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Income Tax Appellate Tribunal, “SMC” BENCH,
Before: SHRI R. C. SHARMA, 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 02.01.2018 passed by the Commissioner of Income Tax (Appeals) - 30, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y.2009-10.
The assessee has raised the following grounds: - “1. On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeal) erred in ITA.NO.1876/M/2018 A.Y. 2009-10 (a) confirming addition of Rs 3518OO/- to the total income of the appellant by estimating profit element @ 6 5% on alleged bogus purchases of Rs.5412307/-. (b) estimating rate of profit at 6.5% on alleged bogus purchases over and above gross profit declared of 4.92% by the appellant on such purchases.
2. On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals) failed to appreciate that (a) Proceeding initiated under section 147 /14S of the Act is on the basis of reason to suspect and not on reason to believe. (b) There is no new tangible material in possession of the Assessing Officer which justify issuance of notice u/s 14S of the Act (c) The initiation of proceeding under section 147 of the Act and issuance of notice under section 143 is bad in law and contrary to the provisions of the Act and liable to be cancelled/annulled 3. On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals) erred in confirming order made under section143(3) rws 147 of the Act by the learned Assessing Officer which is illegal, bad-m-law, ultra vires and without allowing reasonable opportunity of the hearing, without appreciating the facts, submission and evidences in their proper perspective, without providing copies of material used against the appellant and without providing cross examination is liable to be annulled.
4. The Ld. Assessing Officer erred in charging interest u/s 234A, 234B, 234C and 234D of the Act. 5. the appellant crave leave to add, amend, alter and/or vary any of the grounds of appeal
before or at the time of hearing.”
3. The brief facts of the case are that the assessee filed his return of income on 30.09.2009 declaring total income to the tune of Rs.8,15,150/-. The case was processed u/s 143(1) of the I.T. Act, 1961. Information was received from the DGIT(Inv.) Wing, Mumbai in his which it was conveyed that the assessee has taken the accommodation entries from several parties in Mumbai to reduce the ITA.NO.1876/M/2018 A.Y. 2009-10 tax liability. The information has shown the bogus purchases of the assessee from 11 parties which is hereby reproduced below.: - Sr.No Name of the hawala Parties Bill Amount 1 Aniket Steel Pvt. Ltd. 3,10,508 2 Pinaking Metal Industries 1,72,903 3 Rajkamal Steel Centre 8,18,812 4 Kiran Sales Corporation/Nidhi Impex I 4,49,505 5 Surat Tube Corporation 39,352 6 Tyson Steel and Tubes Pvt. Ltd. 68,025 7 BP Shah and Co. 3,76,085 8 Rajendra Impex India 17,06,152 9 Newzone Multitrade Pvt. Ltd. 3,42,570 10 P.M. Trading Company 43,152 11 Vigneshwar Impex 10,85,243
Total 54,12,307
Thereafter, the notice u/s 148 of the I.T. Act, 1961 dated 07.03.2014 and notice u/s 142(1) of the Act were issues and served upon the assessee. The assessee was engaged in the business of dealing in ferrous and non-ferrous metals. On verification of the claim of the assessee, notices u/s 133(6) of the Act dated 13.02.2015 were issued to the parties but the notices returned back with the remarks of ITA.NO.1876/M/2018 A.Y. 2009-10 not known/left. Thereafter, the assessee was asked to prove the genuineness of his claim but finding no sufficient evidence 12.50% purchase of bogus of Rs.54,12,307/- i.e. Rs.6,76,538/- was added to the income of the assessee and the total income of the assessee was assessed to the tune of Rs.14,91,690/-. Feeling aggrieved, the assessee filed an appeal before the CIT(A) and the CIT(A) partly allowed the claim of the assessee and estimated the profit upon the bogus purchase to the extent of 6.7%, therefore, the assessee has filed the present appeal before us.
We have heard the argument advanced by the Ld. Representative of the parties and perused the record. After the notice, the assessee did not appear before us. The Ld. Representative of the Department has argued that the assessee nowhere adduced any kind of notice before the lower authorities and his claim to the extent of 6.5% has genuinely being allowed by CIT(A), therefore, no reduction to the extent of profit estimated by CIT(A) is required in the interest of justice. Before going further, it is necessary to advert the finding of the CIT(A) on record.: - “7. Ground Nos. 1 deals with the estimated addition made by the AO, @ 12.5% of total purchases of Rs. 54,12,307/;-, which works out to Rs.6,76,538/-. According to the said ground it is stated that A.G, erred in making addition and provisions of the Act out to have been properly construed. 7.1 I have carefully considered the rival contentions on the issue on hand, on perusal of the assessment order, it is noticed that, in the appellant's case, Ld. AO has made independent verifications, apart from the information received from the Sales Tax
ITA.NO.1876/M/2018 A.Y. 2009-10
Department. Notice was issued u/s 142(1) of the Act, calling for several details with regard to the purchases and sales supported by bills and vouchers- The appellant failed to furnish all the details and requested the AO to complete the assessment after making a reasonable addition. In the present case, there is overwhelming evidence in the form of statement of supplier given before the Sales tax authorities that it was engaged only In issuing hawa]a bills and no goods were ever supplied by them. 7.2 After weighing the evidence pros and cons, I find that the appellant has not reconciled the purchases with the items sold despite giving an opportunity to do so, by the AO during the assessment proceedings. Onus is always on the appellant to prove as to how the material purchased was firstly obtained. 1 record a finding of fact hens that the appellant failed to furnish crucial evidences like proof of delivery of purchases, transport challans and goods inward register at go down etc., before the Ld AO, Thus, it can be safely, presumed that either they are non-existent or even if they did exist, they were not backed by sufficient evidence to undergo the test of scrutiny. 7.3 The supplier was in fact the appellant's witness and the Ld, AO was not required to force their attendance. It was for the appellant to produce them as per Oil Procedure Code, which applies on all fours to the income-tax proceedings. It Is trite that once a transaction is shown to be of the nature of income, the onus shifts to the assessee to show that the same is not taxable. It can thus be safely assumed that the appellant has grossly failed in Its duty to mitigate the burden cast upon it in so far as proving the genuineness of the transaction from the said party is concerned. 7A AR in the written submissions also stated that the AO not issued 133(6) notices, not summoned the parties etc, to verify the genuineness of the purchases. In this regard it is pertinent to mention that while dealing with the concept of burden of proof, onus of proving is always on the person who makes the claim and not on the Revenue. While dealing with the issue of deciding the burden of proof, Hon'bte Supreme Court in the cases of CIT Vs. Durgaprasad More 82 ITR 540 and SumaCi Dayal Vs. CIT 214 ITR has held that the apparent must be considered real until it is shown that there are reasons to believe that the apparent is not real and that Taxing Authorities are entitled to look into surrounding circumstances to find out the reality and the matter
ITA.NO.1876/M/2018 A.Y. 2009-10 has to be considered by applying the test of human probabilities. The Hon'ble court also held that, it is no doubt, true that in all cases in which a receipt is sought to be taxed as income, the burden lies on the department to prove that it is within the taxing provision and if a receipt is in the nature of income, the burden to prove that it is not taxable because it falls within exemption provided by the Act, lies upon the assessee. In the case of Durgaprasad More (Supra), the Hon’ble Court went on to add that a party who relies on a recital in a Deed has to establish the truth of this recital, otherwise it will be very easy to make selfserving statements in documents either executed or taken by a party who relied on those recitals. If all that an assessee who wants to evade tax has to have some recitals made in a document either executed by him or executed in his favour then the door will be left wide open to evade tax. The Hon'ble Court further held that the Taxing Authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look in to the surrounding circumstances to find out the reality of the recitals made in those documents, 7.5 It is also a settled legal proposition that if no evidence is given by the party on whom the burden is cast, the issue must be found against him. Therefore, onus is always on a person who asserts a proposition or fact, which is not self-evident. The onus, as a determining factor of the whole case can only arise if the tribunal which Is vested with the authority to determine finally all questions of fact, finds the evidence pro St. con, so- evenly balanced that It can come to no conclusion, then the onus will determine the matter. However, in the instant case, the appellant has miserably failed to lead evidence and hence, onus is a determining factor. 7.6 Ld. AO added an amount Rs.6,76,538/-, being 12,5% of the total non-genuine purchases of ie. 54,12,3077- to the total income of the assessee* Thus, the Issue would boil down whether the element of profit adopted by the AO @12,5% treating the same as the profit element embedded in such bogus purchases, which the appellant would have made from some unknown entities is correct or not. 7.7 Hon'ble Gujarat High Court in the case of CIT vs. Simit Sheth (2013) 356 ITR 451 (Guj), Hon'ble Court was seized with the similar issue where the A.Q, 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 AO, in that case added the ITA.NO.1876/M/2018 A.Y. 2009-10 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 party but other parties from grey market, partially sustained the addition as probable profit of the assessee. The Tribunal however, sustained the addition to the extent of 12.5%. Taking into account the above facts, the Hon'ble 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 assesses 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, ITAT in the case of Vijay Proteins 58 1TD 428. 7.8 Hon'ble Gujarat High Court in the case of CJT vs. Simit P. Sheth 356 FTR 451 (Guj), upheld the decision of the ITAT, which confirmed the addition @12«5% of the total bogus purchase. Taking into account the facts of the case, the Hon'ble 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 assesses income and as such no question of law arose in such estimation. The tribunal for arriving the profit element embedded In the transactions @ 12.5% held as under: "Having heard the submissions of both sides, me have been informed that the malpractice of bogus purchase is mainly to save 10% sales tax etc.. It has also been informed that in this industry about 25% ts the profit margin. Therefore, respectfully following the decisions of the co-ordinate bench pronounced on identical circumstances, we hereby direct that the disallowance ts required to tie sustained &t 12.5% of the purchase from those parties. With these directions, we hereby decide the grounds of the rival pasties which are partly allowed." 7,9 The appellant made purchases from eleven parties who are said to be hawala operators, who is indulged in providing bogus bills without supply of any material. Independent inquiries conducted revealed that no such party is existing in the given address. When asked to produce the party during the assessment
ITA.NO.1876/M/2018 A.Y. 2009-10 proceedings by the A0f appellant expressed his inability to do so. In the present case, A.O. estimated the profit percentage on bogus purchases as 12.5%. The simple issue to be decided is whether the percentage adopted by the AO is correct in the line of business), trading in ferrous and non-ferrous metals. As noticed above, in the similar circumstances of bogus purchases, Hon'ble Gujarat High Court estimated the additional advantage towards tax benefit (10% and the profit margin (2.5%) totaling to 12.5%. In the present case on perusal of copies of the invoices furnished by the appellant in the biff the percentage of VAT levied Is @ 4%, Applying the same logic, the profit margin should be adopted @ 2.5%. In view of the above, in my considered opinion; applying the fogic of the above said case the profit percentage embedded on such purchases is restricted to 6.5% (i.e 4% of VAT levied + 2.5% towards profit margin), that will meet the ends of the justice. Taking all the facts into consideration and applying the logic of Simit P. Sheth case, the AO is directed to restrict the estimation @ 6.5% on the non- genuine purchases of Rs.54.12,307/-. Appeal on Ground no. 1 is treated as partly allowed.”
On appraisal of the above mentioned order, we noticed that the assessee did not adduce any cogent and convince evidence in support of his claim i.e. to prove the genuineness of the purchase. The CIT(A) has decided the matter of controversy on the basis of decision of the CIT Vs. Simit P. Sheth 356 ITR 451 (2013) Gujarat High Court. The CIT(A) estimated the profit on the bogus purchase by considering the VAT levied to the extent of 4% + 2.5% towards profit margin and estimated the total profit upon the bogus purchase to the extent of 6.5% on an amount of Rs.54,12,307/-. There is no material on the record to deviate the finding of the CIT(A) on this issue. Accordingly, we are of the view that the CIT(A) has decided the matter of ITA.NO.1876/M/2018 A.Y. 2009-10 controversy judiciously and correctly which is not liable to be interfere with at this appellate stage.