SIMPLEX METAL & ALLOYS,MUMBAI vs. INCOME TAX OFFICER 19(3)(3), MUMBAI

The issue raised relates to the validity of reopening and confirming the addition of Rs.13,78,911/- on account of bogus purchases.

Simplex Metal & Alloys 3. The facts of the case in brief are that the assessee filed its return of income for A.Y.2010-11 on 28.09.2009 declaring total income at Rs.8,60,290/-. The return was processed u/s 143(1) of the Act and order u/s 143(3) was passed on 11.12.2012 determining total income of Rs.9,65,730/-. Subsequently, the case was reopened and accordingly notices u/s.143(2) and 142(1) were issued and duly served on the assessee company. The Assessing Officer completed the assessment u/s. 143(3) r.w.s. 147 of the Act on 19.03.2015 determining total income at Rs.23,44,640/-.

During the course of reopened assessment proceedings the Assessing Officer observed that assessee has filed paper book showing the ledger account and copies of purchase bills, delivery challans of the purchases made from five parties. To ascertain the genuineness of purchases shown in the accounts, notice u/s 133(6) of the Act was issued to five parties by the Assessing Officer which was returned unserved by the postal authorities. The Assessing Officer observed that in the absence of any details from the above parties the genuineness of the transaction could not be verified. Further as per the information received from Sales Tax Authorities the above mentioned parties were Hawala Dealers, they are dealing only in paper entries. The Assessing Officer further gave a finding that the assessee could not file the vital documents such as delivery challans, transport receipts, octroi receipt for payment of Octroi duty, receipt of weighbridge for weighing of goods, excise gate pass, goods inward register maintained at godown/warehouse/storage house etc. Whatever documents placed on record is not capable of sustenance. The items shown to have purchased from the said parties are of Simplex Metal & Alloys such in nature that they require separate transportation. Hence, the mode of transportation is not explained properly. On going through the submissions and contentions of the assessee, Assessing Officer concluded at length that the assessee did not purchase any goods from the said party and hence added the entire purchases of Rs.13,78,911/-.

On assessee’s appeal, the ld. Commissioner of Income Tax (Appeals) confirmed the addition.

Against the above order, the assessee is in appeal before the ITAT.

I have heard the ld. Departmental Representative. None appeared on behalf of the assessee. The notice sent has returned unserved. Accordingly, I proceeded to adjudicate this case by hearing the ld. Departmental Representative and perusing the material on record.

Upon careful consideration, as regards the reopening of the assessee, on a careful consideration, I note that in this case information was received by the Assessing Officer from DGIT Investigation (Mumbai) there are some parties who are engaged in the hawala transactions and are also involved in issuing bogus purchase bills for sale of material without delivery of goods, which information was based on information received by Revenue from Maharashtra Sales Tax Authority. Information was received that the assessee was beneficiary of hawala accommodation entries from entry providers by way of bogus purchase. The accommodation entry provider has Simplex Metal & Alloys deposed and admitted before the Maharashtra Sales Tax Authority vide statement/ affidavit that they were engaged in providing bogus accommodation entries wherein bogus sale bills were issued without delivery of goods, in consideration for commission. These, accommodation entry providers, on receipt of cheques from parties against bogus bills for sale of material, later on withdrew cash from their bank accounts, which was returned to beneficiaries of bogus bills after deduction of their agreed commission. The Assessee was stated to be one of the beneficiaries of these bogus entries of sale of material from hawala entry operators in favour of the assessee wherein the assessee made alleged bogus purchases through these bogus bills issued by hawala entry providers in favour of the assessee. These dealers were surveyed by the Sales Tax Investigation Department whereby the directors of these dealers have admitted in a deposition vide statements/affidavit made before the Sales Tax Department that they were involved in. issuing bogus purchase bills without delivery of any material. There is a list of such parties wherein the assessee is stated to be beneficiary of bogus purchase bills.

From the above, I find that tangible and cogent incriminating material were received by the AO which clearly showed that the assessee was beneficiary of bogus purchase entries from bogus entry providers which formed the reason to believe by the AO that income has escaped assessment. The information so received by the AO has live link with reason to believe that income has escaped assessment. On these

The above discussion and precedent from Apex Court fully justify the validity of reopening in this case. Further I find that the Ld. CIT(A) has carefully examined the issue and has properly appreciated the issue. Hence, I do not find any infirmity in the same. Accordingly, I uphold the order of the Ld. CIT(A) on the issue of reopening. Since, the issue has been decided on the basis of the Hon’ble Apex Court

As regards merits of addition, I find that credible and cogent information was received in this case by the assessing officer that certain accommodation entry provider/bogus suppliers were being used by certain parties to obtained bogus bills, assessee was found to have taken accommodation entry/bogus purchase bills during the concerned assessment year from different parties. Based upon this information assessment was reopened. The credibility of information relating to reopening has been confirmed by the learned CIT(A) and by ITAT as above. Furthermore it is noted that in such factual scenario Assessing Officer has made the necessary enquiry. The issue of notice to all the parties have returned unserved. Assessee has not been able to provide any confirmation from any of the party. Assessee has also not been able to produce any of the parties. The necessary evidence for transportation of goods have not been provided by the assessee. In this factual scenario it is amply that assessee has obtained bogus purchase bills. Mere preparation of documents for purchases cannot controvert overwhelming evidence that the provider of these bills are bogus and non-existent and there is no cogent evidence of transportation of goods. The sales tax Department in its enquiry have found the parties to be providing bogus accommodation entries. The assessing officer also issued notices to these parties at the addresses provided by the assessee. All these notices have returned unserved. Assessee has not been able to produce any of the parties. The assessing officer has noted that there is no cogent evidence of the provision of goods.

Hence purchase bills from these non-existent the/bogus parties cannot be taken as cogent evidence of purchases, in light of the overwhelming evidence the revenue authorities cannot put upon blinkers and accept these purchases as genuine. This proposition is duly supported by Hon’ble Apex Court decision in the case of Sumati Dayal 214 ITR 801 and Durga Prasad More 82 ITR 540. In the present case the assessee wants that the unassailable fact that the suppliers are non-existent and thus bogus should be ignored and only the documents being produced should be considered. This proposition is totally unsustainable in light of above apex court decisions.

In these circumstances learned departmental representative has referred to Hon’ble Gujarat High Court decision in the case of Apex Appeal No. 240 of 2003 in the case of N K Industries vs Dy CIT, order dated 20.06.2016, wherein hundred percent of the bogus purchases was held to be added in the hands of the assessee and tribunals restriction of the addition to 25% of the bogus purchases was set aside. It was expounded that when purchase bills have been found to be bogus 100% disallowance was required. The special leave petition against this order along with others has been dismissed by the Hon’ble Apex Court vide order dated 16.1.2017.

I further note that Hon’ble Rajasthan high court has similarly taken note of decisions of the apex court on the issue of bogus purchases in the case of CIT Jaipur vs Shruti Gems in of 2009. The Hon’ble High Court has referred to the Simplex Metal & Alloys decision of CIT Jaipur vs. Aditya Gems, D. B. in of 2008 dated 02.11.2016, wherein the Hon’ble Court had inter alia held as under:

Upon careful consideration I find that sales in these cases are not doubted. When sales are not doubted, 100% disallowance for bogus purchase is not sustainable as per the decision of the Hon’ble jurisdictional High Court in the case of Nikunj Eximp Enterprises (in writ petition no 2860, order dt. 18.6.2014). However, the facts of that case were different inasmuch as sales were to the Government department. However the facts and circumstances of the present case indicate that assessee has engaged into dealings in the grey market. Dealings in the grey market give the assessee various savings at the expense of the Exchequer. Hence, on the overall consideration of facts and circumstances and following the decision of Hon’ble Gujarat High Court in the case of CIT vs Simit P. Sheth [2013] 356 ITR 451 (Guj.) I hold that a disallowance of 12.5% of the bogus purchase would meet the end of justice. Accordingly, I modify the order's of authorities below and direct that the disallowance in this case should be restricted to 12.5% of the bogus purchase.