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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SHRI R. C. SHARMA, AM & SHRI SANDEEP GOSAIN, JM
आदेश / O R D E R
Per Sandeep Gosain, Judicial Member:
The present Appeal filed by the assessee is against the order of Commissioner of Income Tax (Appeals)-29, Mumbai
Shri Tejraj Manroop Chand Tak, dated 31.10.17 for AY 2011-12 on the grounds mentioned herein below:-
1. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in confirming addition of Rs. 13,06,000/- on account of alleged purchases i.e. 12.50% of 1,04,46,243/-
On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in confirming interest charged under section 234A, 234B and 234C.
The assessee craves leave to add, alter or amend the existing grounds of appeal on or before the date of hearing.
2. As per the facts of the present case, the assessee is engaged in the business of metals and filed his return of income for the year under consideration declaring total income at Rs. 3,55,984. The return was processed u/s 143(1) of the I.T. Act and subsequently, the AO received information from the Sales Tax Department through DGIT(Vig), Mumbai that the assessee had Shri Tejraj Manroop Chand Tak, procured bogus purchase bills totaling to Rs. 1,04,46,243/- from 5 parties. Consequently, the AO issued notice u/s 148 of the I.T Act and subsequent thereto, notices u/s 143(2) and 142(1) were issued alongwith questionnaire. The AO called for details from the assessee and further assessee was directed to produce above parties from whom the assessee has purchased goods and to prove the genuineness of the purchases. After considering the facts of the present case, order of assessment u/s 143(3) r.w.s 147 of the I.T Act was passed by the Ld. AO thereby making additions @ 12.5% on the purchases of Rs. 1,04,46,243/- by holding the said purchases bogus. Aggrieved by the order of AO, assessee preferred appeal before Ld. CIT(A) and Ld. CIT(A) after considering the case of both the parties dismissed the appeal of the assessee. Now before us, the assessee has preferred the present appeal.
3. The solitary ground raised by the assessee relates to challenging the order of Ld. CIT(A) in confirming the additions
Shri Tejraj Manroop Chand Tak, of Rs. 13,06,000/- on account of alleged purchases i.e. 12.50% of 1,04,46,243/-.
Ld. AR appearing on behalf of the assessee reiterated the same arguments which were raised before Ld. CIT(A) which is found in para no. 4.2 of the order of Ld. CIT(A). Ld. AR further submitted that assessee has genuinely purchased the material and sold the same and in order to substantiate its stand, the assessee had already submitted copies of invoices raised by the parties alongwith delivery challan of the goods. It was further submitted by Ld. AR that the assessee had also submitted the statement showing quantity wise sales and purchases, copy of ledger account of parties alongwith extract of bank statement showing that the payments had been made to the parties through banking channel. It was further submitted by Ld. AR that the material purchased by the assesse is genuine but the AO disallowed the purchases made from the above parties and levied tax by wrongly estimating GP @ 12.5% on purchases from the above 5 parties. It was further submitted that additions @ 12.5% on the purchases would shot up the GP @ 14.59% as assessee had already
Shri Tejraj Manroop Chand Tak, disclosed GP @ 2.09%, therefore such high GP is abnormal and not feasible. Hence, the estimation of GP passed by the revenue authorities is on surmises and conjecture and therefore is liable to be set aside.
On the other hand Ld. DR relied upon the orders passed by revenue authorities.
We have heard counsels for both the parties and have also perused the material placed on record as well as the orders passed by revenue authorities.
Before we decide the merits of the case, it is necessary to evaluate the orders passed by Ld. CIT(A). The Ld. CIT(A) has dealt with the above ground raised by the assessee in para no. 4(4.1 to 4.3.2) of its order. The operative portion of the order of Ld. CIT(A) is contained in para no. 4.3, 4.3.1 & 4.3.2 of its order and the same is reproduced below:- 4.3 The submissions of the appellant have been carefully considered. When the expenditure has been claimed by the assessee, the onus is Shri Tejraj Manroop Chand Tak, on the assessee to prove the genuineness of the same. As it is the claim of the assessee that he has made purchases from the said parties, the AO had requested the assessee to produce the parties for verification. However, the assessee failed to do so. As the parties from whom the purchases were supposed to have been made were not found existing, the genuineness of the purchases from such non existing parties was not established.
4.3.1. Coming to the addition, the Hon'ble ITAT, Ahmedabad 'C' Bench in thecase of Vijay Proteins Ltd. vs. ACIT 58 lTD 0428 held that in similar circumstances, 25% of the purchase price accounted through fictitious invoices has to be disallowed. The Hon'ble High Court of Gujarat in the case of Sanjay Oil cakes v/s CIT 316 ITR 0274 dealt with similar case where some of the alleged suppliers who had issued bills to the assessee were not genuine as they were not traceable. The goods must have been received from other parties. The likelihood of the purchase price of these alleged purchases being inflated could not be ruled out and therefore the Hon'ble High Court has upheld the decision of CIT(A)
Shri Tejraj Manroop Chand Tak, and the ITAT disallowing 25% of the payments made to such parties. The Hon'ble High Court of Gujarat in the case of CIT vs. Simit P. Sheth 356 ITR 0451 held that once the sale is accepted by the AO, the very basis of purchases could not be questioned. Not the entire purchase price could be disallowed but only the profit element embedded in such p urchases could be added to the income of the assessee. The estimation varies with the nature of business and no uniform yardstick could be adopted. Given the facts and circumstances of the instant case, I find it reasonable to estimate the gross profit on the alleged bogus purchases at 12.5%.
4.3.2. The action of the AO in making an addition of 12.5% of the alleged bogus purchases is confirmed. This ground of appeal is dismissed.
8. After having gone through the facts of the present case as well as orders passed by the revenue authorities, we find that the basis on which AO disallowed the alleged bogus purchases is the non-appearance of the suppliers before the AO to verify the purchases. In this regard we found that many Benches of ITAT
Shri Tejraj Manroop Chand Tak, and Hon'ble High Courts have held that when purchases are supported by sufficient documentary evidences then merely because of non-appearance before the AO, one cannot conclude that the purchases were not made by the assessee. Several decisions cited in support of the said argument are Nikunj Eximp Enterprises (P.) Ltd. v. CIT 216 Taxman 171 (Bom.), CIT v. Nangalia Fabrics (P.) Ltd. 220 Taxmann 17 (Guj.), CIT v. M.K. Bros. 163 ITR 249 (Guj.), Asstt. CIT v. Akruti Dyeing & Printing Mills (P.) Ltd. [Tax Appeal No. 997 of 2008, dated 27/01/2009],CIT v. Veekay Prints (P.) Ltd. [Tax Appeal No. 2557 of 2010, dated. 1/2/2012], Diagnostics v. CIT 334 ITR 111 (Cal.), ITO v. Totaram B. Sharma [Tax Appeal Nos. 1344/2008 & 1355/2008, dated 9-2-2010], Dy. CIT v. Adinath Industries [2001] 252 ITR 476 (Guj.), CIT v. Precious Jewels Corpn. 17 taxmann.com 264 (Raj.), CIT v. Rajesh P. Soni [Tax Appeal No.1107 of 2006, dated 27-2-2012.
On identical facts and circumstances, the Hon'ble Jurisdictional High Court as well as the Tribunal, Mumbai
Shri Tejraj Manroop Chand Tak, Bench, has deleted the addition made under section 69C, in the following cases:- i) CIT v/s NikunjEximp Enterprise Pvt. Ltd. 372 ITR 619 (Bom.); ii) ACIT v/s Tarla R. Shah, ITA no.5295/Mum./2013, dated 2nd February 2016; and iii) Shri HarilalChunilal Jain v/s ITO, ITA no.4547/Mum./2014, dated 1 January 2016.
It is evident from the assessment order that on the basis of information obtained from the Sales Tax Department, Assessing Officer issued notices under section 133(6). As the assessee failed to produce the concerned parties, the Assessing Officer, primarily relying upon the information obtained from the Sales Tax Department held the purchases to be bogus and added 12.5% of the bogus purchases. Though, it may be a fact that assessee was not able to produce the concerned parties before the Assessing Officer, for whatever may be the reason, fact remains that during assessment proceedings itself the assessee had produced copy of invoices raised by them alongwith copy of delivery challan, quantity wise details of purchases and sale duly
Shri Tejraj Manroop Chand Tak, recorded in stock register, copy of ledger account and bank statement reflecting regular purchases and regular payments, copy of statement showing party wise purchases and their consequent sales, to prove the genuineness of the purchases. It is also a fact on record that the Assessing Officer has not doubted the sales effected by the assessee. Thus, it is logical to conclude that without corresponding purchases being effected the assessee could not have made the sales. Moreover, the Assessing Officer has not brought any material on record to conclusively establish the fact that purchases are bogus. Merely relying upon the information from the Sales Tax Department or the fact that parties were not produced the Assessing Officer could not have treated the purchases as bogus and made addition. If the Assessing Officer had any doubt with regard to purchases made, it was incumbent upon him to make further investigation to ascertain the genuineness of the transactions. Without making any further enquiry or investigation the Assessing Officer cannot sit back and make the addition by simply relying upon the information obtained from the Sales Tax Department and issuing notices under section 133(6) of the Act. As the Assessing Officer
Shri Tejraj Manroop Chand Tak, has failed to make any enquiry or investigation to prove the fact that the purchase transactions are not genuine whereas the assessee has brought documentary evidences on record to prove genuineness of such transactions which are not found to be fabricated or non-genuine, the action of the Assessing Officer in ignoring them cannot be accepted. When the payment to the concerned parties are through proper banking channel and there is no evidence before the Assessing Officer that the payments made were again routed back to the assessee, hence the additions were made by the AO on estimation @ 12.5% of the bogus purchases and the said order was also upheld by Ld. CIT(A). We further notice that AO made no efforts to check the bank accounts of the suspected parties to find the track of money paid, whether it was received back by the assessee. Even the statements recorded by the Sales Tax Department and the material collected by I.T. Department had not been made available to the assessee. The I.T. Act 1961 is a self contained code and the assessment has to be framed as per the letter and spirit of said I.T. Act 1961. While making such assessment, the AO is duty
Shri Tejraj Manroop Chand Tak, bound to examine all records and evidences are to be examined and a rationale judgment has to be formed thereon, which is lacking in the present case. In the present case, the AO did not appreciated the evidences adduced by the assessee to substantiate his purchases from the said parties, including details such as bills, ledger account, copy of invoices, bank statements, etc. Since the above evidences are primary evidences, the AO has either to accept them or point out irregularity with concrete and leading evidences, these could not have been completely brushed aside. Keeping in view the totality of facts and circumstances of the case, the addition made by AO and restricted by Ld. CIT(A) are not sustainable in the eyes of law. However, we are further of the view that in order to check possible revenue leakage, certain additions may be sustained in the present case on the basis of comparative analysis of GP of the present year compared to the earlier years.
Ld. AR drawn our attention to the decision of the Coordinate Bench of Hon’ble ITAT ‘F’ Bench in ITA No. 3699,
Shri Tejraj Manroop Chand Tak, 4276 4917 & 4760/Mum/16 titled M/s Geolife Organics Vrs. ACIT, Vikram N. Chandan Vrs. ITO, Jabarsingh B Daiya vrs. ITO & Rajendra Nemichandji Chandan Vrs. ITO, Hon’ble ITAT ‘J’ Bench in case titled M/s SVPHN Steel Service vrs. ITO and ITA No. 1864/Mum/17 case titled Jabarsingh Vrs. ITO, wherein the Hon’ble ITAT has taken a consistent view and restricted the additions to the extent of 2% of such purchases. Ld. AR also submitted that the facts of the above mentioned case are absolutely similar to the facts of the present case.
Therefore keeping in view the peculiar facts of the present case and respectfully following the decision of the Coordinate Benches and in order to maintain judicial consistency, we are of the view that in order to check possible revenue leakage, certain additions may be sustained in the present case in the given facts and circumstances and that could be on the basis of estimation by adjusting the existing gross profit on the bogus purchases already declared by the assessee, which are amounting to 3,45,771/-. We also found that assessee has also paid to Sales Tax Department a Shri Tejraj Manroop Chand Tak, sum of Rs. 5,22,266/- and after taking into consideration, both the above figures, the additions which are required to be upheld to the tune of Rs. 2,28,819/- as per the chart submitted by the assessee. Therefore, we are inclined to modify the orders passed by Ld. CIT(A) and to restrict the additions to the extent of 2,28,819/- of such purchases. We direct accordingly.