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Income Tax Appellate Tribunal, MUMBAI BENCHES “SMC”, MUMBAI
Before: SHRI R.C. SHARMA (AM) & SHRI RAM LAL NEGI (JM)
O R D E R
PER RAM LAL NEGI, JM
This appeal has been filed by the assessee against order dated 09.02.2018 passed by the Ld. Commissioner of Income Tax (Appeals) (for short ‘the CIT (A)’)-3, Mumbai, for the assessment year 2009-10, whereby the Ld. CIT (A) has dismissed the appeal filed by the assessee against assessment order passed u/s 143 (3) read with section 147 of the Income Tax Act, 1961 (for short ‘the Act’).
Brief facts of the case are that the assessee engaged in the business of manufacturing and trading of stainless steel jars for mixers and grinders, filed its return of income for the assessment year under consideration declaring the total income of Rs 11,92,748/-. The return was processed u/s 143(1) of the Act. Subsequently, on the basis of information received from investigation wing that the during the year relevant to the assessment year under consideration, the assessee had obtained accommodation bills worth Rs. 7,70,422/-from ‘hawala’ dealer M/s R K Enterprises, the assessment was reopened. In 2 Assessment Year: 2009-10 response to the notice u/s 148 of the Act the authorized representative of the assessee submitted that the return already submitted by the assessee may be treated as the return filed in response to notice u/s 148 of the Act. In response to the notice u/s 142 (1), the authorized representative submitted the details. It was noticed that the assessee had shown purchases of Rs. 7,70,422/- from M/s R K Enterprises, whose name was in the list of bogus dealers published by the Sales Tax Department, Maharashtra. The assessee was accordingly asked to establish the genuineness of purchases from the said parties. However, the assessee failed to produce any evidence to prove the genuineness of purchases in question. The statements and the affidavits sworn by the bogus dealers including M/s RK Enterprises established that the said entities used to issue bogus bills to various assessee’s on commission basis. Since, the assessee failed to prove the genuineness of the transaction of purchases in question by rebutting the evidence against it, the AO treated the entire amount of Rs. 7,70,422/- as unexplained expenses and added the same to the income of the assessee.
The assessee challenged the assessment order before the Ld. CIT (A). However, the Ld.CIT (A) after hearing the assessee confirmed the addition made by the AO relying on the judgment of the Hon’ble Supreme Court in the case of N.K. Proteins vs. DCIT, Special Leave to appeal CC NO. 769 of 2017. The assessee is in appeal before the Tribunal against the impugned order passed by the Ld. CIT (A).
The assessee has preferred this appeal before the Tribunal on the following effective grounds:- 1. “Addition u/s 69C-Ingenuine Purchases- Rs. 7,70,422/- (i) Whether on the facts and circumstances, the ld. CIT (A) was right to confirm the disallowance of alleged ingenuine purchases disregarding the attempt of the Appellant to discharge the basic onus thereon and relying merely because the supplier party appears in the Sales Tax 3 Assessment Year: 2009-10 list, therefore, the disallowance is grossly unjustified and the same may be deleted.
(ii) Without prejudice to the above, when sales are accepted against which purchased materials had duly been used and where all payments were made by cheques and merely because the supplier party could not produced, the disallowance is not justified and the same may be deleted.
(iii) Without prejudice to the above, as the books had been accepted u/s 145 and sales having accepted, the profit element may be in the alternative applied to set the matter at rest which rather confirms the opinion of the ld. CIT (A) to rely upon the Hon’ble Gujarat High Court decision of : (2013) 256 ITR 451 CIT Vs Simit P Sheth.”
This case was fixed for hearing on 11.06.2018. On the said date, when the case called out for hearing none appeared on behalf of the assessee. We notice that on the last date of hearing i.e. on 25.05.2018, the case was adjourned at the request of the assessee. Hence, we are of the considered view that the assessee is no longer interested in pursuing its appeal. We accordingly decided to dispose of the appeal on the basis of material on record after hearing the Departmental Representative (DR).
Before us, the Ld. DR relying on the concurrent findings of the authorities below submitted that since the assessee has failed to establish the genuineness of the purchases in question, the Ld. CIT (A) has rightly confirmed the addition made by the AO.
We have perused the material on record. The only grievance of the assessee is that the Ld.CIT (A) has wrongly confirmed the addition of total amount of bogus purchases. The assessee has further raised the ground without prejudice to the other grounds that since the AO has not rejected the 4 Assessment Year: 2009-10 books of account, only profit element embedded in the said transaction should be added to the income of the assessee in the light of the decision of the Hon’ble Gujarat High Court in the case of CIT vs. Simit P. Sheth 256 ITR 451. In our considered view the authorities below have rightly held that the assessee has obtained bogus bills from M/s R K Enterprises without purchasing any material. Since, the AO has not rejected the sales, it can be concluded that the assessee had made purchases in the grey market and evaded the VAT and other taxes applicable during the relevant period. Under these circumstances, the question arises as to whether 100% addition is justified or it should be restricted to 12.5% as urged by the assessee in its appeal.
The Hon’ble Gujrat High Court in CIT vs. Simit P. Seth 356 ITR 451(Guj) upheld the decision of the Tribunal and sustained the addition12.5% of the total bogus purchases holding that only profit element embedded in such purchases can be added to income of the assessee. Hence, following the principles law laid down by the Hon’ble High Gujarat High Court, we partly allow the appeal of the assessee and restrict the addition to 12.5% of the total amount of bogus purchases. We accordingly direct the AO to make addition @ 12.5% of the total amount of bogus purchases to the income of the assessee.
In the result, appeal filed by the assessee for assessment year 2009- 2010 is partly allowed.