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Income Tax Appellate Tribunal, MUMBAI BENCH “E”, MUMBAI
Before: Shri Mahavir Singh & Shri G Manjunatha
Date of hearing 01-08-2018 Date of pronouncement 01-08-2018 O R D E R
Per G Manjunatha, AM :
This appeal filed by the assessee is directed against order of the CIT(A)-4, Mumbai dated 21-02-2017 and it pertains to AY 2011-12. The assessee has raised the following grounds of appeal:- “GROUND NO.
1. The Hon. CIT (Appeals) erred in confirming the order passed by the learned ACIT, Mumbai, under section 143(3) r.w.s 147 of the Income Tax Act, 1961, since it is passed without a proper consideration and appraisal of the facts of the case. An incorrect and improper order has been passed without considering the appellants contentions. It is capricious in nature and has been made ignoring the genuine facts with an intention to punish the appellant, and should be quashed and annulled.
2 ITA 7160/Mum/2017
GROUND NO. 2 The Hon. CIT (Appeals) erred in approving reopening of assessment u/s 147 by the learned ACIT which was done merely on the basis of change of opinion and is bad in law, unjust and unfair. GROUND NO. 3 The Hon.CIT (Appeals) erred in confirming the addition to the total income of the appellant, by the learned ACIT, amounting to Rs. 7,15,075 /- on account of Bogus purchases which must be deleted, being based purely on the basis of presumption, conjecture and surmises. The same is unjust, unfair and not as per applicable provisions of the Act and must be deleted. GROUND NO.4 The Hon. CIT (Appeals) erred in confirming the rejection by the learned ACIT of the appellant's plea to estimation of undisclosed income at 2 % of Purchases. GROUND NO. 5 The Hon. CIT (Appeals) erred in confirming the initiation of penalty proceedings u/s 271(1)(c) by the learned ACIT. The same is unjust and needs to be dropped.”
The brief facts of the case are that the assessee company is engaged in the business of distribution of feature films, CD and DVD, filed its return of income for AY 2011-12 on 30-09-2011 declaring loss of Rs.1,01,36,366. The case was selected for scrutiny and assessment was completed u/s 143(3) of the Act on 26-11-2013 determining total loss at Rs.99,48,024. Thereafter the case has been reopened u/s 147 of the Income-tax Act, 1961 on the ground that income chargeable to tax had been escaped assessment on account of inflation of purchases by booking accommodation entries obtained from suspicious dealers / hawala operators as per the list prepared by sales-tax department.
Accordingly, notice u/s 148 dated 24-03-2014 was served. In reply, the 3 ITA 7160/Mum/2017 assessee requested to treat the return filed on 30-09-2011 be considered as return filed in pursuance to notice u/s 148 of the Act and also requested to give the reasons recorded for reopening of assessment and the same was provided. The case was selected for scrutiny and notices u/s 143(2) and 142(1) of the Act were issued. In response to notices, authorized representative of the assessee appeared and filed various details, as called for. During the course of assessment proceedings, AO called upon the assessee to file necessary evidences to justify purchases from M/s Semant Trading Co amounting to Rs.7,15,075. The assessee was also requested to produce the party before the AO for verification. The assessee has filed certain evidences but failed to produce parties before the AO. The AO has issued notices u/s133(6) to the above said party through Inspector of his office; however, the Inspector reported that the said party has never existed at the address given. Therefore, based on the information received from Investigation Wing coupled with report of MVAT, the AO came to the conclusion that purchases from the said party is bogus in nature and accordingly made addition of Rs.7,15,075 to the total income.
Aggrieved by the assessment order, assessee preferred appeal before the CIT(A). Before the CIT(A), assessee has filed elaborate
4 ITA 7160/Mum/2017 submissions to argue that the AO has made addition towards purchases from M/s Semant Trading Co without appreciating the fact that the assessee has produced necessary evidences including purchase bills and payment proof. The assessee further claimed that in case the purchases from the above party considered to be bogus in nature, then a reasonable percentage of profit may be estimated on such purchases; however, the AO has made addition towards total purchases from the above party merely for the reason that the name is appearing in the list of suspicious dealers. The Ld.CIT(A), after considering relevant submissions of the assessee held that the facts gathered during the course of assessment proceedings coupled with report of MVAT clearly proves the fact that M/s Semant Trading Co was a hawala operator involved in providing accommodation entries. Therefore, there is no reason to take a different view than the view taken by the AO to make addition towards purchase from above party and accordingly sustained addition made by the AO towards purchase of Rs.7,15,075. Aggrieved by the order of CIT(A), the assessee is in appeal before us.
The Ld.AR for the assessee submitted that the Ld.CIT(A) was erred in confirming addition made by the AO on account of bogus purchases from M/s Semant Trading Co only on presumption, conjecture and 5 ITA 7160/Mum/2017 surmises basis ignoring evidence filed by the assessee. The Ld.AR further submitted that the Ld.CIT(A) was erred in rejecting assessee’s plea to estimate a reasonable amount of net profit on alleged bogus purchases. The Ld.AR further submitted that the co-ordinate bench of ITAT, Mumbai in a number of cases has taken a consistent view and depending upon facts of each case, has directed the AO to estimate net profit of 12.5% on alleged bogus purchases, therefore, a reasonable profit on bogus purchases may be estimated.
The Ld.DR, on the other hand, strongly supported the order of the Ld.CIT(A).
We have heard both the sides and perused the material available on record. The facts with regard to the name of the party, M/s Semant Trading Co was appearing in the list of suspicious dealers prepared by MVAT is not disputed by the assessee. It is also an admitted fact that notices issued u/s 133(6) could not be served on the assessee which is evident from the fact that the Inspector attached to the office of the AO has reported that the said party was not available at the given address.
It is also an admitted fact that the assessee failed to produce the party in person before the AO. All these events go to prove an undoubted fact
6 ITA 7160/Mum/2017 that the purchase from the above said party is not genuine in nature. At the same time, the assessee has filed certain basic evidences in the form of purchase bill and payment proof for such purchases through banking channel. Under these facts and circumstances, it is difficult to accept the view taken by the AO that the purchases from the above party is not totally supported by any evidence. In this type of cases, the co-ordinate bench of ITAT, Mumbai, considering facts of each case, has directed the AO to estimate net profit of 12.5% on alleged bogus purchases and this view was supported by the decision of Hon’ble Gujarat High Court in the case of Simit P Sheth vs CIT 356 ITR 451 (Guj) wherein the Hon’ble Gujarat High Court, after considering relevant facts has directed the AO to estimate net profit of 12.5%. In this case, facts are identical. Though the purchase from the said party is supported by primary evidence, the assessee failed to rebut the findings of the AO in the light of list of MVAT. Hence, we are of the considered view that to resolve the dispute and also to meet ends of justice, we deed it appropriate to direct the AO to estimate net profit of 12.5% on alleged bogus purchases. Accordingly, the AO is directed to estimate 12.5% net profit on alleged bogus purchases.
The assessee has taken various grounds including validity of 7 ITA 7160/Mum/2017 reopening of assessment u/s 147 of the Income-tax Act, 1961. During the course of assessment proceedings, the Ld.AR for the assessee submitted that he did not want to press grounds 1 & 2 taken challenging validity of reopening of assessment. Accordingly, ground 1 &2 are dismissed as not pressed.
The assessee has taken ground 5 challenging initiation of penalty proceedings u/s 271(1)(c) by the AO. We find that the ground taken by the assessee challenging initiation of penalty proceedings is premature and hence, the same is dismissed, as not maintainable.
In the result, appeal filed by the assessee is partly allowed.
Order pronounced in the open court on 01st August, 2018.