BABULAL B. KANUNGO,MUMBAI vs. ITO WD 19(1)(2), MUMBAI

These are the appeals filed by assessees against the order of CIT(A)-30, Mumbai dated 14/03/2017 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.

Common grounds have been raised by both the assessees with regard to the addition of 12.5% made in respect of bogus purchases found during the course of survey. Assessee has also challenged reopening of assessment u/s.147. Facts of both the assessees are same in both the years under consideration.

Rival contentions have been heard and record perused.

Facts in brief are that assessee namely Babulal B Kanungo is an individual engaged in the business of Trading in ferrous and non-ferrous metals' under the proprietary concern by name M/s Alpesh Metal Corporation. The return of income for the Assessment Year 2010-11 was filed on 25-09-2009, declaring total income of Rs.4,09,000/-. There was survey in the business premises of assessee, thereafter case was reopened u/s 147, by issuing notice u/s 148 of the Act on 22-08-2013, based on the information received from the DGIT(Inv.), Mumbai, who in turn received the same from the Maharashtra Sales Tax Department Mumbai, that the assessee is one of the beneficiaries of the accommodation entries provided by some of the MVAT dealers, who were indulging in issuing bogus sale/purchase bills, investigated and kept on the public domain by the Sales Tax Department. Assessment u/s. 143(3)

By the impugned order CIT(A) confirmed the action of AO after observing as under:- 6.3 I I have perused the rival contentions. The Assessing Officer treated Appeals Babulal B Kanungo total purchase amount from the seventeen parties as non-genuine purchases stating that the appellant has failed to produce any supporting evidence to prove that the purchases made from them are genuine but only bills have been obtained from Hawala Dealers and added an amount of Rs.57,42,2277-, being @12.5% of the total amount of purchases of t 4,59,37,814/-. It is noticed that despite providing adequate opportunity by the AO, the appellant failed to produce details like transportation bill, octroi receipt, weighing bill, goods receipt notes (CRN), subsequent sale/manufacturing details. When the sales tax department has classified the five parties as hawala dealers and has subsequently forwarded the information to the Income Tax Department that the appellant is one of the beneficiaries, onus of very high degree is on the appellant to prove with infallible evidence that the purchases are genuine and -the material was received by the appellant from these parties. But, the appellant is not able to produce any evidence whatsoever either before the AO or even in the present proceedings to prove that the goods in terms of quantity and quality from the above said parties were actually received by the appellant. The appellant has not produced copies of the consignments, if any, received from the transport contractor showing that the material purchased from the consignors was actually delivered to the appellant and freight has been paid thereon. The Appellant is also not able to provide copies of the CRN evidencing the receipt/delivery of the goods along with the relevant purchase orders in respect of impugned purchases. The appellant is also not able to produce goods consignment note, transport bills and the delivery challans issued by the parties or octroi receipts issued to substantiate delivery of goods to the appellant. Thus, the appellant has not brought on record any independent and reliable evidence to prove complete trail -so far as movement of consignment from the said parties to the place of the appellant is concerned. The appellant is not able to prove the movement of consignment from the consignors and delivery of goods to the appellant in case of alleged purchases from the above parties. In such circumstances merely because the payment towards the impugned purchases were made by account payee cheques, it does not establish that the transactions and the purchases are genuine and the appellant received delivery of the goods. 6.4 In the appellant's case, notices issued u/s 133(6) of the Act were returned unserved. Apart from that, the fact remains that there was overwhelming evidence in the form of statement of suppliers given before the sales tax authorities that they were engaged only in issuing hawala bills and no goods were ever supplied by them. After weighing the evidences pros and con, I find that the appellant failed to reconcile the purchases with the items sold and 1:1 reconciliation could not be made. Onus is always on the appellant to prove as to how the material purchased was firstly obtained. I record a finding of fact here that no Appeals Babulal B Kanungo proof of delivery of purchases has been filed" either before the Ld. AO or before me. During the present proceedings, Ld. AR was specifically asked whether the parties can be produced now for verification before the AO, for which the AR expressed his inability to do so. Thus, it can be safely presumed that either they are non-existent or even if they did exist, they were not backed by sufficient evidence to undergo the test of scrutiny. 6.5 It is also a settled legal proposition that if no evidence is given by the party on whom the burden is cast, the issue must be found against him. Therefore, onus is always on a person who asserts a proposition or fact, which is not self-evident. However, in the instant case, the appellant has miserably failed to lead evidence and hence, onus is a determining factor. 6.6 Ld. AO added an amount of Rs.57,42,227/- being 12.5% of the total non-genuine purchases of Rs.4,59,37,8147-, to the total income of the assessee relying on two cases cited above. Thus, the issue would boil down whether the element of profit adopted by the AO @12.5% treating the same as the profit element embedded in such bogus purchases, which the appellant would have made from some unknown entities is correct or not. Gujarat High Court in the case of Bholanath Poly Fab Pvt. Ltd. 355 ITR 290 (Guj), the case relied upon by the AO, the Hon'ble Court was battling with the finding of Hon'ble ITAT that purchases were made from bogus parties since notice issued by the A.O, to these parties were allegedly received „‟returned/unserved' and the assessee was unable to produce any confirmation from these parties. The Tribunal had held that though purchases were made from bogus parties, nevertheless, the purchases themselves were not bogus as the entire quantity of .opening stock, purchases and sales were tallying and hence, only the profit margin embedded in such amount would be subjected to tax. The Hon'ble Gujarat High Court taking cognizance of the fact held that whether purchases themselves were bogus or whether parties from whom such purchases were made were bogus, is essentially a question of fact and the Tribunal having examined the evidence on record and concluded that the assessee did produce cloth and sell finished goods, the entire amount covered under such purchase would not be subjected to tax and only the profit element embedded therein was to be taxed. While coming to the above conclusion, the Hon'ble High Court also relied on the decision in the case of Sanjay Oil Cake Ind. 316 ITR 274 (Guj). 6.7 In Sanjay Oilcake Industries v. Commissioner of Income-tax [2009] 316 ITR 274 (Guj), it was held as under: "12, Thus, it is apparent that both the Commissioner (Appeals) and the Tribunal have concurrently accepted the finding of the Assessing Officer that the apparent sellers who had issued sale bills were not Appeals Babulal B Kanungo traceable. That goods were received from the parties other than the persons who had issued bills for such goods. Though the purchases are shown to have been made by making payment thereof by account payee cheques, the cheques have been deposited in hank accounts ostensibly in the name of the apparent sellers, thereafter the entire amounts have been withdrawn by bearer cheques and there is no trace or identity of the person withdrawing the amount from the bank accounts. In the light of the aforesaid nature of evidence it is not possible to record a different conclusion, different from the one recorded by the Commissioner (Appeals) and the Tribunal concurrently holding that the apparent sellers were not genuine, or were acting as conduit between the assessee-firm and the actual sellers of the raw materials. Both the Commissioner (Appeals) and the Tribunal have, therefore, come to the conclusion that in such circumstances, the likelihood of the purchase price being inflated cannot be ruled out and there is no material to dislodge such finding. The issue is not whether the purchase price reflected in the books of account matches the purchase price stated to have been paid to other persons. The issue is whether the purchase price paid by the assessee is reflected as receipts by the recipients The assessee has, by set of evidence available on record, made it possible for the recipients not being traceable for the purpose of inquiry as to whether the payments made by the assessee have been actually received by the apparent sellers. Hence, the estimate made by the two appellate authorities does not warrant interference. Even otherwise, whether the estimate should be at a particular sum or at a different sum, can never be an issue of law." 6.8 Similarly, in the other decision of Hon'ble Gujarat High Court in the case of CIT vs. Simit Sheth 356 ITR 290 (Guj), relied upon by the AO for making the addition, Hon'ble Court was seized with the similar issue where the AO had found that some of the alleged suppliers of steel to the assessee had not supplied any goods but had only provided sale bills and hence, purchases from the said parties were held to be bogus. The AO, in that case added the-entire amount of purchases to gross profit of the assessee. Ld. CIT (A) having found that the assessee had indeed purchased though not from named parties but other parties from grey market, partially sustained the addition as probable profit of the assessee. The Tribunal however, sustained the addition to the extent of 12.5%. Taking into account the above facts, the Hon'ble Gujarat High Court held that since the purchases were not bogus, but were made from parties other than those mentioned in books of accounts, only the profit element embedded in such purchases could be added to the assessee's income and as such no question of law arose in such estimation. While arriving at the above conclusion, the Hon'ble Court also relied on the decision in the case of Vijay M. Mistry Construction Ltd. 355 ITR 498 (Guj) and further approved the decision of Ahmedabad Bench, ITAT in the case of Vijay Proteins 58 ITD 428.

Considering the totality of facts and circumstances of the case, we restore the matter back to the file of the AO for deciding afresh in terms of the observation made by the Tribunal in case of Ratnagiri Stainless Pvt. Ltd., (supra). We direct accordingly.