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Income Tax Appellate Tribunal, ‘A’ BENCH, MUMBAI
Before: SHRI G.S PANNU, AM & SHRI RAVISH SOOD, JM
आदेश / O R D E R
PER RAVISH SOOD, JUDICIAL MEMBER
The present cross appeals filed by the assessee and the revenue are directed against the order passed by the CIT(A)-1, Thane, dated 10.06.2015, for A.Y. 2010-11, which in itself arises from the order passed by the A.O u/s 143(3) r.w.s 147 of the Income-tax Act 1961 (for short ‘Act’), dated 24.03.2014. The assessee assailing the order of the CIT(A) had raised the following grounds of appeal before us:-
“ 1. The Ld. Commissioner of Income-tax (Appeals)-1, Thane (hereinafter referred to as the Ld. CIT(A)) erred in passing the appellate order dated 10.06.2015 without appreciating the facts and circumstances of the case. The Appellant strongly objects to t he appellate order passed on the following grounds:
2. Ad-hoc addition by treating the purchases as unexplained expenditure under section 69C of the Act unjustified – Rs. 76,52,336/-.
i. The ld. CIT(A) erred in making ad-hoc addition of Rs. 76,52,336/- by treating the purchases as unexplained expenditure under Section 69C of the Act without appreciating the facts and circumstances of the case. Hence, ad-hoc addition of Rs. 76,52,336/- under section 69C is unjustified and the same may be deleted. ii. The Ld. CIT(A) failed to appreciate that materials purchased from M/s Deep Enterprises, Ayushi Enterprises and M/s Sagar Enterprises are duly supported by relevant evidence. Hence, making ad -hoc addition of Rs. 76,52,336/- by treating the purchases made from the above parties are unjustified and the same may be deleted. iii. The Ld. CIT(A) further erred in determining the Gross profit from the transactions made with the above parties at 6.72% on the basis of Gross Profit declared by the appellant for its entire business in the earlier assessment years without providing the Appellant an opportunity to rebut the same. Hence, the ad-hoc addition made of Rs. 76,52,336/- is unjustified and the same may be deleted. iv. Without prejudice to the above the Ld. CIT(A) erred in making ad- hoc addition of Rs. 76,52,336/- on the basis of the certain investigation carried out by Sales Tax Department without providing the Appellant an opportunity to cross examine the persons relying on whose statement an adverse inference has been drawn against the appellant. Hence, the ad-hoc addition of Rs. 76,52,336/- is unjustified
Shri Ganesh Trading Co. Vs. ITO – A.Y 2009-10, & 4871/Mum/2015 ITO Vs. Shri Ganesh Trading Co. 3 and the same may be deleted.
3. The Ld. CIT(A) erred in levying interest under section 234B and 234C of the Act without appreciating the fact that the appellant denies his liability to the same.
The Appellant craves leave to add, alter, rescind or amend any of the above grounds of appeal.”
The revenue on the other hand being aggrieved with the order of the CIT(A) had carried the matter in appeal before us, raising the following grounds of appeal:
1. On the facts and the circumstances of the case , the Ld. CIT(A) has erred in relying on the decision of Supreme Court in the case of Kacchawala Gems Vs. JCIT 288 ITR 10(SC).
2. Whether on the facts and in the circumstances of the case, and in law, the Hon’ble CIT(A) erred in not following the order of ITAT, Pune in dated 20.02.2015 wherein 100% of bogus purchases was confirmed.
3. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in giving relief to t he assessee to the extent of suppressed G.P out of total bogus purchases even though: (i). The assessee could not produce primary evidences like Octroi receipts, Delivery Challan etc. evidencing to prove genuineness of the purchases before the A.O and before CIT(A). (ii). The affidavits filed by the entry providers before Sales Tax Authorities cannot be ignored having evidentiary value.
4. The order of the CIT(A) may be vacated and that of the Assessing Officer may be restored. 5. The appellant craves leave to add, amend, alter or delete any ground of appeal.” That as common issue is involved in the aforesaid cross appeals filed by the assessee and the revenue, therefore, they are taken up together and disposed off by way of a consolidate order.
Briefly stated, the facts of the case are that the assessee firm which is engaged in the business of trading in iron & steel had e-filed its return of income for A.Y 2009-10 on 27.09.2009, declaring total income at Rs. 7,99,940/-. On the basis of information received by the A.O from the Sales
Shri Ganesh Trading Co. Vs. ITO – A.Y 2009-10, & 4871/Mum/2015 ITO Vs. Shri Ganesh Trading Co. 4 tax department, Maharashtra, that the assessee during the year under consideration had made purchases from certain parties which were found to be involved in issuing hawala bills, the case of the assessee was reopened and a notice u/s. 148 was issued and served upon the assessee.
During the course of the assessment proceedings, it was observed by the A.O that on the basis of the information received from the Sales tax department, it emerged that the assessee during the year under consideration had made purchases from three parties, viz. (i). Deep Enterprises; (ii). Aayushi Enterprises; and (iii). Sagar Enterprises, which were found to be involved in issuing hawala bills. The notices issued by the A.O to the said parties under Sec. 133(6) were returned unserved by the postal authorities with the remarks ‘Left address’. The A.O bringing the aforesaid facts to the notice of the assessee called upon it to explain as to why the transactions with the said parties may not be held as bogus, as under:
Sr.No. Name of the party Purchase amount Gist of Information from Sales tax department 1. Deep Enterprises Rs. 47,59,644/- Mr. Rasiklal B. Shah, Proprietor of the firm has given statement that instead of doing business of sale & purchase of actual goods we used to issue only tax invoices without any involvement of goods i.e bogus invoice as per requirement of parties.
2. Aayushi Enterprises Rs. 28,78,471/- Smt. Meena R. Parekh prop. Of M/s Aayushi Enterprises has given affidavit before STD that she is not doing any genuine business, but issued only bogus bills without taking or giving actual delivery of goods.
3. Sagar Enterprises Rs. 69,92,597/- As reported by Asst. Commissioner of Sales Tax, the M/s Sagar Enterprise is not available at place of business and place of residence. Total Rs.1,46,30,712/-
Shri Ganesh Trading Co. Vs. ITO – A.Y 2009-10, & 4871/Mum/2015 ITO Vs. Shri Ganesh Trading Co. 5 4. The assessee in its reply submitted before the A.O that it had in the normal course of its business made purchases through brokers, who had undertaken to deliver the goods at the godown through proper tax invoice and delivery challans. On receipt of the goods the cheques were issued in the name of the respective parties as required by the broker, as per the terms and conditions laid down while placing the order. It was claimed by the assessee that it had taken input VAT credit on the purchases, but however, as the said parties were declared by the Sales tax department as hawala dealers who had not deposited the VAT, therefore, the Sales tax department had disallowed the input VAT credit on the purchases made by the assessee from the said parties. It was further submitted by the assessee that in order buy peace of mind and avoid litigation, it had paid VAT on the said purchases to make good the loss of revenue suffered by the exchequer. The assessee also in its reply requested that as the said parties had given affidavits claiming that no genuine sales were made to the assessee, therefore, their cross examination may be facilitated.
The A.O being of the view that as the assessee had claimed the purchases made from the aforementioned parties as an expense in its books of account, thus, holding a conviction that the onus to prove the genuineness and veracity of the said expenses was upon the assessee, therefore, declined the request of the assessee for cross examination of the parties. The A.O taking cognizance of the following facts:
(i). That the data uploaded by the Sales tax department on the basis of investigations carried out by the department as regards fraudulent input tax credit indulged by the hawala operators revealed that the assessee was one of the beneficiary who had claimed bogus purchases as an expenditure.
(ii). The hawala operators had submitted to the Sales tax authorities affidavits stating that the purchase transactions were only paper transactions and no material was actually supplied.
Shri Ganesh Trading Co. Vs. ITO – A.Y 2009-10, & 4871/Mum/2015 ITO Vs. Shri Ganesh Trading Co. 6 (iii). The explanation of the assessee as regards the correctness of the purchases and genuineness of the parties could not be accepted only on the basis of the information submitted by the assessee.
(iv). The statements of the aforesaid hawala operators and the affidavits filed by them with the Sales tax department were confronted to the assessee. That a perusal of the statements and affidavits of the parties revealed that they had indulged into providing only accommodation bills and had not carried out any genuine purchase/sale transactions.
, concluded that it stood proved to the hilt that the transactions carried out by the assessee with the above mentioned parties were not genuine. The A.O in the backdrop of his aforesaid observations, after characterizing the purchases claimed by the assessee to have been made from the aforesaid three parties as bogus, rejected the books of accounts of the assessee under Sec. 145(3) of the Act. The A.O treated the purchases under consideration as an unexplained expenditure under Sec. 69C. Alternatively, the payments made by the assessee were disallowed by the A.O under Sec. 37(1) of the Act. The A.O after disallowing the entire amount of purchases of Rs. 1,46,30,712/-, assessed the income at Rs. 1,54,30,652/-.
Aggrieved, the assessee assailed the order of the A.O in appeal before the CIT(A). The assessee reiterated the submissions made before the A.O and averred that it had carried out genuine purchase transactions from the aforesaid three parties. It was further claimed by the assessee that the material purchased from the aforesaid parties were duly accounted in the books of account and the payments were made to them by cheques. It was further submitted by the assessee that as the purchases under consideration were utilized for the purpose of its business and the same were sold during the year under consideration, therefore, the gross profit emerging therefrom had duly been offered for tax in the year itself. The assessee in its attempt to substantiate the genuineness of the purchase transactions furnished the purchases bills, sales bills, stock register, bank statement showing debit and credit entries, party wise purchases and sales
Shri Ganesh Trading Co. Vs. ITO – A.Y 2009-10, & 4871/Mum/2015 ITO Vs. Shri Ganesh Trading Co. 7 details and the party wise ledger accounts which were produced before the A.O. It was submitted by the assessee that as the movement of the material was proved, therefore, the disallowance made by the A.O under Sec. 69C by doubting the genuineness of the purchases was not justified. The assessee further submitted before the CIT(A) that as the purchases of goods from the aforementioned three parties was made way long back and were supported by documentary evidence, therefore, the A.O had erred in drawing adverse inferences as regards the genuineness of the purchases transactions, for the reason that the notices under Sec. 133(6) forwarded to the said parties, were returned unserved. The assessee further demonstrated before the CIT(A) the modus operandi for making of purchases through brokers. Further, the assessee tried to impress upon the CIT(A) that as the payments to the said parties were made by cheques, therefore, the same supported the genuineness of the transactions under consideration. The assessee further objected to drawing of adverse inferences by the A.O by relying on the statements and affidavits of the parties without affording any opportunity to the assessee of cross examining them, despite the fact that specific request for the same was made to the A.O. The assessee further assailed the rejection of its books of account under Sec. 145(3) by the A.O without pointing out any defect in the same. The assessee in order to drive home its contention that the purchases under consideration could not have been held to be bogus on the basis of the information received from the Sales tax department, relied on the judgment of the Hon’ble High Court of Bombay in the case of CIT vs. Nikunj Eximp Enterprises Pvt. Ltd. (2015) 372 ITR 619 (Bom). The assessee taking support of the aforesaid judicial pronouncement submitted that now when in its case the purchases made from the aforesaid three parties were duly substantiated on the basis of documentary evidence, therefore, no adverse inferences as regards the same was liable to be drawn. Lastly, it was averred by the assessee that the purchases made from the said three parties could not have been held as bogus, merely for the reason that the said parties were not traceable.
Shri Ganesh Trading Co. Vs. ITO – A.Y 2009-10, & 4871/Mum/2015 ITO Vs. Shri Ganesh Trading Co. 8 7. The CIT(A) deliberated on the contentions raised by the assessee before him in the backdrop of the facts of the case. The CIT(A) observed that the assessee instead of substantiating the genuineness and veracity of the purchase transactions made from the aforesaid respective supplier parties, viz. by producing the necessary parties for examination by the A.O, placing on record copy of the confirmations and current mailing address of the parties, copy of the delivery challans, transport receipts, bank statements and other related details, however, merely took support of the fact that the payments in respect of the said purchase transactions were made to them by cheques. The CIT(A) held that as the assessee had grossly failed to substantiate the heavy onus as was cast upon it to prove the genuineness and veracity of the purchase transactions, therefore, it could safely be concluded that it had only obtained bogus bills from the aforesaid hawala parties and no genuine purchases were made from them. The CIT(A) in order to verify the claim of the assessee that its books of account were not liableto be rejected, directed the assessee to reconcile the quantitative/qualitative details, item-wise – Op. stock, purchases a holding and sales affected on party wise basis. However, the assessee failed to place on record the requisite details for the reason that the same were not maintained in the required manner. The CIT(A) holding a conviction that in the absence of the aforesaid details it was not possible for the department to ascertain the correct amount of the income from the records/books of account maintained by the assessee, therefore, concluded that the books of account of the assessee were not complete in every respect as per the provisions of Sec. 145(3) of the Act. It was further observed by the CIT(A) that the assessee even during the course of the appellate proceedings, despite being afforded sufficient opportunity had expressed its inability to file the copies of the confirmed ledger accounts of the parties alongwith their current mailing addresses, as well as refused to produce the hawala parties for examination in person.
The CIT(A) in the backdrop of the aforesaid facts rejected the contentions which were advanced by the assessee to impress upon him to Shri Ganesh Trading Co. Vs. ITO – A.Y 2009-10, & 4871/Mum/2015 ITO Vs. Shri Ganesh Trading Co. 9 return a finding that the purchases made from the aforesaid three parties were genuine. The CIT(A) was of the view that the assessee had failed to discharge the onus cast upon it to prove the genuineness and veracity of the purchase transactions under consideration. The CIT(A) further being of the view that the claim of the assessee that as the payments were made to the parties by cheques was not tenable, because the hawala parties had admitted in their statements/affidavits that after deducting their commission they had refunded the balance cash to the parties. The CIT(A) observed that the claim of the assessee that the A.O had failed to bring on record any evidence that any cash was received back from the parties was also not tenable, as the parties were on the run. Still further, the CIT(A) held a conviction that the onus to prove the genuineness of the purchase transactions was cast upon the assessee. It was observed by the CIT(A) that as the assessee despite sufficient opportunity afforded to him during the course of the appellate proceedings to produce necessary supporting documents, viz. bank statement, confirmation, delivery challans, transport receipts etc. and produce the parties for necessary verification, had however failed to comply with the said directions, therefore, the authenticity of the purchase transactions remained unproved. Also, the assessee could not reconcile the quantity-wise details of purchases from the hawala parties vis- a-vis sales thereof. The CIT(A) observing that a perusal of the bills issued by the hawala parties revealed that they were plain bills without any marking or signature of either that of the receipt clerk or the cashier who had issued the payments, therefore, the same too did not inspire any confidence. The CIT(A) further observed that unlike as in the case of regular bills where the payments were made by the assessee on regular basis after purchases, a similar pattern of payments was not followed in case of purchases made from the hawala parties from whom purchases were shown to have been made on various dates. The CIT(A) was of the view that the assessee could not place on record documentary evidence which would inspire confidence as regards the authenticity of the purchase transactions under consideration. The CIT(A) further observed that after taking cognizance of the defects in the books of account of the assessee, the same were liable to Shri Ganesh Trading Co. Vs. ITO – A.Y 2009-10, & 4871/Mum/2015 ITO Vs. Shri Ganesh Trading Co. 10 be rejected under Sec. 145(3) of the Act.
The CIT(A) after deliberating on the facts of the case was persuaded to be in agreement with the claim of the assessee that the sales corresponding to the purchases under consideration had been credited in the books of account of the assessee. The CIT(A) thus held a conviction that it was not a case where the entire amount had been siphoned off by way of debiting bogus purchases. The CIT(A) observed that the assessee had during the year under consideration shown a gross profit rate of 4.05%, as against the gross profit rate of 5.36% for A.Y 2008-09 and gross profit rate of 6.72% for A.Y 2004-05. The CIT(A) relying on the judgment of the Hon’ble Supreme Court in the case of Kachwala Gems Vs. JCIT (2007) 288 ITR 10 (SC), observed that after the rejection of the accounts of the assessee, if the gross profit rate of 4.05% of A.Y 2008-09 was applied to the year under consideration, then the suppressed gross profit would work out at Rs. 34,92,324/- [Rs. 1,37,39,142/- (-) Rs. 1,02,46,818/-], and if the gross profit rate of 6.72% for A.Y 2004-05 was adopted for the year under consideration, then the suppressed gross profit would work out at Rs. 69,78,376/- [Rs. 1,72,25,194/- (-) Rs. 1,02,46,818/-]. It was further observed by the CIT(A) that if 25% of the bogus purchases were disallowed, the same would lead to an addition of Rs. 36,57,678/-, which would give an overall gross profit rate of 5.42%. The CIT(A) held a conviction that the assessee by booking bogus purchases had suppressed its gross profit. Thus, being of the view that the assessee in its business was capable of earning gross profit at a rate of 6.72% (i.e gross profit rate of A.Y 2004-05), the CIT(A) after rejecting the books of account of the assessee under Sec. 145(3), worked out the gross profit in the hands of the assessee for the year under consideration by applying the gross profit rate of 6.72% shown by the assessee in A.Y 2004- 05 to the total turnover of the assessee for the year under consideration and made a consequential addition of Rs. 69,78,376/-.
The assessee being aggrieved with the order of the CIT(A) had carried the matter in appeal before us. The ld. Authorized representative (for
Shri Ganesh Trading Co. Vs. ITO – A.Y 2009-10, & 4871/Mum/2015 ITO Vs. Shri Ganesh Trading Co. 11 short ‘A.R’) for the assessee, at the very outset of the hearing of the appeal took us through the facts of the case. The ld. A.R submitted that the CIT(A) had erred in working out the suppressed income of the assessee by applying the gross profit rate of 6.72% to the total turnover of Rs. 25,63,27,285/- of the assessee for the year under consideration. It was further averred by the ld. A.R that the CIT(A) had most arbitrarily and rather erroneously adopted the highest gross profit rate of 6.72% shown by the assessee in A.Y 2004-05 to the total turnover of the assessee for the year under consideration. The ld. A.R in order to drive home his contention that the gross profit rate of 6.72% was the highest gross profit rate ever shown by the assessee, placed before us a chart to support his contention. It was further submitted by the ld. A.R that in any case the CIT(A) should have restricted the addition to the extent of the profit element pertaining to the alleged bogus purchases of Rs. 1,46,30,715/-. The ld. A.R by referring to the chart placed on record, submitted that in case the addition was restricted to the extent of the profit rate of 6.72% to the alleged bogus purchases, the consequential addition in the hands of the assessee would boil down to Rs. 9,83,184/-. The ld. A.R further submitted that the A.O had erred in making an addition of the amount of the bogus purchases as an unexplained expenditure under Sec. 69C of the Act. The ld. A.R in support of his contention relied on the order passed by a ‘SMC’ bench of the Tribunal in the case of ITO, Ward 19(2)(2), Mumbai Vs. Karsan Nandu (2017) 77 taxmann.com 275 (Mum-Trib). The ld. A.R further submitted that the coordinate benches of the Tribunal had in case of bogus purchases restricted the addition to 2% of the value of bogus purchases and relied on the following cases :
(i). Geolife Organics Vs. ACIT 23(2), Mumbai (ITA No. 3699/Mum/2016; dt. 05.05.2017) (ii). Steel Line (India) Vs. ACIT 15(2), Mumbai. (ITA No. 880/Mum/2016) It was thus submitted by the ld. A.R that the addition in the case of the assessee may be restricted to 2% of the alleged bogus purchases of Rs. 1,46,30,715/-. Per contra, the ld. Departmental representative (for short
Shri Ganesh Trading Co. Vs. ITO – A.Y 2009-10, & 4871/Mum/2015 ITO Vs. Shri Ganesh Trading Co. 12 ‘D.R’) submitted that though the A.O had by way of a well reasoned order disallowed the entire amount of bogus purchases of Rs. 1,46,30,715/-, but however, the CIT(A) had erroneously restricted the addition to Rs. 69,78,376/-. The ld. D.R in order to support his contention that the addition of the entire amount of bogus purchases was called for in the case of the assessee, relied on the order of the Hon’ble Supreme Court in the case of NK Proteins Ltd. Vs. CIT [SLP(C)…CC No(s).769 of 2017], wherein the ‘Special leave petition’ (for short ‘SLP’) of the assessee against the sustaining of the addition of the entire amount of bogus purchases by the High Court was dismissed by the Hon’ble Apex Court. It was thus submitted by the ld. D.R that the order of the A.O be restored and that of the CIT(A) be set aside.
We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record. We find that a perusal of the facts available on record reveals that the name of the assessee figured in the list of the beneficiaries who had procured bogus bills. Still further, the hawala parties had in their ‘Affidavits’ filed with the Sales tax department deposed that they had only provided bogus bills to the beneficiaries and had not made any genuine sales to them. They had further claimed that the amounts received by them from the beneficiaries were returned in cash after deducting their commission. We are of the considered view that in the backdrop of the aforesaid allegations, a very heavy onus was cast on the assessee to substantiate the genuineness and veracity of the purchase transactions under consideration and dispel the serious doubts raised as regards the same. We however find that the assessee instead of proving to the hilt the genuineness of the purchase transactions made from the aforesaid parties, viz. by producing the necessary parties for examination before the A.O; placing on record copy of the confirmations; furnishing the current mailing address of the parties, ; placing on record copies of the delivery challans and transport receipts, bank statements and other related details, however, had merely taken support of the fact that the payments of purchases consideration were made to the aforesaid parties by cheques or had relied on a host of judicial
Shri Ganesh Trading Co. Vs. ITO – A.Y 2009-10, & 4871/Mum/2015 ITO Vs. Shri Ganesh Trading Co. 13 pronouncements.
We have perused the orders of the lower authorities and are of the considered view that as the assessee had failed to substantiate the genuineness and veracity of the purchases claimed by the assessee to have been made from the aforementioned parties, therefore, it can safely be concluded that the assessee had only obtained bogus bills from the said respective parties and had not made any genuine purchases from them. We find that the CIT(A) in order to verify the claim of the assessee that its books of account were not liable to be rejected, directed the assessee to reconcile the quantitative/qualitative details, item-wise – Op. stock, purchases and sales affected on party wise basis. However, despite being afforded sufficient opportunity to prove that its books of account were well in order, the assessee failed to place on record the requisite details for the reason that the same were not maintained in the required manner. We find that the CIT(A) holding a conviction that in the absence of the aforesaid details it was not possible for the department to ascertain the correct amount of the income from the records/books of account maintained by the assessee, therefore, concluded that the books of account of the assessee were not complete in every respect as per the provisions of Sec. 145(3) of the Act. We thus in the backdrop of the aforesaid facts are persuaded to be in agreement with the observations of the CIT(A) that as in the absence of the aforesaid details, it was not possible for the department to ascertain the correct amount of the income from the records/books of account maintained by the assessee, therefore, the books of account of the assessee were liable to be rejected as per the provisions of Sec. 145(3) of the Act. We though are persuaded to subscribe to the view of the CIT(A) that once the books of account of the assessee are rejected under Sec. 145(3), then the income is open to estimation, but however, do not find ourselves to be in agreement with the manner of estimation of the income of the assessee adopted by him. We find that the CIT(A) while estimating the suppressed profits of the assessee had adopted the highest ever gross profit rate of 6.72% that was shown by the assessee in A.Y 2004-05 i.e 5 years ago. The CIT(A) while adopting the gross
Shri Ganesh Trading Co. Vs. ITO – A.Y 2009-10, & 4871/Mum/2015 ITO Vs. Shri Ganesh Trading Co. 14 profit rate of the assessee for the year under consideration at 6.72%, had observed that as the assessee had returned a gross profit of 6.72% in A.Y 2004-05, therefore, it stood proved that the assessee was capable of harvesting such profit in its business. We are of the considered view that the CIT(A) while concluding as hereinabove, had however lost sight of the turnover of the assessee in A.Y 2004-05 as in comparison to that of the year under consideration, viz. A.Y 2009-10. That a perusal of the chart placed on our record by the ld. A.R reveals that while for the sales for A.Y 2004-05 was Rs. 1,02,91,477/-, that for the year under consideration, viz. A.Y 2009-10 was 24,67,22,932/-. As the sales of the assessee for the year under consideration had witnessed a substantial increase by 24 times (approx) as in comparison to that of A.Y 2004-05, therefore, no feasible comparison of the gross profit rates of the two years can be carried out in isolation. We are of the considered view that as the gross profit rates of the assessee (as gathered from the chart filed by the ld. A.R) for the intervening period falling between A.Y 2004-05 to A.Y 2009-10 had witnessed a downward trend as in comparison to that of A.Y 2004-05, therefore, in all fairness the estimation of the suppressed profits of the assessee could safely be carried out by adopting the average gross profit rate of the assessee for the A.Y 2004-05 to A.Y 2008-09 and applying the same to the total turnover of Rs. 25,63,27,285/- of the assessee for the year under consideration. We are unable to persuade ourselves to accept the contention of the ld. A.R that the CIT(A) had erred in not restricting the addition to the extent of the value of the alleged bogus purchases. We are of the considered view that as the books of account of the assessee had validly been rejected by the A.O under Sec. 145(3) of the Act, therefore, no infirmity does emerge from the estimation of the profit of the assessee on the total turnover of the assessee for the year under consideration. We may herein further observe that as the income of the assessee had been estimated after the rejection of the books of account of the assessee, therefore, there can be no recourse to the provisions of Sec. 69C of the Act. We have also perused the orders of the coordinate benches of the Tribunal relied upon by the ld. A.R, and find that as the same are distinguishable on facts, therefore, they would not assist
Shri Ganesh Trading Co. Vs. ITO – A.Y 2009-10, & 4871/Mum/2015 ITO Vs. Shri Ganesh Trading Co. 15 the adjudication of the issue involved in the appeal before us. We may herein observe that the case of the assessee is not merely that of a simpliciter addition in respect of profit involved in making of bogus purchases, but rather, that of estimation of income after rejection of books of account under Sec. 145(3) of the Act. Be that as it may, as in the case before us the books of account of the assessee had been rejected under Sec. 145(3), therefore, after such rejection the overall profits of the assessee for the year under consideration could only have been determined by taking recourse to a fair estimation of its profits for the year, which we find had fairly been done by the CIT(A), though the same would be subjected to modification of the gross profit rate in terms of our aforesaid observations.
We now advert to the contentions of the ld. D.R who had averred that the CIT(A) had erred in dislodging the addition of the entire value of purchases of Rs. 1,46,30,715/- made by the A.O. We have already observed hereinabove that as the income of the assessee had been estimated after rejection of its books of account under Sec. 145(3), therefore, no recourse to the provisions of Sec. 69C can thereafter be made. As regards the reliance placed by the ld. D.R on the order passed by the Hon’ble Supreme Court while dismissing the ‘Special Leave Petition’ (‘SLP’) of the assessee in the case of N.K Proteins Ltd. Vs. DCIT[SLP(C)…CC No(s).769 of 2017],the same is found to be distinguishable on facts, as against those involved in the case of the present assessee. We find that in the case of N.K Proteins Ltd. (supra) search proceedings were conducted on the assessee, in the course of which certain signed blank cheques and vouchers of the parties from whom the assessee claimed to have made purchases were found. It was thus in the backdrop of the aforesaid factual matrix that it was held that the cash deposited in the bank accounts of the said respective supplier parties was the undisclosed income of the assessee and the purchases made therefrom were bogus. We are of the considered view that as the facts involved in the case of the present assessee are distinguishable as against the peculiar facts as had emerged in the aforesaid case, therefore, the same would not assist the case of the revenue any further.
Shri Ganesh Trading Co. Vs. ITO – A.Y 2009-10, & 4871/Mum/2015 ITO Vs. Shri Ganesh Trading Co. 16
We thus direct the A.O to estimate the gross profit of the assessee for the year under consideration by adopting the average gross profit rate of the assessee for the A.Y 2004-05 to A.Y 2008-09 and applying the same to the total turnover of Rs. 25,63,27,285/- of the assessee during the year under consideration. The assessee is directed to furnish before the A.O the details of its gross profit rates for A.Y 2004-05 to A.Y 2008-09 alongwith supporting documentary evidence. We thus uphold the order of the CIT(A), subject however to the aforesaid modification to the gross profit rate to be adopted for estimating the income of the assessee for the year under consideration.
The appeal of the assessee in is dismissed.
Order pronounced in the open court on 25.04.2018. Sd/- Sd/- (G.S Pannu) (Ravish Sood) Accountant Member Judicial Member भ ंफई Mumbai;ददनांक 25.04.2018 PS: Rohit आदेश की प्रतिलऱपि अग्रेपिि/Copy of the Order forwarded to : अऩीराथी / The Appellant 1. प्रत्मथी / The Respondent. 2. आमकय आम क्त(अऩीर) / The CIT(A)- 3. आमकय आम क्त / CIT 4. 5. विबागीम प्रतततनधध, आमकय अऩीरीम अधधकयण, भ ंफई / DR, ITAT, Mumbai गार्ड पाईर / Guard file. 6. सत्मावऩत प्रतत //True Copy// आदेशानुसार/ BY ORDER, उि/सहायक िंजीकार (Dy./Asstt. Registrar) आयकर अिीऱीय अधिकरण, भ ंफई / ITAT, Mumbai.
Shri Ganesh Trading Co. Vs. ITO – A.Y 2009-10, & 4871/Mum/2015 ITO Vs. Shri Ganesh Trading Co. 17