proving the genuineness of the claim of the purchase regarding the three parties i.e., (i) Ajay Ston to the tune of Rs.3,09,818/- (ii) Raj Traders to the tune of Rs.1,30,493/- (iii) Riya Enterprises to the tune of Rs.1,24,488/- and the total to the tune of Rs.5,64,799/-. The AO raised the total addition of bogus purchase and added to the income of the assessee. The CIT(A) restricted the claim to the extent of 20% of the bogus purchase in view of the law settled in CIT Vs. Nikunj Eximp Enterprises Pvt. Ltd. and CIT Vs. Simit P. Sheth of 2012 order dated 16.01.2013. Before going further, we deemed it necessary to advert the finding of the CIT(A) on this issues.: - “6.3 This ground of appeal relates to the disallowance of purchases made from the above mentioned parties amounting to Rs.5,64,799/- u/s 69C of the Act as unexplained expenditure. My observation is as under. 1. the AO has formed his view about the bogus nature of the purchases made by the appellant from the above parties on the basis of non-compliances of notices u/s 133(6) of the I.T. Act. In my opinion, only on the basis non-compliance of notices u/s T33(G) regarding above mentioned three parties, cannot be Taken as The sole basis to Treat the entire purchases from These parties as bogus or non-genuine. The AQ is required to make further in-depth independent investigation on the issue. On the given set of facts and circumstances and without appreciating The evidences submitted by ITA. No.1712M/2017 A.Y. 2008-09 the appellant during assessment proceedings, entire purchases from These parties cannot be held to be bogus. I! has not been appreciated that the goods shown To be purchased from these parties were used in the business of The appellant and without which, corresponding Turnover would not possible. Thus, there ought to be purchases made and hence, entire disallowance is not justified. b. in this regard. I find the ratio raid down by the Hon’ble High Court of Bombay in the case of CIT v. Nikunj Exlmp Enterprises (P.) Ltd., quite relevant wherein Hon'ble High Court has held that - 'When the assesses have filed letter of confirmations of the suppliers, Bank statements highlighting the payment entries through account payee cheque copies of stock reconciliation statements before the AC; and merely because the suppliers did not appear before the AQ, one cannot conclude that the purchases were not made by We assessee. The AQ cannot disallow the purchases on the basis of suspicion because the suppliers were not produced before them.' c. The facts and circumstances as outlined above, clearly suggest That the purchases of materials by the appellant cannot be doubted but a major lacuna in these transactions is the nature of the purchases from the parties in question, as they could not be located at the given addresses. Thus the purchases prices shown on These invoices are not subjected to verification and as such it was difficult to establish the correctness of the purchase prices paid for the materials purchased from them. Such verification of the sale price shown on the invoices/bills was necessary to ascertain the correctness of the profits shown by the appellant for the period under consideration. This verification was also vital to determine as to whether the purchase prices shown on the are as per prevailing market prices of The materials purchased and to ascertain that the price paid for the materials purchased from these parties are not over invoiced In the absence of any such verification of the correctness of the price paid for the materials purchased by The appellant, the purchase price paid as mentioned on the invoices/bills cannot be accepted as the correct price paid for the goods purchased from such parties. In view of the same, the possibility of over-invoicing of the materials purchased to reduce the profits, cannot be ruled out. Therefore, the gross profit rate shown by the appellant for the year under consideration cannot be relied upon In the circumstances, [he correct approach in such transactions would be to estimate the additional baneful or profile eared on these purchases and noi to disallow entire purchases from these parties. The disallowance of entire purchases from these parties would not be logical and would amount to travesty of justice. In my view either the purchases from thr-se parties are over invoiced or the purchases were actually made but not from the parties from which it was claimed to have been made and instead may have been purchased from grey market without proper billing or documentation.
ITA. No.1712M/2017 A.Y. 2008-09 d. As o! now The Issue of such types of unverifiable purchases have been much discussed and debated by the various courts and Tribunals. In many judicial pronouncements on The issue. The Courts have taken a consistent view that in case of non-existent parties from which the purchases are shown to have been made, onry part of such purchases can be disallowed, particularly in the such cases where the corresponding sales are not doubted. Alternatively, the profit embedded in such sales against the alleged bogus purchases should ba brought to tax. e. In the case of CtT-1 Vs Simit P. Shceh, of 2012, order dated 16.01.2013. while deciding a similar issue, the Hon'ble High Court ot Gujarat has held That: 'We are broadly in assessment with the reasoning adopted by the Commi (Appeals) with respect to the nature of disputed purchases of stifle. it may ha that thn three suppliers from whom the assesses claimed to have purchased the steel did not own up to such sales. Howsoever, vital question while considering whether the entire amount of purchases should be added back to the income of the assessee or only the profit element embedded therein was to ascertain whether the purchases themselves were completely bogus and non existent or that the purchases were actually made but not from the parties front whom it was claimed to have been made and instead may have been purchased from grey market without proper biting or documentation, In the present case, CIT believed that when as a trader in steel the assessee sold certain quantify of steel, he would have purchased the same quantity from some source. When the total sale is accepted by the Assessing Officer, he could not have questioned the very basis of the purchases in essence therefore, the Commissioner (Appeals) believed assessee theory that the purchases were not bogus but were made from the parties other than those mentioned in the books of accounts. That being the position, not the entire purchase price but only profit element embedded in such purchases can be added to the income of the assessee. So much is dear by decision of this Court. In particular, Court has also taken a similar view in case of Commissioner of Income Tax-IV vs. Vijay M Mistry Construction Ltd. vide order dated W.01, 2011 passed in Tax Appeal No. 1090 of 2009 and in case of Commissioner of Income Tax-I vs Bhofenath Poty Fab Pi/t Ltd vide order dated 23 10.2012 passed in Tax Appeal No. 63 of 2012. f. Similarly while dealing with an identical issue, in the case or CIT, Vs. Bhofanath Poly Fab (P) Ltd., ITA No. 63 of 2012, in the order dated 23/10/2012, the Hon’bles High Court of Gujarat has held as under:-
ITA. No.1712M/2017 A.Y. 2008-09 'We ere of the opinion that the Tribunal committed no error. Whether the purchases themselves were bogus or whether the parties from whom such purchases were allegedly made were bogus is essentially a question of fact. The Tribunal having examined the evidence on reason came to the conclusion that the assesses did purchase She doth and sell the finished goods, in that view of the matter, as natural corollary, not the entire amount covered under such purchase, but the profit element embedded therein would be subject to tax This was the view of this court in the case of Sanjay Qitcakd Industries v. C1T12009] 316 ITR 274 (Guj). Such decision is also followed by this court in a judgment dated August 16,2011, in Tan Appeal N0.67Q of 2010 in the case of CIT v. Kishor Amivtist PatiI in tfi& result, tax appeal is dismissed." g. In view of the facts and circumstances and (he judicial pronouncements cited above, what can be disallowed or (axed in The instant case, is the excess profit element embedded in such purchases shown to have been made from these parties. In this regard, the yardstick laid down by aforesaid judicial pronounce men Is by disallowing 20% of purchases as the benefit garnered in such unverifiable purchases where safes are not disapproved, is ? sound benchmark that is being adopted in the present case too. h. Therefore In the instant case, it is found that all the facts and circumstances outlined above lead to the conclusion that although The purchases made by the appellant from the three parties mentioned above during the year under consideration cannot be summarily rejected but at me same Time it difficult to accept that The purchases shown on the invoices/bills issued by these parties are as per the prevailing market price of those materials or actually been made from such parties and might have been purchased in the grey market, The appellant has not placed any evidence on record that the goods were purchased from the above parties at arms' length price. The appellant has also not placed on record any comparable bills/invoices for purchases of similar items made from other parties to establish that the purchases from the parties in question were at par with the purchases made from other parties during the period under consideration. The possibility of such purchases from unregistered dealers without invoices cannot be ruled out. In view of the above. The correctness of the purchase prices mentioned on such bills/invoices issued by the 3bove parties in question cannot be accepted and some additional profit needs to be estimated on such purchases made from the above parties in question. i. As stated above, following the guidelines laid down in the above judicial decisions, disallowance of 20% on such alleged bogus A.Y. 2008-09 purchases of Rs.5,64,799/- i.e. Rs.1,12,960/- is confirmed which needs to be added to the total income of the assessee on account of alleged bogus purchase from the three parties and the balance addition of Rs.4,51,839/- is hereby deleted. Thus, grounds of appeal no. 3-9 are partly allowed.”
5. On appraisal of the above said finding, we noticed that the CIT(A) has restricted the addition to the extent of profit element embedded in the purchase by relying upon the law settled in CIT Vs. Nikunj Eximp Enterprises Pvt. Ltd. and CIT Vs. Simit P. Sheth of 2012 order dated 16.01.2013 (supra). No distinguishable material has been produced before us from deviating the finding of the CIT(A) on these issues. Therefore, taking into account of all the facts and circumstances mentioned above, we are of the view that the CIT(A) has decided the matter of controversy judiciously and correctly which is not liable to be interfere with at this appellate stage.
ISSUE NO. 6:- 6. Under this issue the revenue has challenged the deduction of Rs.1,02,280/- from WIP instead of Rs.63,41,202/- in connection with non- genuineness of the claim of unsecured loan from 35 parties. It is required to be seen in which circumstances, the CIT(A) has restricted the claim to the extent of Rs.1,02,280/- from reducing the same to WIP. The CIT(A) has given the finding mentioned below.:- “a. The Ld. CIT(A) had remanded the reports from the AO on additional evidences filed by the appellant during the proceedings and on basis c submitted by the AO, the Ld CIT(A) in his order dated A.Y. 2008-09 26.02 2015 has deleted the made on account of unsecured loans from 23 parties and sustained the addition r account of unsecured loans from 12 parties. In the appellate order, the Ld. CIT -considered each and every party in the light of the findings of the AO in the assessment and remand and came to the conclusion that interest of only Rs 1,44,935 needed to disallowed while balance amount would be allowed. b. According to the appellant, the amount which was disallowed in 20Q3- 20Q9 on the bases of disallowance in A.Y.2009-10, was Rs. 1.44,935/- Le. related to the twelve parties. According to the L3. AR, out of these 12 parlies only two parties were carried forward from earlier year. Remaining ten parties were reflected in A.Y. 2009-2010 due to fresh loans borrowed in A.Y.2009-2010. Thus, total interest of two parties on Rs. B.50,000 was only Rs.1,02,2&0/- and hence only Rs. 1,02.230'- should be [educed from WlP and not Rs.83.4l.202/-. c. The AO is accordingly directed to examine the claim of the appellant above, in the light of documentary evidences and findings of the Ld. C|T{A) for A.Y. 2009-10 He is directed to reduce the interest component with Respect to genuine loan parties as heh by the Ld, CIT (A) and related to The year under consideration. Thus ground of appeal no. and 1 are partly allowed.”
7. On appraisal of the above mentioned finding, we noticed that the amount was disallowed in A.Y. 2008-09 on the basis of disallowance in the A.Y. 2009-10 which was to the tune of Rs.1,44,935/- related to 12 parties. Out of these 12 parties only two parties were carried forward from earlier year. Remaining ten parties were reflected in the A.Y.2009-10. The total interest of two parties on Rs 50,000 was only Rs.1,02,280/- instead of Rs.63,41,202/- which was not related to relevant assessment year. The CIT(A) calculated the interest on account of factual basis in the relevant assessment year. Nothing came into notice that the calculation is factually wrong, therefore, in the said circumstances, we are of the view that the CIT(A) has decided the matter of controversy judiciously and correctly which is not liable to be interfere with at this appellate stage. Accordingly, we confirmed the finding of the CIT(A) on this issue and decide this issue in favour of the assessee against the revenue.
ITA. No.1712M/2017 A.Y. 2008-09
In the result, the appeal of the revenue is hereby dismissed.