SHREYA JAYANT JOSHI,NASHIK vs. INCOME TAX OFFICER,

PER D. KARUNAKARA RAO, AM:

There are 2 appeals filed by the assessee under consideration against the order of Commissioner of Income Tax (Appeals)-1, Nashik dated 20-09-2016 for the Assessment Years 2009-10 & 2010-11. Grounds raised by the assessee in these two appeals are identical.

We shall first take up the appeal for A.Y. 2009-10.

ITA No.47/PUN/2017 A.Y. 2009-10

2 ITA Nos.47 & 48/PUN/2017 Smt. Shreya Jayant Joshi

Shrikrishna Gears Pvt. Ltd., Nashik and is engaged in the business of

manufacturing/trading in hardware goods. Assessee filed the original

return of income on 29-09-2009 declaring total income of Rs.6,19,921/-.

Based on the information received from Sales Tax Department relating to

providing of the bogus purchase bills, AO issued notice u/s.148 of the

Act. AO noticed that assessee purchased the goods from P.K. Trading

Company (whose name is listed in the bogus dealers) amounting to

Rs.6,55,644/-. Notice u/s.133(6) was issued to the assessee as well as

to P.K. Trading Company to verify the genuineness of the transactions.

The assessee filed letter dated 18-11-2013 and filed certain details

claiming the said purchases as genuine. The notice sent to the party

was returned back unserved. Eventually, the AO made addition of

Rs.6,55,644/- treating the same as bogus purchases and assessed the

income of the assessee at Rs.12,75,570/-.

addition made by the AO. While doing so, the CIT(A) noted the fact that

the payment for the said purchases is still unpaid and the assessee

failed to offer explanation for taxation of the same u/s.41(1) of the Act.

Eventually, the CIT(A) relying on the decision of Pune Bench of the

Tribunal in the case of Shri Mukeshkumar Pukhraj Mehta in ITA

No.2026/PN/2014, dated 03-11-2015 and in the case of ITO Vs. Shri

Purushottam Shankar Kulkarni in ITA No.991/PN/2012, dated 07-04-

2016 sustained the addition made by the AO.

appeal before the Tribunal with the following grounds :

“1. On the facts and circumstances of the case, the re-assessment proceedings u/s.147 being initiated in absence of material showing escapement of income in the hands of the appellant is void and may

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kindly be cancelled. The material based for reopening is vague and has no live link with escapement of income in the hands of the appellant.

the assessee referred to the affidavit of the assessee dated 15-05-2018

and submitted that there is delay of 32 days in filing the appeals under

consideration before the Tribunal. It was stated that the said delay was

due to differences between the regular tax consultant Mr. Mehul Popat

and change of new consultant. The contents of Para No.3 of the said

affidavit are relevant and therefore, the same are extracted here as

under:

“3. That Shri Mehul Popat, Advocate, was my regular consultant. There have been some differences with my consultant which compelled me to change my consultant. The process of seeking further advice as also the change of hangs between the consultants required some time and delay has caused. There delay has been caused for genuine reason and there was no reason to delay the process on any deliberate ground.”

affidavit, I am of the opinion that there was reasonable cause for the

assessee in filing the appeals with the delay of 32 days. Therefore, the

delay in filing of the appeals is condoned and the appeals are admitted

for adjudication.

4 ITA Nos.47 & 48/PUN/2017 Smt. Shreya Jayant Joshi

filed copies of the purchase bills from the party with whom the assessee

made the purchases. However, the AO/CIT(A) did not accept the said

bills. With the above stated facts, Ld. Counsel for the assessee drew my

attention to the above grounds and submitted that this is a case of

genuine purchases from the said parties. Therefore, the additions made

by the AO should be fully deleted. The fact that the assessee has been

consistently calling the said purchases as genuine was highlighted

before me. Further, Ld. Counsel for the assessee also placed reliance on

the decision of Pune Bench of the Tribunal in the case of M/s. Chhabi

Electricals Pvt. Ltd. and others Vs. DCIT in ITA No.795/PUN/2014,

relating to assessment year 2010-11, order dated 28-04-2017 for the

proposition that, only 10% of such alleged bogus purchases should be

made as addition and not the entire amount of such bogus purchases.

Referring to the decision of Pune Bench of the Tribunal in the case of

M/s. Chhabi Electricals Pvt. Ltd. (supra), Ld. Counsel for the assessee

submitted that the assessee’s case falls in clause (iv) of the classification

given by the Tribunal in the said case. Alternatively, Ld. Counsel made a

prayer for remanding the issue to the file of CIT(A) for one more round of

proceedings for submitting the relevant details before him to

substantiate the claim of the assessee.

submitted that assessee falls in Clause (iii) of the classification given by

the Tribunal in the case of M/s. Chhabi Electricals Pvt. Ltd. (supra).

authorities. I have also perused the decisions relied on by the assessee.

On going through the facts of the case, I find this is a case where

5 ITA Nos.47 & 48/PUN/2017 Smt. Shreya Jayant Joshi

assessee’s case was reopened u/s.147/148 of the Act based on the

information received from Sales Tax Department of Maharashtra Govt.

Assessee made purchases from various parties and out of them, the

purchases made from P.K. Trading Company was alleged to have held to

be bogus ones. In the assessment, AO made the entire addition of these

purchases as bogus one. CIT(A) confirmed the addition made by AO. In

the instant case, I find the assessee filed purchase bills, and the

assessee could not establish the evidence regarding trail of goods to the

assessee’s premises. I also perused the decision of the Tribunal in the

case of M/s. Chhabi Electricals Pvt. Ltd. (supra) and the classification of

points given by the Tribunal in the said order. I find the facts of the

present case are similar to the facts in the said case. Therefore, I

proceed to reproduce the said paragraphs here as under :

“40. In view of the above said ratios, the present issue of bogus purchases is to be decided on the basis of facts of each case. The first aspect is the information received by the Assessing Officer from the Sales Tax Department in respect of alleged hawala dealers. In many cases, the Assessing Officer has not even received the copy of statement recorded or any other evidence from the Sales Tax Department, except the list of hawala dealers and on the basis of the said list, the assessment proceedings have been completed in the hands of assessee, who had made the purchases from the said parties. In case, no such evidence has been received by the Assessing Officer before making addition, then there is no warrant in making aforesaid addition in the hands of assessee merely on the basis of so called list of hawala dealers. There are other cases, where the Assessing Officer had received the statement of the persons who were hawala dealers and who had admitted to have just issued bills of sale without delivery of goods. In such circumstances, there is evidence against the respective assessee that where the seller of the goods, has admitted not to have entered into real transaction of sale of goods. Against such non-transaction, there can be no delivery of goods, then it is case of passing of bills of sale and purchases, against which no VAT has been paid. Such bogus purchases are then to be added in the hands of assessee. Where the Assessing Officer had confronted the assessee with the information received, supplied copies of statements and where the persons have not been traced and no confirmation has been filed by the assessee in this regard, then the addition is to be made in the hands of assessee on account of such bogus purchases. In the facts and circumstances of some cases, the goods have been transferred by such hawala dealers to the respective purchasers, against which the assessee has to discharge onus of establishing the trail of goods which are transferred and further sold by them. Where the assessee is able to produce evidence of purchase of goods by way of weighment

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bridge receipts, transportation documents, payment of octroi and subsequent sale of goods to the respective parties and / or where the assessee has maintained complete quantitative details of purchase and sale of goods, then total bogus purchases cannot be added in the hands of assessee, but GP rate of 10% is to be applied on bogus purchases. Where the assessee does not establish its case, then the complete bogus purchases are to be added as hawala purchases. Further, in cases, where the statements are recorded and copies of which have been supplied to the assessee and assessee established the case of receipt of goods and its onward transmission by way of sale bills, then the factum of purchases by the assessee stands established in such circumstances. However, the benefit of purchases being made from grey market, needs estimation in the hands of assessee. The Tribunal has already held that the addition be made by estimating the same @ 10% of the alleged hawala purchases. Accordingly, it is so held. In view thereof, the issues which emerge are as under:-

I. In case no information is received by the Assessing Officer from the Sale Tax Department and no copy of statement recorded or any other evidence is received from the Sales Tax Department, then no addition is to be made on the basis of name of hawala dealer in the list prepared by the Sales Tax Department, where the assessee had asked for the said information during assessment proceedings. II. Where the Assessing Officer had received the statements of persons who had admitted to have just issued bills of sale without any delivery of goods. In view of such evidence, where the assessee had not entered into real transaction of purchase of goods and in the absence of any delivery of goods, the sales are bogus and the entire sales are to be added in the hands of assessee. Admittedly, the dealer had not even paid VAT against such passing of goods.

III. The case where the Assessing Officer had confronted the information received from the Sales Tax Department and had supplied copies of statements recorded and had also issued notice under section 133(6) of the Act, where hawala dealer was not traceable and in the absence of the assessee failing to file any documentary evidence of delivery of goods, addition is to be upheld in the hands of assessee on account of such bogus purchases. IV. The next instance is the case of goods which have been admittedly sold by the hawala dealer and has been received by the assessee, who in turn had maintained quantitative details and also evidence of its movement i.e. transportation details and quality control details of consumption of the said material or exact details of sale of the same consignment through same transporter directly to the party, then the total purchases cannot be added in the hands of assessee. However, since the purchases are made from the grey market, some estimation needs to be made in the hands of assessee. The Tribunal in M/s. Chetan Enterprises Vs. ACIT (supra) has already held that the addition be made by estimating the same @ 10% of the alleged hawala purchases, over and above the GP shown by the respective assessee.

V. Another set of cases where the statements recorded by the Sales Tax Department have been handed over to the assessee and the copies of same have been supplied to the assessee, then where the assessee

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established the case of receipt of goods and its onward transmission, then the factum of purchases by the assessee stands established in such circumstances. However, estimation is to be made in the hands of assessee because of purchases from the grey market and following the above said ratio, addition is to be made by estimating the same @ 10% of the alleged hawala purchases, over and above the net profit shown by the assessee.

purchases, I am of the opinion that there is need for classifying this case

between clause (iii) or clause (iv) mentioned above. For this purpose,

considering the argument of the Ld. Counsel for the assessee for

remanding the issue to the file of CIT(A), I am of the opinion that the

issue needs to revisit to the file of CIT(A) for considering the decision of

the Pune Bench of the Tribunal in the case of M/s. Chhabi Electricals

Pvt. Ltd. (supra). Needless to say, the CIT(A) shall give reasonable

opportunity of being heard to the assessee in accordance with the set

principles of natural justice. Accordingly, the grounds raised by the

assessee are allowed for statistical purposes.

8 ITA Nos.47 & 48/PUN/2017 Smt. Shreya Jayant Joshi

purposes.

ITA No.48/PUN/2017 A.Y. 2010-11

arguments of the parties are same. Therefore, the decision given in the

appeal No.47/PUN/2017 for the A.Y. 2009-10 remanding the issues to

the file of CIT(A) and considering the decision of Pune Bench of the

Tribunal in the case of M/s. Chhabi Electricals Pvt. Ltd. (supra) shall

apply to this appeal too. Thus, the grounds raised by the assessee are

allowed for statistical purposes.

purposes.

statistical purposes.

Order pronounced on this 20th day of June, 2018.

Sd/- (D.KARUNAKARA RAO) लेखा सद� / ACCOUNTANT MEMBER पुणे / Pune; िदनांक Dated : 20th June, 2018. Satish

9 ITA Nos.47 & 48/PUN/2017 Smt. Shreya Jayant Joshi

आदेश की !ितिलिप अ#ेिषत/Copy of the Order is forwarded to : अपीलाथ� / The Appellant; 1. ��थ� / The Respondent; 2. आयकर आयु�(अपील) / The CIT(A)-1, Nashik 3. आयकर आयु� / The Pr.CIT-1, Nashik 4. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, पुणे “SMC” / 5. DR ‘SMC’, ITAT, Pune; गाड# फाईल / Guard file. 6.

आदेशानुसार/ BY ORDER,स स�ािपत �ित //True Copy// //True Copy// Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune