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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SHRI SHAMIM YAHYA, AM
O R D E R Per Shamim Yahya, A. M.: This appeal by the assessee is directed against the order of the ld. Commissioner of Income Tax (Appeals) dated 30.12.2016 and pertains to assessment year 2011-12.
2. The grounds of appeal
read as under: I.
1. The Commissioner of Income Tax(Appeal) - 44 ("The CIT (A)") erred in confirming the Assessment order passed u/s 143(3) of the Income Tax Act, 1961 ('The Act') without affording the appellant a proper opportunity of cross examination.
Shri Pankaj Kishor Shah 2. The appellant prays that the order passed u/s 143(3) be set aside as being illegal and bad in law. Without prejudice to the above, II.
1. The CIT(A) erred in confirming the order passed u/s 143(3) of the Act based on the information received from the third party without conducting independent inquiries.
2. The appellant therefore prays that the order passed u/s 143(3) be set aside as being illegal and bad in law. Without prejudice to the above, III.
1. The CIT(A) erred in confirming the disallowance to the extent of Rs. 2,02,620/-.
2. The appellant therefore prays that the disallowance of Rs.2,02,620/- be deleted. Without prejudice the appellants prays that the disallowance be appropriately reduced. Without prejudice to above, IV.
1. The Income Tax Officer -25(2X2) erred in charging interest u/s 234B and 234CoftheAct.
2. The appellant prays that interest u/s 234B and 234C be deleted.
Brief facts of the case are as under:
The relevant facts are like this. The assessee is an individual engaged in the business of manufacturing of spring steel sheet metal components. This ground relates to disallowance of Rs 11,74,608/- as bogus purchases and consequent addition of the same amount. The Assessing Officer has received information from the Sales Tax department that the assessee has shown purchases from a bogus concern namely M/s Shruti traders.
The Assessing Officer extracted the information from the Sales Tax Department website.
The assessee was asked to show cause as to why the entire amount of Rs.11,74,608/- should not be treated as unexplained expenditure. In reply to the show cause issued the assessee submitted that the purchase transactions are genuine and he had received actual delivery of goods. The Assessing Officer however did not accept the contention of the assessee and added Rs.11,74,608/- to the total income of assessee.
Shri Pankaj Kishor Shah 4. Against the above order, the assessee appealed before the ld. Commissioner of Income Tax (Appeals).
The ld. Commissioner of Income Tax (Appeals) noted that the main objections of the assessing officer are as under;
The assessee was not able to submit any lorry receipts or any details regarding transportation of goods.
The supplier from whom the disputed purchases have been made is included in the list of hawala operators prepared by the Sales Tax Department. 3. The supplier from whom the disputed purchases have been made was not produced before the AO.
Thereafter, the ld. Commissioner of Income Tax (Appeals) noted that the Assessing Officer has not doubted the sales. He proceeded to hold that the disallowance should be restricted to 17.5% of the gross profit shown by the assessee, on the bogus purchase.
Against the above order, the assessee is in appeal before the ITAT.
I have heard the learned departmental representative. None appeared on behalf of the assessee despite notice. Accordingly, I proceed to adjudicate the issue raised on the basis of the reason of the records and submissions of the learned departmental representative.
As regards the reopening of the assessee, on a careful consideration, I note that in this case information was received by the Assessing Officer from DGIT Investigation (Mumbai) there are some parties who are engaged in the hawala transactions and are also involved in issuing bogus purchase bills for sale of material
Shri Pankaj Kishor Shah without delivery of goods, which information was based on information received by Revenue from Maharashtra Sales Tax Authority. Information was received that the assessee was beneficiary of hawala accommodation entries from entry providers by way of bogus purchase. The accommodation entry provider has deposed and admitted before the Maharashtra Sales Tax Authority vide statement/ affidavit that they were engaged in providing bogus accommodation entries wherein bogus sale bills were issued without delivery of goods, in consideration for commission. These, accommodation entry providers, on receipt of cheques from parties against bogus bills for sale of material, later on withdrew cash from their bank accounts, which was returned to beneficiaries of bogus bills after deduction of their agreed commission.
The Assessee was stated to be one of the beneficiaries of these bogus entries of sale of material from hawala entry operators in favour of the assessee wherein the assessee made alleged bogus purchases through these bogus bills issued by hawala entry providers in favour of the assessee. These dealers were surveyed by the Sales Tax Investigation Department whereby the directors of these dealers have admitted in a deposition vide statements/affidavit made before the Sales Tax Department that they were involved in. issuing bogus purchase bills without delivery of any material.
There is a list of such parties wherein the assessee is stated to be beneficiary of bogus purchase bills.
Shri Pankaj Kishor Shah 10. From the above, I find that tangible and cogent incriminating material were received by the AO which clearly showed that the assessee was beneficiary of bogus purchase entries from bogus entry providers which formed the reason to believe by the AO that income has escaped assessment. The information so received by the AO has live link with reason to believe that income has escaped assessment. On these incriminating tangible material information, assessment was reopened. At this stage there has to be prima facie belief based on some tangible and material information about escapement of income and the same is not required to be proved to the guilt. In this regard, I refer to the decision of the Hon'ble Apex Court in the case of CIT(A) Vs. Rajesh Jhaveri Stock Brokers P. Ltd, 291 ITR 500:-
"Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to lax if he has reason to believe that income for any assessment year has escaped assessment. The word "reason" in the phrase "reason to believe" would mean cause or justification. If the AO has cause or justification to know or suppose (hat income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the AO should have finally ascertained the fact by legal statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Supreme Court in Central Provinces Managnese Ore Co, ltd. v. ITO(1991) 191 ITR 662, for initiation of action under section 147(a) (as the provision stood at the relevant time) fulfillment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is "reason to believe", but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the AO is within the realm of subjective satisfaction ITO v. Selected Dalurband Coal Co, (P.) Ltd. (1996) 217 ITR 597 (Supreme Court): Raymond Woollen Mills Ltd. v. ITO (1999) 236 ITR 34 (Supreme Court).”
Shri Pankaj Kishor Shah 11. The above discussion and precedent from Apex Court fully justify the validity of reopening in this case. Since, the issue has been decided on the basis of the Hon’ble Apex Court decision, the other case laws referred by assessee are not supporting the assessee’s case.
As regards merits of addition, I find that credible and cogent information was received in this case by the assessing officer that certain accommodation entry provider/bogus suppliers were being used by certain parties to obtained bogus bills, assessee was found to have taken accommodation entry/bogus purchase bills during the concerned assessment year from different parties. Based upon this information assessment was reopened. The credibility of information relating to reopening has been confirmed by the ITAT as above. Furthermore it is noted that in such factual scenario Assessing Officer has made the necessary enquiry. Assessee has also not been able to produce any of the parties. The necessary evidence for transportation of goods have not been provided by the assessee. In this factual scenario it is amply that assessee has obtained bogus purchase bills. Mere preparation of documents for purchases cannot controvert overwhelming evidence that the provider of these bills are bogus and non- existent and there is no cogent evidence of transportation of goods. The sales tax Department in its enquiry has found the parties to be providing bogus accommodation entries. Assessee has not been able to produce any of the parties. The assessing officer has noted that there is no cogent evidence of the provision of transaction of goods. In such circumstances, there is no doubt that these parties are non-existent. It is further
Shri Pankaj Kishor Shah surprising that the assessee wants to cross examine its own suppliers, to whom he could not produce before the Assessing Officer.
Hence purchase bills from these non-existent the/bogus parties cannot be taken as cogent evidence of purchases, in light of the overwhelming evidence the revenue authorities cannot put upon blinkers and accept these purchases as genuine. This proposition is duly supported by Hon’ble Apex Court decision in the case of Sumati Dayal 214 ITR 801 and Durga Prasad More 82 ITR 540. In the present case the assessee wants that the unassailable fact that the suppliers are non-existent and thus bogus should be ignored and only the documents being produced should be considered. This proposition is totally unsustainable in light of above apex court decisions.
In these circumstances learned departmental representative has referred to Hon’ble Gujarat High Court decision in the case of Apex Appeal No. 240 of 2003 in the case of N K Industries vs Dy CIT, order dated 20.06.2016, wherein hundred percent of the bogus purchases was held to be added in the hands of the assessee and tribunals restriction of the addition to 25% of the bogus purchases was set aside. It was expounded that when purchase bills have been found to be bogus 100% disallowance was required. The special leave petition against this order along with others has been dismissed by the Hon’ble Apex Court vide order dated 16.1.2017.
I further note that Hon’ble Rajasthan high court has similarly taken note of decisions of the apex court on the issue of bogus purchases in the case of CIT Jaipur vs Shruti Gems in of 2009. The Hon’ble High Court has referred to the Shri Pankaj Kishor Shah decision of CIT Jaipur vs. Aditya Gems, D. B. in of 2008 dated 02.11.2016, wherein the Hon’ble Court had inter alia held as under:
"Considering the law declared by the Supreme Court in the case of Vijay Proteins Ltd. Vs. Commissioner of Income Tax, Special Leave to Appeal (C) No.8956/2015 decided on 06.04.2015 whereby the Supreme Court has dismissed the SLP confirmed the order dated 09.12.2014 passed by the Gujarat High Court and other decisions of the High Court of Gujarat in the case of Sanjay Oilcake Industries Vs. Commissioner of Income Tax (2009) 316 ITR 274 (Guj) and N.K. Industries Ltd. Vs. Dy. C.I.T., Tax Appeal No.240/2003 decided on 20.06.2016, the parties are bound by the principle of law pronounced in the aforesaid three judgments.
Upon careful consideration I find that sales in these cases are not doubted. When sales are not doubted, 100% disallowance for bogus purchase is not sustainable as per the decision of the Hon’ble jurisdictional High Court in the case of Nikunj Eximp Enterprises (in writ petition no 2860, order dt. 18.6.2014). However, the facts of that case were different inasmuch as sales were to the Government department. However the facts and circumstances of the present case indicate that assessee has engaged into dealings in the grey market. Dealings in the grey market give the assessee various savings at the expense of the Exchequer. Hence, on the overall consideration of facts and circumstances and following the decision of Hon’ble Gujarat High Court in the case of CIT vs Simit P. Sheth [2013] 356 ITR 451 (Guj.) I hold that a disallowance of 12.5% of the bogus purchase would meet the end of justice. Accordingly, I modify the order of the ld. Commissioner of Income Tax (Appeals) and direct that the disallowance in this case should be restricted to 12.5% of the bogus purchase.
Shri Pankaj Kishor Shah 17. In the result, this appeal filed by the assessee stand partly allowed. प�रणामतः �नधा�रती क� अपील आं�शक �वीकृत क� जाती है । Order pronounced in the open court on 21.05.2018 Sd/- (Shamim Yahya) लेखा सद�य / Accountant Member मुंबई Mumbai; �दनांक Dated : 21.05.2018 व.�न.स./Roshani, Sr. PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : अपीलाथ� / The Appellant 1. ��यथ� / The Respondent 2. आयकर आयु�त(अपील) / The CIT(A) 3. आयकर आयु�त / CIT - concerned 4. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR, ITAT, Mumbai 5. गाड� फाईल / Guard File 6. आदेशानुसार/ BY ORDER,