RYAN PAUL MARTIN,MUMBAI vs. INCOME TAX OFFICER WARD 22(3)(2), MUMBAI

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ITA 1065/MUM/2018Status: DisposedITAT Mumbai08 May 2018AY 2009-105 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal, while acknowledging the bogus nature of purchases, directed the AO to restrict the disallowance to a profit rate of 12.5%, following a Gujarat High Court ruling. This was based on the assessee's admission of obtaining accommodation bills to save on VAT.

What were the facts?

The assessee, engaged in manufacturing and trading of signages, made purchases from parties identified as hawala dealers by the Sales Tax Department. The Assessing Officer (AO) added the amount of these purchases as bogus purchases after the parties could not be traced and the assessee failed to establish genuineness.

What were the issues?

Whether the entire amount of bogus purchases should be disallowed, or if a profit element should be considered for disallowance when accommodation bills are used.

Which sections of the Income-tax Act were involved?

Section 69C

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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI

Before: SRI MAHAVIR SINGH

For Appellant: Shri Sanjay C shah, AR

This appeal by the assessee is arising out of the order of Commissioner of Income Tax (Appeals)-34, Mumbai [in short CIT(A)], in appeal No. CIT(A)-34/ITO-19(2)/IT-32..,321/ 2014-15 dated 28.12.2017. The Assessment was framed by the Income Tax Officer, Ward 19(2)(2), Mumbai (in short ‘ITO) for the A.Y. 2009-10 vide order dated 31.03.2009 under section 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).

2. The only issue in this appeal of assessee is against the order of CIT(A) confirming the addition made by AO of bogus purchases at ₹ 6,12,246/- under section 69C of the Act. For this assessee has raised the following ground No. 1: -

1. Learned Commissioner of Income Tax (Appeals) erred in confirming the order of Learned Assessing Officer in adding back a sum of Rs. 612246/- u/s 69C to the total income of the Appellant being alleged hawala purchases.

Appellant submits that in view of the facts and circumstances of the case as well as in law said addition u/s 69C of the Act to the tune of Rs. 6,12246/- to the Total income of the Appellant is bad in law and deserves to be deleted.”

1.

I have heard the rival contentions and gone through the facts and circumstances of the case. Briefly stated facts are that the assessee engaged in the business of manufacturing and trading of Signages, Board, etc. The AO received information from DGIT (Investigation), who in turn received information from Sales Tax Department, Mumbai that the assessee has made purchases from hawala parties, as listed in hawala dealers by the Maharashtra Sales Tax Department who are providing bogus purchases from Laxmi Sales corporation amounting to ₹ 6,02,087 and Bhakti Enterprises amounting to ₹ 10,159. The assessee has made bogus purchase total amounting to Rs. 6,12,246/- as admitted by these hawala dealers in their deposition before the authorities.

2.

The AO issued noticed under section 133(6) to the parties which returned back with the remark as “not known” and assessee failed to produce these parties. During the course of assessment proceedings and during appellate proceedings, the assessee submitted all the documentary evidences such as purchase order, transportation bill, octroi receipt, weighing bill, goods receipt nots (GRN), subsequent sale/manufacturing details. According to the AO, the assessee failed to establish the genuineness of the purchase and accordingly, he made addition of unproved purchase amounting to of Rs. 6,12,246 to the returned income of the assessee. Aggrieved, assessee preferred the appeal before CIT(A), who also confirmed the addition made by the AO by following Para 7.7 as under: -

“7.7. Let us summarize the facts of the appellant's case. The appellant has not been able to establish the genuineness of the purchases and reference. The appellant has also not been able to controvert the findings of the Sales Tax Department that these two parties have only given the, bill without actual delivery of goods. The appellant could not produce any delivery challan in order to justify the receipt of the goods from alleged suppliers. Even the verification letters under Section 133(6) could not be served and returned and the appellant could not produce the parties in order to justify its claim of purchase. The appellant has also not been able to explain how the materials purchased from alleged dealers, has been utilized for the business. No quantitative details of stock were maintained by the appellant. Interestingly out of purchase of Rs. 6,02,087/- from Manibhadra Impex (India), only Rs. 1,10,813 has been paid rests that is Rs.4,91,271/- was outstanding till the date of the assessment. The appellant could not explain as to why the so called suppliers did not insist for payment of the above outstanding amount. As far as the argument with respect to increase in gross profit are concerned, it depends on nature of business. The nature of business is manufacturing the signages and boards where gross profit keeps on fluctuating depending on the nature. All the facts brought by the AO on record clearly indicates that this is a case where the appellant has utilized bogus bills of small amount in comparison to the turnover in, order to reduce the taxable profit. Thus, as pointed out by the AO, Rs. 4,91,271/- was not paid till the finalization of assessment order in any case. It is beyond doubt that goods have not been purchased from the alleged dealers and if the same has been purchased from outside, then the use of such purchases remain unexplained. Thus, I have no reason to deviate from the finding of the Assessing Officer the addition of Rs. 6,12,246/- as unexplained expenditure under Section 69(C) of the Act is upheld and grounds of appeal filed is dismissed.”

3. I have gone through the facts and circumstances of the case. Í find from the facts of the case that the nature of business is manufacturing the signages and boards. Admittedly, these parties are in hawala parties and the assessee is unable to bring movement of goods i.e. transportation of goods for purchase of these items. I find that the Hon’ble Gujarat High Court in the case of CIT vs. Simit P Sheth [2013] 356 ITR 451 (Gujarat) has upheld the disallowance at 12.5% on bogus purchases. Admittedly, the assessee has obtained accommodation bills for purchase made from grey market for the purpose that assessee has saved 5 to 6% of Vat and purchase made from grey market at a lower profit rate. It means that the assessee has saved to the extent of ₹ 12.5%. It means that I have to restrict the addition of profit rate at 12.5%. Respectfully, following the Gujarat High Court in the case of Simit P Sheth (supra), I direct the AO to restrict the disallowance of bogus purchases at 12.5% and appeal of assessee is partly allowed.

4.

In the result, the appeal Assessee is partly allowed.

Order pronounced in the open court on 08-05-2018. AadoSa kI GaaoYaNaa Kulao mao idnaMk 08-05-2018 kao kI ga[- .

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