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Income Tax Appellate Tribunal, MUMBAI BENCHES “E”, MUMBAI
Before: SHRI R.C. SHARMA (AM) & SHRI RAM LAL NEGI (JM)
PER RAM LAL NEGI, JM
The Revenue and the Assessee have challenged the order dated 20/07/2016 passed by the Ld. Commissioner of Income Tax (Appeals)-16, Mumbai pertaining to the Assessment Year 2009-10, whereby the Ld. CIT (A) has partly allowed the appeal filed by the assessee against assessment order passed u/s 143(3) read with section 147 of the Income Tax Act, 1961 (for short ‘the Act’). The assessee has further challenged the impugned order passed by the Ld. Commissioner of Income Tax (Appeals)-16, Mumbai pertaining to the Assessment Year 2010-11, whereby the Ld. CIT (A) has partly allowed the appeal filed by the assessee against assessment order passed u/s 143(3) read with section 147 of the Act. Since all the three appeals pertain to the same assessee for the assessment year 2009-19 and 2010-11, all the three appeals were clubbed, heard together and are being disposed of by this common and consolidated order for the sake of convenience.
(Assessment Year: 2009-10) Brief facts of the case are that the assessee company engaged in the business of executing work contracts, filed its return of income for the assessment year under consideration declaring the total income of Rs. 70,12,253/-. Subsequently, on the basis of information received from the sales tax department Maharashtra to the effect that the assessee had obtained bogus purchase bills from three Hawala dealers namely Anupam Metal, Anmol Ferromet Pvt.Ltd. and Sandeep Enterprises amounting to Rs. 38,67,926/-, the assessee’s case was reopened and notice u/s 148 of the Act was issued asking the assessee to furnish the income within 30 days from the date of receipt of the notice. In response thereof the assessee submitted that the original return filed may be treated as the return in response to notice u/s 148 of the Act. Thereafter, the AO issued notice u/s 143(2) & 142(1) of the Act. The assessee opposed reopening of the assessment, however, the contention of the assessee was rejected. Since, the assessee did not submit the documents called for by the AO including transportation receipt, lorry receipt, stock register, weighbridge slip etc. to prove the genuineness of the transaction of purchases in question, despite several reminders issued to the assessee, the AO made addition of the entire amount of bogus purchases to the income of the assessee.
2. Aggrieved by the assessment order, the assessee preferred appeal before the first appellant authority. The Learned CIT(A) after hearing the assessee, restricted the addition to 12.5% of the total amount of bogus purchases determined by the AO. The assessee and the department have filed the present cross appeals against the impugned order passed by the learned CIT(A).
3. The assessee has raised the following effective grounds of appeal against the impugned order passed by the Ld. CIT (A):-
1. “The Hon’ble CIT (A) erred in adding 12.5% (which works out to Rs. 483,491/-) of the purchases worth Rs. 38,67,926/- made from the alleged bogus entities being declared as such by the Sales Tax Authorities.
2. The Hon’ble CIT (A) erred in not granting suitable relief arising out of the fact that the Assessing Officer had erroneously considered the purchases worth Rs. 367,994/- from one bogus entity, M/s Anupam Metal Twice at Rs. 735,988/- 3. The learned Assessing Officer erred in initiating penalty proceedings under section 271 (1)(c) of the Act. 4. Each one of the above grounds of appeal is without prejudice to the other.”
On the other hand, the Department has raised the following effective grounds of appeal against the impugned order passed by the Ld. CIT (A):-
“Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in holding the suppressed profit on account of bogus transaction was to be estimated at 12.5% of the net purchases ignoring the fact that the assessee was a contractor who consumers the purchases made by it in the course of its business, that one to one co-relation between item of purchase and sale cannot be established in such case, and therefore, the total income arrived on the basis of estimation of profit attributable to such bogus purchase is not valid in such cases?”
Before us, the learned Counsel for the assessee submitted that the impugned order passed by the learned CIT(A) vide which the learned CIT(A) has restricted the addition to 12.5% is bad in law as the AO has reopened the assessment solely on the basis of information received from Sales Tax Authorities, Maharashtra. The assessee had actually purchased the material from the parties and the same have been properly recorded in the books of account. All payments have been made through banking channels. The materials purchased were directly delivered to the clients and that the revenue earned from each such project was properly accounted and the profits derived were offered to tax. The learned Counsel further, relying on the law laid down by the Hon’ble Bombay High Court in the case of Babulal C. Borana Vs. ITO 282 ITR 251 (Bom), submitted that non-payment of sales tax does not affect the genuineness of the transaction. The learned Counsel further relying on the decision of Mumbai Tribunal rendered in ITO vs. Permanand 107 ITJ 395 (Trib) submitted that addition cannot be made on the basis of observations made by the sales tax department. The Ld. counsel further submitted that since AO has not rejected the sales, the learned CIT(A) ought to have deleted the entire addition.
On the other hand, the learned Departmental Representative (‘DR’) pointed out that there is a delay of 27 days in filing the present appeal. The Ld. DR further submitted that the delay has been caused in the process of obtaining requisite permission from the competent authority and since there was a sufficient cause which prevented the department from filing the appeal within limitation period, the delay of 27 days may be condoned. The Ld. counsel for the assessee did not raise any objection. After going through the reasons for delay, we find that there was a reasonable cause for delay. Hence, in the substantial interest of justice, we condoned the delay and allow the Ld. DR to advance arguments on merit.
On merit, the Ld. DR submitted that since the assessee has failed to produce transportation receipt, lorry receipt, stock register, weighbridge slip etc. before the authorities below the AO has rightly made addition of the entire amount of bogus purchases made by the assessee. Since, the assessee has failed to establish the genuineness of transaction to the satisfaction of the AO the learned CIT(A) ought to have confirmed the addition made by the AO. Hence, the impugned order is liable to be set aside.
We have heard the rival submissions and carefully peruse the material on the record in the light of the submissions made by the parties. The only contention of the assessee is that the learned CIT(A) has wrongly confirmed the addition of 12.5% of the total bogus purchases determined by the AO. On the other hand, the only grievance of the Revenue is that the learned CIT(A) has wrongly restricted the addition to 12.5% of the total bogus purchases made by the AO.
We notice that the AO has not rejected the books of account and accepted the sales shown by the assessee. We further notice that the assessee has contended before the AO as well as before the Ld. CIT (A) that the purchases in question were genuinely made. The Ld. counsel further contended that since the Maharashtra VAT Authorities have registered the said parties after obtaining their PAN Nos, copy of telephone or electricity bills and their photographs and other required documents; they cannot be termed as hawala dealers. The entries regarding the purchases in question are made in the books of account and if the said parties had not paid the sales tax, the assessee’s purchases cannot be treated as bogus. Placing reliance on the decision of Hon’ble Supreme Court rendered in CIT Vs. Orissa Corporation Pvt. Ltd. 159 ITR 78 (SC) Hon’ble Bombai High Court in CIT Vs. Nikunj Eximp Enterprises Pvt. Ltd. 372 ITR 619 (Bom) and CIT Vs. U M Shah 90 ITR 396 (Bomb.) and Jodhpur Bench of the Tribunal in Jagdamba Trading Company Vs. ITO (2007) 16 SOT 66 Jodhpur, the assessee has contended before the authorities below that for every sale there has to be corresponding purchases. If sales bills are being accepted then the total purchases amount should be accepted.
The Hon’ble Bombay High Court In CIT Vs. Nikunj Eximp Enterprises Pvt. Ltd. 372 ITR 619 (Bom), while upholding the decision of Mumbai Tribunal, has held that merely because the suppliers had not appeared before the Assessing Officer or the CIT (A) one could not conclude that the purchases were not made by the respondent/assessee. The Hon’ble Gujrat High Court in CIT vs. Simit P. Seth 356 ITR 451(Guj) upheld the decision of the Tribunal and sustained the addition 12.5% of the total bogus purchases holding that only profit element embedded in such purchases can be added to income of the assessee. In view of the cases discussed above, AO has wrongly made 100% disallowance. On the other hand since the assessee has failed to prove the genuineness of the transactions the Ld. CIT(A) has made addition of 12.5% of the total purchases in question keeping in view the profit element involved in the purchases. Hence, in our considered view, the order passed by the Ld. CIT(A) is based on the principles of law down by the Hon’ble Bombay High Court and Gujrat High Court. Therefore, we do not find any infirmity in the order of the Ld. CIT (A) to interfere with. Hence, we uphold the order of the Ld. CIT (A) and dismiss the grounds of the appeal filed by the assessee and the revenue on this issue. So far as the ground relating to initiation of penalty u/s 271(1)(c) of the Act raised by the assessee is concerned, the same is not required to be adjudicated at this stage. Hence, all the grounds of Cross appeals filed by the Department and the Assessee for the Assessment Year 2009-10 are dismissed. (Assessment Year: 2010-11) The assessee has raised the following effective grounds of appeal against the impugned order passed by the Ld. CIT (A):-
1. “The Hon’ble CIT (A) erred in adding 12.5% (which works out to Rs. 140,671/-) of the purchases worth Rs. 11,25,369/- made from the alleged bogus entities being declared as such by the Sales Tax Authorities.
The learned Assessing Officer erred in initiating penalty proceedings under section 271 (1)(c) of the Act.
Each one of the above grounds of appeal is without prejudice to the other.”
2. The facts of the present case are identical to the facts of the assessee’s own case for the AY 2009-10 discussed above except the amount of bogus purchases made by the assessee during the assessment year under consideration. During the Financial Year relevant to the assessment under consideration, the assessee made bogus purchases from the hawala parties amounting to Rs. 11,25,369/- and the AO made addition of the entire amount to the income of the assessee. In first appeal, the learned CIT(A) restricted the addition to 12.5%. Since, we have upheld the findings of the learned CIT(A) in assessee’s own case for the AY 2009-10, for the same reasons, we also uphold the findings of the learned CIT(A) in this appeal also. Accordingly, we confirm the addition of 12.5% of the total bogus purchase made by the assessee during the year relevant to the Assessment Year under consideration.
In the result, cross appeals filed by the revenue and the assessee for assessment years 2009-10 and appeal filed by the assessee for the assessment year 2010-11 are dismissed.
Order pronounced in the open court on 29th.November, 2017.