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Income Tax Appellate Tribunal, “H” BENCH, MUMBAI
This appeal by the assessee is arising out of the order of Commissioner of Income Tax (Appeals)-25, Mumbai, [in short CIT(A)] in appeal No. CIT(A)-33/IT/136/13-14 dated 18-11-2014. The assessment was framed by the Deputy Commissioner of Income Tax, Circle- 22(2), Mumbai (in short DCIT) for the assessment year 2010-11 order dated 07.03.2013 under section 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).
The first issue in this appeal of assessee is against order of CIT(A) confirming action of the AO in making additions of bogus purchases as unexplained expenditure under section 69C of the Act. For this assessee has raised following ground No. 2: -
2. On the facts and in the circumstances of the case and in law the ld. CIT(A) erred in confirming the addition of Rs. 39,00,401/- made by the AO on account of purchases treating the same as unexplained expenditure u/s 69C of the Act.."
Briefly stated facts are that the assessee engaged in the business of installation of Fire-fighting equipments. The AO received information from DGIT (Investigation), who in turn received information from Sales Tax Department, Mumbai that the assessee has made purchases from hawala parties, as listed hawala dealers by the Maharashtra Sales Tax Department who are providing bogus bills from the entities managed and controlled by Bhanwarlal Jain Group. The assessee has made bogus purchase amounting to Rs. 39,00,401/- as admitted by these hawala dealers in their deposition before the authorities. The same reads as under: -
TIN S. Name & Address of the Party Invoice No/ Date ' Amount (in No. Rs.) 27050389521V 611/01.06.2009 6,50,500/- M/s,Siddhivinayak Steel 123/979, 1859/03.10.2009 6,02,602/- Motilai Nagarr Goregaon(W)P 1965/14.10.2009 5,00,500/- Mumbai-104. 5,15,060/- 4,88,592/- Total 27,57,254/- 2695/26.12.2009 27860346638V 3208/15.02.2010 5,94,048/- II M/s Asian Steel 123/979, Motilal 2717/28,12,2009 Nagar, 1 Goregaon (W), Mumbai- 104. 27870732644V 2,97,440 M/s. Chetna Enterprises 10/12, III 1204/FEB/2010 Vithoba Lane, Vittalwadi, 02.02.2010 Kalbadevi Road, Mumbai-2. 2,51,659 1215/Feb/2010 11.02.2010 4,49,099/- Total 39,00,401/- Total (I+II+III) 11.02.2010 4. The AO issued noticed under section 133(6) to the parties which returned back with the remark as “not known” and assessee failed to produce these parties. During the course of assessment proceedings and during appellate proceedings, the assessee submitted all the documentary evidences such as purchase order, transportation bill, octroi receipt, weighing bill, goods receipt nots (GRN), subsequent sale/manufacturing details. According to the AO, the assessee failed to establish the genuineness of the purchase and accordingly, he made addition of Rs. 39,00,401/- to the returned income of the assessee. Aggrieved, assessee preferred the appeal before CIT(A), who confirmed the entire disallowance of bogus purchases by observing in para 10 by observing as under: -
“2.4. I have Considered the assessment order as well as the submissions made for the appellant. I have also perused the contentions of the letter dated 7/3/2014 filed before the Assessing Officer during assessment proceedings. The Authorised Representative of the assessee categorically offered the amount of Rs.39,00,401/- as its income on the ground that it was not in a position to produce the purchase parties or get confirmation from them. The appellant has now contended before me that the surrender of income was made during the course of assessment proceedings that no penalty would be initiated and since the penalty has been initiated in the assessment proceedings it has challenged the addition of Rs.39,00,401/- on account of bogus purchases made from three parties. I do not subscribe to the view of the assessee. On going through the contents of the letter of offer of income it is clearly seen that there was no contention put up before the A.O. that the surrender of additional income would be made subject to non-initiation or non levy of penalty. The appellant has merely made a request in its letter not to initiate/levy any penalty u/s 271(1)(c) of the IT Act. On the facts and in the circumstances of the case it cannot be said that the assessee was under pressure for agreed addition whereby the A.O could have compelled the assessee to sign the order sheet before him. It is a simple case of writing a letter by the Authorised Representative of the appellant thereby taking it conscious decision alter deliberations and discussion to offer such income during assessment proceedings. The Hon'ble High Court in the case of Ramashankar & Co. Vs. CIT 35 Taxman 153 (Bom) 168 ITR 378 have held that where the assessee has made a statement of facts, he could have no grievance if the taxing authority taxed him in accordance with the statement. In the present case the appellant has voluntarily offered the value of purchases to be added to his total income and there is nothing on record to suggest that the appellant was forced or coerced or influenced in filing a letter before the AO. Even on this account I do not find any reason to interfere with the order of the A.O. On merits also the appellant has no case as it has not produced any cogent evidence save and except a letter from M/s Chetna Enterprises have received the payment. Therefore, in the absence of any other material produced such as confirmation letters, present addresses of sellers, transport bills etc., the onus lay on the assessee has also not been discharged
2.5 I also place my reliance on the case of Pawan Construction vs. ITO (2001) 78 lTD 176 wherein it has been held that no appeal lies against the agreed addition made by the A.O. Similar view has been taken by Allahabad High Court in the ease of Sterling Machine Tools Vs. CIT (1980) 123 ITR 181. Considering the above, the action of the AO in making an addition of Rs.39,00,401/- is upheld. This ground is dismissed.”
Aggrieved, now assessee is in second appeal before Tribunal.
We have considered the issue and gone through the facts and circumstances of the case. We find from the facts of the case that the purchases shown to have been made by the assessee from the above concerns/ parties are not actual purchases but only accommodation entries. Since the assessee has provided stock statement and details of the said purchases and corresponding sales, the only inevitable conclusion to be drawn is that the assessee must have made these purchases from open markets from some parties best known to him and obtained accommodation bills/ invoices from the above hawala dealers. An accommodation bill is obtained for introducing unaccounted goods into the accounted stream. Since the sales are claimed to be genuine by the assessee, it is proved that the assessee was actually in possession of goods. This is based on the footings that there cannot be any sales without purchases. At the same time, the assessee did purchase goods from other suppliers, may be without bills, which is commonly known as Grey Market and by doing so, the assessee has been benefited by margin of grey market. Such purchase in this line of business cannot be denied as per the prevailing practice of the market and finally, we are of the view that a reasonable estimate of the profit rate should be made. Hence, keeping in view the facts of the case as discussed in the preceding paragraphs and also keeping in mind the various judicial pronouncements on the issue of bogus purchases including the Gujarat High Court decisions in the case of CIT Vs. Simit P Sheth (2013) 356 ITR 451 (Guj. and in the case of CIT vs. Bholenath Poly Fab P. Ltd. (2013) 355 ITR 290 (Guj.), we estimate the extra profit element of the assessee @ 12.5% in the above mentioned bogus purchases and direct the AO to compute the income accordingly.
The next issue in this appeal of assessee is against the order of CIT(A) confirming the disallowance of expense by the AO amounting to ₹ 3 lacs debited to profit and loss account. For this assessee has raised the following ground No. 3: -
“3. On the facts and in the circumstances of the case and in law the Ld. CIT(A) erred in confirming the adhoc disallowance of Rs. 3,00,000/- made by the AO out of expenditure debited in the profit and loss account."
We have heard the rival contentions and gone through the facts and circumstances of the case. Briefly stated facts are that the AO noted that the assessee has incurred total expenses to the extent of ₹ 39,87,396/-, bifurcated on account of printing and stationary charges of ₹ 2,30,619, postage & telegram of ₹ 1,22,270, Conveyance expenses of ₹ 4,32,438/- travelling expense of ₹ 8,14,620/-, loading and unloading charges of ₹ 4,84,954/- misc. charges of ₹ 1,91,695/-, motor car repairs of ₹ 6,98,307/-, Repairs’ and maintenance of ₹ 3,92,974/- staff welfare of Rs. 6,19,519/-. The AO disallowed on adhoc expenses for want of verification at ₹ 3,00,000 and added back to the total income of the assessee. Aggrieved, preferred the appeal before CIT(A), the CIT(A) confirmed the action of the AO by observing in Para 3.3. as under.
“3.3 I have considered the assessment order as well as the submissions made for the appellant. The AO has made the addition on the ground that some of the expenses had been incurred in cash on self made vouchers. It is the case of the assessee that no disallowance can be made on lumpsum basis without any justification or reasoning. During the course of assessment proceedings the appellant was specifically asked to produce the bills and vouchers, details of outstanding payment made, etc. In view of the fact that the appellant has not filed any details before me, the disallowance of ₹ 3,00,000/- made by the AO for want of verification of certain expenses not supported by bills and vouchers incurred in cash is confirmed. This ground is dismissed."
Aggrieved, now assessee is in second appeal before Tribunal.
We find from the facts of the case that the AO simply disallowed the expense for the reason that only self made vouchers are there and also observed that cash payment is made on these self made vouchers. By going through the nature of expenses incurred as noted by the AO and CIT(A), we are of the view that reasonable disallowance should have been made. Accordingly, we restrict the disallowance at ₹ 1,50,000/- and direct the AO accordingly. This issue of assessee’s appeal is partly allowed.
In the Result, the appeal of the assessee is partly allowed.
Order pronounced in the open court on 28-02-2018.