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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
Before: Shri Joginder Singh & Shri G Manjunatha
Date of hearing 01 -05-2018 Date of pronouncement 20-07-2018 O R D E R
Per G Manjunatha, AM :
This appeal filed by the assessee is directed against the order of the CIT(A)-38, Mumbai dated 22-09-2017 and it pertains to AY 2010-11.
The assessee has raised the following grounds of appeal:-
1) In the facts and the circumstances of the case and in law, the learned Commissioner of Income Tax(A) erred in confirming the order u/s 143(3) r.w.s 147 passed by the Assessing Officer by ignoring various detailed written submissions and case laws submitted by the Appellant during the course of Appellate proceeding. Without prejudice to the above and alternatively 2) In the facts and the circumstances of the case and in law, the learned A.O. erred in passing the order u/s 143(3) r.w.s 147 and therefore rendering the whole re-assessrnent bad in law, also on the basis of borrowed satisfaction, presumption and surmises. 3) In the facts and circumstances of the case and in law, the Assessing Officer erred in disallowing Rs 6,46,545/- as alleged Non-genuine- purchases being 12.5% of the total purchases amounting to Rs. 51.72.357/- which has been further wrongly confirmed by the 2 Neeta Sanjay Shah learned Commissioner of Income Tax(A) by ignoring detailed written submissions and case laws filed. a) even though the payment for purchases is made from the books by A/C payee cheques and cannot be termed as non-genuine even though the same has been fully allowed by the jurisdictional Mumbai Tribunal in recent case of Rajeev M Kalathil 6727/M/12, Ganpatraj A Sanghavi [I .T.A. No.2826/Mum/20l3], Ramesh Kumar & Co. Appeal No. 2959/Mum/20]4, Deepak Popatlal Gala [ITA No 5920/M/13], Ramila P Shah [ITA No 5246/M/13] Paresh Gandhi [ITA NO-5706/M/2013], Hiralal Chunilal Jain [ITA No 4547/M/14], Tarla Shah [ITA No. 5295/Mum/2013J and M/s. Imperial Imp. & Exp [ITA No, 5427/MUM/2015J, Shivshankar R. Sharma, [ITA No. 5149/Mum/2014 & 4260/Mum/20I5], Govind Rathod [ITA NO ;439/MUM/2016], Shri Mahesh K. Shah Shri Sanjay Dhokad [ITA No. 929/Mum/2015], Manohar and Anita Kanda [ITA No. 4693-97/Mum/2016], Bigwin Paper Distributors Pvt. Ltd. [ITA No. 5293-97/Mum/2016], Shri Sanjay Dhokad 2010-11 [ITA No. I.T.A. No.5243/Mum/2013] and Hi Rock Construction Co. [ITA No. I.T.A. /960/Mum/2015] Jeetendra Devnani [5426/Mum/2015]. b) only on the basis of the information on the website www.mahavat.gov.in about 9 suspicious dealers whose copy of statement recorded were not furnished to the appellant. c) as alleged non-genuine purchases without appreciating the fact that no addition can be made if the suppliers are not traceable as per the judgment of the Bombay High Court. d) Thereby treating the same as alleged non-genuine purchases even though the payments were made by A/C Payee Cheques from the disclosed bank accounts. 4) The Assessing Officer has erred in charging interest u/s 234A, B, C & D and initiated penalty u/s 271(l)(c) which is further wrongly confirmed by the learned Commissioner of Income Tax(A).
The brief facts of the case are that the assessee is an individual and proprietor of M/s Prime Industries engaged in the business of reselling dyes chemicals and solvents, filed her return of income for AY 2010-11 declaring total income at Rs.5,84,570. The return of income was processed u/s 143(1) of the Act. Thereafter, the case has been reopened u/s 147 of the Act, after recording reasons for reopening on the basis of information received from DGIT (Inv) which suggests that the assessee is the beneficiary of accommodation entries provided by suspicious dealers / hawala operators, as per the list prepared by sales- tax department. Thereafter, the case has been selected for scrutiny and notices u/s 143(2) and 142(1) of the Act, were issued. In response to 3 Neeta Sanjay Shah notices, the authorized representative of the assessee appeared from time to time and filed various details, as called for. During the course of assessment proceedings, the AO called upon the assessee to provide necessary evidences in respect of purchases from 9 parties as listed at para 5 of the AOs order in the light of facts gathered by the DGIT(Inv), Mumbai that the said parties are hawala operators involved in providing accommodation entries. In response to notice, the assessee, vide letter dated 25-01-2016 submitted various details including copies of purchase bills and payment proof for such purchases. In order to verify genuineness of purchases from the above parties, the AO issued notices u/s 133(6); however, such notices have been returned unserved with remark “left or unknown”. The AO, based on the information received from the DGIT (Inv) coupled with further enquiries made during the course of assessment proceedings, came to the conclusion that purchases from the above parties are bogus in nature and accordingly, estimated net profit of 12.5% on total purchases made from those parties and made addition of Rs.6,46,545 to the total income. The relevant portion of the order of the AO is extracted below:-
“8. In view of the above facts, it is clear that even if the material in question shown as purchase from the abovementioned parties through fictitious invoice was actually purchased by the assessee, it was purchased from a source best known to the assessee, and not from the above mentioned bogus parties. The receipt of material is not in much doubt because the assessee is a trader and without receiving such material the corresponding sales would not have-been possible. However, it is amply clear that bill from the said party has been 4 Neeta Sanjay Shah procured for accommodating purchase from the grey market, for accommodating purchase from the grey market. 8.1 After considering the entire material, I am of the opinion thai ths assessee did not purchase the goods from the party mentioned in the sale bill. Therefore, purchase rate mentioned in the alleged sales bill cannot be accepted. Any person who purchases goods from the grey market does it for getting some benefit. The rates may be lower in grey market, or there could be benefit of sales tax. This may also be one of the factors due to which the seller may be willing to charge lower rates for unaccounted goods as compared to accounted goods. Hence the margins achieved must be higher than those made in the course of normal trading. Therefore, I am inclined to believe that an addition on account of a higher margin would be fair and equitable. 8.2 However the vital question that arises for consideration here is 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 purchase themselves were completely bogus and non-existent or that the purchases were actually made but not from the parties from whom it was claimed to have been made and instead may have been purchased from grey market without billing or documentation. As stated above, during the course of assessment proceedings, the assessee has submitted that he has sold the goods purchased from the alleged bogus parties to various parties. That being the position, only the profit element embedded in such purchases can be added to the income of the assessee. Further, there will be inflation of purchases also, which must be taken into account. These two items added together will definitely be ab'out 12.5% of the cost of disputed purchases. 8.3 In the instant case also, the purchase have been made by the assessee not from the parties from whom it is shown to have been purchased but from 2 different source which the assessee did not disclose to the department. Onus to prove any expenditure is on assessee and assessee did not prove purchases from the parties it claimed to have been purchased. Hence, onus was not discharged by the assessee. 8.4 In view of the discussion at foregoing paras, it is held that the assessee has inflate the purchases price /cost saved in buying from unaccounted sources to the tune of Rs 6,46,545/- being 12.5% of non- genuine purchases of Rs 51.72.357/- for the year under consideration, and the same is accordingly, disallowed and added back to the total income of the assessee. Penalty proceedings u/s 271(1) (c) are separately initiated for furnishing inaccurate particulars of income and for concealing the income.”
Aggrieved by the assessment order, assessee preferred appeal before the CIT(A). Before the CIT(A), assessee has challenged reopening of assessment on the ground that the AO has reopened the assessment on mere change of opinion without there being any fresh material to form reasonable belief of escapement of income which is 5 Neeta Sanjay Shah evident from the fact that the AO has recorded reasons for reopening of assessment on the basis of information received from DGIT (Inv). The assessee also filed elaborate written submissions on the issue of addition made by the AO towards estimation of net profit on alleged bogus purchases. The sum and substance of the arguments of the assessee are that the AO has made addition towards bogus purchases only on the basis of third party statements without providing an opportunity of cross examination of the parties to the assessee ignoring all evidences filed by the assessee including purchase bills and payment proof for such purchases.
The CIT(A), after considering relevant submissions of the assessee and also relying upon various judicial precedents, including the judgement of Hon’ble Supreme Court in the case of PVS Beedies Pvt Ltd 273 ITR 13 (SC), rejected ground taken by the assessee challenging reopening of the assessment on the ground that the AO has validly reopened assessment on the basis of information received from external agencies like sales-tax department and DGIT (Inv) which constitutes new material, therefore, there is no merit in the arguments of the assessee that the reopening of assessment is merely on change of opinion. Insofar as additions made towards estimation of profit on alleged bogus purchases, the Ld.CIT(A), after considering relevant facts
6 Neeta Sanjay Shah and also by relying upon the decision of Hon’ble Gujarat High Court in the case of CIT vs Simit P Sheth 356 ITR 341 (Guj) held that although assessee has filed certain basic evidence like purchase bills and payment proof, failed to file further evidence in the backdrop of clear findings from DGIT(Inv) and sales-tax department that the parties are hawala operators involved in providing accommodation entries.
Therefore, by following the decision of Hon’ble Gujarat High Court, he opined that the AO was right in estimating 12.5% net profit on alleged bogus purchases. The relevant portion of the order of Ld. CIT(A) is extracted below:-
“xiii. In the present facts and circumstance's of I lie cane, the case of the AO is that the appellant only took bills from the above parties to explain the purchases made albeit from open market. Identical issue came up before the Hon'ble High Court of Gujarat in the case of CIT vs. Bholanath Poly Fab Fvt. Ltd. Reported in 35S ITR 290 (GUJ wherein the Hon'ble ITAT was of the view that only profit margin embedded in such purchases would be subjected to tax. The Hon"ble Tribunal relied on its earlier decision in the case of M/s Saket Steel Traders vs ITO (ITA No. 2801/Ahd/2008 dated 20/05/2008) and also made reference to the decision in the case of Vijaya Protein Vs CIT 58 ITD 423 (AhdJ On appeal by the department filed in the case of Bholanath Poly Fab Pvt. Ltd, the Hon'ble High Court dismissed the appeal and concurred with the findings of Hon'ble Tribunal that not entire purchase price but profit element embedded in such purchases would be liable to tax. Infact the appellant also placed reliance on the judgement in the case of Bholanath Poly Fab Pvt. Ltd. and has admitted that profit element is required to be taxed. xiv. Thus in view of the above facts and circumstances of the case and the recent judgements quoted as above, it is observed that the likelihood of the purchase price being inflated cannot be ruled out and therefore in view of the above, the AO has not treated the entire purchases from the aforesaid parties to be bogus but held to have been made from the parties other than those mentioned in the books of accounts and that being the position, not the entire purchase price but only the profit element embedded in such purchases has been taxed by the AO @ 12.5%. xv. Therefore the possible profit out of purchases made through non genuine parties has been estimated by the AO which is commensurate with the judgment in the case of CIT vs. Simit P Sheth 356 ITR 451 (Guj.) of Hon'ble Gujrat High Court wherein disallowance on account of bogus purchases in the case of traders was sustained at 12.5% of the alleged bogus purchases. I
7 Neeta Sanjay Shah xvi. The AG has only added the profit element embedded in the aforesaid bogus purchases @12.5% which seems to lx: justified in view of the nature of the business of the appellant. In view of the facts and circumstances of the case and discussion herein above, the contentions and submissions of the assessee are not found to be acceptable and are therefore rejected and the addition made by the AO of Rs.6,46,545/-is found to be justifiable and is accordingly upheld.”
The Ld.AR for the assessee submitted that the Ld.CIT(A) was erred in confirming addition made by the AO towards estimation of profit on alleged bogus purchases without appreciating the fact that the assessee has filed various details to prove purchases from the above parties are genuine in nature. The Ld.AR further submitted that the AO has made additions only on the basis of third party statement without providing opportunity of cross examination to the assessee which is a clear case of violation of principles of natural justice, therefore, the addition made by the AO towards estimation of net profit is not sustainable under law.
As far as reopening of the assessment, the Ld.AR submitted that the Ld.CIT(A) was erred in upholding re-assessment order passed by the AO ignoring various details, written submissions and case laws submitted by the assessee during the course of assessment proceedings. On the other hand, the Ld.DR strongly supported the order of the Ld.CIT(A).
We have heard both the parties and perused materials available on record. Admittedly, the AO has reopened assessment on the basis of information received from DGIT(Inv) which was further supported by 8 Neeta Sanjay Shah information received from sales-tax department as per which, the list prepared by MVAT department contained certain parties who were involved in providing accommodation entries. The AO has reopened assessment on the basis of said information received from the external agencies which constitutes fresh material for the purpose of formation of reasonable belief of escapement of income. Therefore, we are of the considered view that there is no merit in the argument of the assessee that the assessment has been reopened without there being any new material which amounts to change of opinion. Accordingly, we reject ground taken by the assessee challenging validity of reopening of assessment.
7. Coming to the addition made by the AO towards estimation of net profit on alleged bogus purchases. It is an admitted fact that the assessee has made purchases from certain parties, who were appearing in the list of suspicious dealers / hawala operators prepared by sales-tax department. It is also an admitted fact that notices issued u/s 133(6() to such parties returned unserved with the remark “left or not known”. At the same time, the assessee also filed certain basic evidences like purchase bills and bank details for having made payment by account payee cheques. Under these circumstances, it is very difficult to accept that purchases from the above parties are genuine in nature and 9 Neeta Sanjay Shah supported by proper evidence. Having said so, let us examine the profit estimated by the AO. The AO has estimated 12.5% profit on alleged bogus purchases. Various Courts and Tribunals have consistently upheld estimation of net profit at 12 to 15% in case of alleged bogus purchases depending upon facts and circumstances of each case. The Hon’ble Gujarat High Court in the case of CIT vs Simit P Sheth (supra) held that no uniform yardstick could be applied for estimation of net profit and such estimation should be based on facts of each case. The Hon’ble Gujarat High Court further observed that considering the fact that the assessee has paid VAT at 10.5% has made a reasonable estimate of 12.5% profit on alleged bogus purchases including 2% margin + 10.5% VAT paid by the assessee. The co-ordinate benches of Tribunal in a number of cases has taken a consistent view and held that 12.5% profit estimation on alleged bogus purchases is fair and reasonable. Therefore, consistent with the view taken by the co-ordinate bench and considering the facts and circumstances of the case, we are of the considered view that the AO was right in estimating 12.5% profit on alleged bogus purchases. The Ld.CIT(A) after considering relevant facts has rightly upheld addition made by the AO. We do not find any error in the order of the Ld.CIT(A). Hence, we are inclined to uphold the findings of the Ld.CIT(A) and dismiss appeal filed by the assessee.
10 Neeta Sanjay Shah
In the result, appeal filed by the assessee is dismissed. Order pronounced in the open court on 20th July, 2018.