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Income Tax Appellate Tribunal, “J” BENCH, MUMBAI
Before: Shri Vijay N Mehta
These cross appeals are arising out of the order of Commissioner of Income Tax (Appeals)-28, Mumbai, [in short CIT(A)] in appeal No. CIT(A)- 28/IT-554/ACIT-12(3)/2014-15 dated 29.01.2016. The Assessment was framed by the Asst. Commissioner of Income Tax, Circle-13(3), Mumbai (in short ACIT) for the assessment year 2011-12 order dated 27-03-2014 under section 143(3) of the Income Tax Act, 1961(hereinafter ‘the Act’).
The only common issue in these cross appeals is as regards to the order of CIT(A) restricting the addition of bogus purchase at 3.41 percent & 1394/Mum/2016 of GP rate of the bogus purchases of ₹ 2,70,84,563/-. The assessee has challenged the application of profit rate at 3.41 per cent on the alleged bogus purchases and Revenue has challenged the estimation of profit rate at the rate of 3.41 per cent. For this Revenue has raised following ground: -
“1. On the facts and circumstances of the case and in Law, the Ld. CIT(A) has erred in directing the AO to restrict the disallowance of bogus purchases to Rs. 9,23,584/-, being the estimated profit of 3.41% embedded in such purchase transactions of Rs. 2,70,84,563/- without appreciating the facts that-
(i) In the assessment order, relying upon the bills/invoices/delivery challans and the difference of raw materials stated to be purchased by the assessee vis-ã vis the raw material mentioned in the bills, it has been conclusively established that the said purchases are bogus. ii) When the assessee has maintained a constant stand that the purchases have been made from the very parties to whom payments have been made, the appellate authorities cannot suo moto take a divergent stand in favour of the assessee, that the purchases have been made from certain parties, whereas corresponding bills have been obtained from some other parties; as held by the Hon'ble Delhi High Court in the case of CIT vs. Le Medica, as reported in 250 ITR 575.
& 1394/Mum/2016 iii) If the purchases have been unambiguously established to be bogus, the quantitative tally as regards the sales and closing stock and the maintenance of stock register cannot lead to conclusions otherwise, as accountancy is essentially an art and not a science; as held by the Hon'ble Jaipur ITAT in the case of Khandelwal Trading Co., as reported in 250 ITR 575.”
And assessee has raised the following ground: -
“1. Under the facts and in law, the Learned Commissioner of Income Tax Appeal erred in confirming addition of Rs 923,584/- being 3.41% of the alleged bogus purchases.
1.01 The Learned Commissioner of Income Tax Appeal erred in stating that appellant had made cash purchases from the other parties which were not recorded in books of accounts and had taken bills from the said 7 parties as accommodation to explain the purchases.
1.02 The addition of Rs 923,584/-is based on conjecture and surmise, and has no basis to confirm it.
1.03 The Learned Commissioner of Income Tax Appeal failed to appreciate the fact that purchases alleged to be bogus have been sold by the appellant at profit and the same was duly offered to tax.”
& 1394/Mum/2016 3. We have heard the rival contentions and gone through the facts and circumstances of the case. The facts of the case are that the assessee is proprietor of Rajvi Chemical Corporation trading in chemicals and solvent. The AO received information from the investigation wing of the department that the assessee is one of the beneficiaries of the bogus purchases/ bogus bills with following 8 parties: - Sr. Name of the party Amount in (₹) No.
Globe Impex (India) 60,00,519 2. Deep Enterprises 36,85,403 3. Meridian Trading Co. 42,96,398 4. Raj International 25,08,031 5. Payal Enterprises 12,10,860 6. Blue Nile Enterprises 3,51,540 7. Swastik Trading Co. 90,31,812 8. GV Puntambekar & Sons Pvt. Ltd. 3,04,03,870 4. However, in the final order of the AO has not considered one of the party GV Putambekar & Sons Pvt. Ltd. In view of these information, the AO disallowed the entire bogus purchases as unexplained expenditure added under section 69C of the Act of an amount of ₹ 2,70,84,563/-. Aggrieved, assessee preferred the appeal before CIT(A), who restricted the addition to the extent of profit rate of 3.41 per cent by observing in Para 5.9 as under: -
“5.9 In the instant case, the appellant is not in a position to prove the existence of the suppliers. This is the primary condition to be satisfied to establish genuineness. This is enough circumstantial evidence casting a doubt oil nature of the transaction. I am of the firm belief that the appellant had made cash purchases from other panics which were not recorded in the books. The appellant took only bills from these 7 parties as & 1394/Mum/2016 accommodation to explain the purchases. However, the entire purchase from these 7 parties cannot be added as bogus and what needs to be taxed is the profit element embedded in such transaction. The AO has disallowed 100% of these bogus purchases amounting to Rs 2,70,84,563. This cannot be allowed to stand. I am of the opinion that a reasonable disallowance restricted to the GP rate of the appellant during the year of 3.41% of the alleged bogus purchases be made. I therefore direct the AO to estimate of the disallowance by adopting 3.41% of Rs 2,70,84,563. Accordingly, the disallowance made by the AD is restricted to a sum of Rs. 9,23,584. Ground no I to 4 are partly allowed.”
Aggrieved, both the assessee as well as Revenue came in cross appeals before Tribunal.
We find that the assessee before the AO stated the parties are genuine and all these transactions are supported by invoice copies, ledger account copies of parties, bank statements indicating payment made through cheques and also submitted stock statement in annexure III indicating that the purchase made from above parties and corresponding sales made is supported by invoices. The CIT(A) also noted that the assessee produced copy of invoices, copy of stock registrar and copy of bank statements showing payments made through cheque. But the AO’s allegation was that the assessee could not produced evidence of transportation of goods and also bill for transportation of goods from the transporter. The CIT(A) following the decision of Hon’ble Gujarat High Court in the case of CIT Vs. Simit P & 1394/Mum/2016 Sheth (2013) 356 ITR 451 (Guj), Sanjay Oilcake Industries Vs. CIT 36 ITR 274 (Guj), restricting addition at the profit rate of 3.41% of the alleged bogus purchases.
Before us, the learned Counsel for the assessee fairly conceded that a reasonable profit rate should be estimated and for that she agreed that 12.5% net profit of the bogus purchase will meet the end of justice in view of the decision of the Hon’ble Gujarat High Court in the case of Simit P Sheth (supra). On this the learned Sr. Departmental Representative has not objected.
We find that the assessee has obtained bogus bills from the above stated parties. This fact is not disputed by assessee now, but admittedly the assessee might have made purchases from grey market because none of the authorities below has disputed the sales made. Once sales made are accepted out of the bogus purchases, it means that the assessee might have made purchases from grey market. In view of these facts, we are of the view that a reasonable profit rate should be estimated. As per the precedent we estimate the profit rate at 12.5% as determined by Hon’ble Gujarat High Court in the case of Simit P Sheth (supra). Accordingly, the appeal of Revenue is partly allowed and that of the assessee is dismissed.
In the result, the appeal Revenue is partly allowed and that of the assessee is dismissed.
Order pronounced in the open court on 16-02-2018.