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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 R.C.SHARMA (A.M):
These are the appeals filed by the assessee against the order of CIT(A)-25, Mumbai dated 15/11/2017 for A.Y.2009-10, 2010-11 and 2011-12 in the matter of order passed u/s.143(3) r.w.s. 147 of the IT Act. 2. In all these three appeals, assessee is aggrieved for upholding addition of 12.5% in respect of alleged bogus purchases. Facts and circumstances in all the three years are common, therefore, all the three appeals were heard together and are now being decided by this consolidated order.
2 Vaishali Prakash Muni 3. From the record we found that the MVAT department puts up the list of 'SUSPICIOUS" or 'HAWALA DEALERS" on website of MVAT. Based on this information, Income Tax department undertakes to disallow purchase in Income-Tax Assessment. It was argued by learned AR that when MVAT Department grants registration to a dealer, all details are called for including bank account, PAN, address, etc. In some cases, before grant of RC even visit is done to confirm the Place of Business of the dealer. The signatory to the application is required to attend before registration authority and sign in his presence. This itself establishes that the dealer is in existence when Registration Certificate is obtained. Subsequently, the dealer may default in paying tax or pays less tax. They do not disclose proper turnover and are found to be SUSPICIOUS. Some such suspicious dealer also pays up to clear their name. Some dealers in order not to pay VAT file Affidavit that they have issued only Hawala bills and there is no physical delivery of goods. So Hawala dealer gets scot free and purchasing dealer is required to pay up the tax. In some cases, if a dealer does not have money, he is advised to give such affidavit so that he can escape harassment from recovery. The burden in such case shifts from selling dealer to purchasing dealer to prove his case. Thus, on one hand, the purchaser is expected to pay VAT that he had already paid while purchasing the goods. On the other hand, owing to default on part of the seller, and being treated as “suspicious dealer”, the purchaser has to pay VAT, and on other hand, the Income Tax Department proposes to allow entire purchases. This is not in test of equity.
As per learned AR, at the most such dealers may be treated as 'DEFAULTERS' but not bogus. In case TDS is not deposited, IT department treats such persons as DEFAULTERS and not BOGUS assessee. To take such corollary from the Income-tax Act 1961, it is submitted, the purchases cannot be treated as bogus. DEFAULTERS NEED NOT BE BOGUS. Even if sale is proved, corresponding purchase can be presumed. Hence no addition can be made merely on 'SUSPICION'. We have already filed name, address, PAN and other relevant details of SALE and prove sales are genuine. Same way, we have given all the details with respect to purchases. We have also matched the quantities sold with quantities purchased. If purchases are disallowed, there is nothing to support the sale, and hence, the sale also must be disregarded. As per learned AR, assessee had also requested if necessary, to summon the parties instead of adopting shortcut of disallowance. If such person has appeared before the MVAT Authorities, he must appear before the Assessing Officer also. Assessee also requested the Assessing Officer to allow cross examination. The Assessing Officer was also requested to check Entries in Bank statements of the sellers. Once these entries are present in dealer's books, it was submitted, assessee has discharged its preliminary obligation.
Learned AR further contended that the Assessing Officer was also specifically requested to give evidences if any specific and ^dependent inquiries are made by her. However, the Assessing Officer did not give 4 Vaishali Prakash Muni any such evidence. He also submitted that the M-VAT Department has not treated the sale made by seller as bogus, but only suspicious. If it was a bogus sale, VAT could not have been charged by the M-VAT Department. When the concerned Department on which the Assessing Officer is relying for inquiries are made is not treating the sale as bogus, it was submitted, the Assessing Officer can't treat the purchase as bogus. However, learned AO did not agree and made adhoc addition of 12.5% of the alleged bogus purchases in all the years under consideration.
By the impugned order, CIT(A) confirmed the action of the AO against which assessee is in further appeal before us.
We have considered rival contentions and carefully gone through the orders of the authorities below and found from record that assessee is engaged in the business of iron and steel trading, where normal GP rate works out at 4%.On the information received from Sales Tax Department regarding suspicion supplier, the AO reopened the assessment and added 12.5% of such purchases in assessee’s income. By the impugned order, CIT(A) confirmed the addition after relying on the decision of Simit P Sheth. We found that place of business and year under consideration were different and as such gross profit margin in this case cannot be used for comparison purposes. Therefore, the ratio of these decisions cannot be applied to the facts of instant case. After going through the judgment of Simit P Sheth we found that it is pertaining to A.Y.2006-07 whereas assessee’s case pertains to A.Y.2010-11. Simit P Sheth was carrying on his business in the State of Gujarat whereas the present assessee is 5 Vaishali Prakash Muni operating in South Mumbai, Maharashtra where competition is very high. We also observe that in the case of Simit Sheth suppliers made their statement on oath to the effect that they did not supply the steel to the assessee but in the case of the assessee company, no such statement was given by the suppliers. In the present case, books of accounts have not been rejected by the AO where as in the case of Simith Sheth books of accounts were rejected by the AO. During the course of reassessment, the assessee has furnished all the documentary evidence to support the purchase and corresponding sales. The AO has accepted the corresponding sales made by the AO, even the books of accounts were not rejected. From the record, we found that assessee had shown gross profit @3.06%, 3.90% & 4.20 in the A.Y.2009-10, 2010-11 & 2011-12 respectively. From the material placed on record, we observe that even Income Tax Department has not treated the sales as bogus and mere allegation of department was that transport receipt was not given. With regard to transportation documents, it was submitted that assessee does not take inventory nor handle logistics and follow Just In Time (JIT) Methodology. This aspect was also evident from the details of purchase invoice & sales invoice as these happened on the same date. Nature of business is such that assessee have back to back purchases & sales. The assessee does not take the possession of goods but ensure that goods directly goes from supplier to customers without being involved in logistics. Accordingly, the assessee was not having the copies of delivery challans or lorry receipts / transportation receipts. In the nature of trade 6 ITA No.378-380/Mum/2018 Vaishali Prakash Muni assessee was involved, the goods were directly transported from the place of origin to the ultimate supplier rather than delivering the same to the place of the assessee.
Learned AR also placed on record the copy of decision in case of Suman Gupta in ITA No.4774/Mum/2014 order dated 23/08/2017, wherein under similar facts and circumstances disallowance to the extent of 2% of the alleged bogus purchases was upheld.
Further, the learned AR relied on the following decision where the facts of the case were similar to the case of the assessee: CIT v. Nikunj Eximp Enterprises (P.) Ltd. 35 Taxmann.com 384 (BOM HC) Rajesh P. Soni v. ACIT (2006) 100 TTJ 892 (Ahd.)(Trib.) DCIT v. Brahmaputra Steels (P) Ltd. 122 TAXMAN 32(GAUHATI)(MAG.) Totaram Sharma vs. ITO Ward (AhmedabadTax Appeal No. 1344 of 2008 with Tax Appeal No. 1355 of 2008.) Balaji Textile Industries (P) Ltd. v. ITO [1994] 49 ITD 177 (ITAT Mumbai)
Reliance was also placed on the following decisions in support of the contention that simply based on the information from Sales Tax department, AO cannot make addition without making further investigation to substantiate his allegation of bogus purchase. In all the said case law, It has been held that if assessee has provided quantitative details and if sales are not doubted by AO, then addition cannot be sustained only because of non-appearance of supplier before the AO. M/s. Imperial Imp & Exp vs. ITO (ITA No.5427/Mum/2015)[Mum.ITAT] 7 Vaishali Prakash Muni ACIT vs. Mahesh K Shah (ITA No.5194/Mum/2014)[Mum ITAT] Rajesh P Soni vs. ACIT [100 TTJ 892](2006)(Ahd. Trib) CIT vs. Nikunj Eximp Enterprises (P) Ltd., (35 Taxmann.com 384) (Bom.) Ramesh Kumar & Co., vs. ACIT (ITA No.2959/ Mum/2014) (Mum.ITAT) Hiralal Chunilal Jain vs. ITO (ITA No.4547/Mum/2014) (Mum.ITAT) DCIT vs. Rajeev G. Kalathil (67 SOT 52)(Mum.ITAT) ITO vs. Paresh Arvind Gandhi (ITA No.5706/Mum/2013)(Mum.ITAT) 11. Learned AR also placed reliance on the decision of Mumbai ITAT in the case M/s. Geolife Organics vs. ACIT [ITA No. 3699/M/2016] wherein the facts of the case are similar to the assessee case. In that case assessee was trading in ferrous and non ferrous metals under a proprietary concern by name, M/s Ankur Steel & Engineering Company. During the year under consideration, it was held that assessee was one of the beneficiaries of the accommodation entries provided by some of the MVAT dealers who were indulging in issuing bogus sale/purchase bills, which was investigated and kept on the public domain by the Sales Tax Department. The AO relying on the case of CIT Vs Simit P. Sheth [2013] reported in 356 ITR 451 (Guj.) and also considering the fact that purchases are recorded in the books of account, profit element embedded in such purchases was taken as the profit earned from purchases shown 8 Vaishali Prakash Muni to have been made from the hawala parties and estimated the profit @12.5% of the total non genuine purchases and added the same to the total income of the assessee. CIT(A) confirmed the action of the AO against which assessee filed appeal before the ITAT. The ITAT disposed off the said appeal as under: "10. We have considered rival contentions and carefully gone through the orders of the authorities below. We have also deliberated on various judicial pronouncements referred by lower authorities in their respective orders as -well as cited by learned AR and DR during the course of hearing before us. From the record we found 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 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. CITv. Akruti Dyeing & Printing Mill's (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), HO 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 Bench, has deleted the addition made under section 69C, in the following cases:- i) CIT v/s Nikunj Eximp Enterprise Pvt. Ltd. 372 ITR 619 ii) A"CITv/s Tarla R, Shah, ITA no.5295/Mum./2013, dated 2nd February 2016; and iii) Shri Harilal Chunilal Jain v/s ITO, ITA no.4547/Mum./2014, dated 1 January 2016.
12. 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% profit in addition to the normal profit declared by the 9 Vaishali Prakash Muni assessee. 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 confirmed ledger copies of concerned parties, bank account statement, purchase bills, delivery challans, etc., 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 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, the addition made by estimating further profit of 12.5% earned by the assessee is not sustainable in law and facts Keeping in view the totality of facts and circumstances of the case, we are inclined to restrict the addition to the extent of 2% of such purchases. We direct accordingly,.
Considering the facts and circumstances of the case vis-à-vis gross profit and net profit declared by the assessee during the years under consideration and also considering the facts and circumstances in the case of Geolife Organics (supra) and Suman Gupta (supra), we direct the AO to restrict the addition to the extent of 2% of such alleged bogus purchases in all the three years under consideration.