HITESH H. SHAH,MUMBAI vs. ITO 13(2)(4), MUMBAI

आदेश / O R D E R Per Shri Sandeep Gosain, Judicial Member: These eight appeals filed by the assessees are against the order of Commissioner of Income Tax (Appeals)-28, 30, & 40, Mumbai dated 13.04.16, 16.06.17, 04.05.16, 05.04.13for AY2009-10, 2010-11 & 2011-12 respectively.

4 4757, 4758 & 4633/Mum/2016, 5585, 5586 & 5587 /Mum/2017& I.T.A. No. 5942/Mum/2014 Hitesh H. Shah & Others 4. On the other hand, Ld. DR requested for dismissal of the said application.

(AY 2009-10) 6. First of all we take up assessee’s appeal in for assessment year 2009-10 as lead case. The grounds of appeal are mentioned herein below:-

1. Learned CIT(Appeal) erred in confirming the profit element to 12.5% and further, reducing the GP declared in the said assessment year and erred in treating the sane as bogus purchase.

5 4757, 4758 & 4633/Mum/2016, 5585, 5586 & 5587 /Mum/2017& I.T.A. No. 5942/Mum/2014 Hitesh H. Shah & Others 2. Learned CIT(Appeal) erred in ignoring the detailed evidences brought on record and ignoring the judicial precedents brought to his knowledge.

3. Learned assessing officer erred in rejecting the books of account on summarise and conjecture basis and Learned CIT(Appeal) erred in confirming the same.

7. As per the facts of the present case, theassessee is an individual and is involved in the business activity of trading in iron and steel and such activity is carried out in the name and style as M/s Hitesh Enterprises. The return of income for the year under consideration was filed on 29.09.2009 declaring total income of Rs. 6,32,980/- . Thereafter, the case was re-opened u/s 147 on account of information received from the Sales tax Department, State of Maharashtra of certain persons who have provided entries of bogus purchase bills to tax payers. The AO carried out investigations and after seeking reply from the 6 4757, 4758 & 4633/Mum/2016, 5585, 5586 & 5587 /Mum/2017& I.T.A. No. 5942/Mum/2014 Hitesh H. Shah & Others assessee, AO passed order of assessment u/s 143(3) r.w.s 147 of the I.T. Act, thereby making addition @ 25% of the total purchases and 1% of the purchase was adopted as brokerage.

8. 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 partly allowedthe appeal of the assessee and restricted the addition @ 12.5% and after giving credit of GP, the total disallowance was made @ 11.43%. Aggrieved by the order of Ld. CIT(A), assesseefiled the presentappeal before us on the ground mentioned herein above.

Ground No. 1 to 3. 9. These grounds raisedby the assessee are inter-connected and inter-related and relates to challenging the order of Ld. CIT(A) in making additions on account of bogus purchases made by the assessee, therefore we thought it fit to dispose of by this common order.

7 4757, 4758 & 4633/Mum/2016, 5585, 5586 & 5587 /Mum/2017& I.T.A. No. 5942/Mum/2014 Hitesh H. Shah & Others 10. Ld. AR appearing on behalf of the assessee reiterated the same arguments which were raised before Ld. CIT(A) and submitted that all the transactions that are now alleged as ‘bogus purchases’ were conducted through broker. It was submitted that assessee had already submitted the details of purchases made, details of expenses incurred, copy of balance sheet, tax audit report, ledger account of all the parties, copies of bills and copies of bank statements showing payments made to the parties were also filed before the AO. Reliance was placed on the decision of the Bombay High Court in the case of Nikunj Exim Pvt. Ltd. 372 ITR 619 and GoolamallyHasanjee (ITA/3740- 41/Mum/2012 – A.Y.06-07 and 08-09) and also on the case of Ashok Talreja – HUF (ITA / 4629/Mum/2014 &Ors. A.Y.s 07- 08 to 09-10 decided on 17/03/2016) and stated that facts of that case were similar to the case under consideration.

"We have considered the submission on behalf of the Revenue. However, from the order of the Tribunal dated April 30, 2010, we find that the Tribunal has deleted the additions on account of bogus purchases not only on the basis of stock statement, i.e., reconciliation statement but also in view of the other facts. The Tribunal records that the books of account of the respondent- assessee have not been rejected. Similarly, the sales have not been doubted and it is an admitted position that substantial amount of sales have been made to the Government Department, i.e., Defence Research and Development Laboratory,

9 4757, 4758 & 4633/Mum/2016, 5585, 5586 & 5587 /Mum/2017& I.T.A. No. 5942/Mum/2014 Hitesh H. Shah & Others Hyderabad. Further, there were confirmation letters filed by the suppliers, copies of invoices for purchases as well as copies of bank statement all of which would indicate that the purchases were in fact made. In our view, merely because the suppliers have not appeared before the Assessing Officer or the Commissioner of Income-tax (Appeals), one cannot conclude that the purchases were not made by the respondent-assessee. The Assessing Officer as well as the Commissioner of Income-tax (Appeals) have disallowed the deduction of Rs. 1.33 crores on account of purchases merely on the basis of suspicion because the sellers and the canvassing agents have not been produced before them. We find that the order of the Tribunal is well a reasoned order taking into account all the facts before concluding that the purchases of Rs. 1.33 crores was not bogus. No fault can be found with the order dated April 30, 2010, of the Tribunal."

10 4757, 4758 & 4633/Mum/2016, 5585, 5586 & 5587 /Mum/2017& I.T.A. No. 5942/Mum/2014 Hitesh H. Shah & Others was not justified in upholding the additions. It was also argued that the dealers are regularly assessed to tax and the purchases were also properly reflected in the books of account and payments were made through account payee cheques and on payment of the amount to the seller, the purchaser has no control on their affairs and there is no evidence that the cash is received back from the suppliers and the purchases cannot be treated as bogus. As per learned AR, the Assessee maintained stock register and also maintained the quantitative details. The gross profit shown during the previous year was reasonable and satisfactory in comparison to the previous years and relied on several cases cited along with brief of the case laws of Hon'ble ITAT Benches giving relief in similar bogus purchase cases. Without appreciating the facts of the case AO made additions @ 25% of the alleged bogus purchases by relying upon the case of Sanjay Oilcake Industries Vrs. CIT (2009) 316 ITR 274(Guj)and Ld. CIT(A) while relying upon the case titled CIT vrs. Simit P. Sheth 356 ITR 451 adopted 12.5% as profit element embedded, but the facts of the caseare distinguishable as in that case, the 11 4757, 4758 & 4633/Mum/2016, 5585, 5586 & 5587 /Mum/2017& I.T.A. No. 5942/Mum/2014 Hitesh H. Shah & Others assessee was doing business in the state of Gujarat, whereas the present assessee is doing business in Mumbai where competition is very high and profit margin range between 3 to 4%. In view of the above facts, it was submitted that since the assessee had already declared gross profit in the books on the purchases, no further addition was warranted. It was further submitted that the transactions carried on by the assessee for the purchase of material were genuine and in consonance with the Sales Tax Act, I.T. Act and such other laws as may be applicable. It was further submitted that the material purchased from the alleged parties had been re-sold which was offered as income in the I.T. return. The Ld. AR further submitted that no opportunity of the cross-examination was ever provided to the assessee whereas all the necessary details available with the assessee to prove his claim had already been brought on record and the assessee had replied to each and every notice issued by the AO, and further submitted all relevant details and submissions alongwith the partie’s ledger, correspondence sales

12 4757, 4758 & 4633/Mum/2016, 5585, 5586 & 5587 /Mum/2017& I.T.A. No. 5942/Mum/2014 Hitesh H. Shah & Others against the purchases were also identified and the statement was submitted to the AO. The Ld. AR further submitted that the mechanical determination of liability and such estimation by the revenue is contrary to law more particularly when necessary evidences were brought on record.

14 4757, 4758 & 4633/Mum/2016, 5585, 5586 & 5587 /Mum/2017& I.T.A. No. 5942/Mum/2014 Hitesh H. Shah & Others Mumbai 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.

15 4757, 4758 & 4633/Mum/2016, 5585, 5586 & 5587 /Mum/2017& I.T.A. No. 5942/Mum/2014 Hitesh H. Shah & Others parties, bank account statement, purchase bills, 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 16 4757, 4758 & 4633/Mum/2016, 5585, 5586 & 5587 /Mum/2017& I.T.A. No. 5942/Mum/2014 Hitesh H. Shah & Others 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 25%earned by the assessee, which was reduced by Ld. CIT(A) to 12.5%, is not sustainable in law and facts. 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 17 4757, 4758 & 4633/Mum/2016, 5585, 5586 & 5587 /Mum/2017& I.T.A. No. 5942/Mum/2014 Hitesh H. Shah & Others 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.

19 4757, 4758 & 4633/Mum/2016, 5585, 5586 & 5587 /Mum/2017& I.T.A. No. 5942/Mum/2014 Hitesh H. Shah & Others consistency, we are inclined to modify the orders passed by Ld. CIT(A) and to restrict the additions to the extent of 2% of such purchases. We direct accordingly.