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Income Tax Appellate Tribunal, “” BENCH, MUMBAI
Before: SHRI P. K. BANSAL, VP & SHRI AMARJIT SINGH, JM
O R D E R
PER AMARJIT SINGH, JM:
The assessee as well as revenue have filed the above mentioned appeals against the order dated 30.11.2015 passed by the Commissioner of Income Tax (Appeals)-30, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the assessment year2010-11.
The assessee has filed the present appeal against the order dated 30.11.2015 passed by the Commissioner of Income Tax (Appeals)-30 Mumbai, [hereinafter referred to as the “CIT(A)”] relevant to the assessment year 2010-11.
The assessee has raised the following grounds:-
“1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in applying 12.50% of the purchases as profit embedded on the purchase of Rs.2,95,54,220/- without appreciating the fact that the payment was made through cross account payee cheque and the same goods were subsequently sold and quantity is tallied. 2. Your appellant craves leave to allow to add/alter/amend/withdraw any ground of appeal
4. The brief facts of the case are that the assessee filed his return of income on 14.10.2010 declaring total income to the tune of Rs.9,98,823/-. The return was processed u/s 143(1) of the I.T. Act, 1961. The case was selected for scrutiny, therefore, the notice u/s 534/M/2016 A.Y.2010-11 143(2) of the Act dated 02.08.2011 was issued and served upon the assessee. Subsequently, the notice u/s 142(1) of the Act dated 01.06.2012 along with questionnaire was also issued and served upon the assessee on 08.06.2012. The assessee is a proprietor of firm M/s Phinolek Steel & Engineering Co. and M/s. United Metal Industries both of which were trading in Ferrous and Non-Ferrous metals. Under the year of assessment, the assessee earned gross-profit of 5.47% and net profit of 0.86% on a turnover of Rs.7,55,93,096/- in the case of M/s Phinolek Steel & Engineering Co. as compared to gross profit of 7.38% and net profit of Rs.1076% earned last year. In the case of M/s United Metal Industries having its first year of operation, the assessee disclosed gross profit of Rs. 5.01% and net profit of 1.99% on a turnover of Rs.2,33,24,034/-. The assessee claimed the purchase of his firm M/s Phinolek Steel & Engineering Co. to the tune of Rs.7,46,22,151/- and purchase to the tune of Rs.2,29,20,420/- on account of M/s. United Metal Industries. The assessee purchased SS sheet, SS plate, SS angle, SS round bar and MS plate from different parties. To verify the genuineness of the claim, notices u/s 133(6) of the Act were issued and served upon the parties upon the address provided by the assessee but the noticed in connection with following 6 parties not served:-
SR Name TIN No. Phinolek steel & United metal . Engg. Co. industries No. 534/M/2016 A.Y.2010-11 1 Avinash 27040674367 Rs.6,71,765/- nil Enterprises V 2 Siddhi 27050389521 Rs.37,65,341/- Rs.32,06,299 Vinayak V Steel 3 Asian Tube 27210354416 Rs.1,61,407/- - Trading V 4 Chanchal 27460355491 Rs.24,50,000/- Rs.17,78265 Tube V Corporatio n 5 Asian Steel 27860346638 Rs.86,46,371/- Rs.5812586 V 6 Suraj Tube 27550304371 - Rs30,62,186 Corporatio V n Total Rs.1,56,94,884/ Rs1,38,59,336/ - - Thereafter, the notice was given to the assessee to prove the genuineness of the purchases but the assessee failed to do so, therefore, the peak credit to the tune of Rs.61,07,205/- in M/s Phenolek Steel & Engg. Co. and peak credited of Rs.1,02,28,611/- in M/s United Metal Industries amounting to the tune of Rs.1,63,35,816/- was treated as unexplained expenditure u/s 69C of ITA. No.567/M/2016 534/M/2016 A.Y.2010-11 the Act. Therefore, the same was added to the income of the assessee and the income of the assessee was assessed to the tune of Rs.1,73,80,520/-. Feeling aggrieved the assessee filed an appeal before the CIT(A) who restricted the addition to the extent of 12.5% therefore, the assessee has filed the present appeal before us. However, the contention of the revenue is that the whole purchase is required to be added to the income of the assessee. ISSUE NO.1:- 5. Under this issue the assessee has challenged the addition to the extent of 12.5% on account of bogus purchase to the tune of Rs.1,63,35,816/- u/s 69C of the Act. The Assessing Officer raised the addition on account bogus purchase totaling to the tune of Rs.1,63,44,175/- from six parties namely M/s Avinash Enterprises, M/s Siddhi Vinayaka Steel, M/s Asian Tube Trading, M/s Chanchal Tube Corporation, M/s Asian Steel and M/s Suraj Tube Corporation. The Assessing Officer examined the purchase of these parties and issued the notices u/s 133(6) of the Act but the parties were not traceable. Thereafter, the notice was given to the assessee to prove the genuineness of the transaction but the assessee failed to do same. Therefore, the assessing Officer took the peak credit of both the firms to the tune of Rs.1,63,35,816/- u/s 69C of the Act and added to the income of Assessee. The Ld. Representative of the assessee has argued that the books of account have not been rejected by Assessing ITA. No.567/M/2016 534/M/2016 A.Y.2010-11 Officer, therefore, the purchase was genuine specifically in the circumstances, when the sale was not doubted, therefore, the addition confirmed by CIT(A) is not justifiable and is liable to be set aside. However, on the other hand, the Ld. Representative of the Department has refuted the said contention and argued that when the purchase is totally bogus, therefore, all the purchases are liable to be added to the income of the assessee in accordance with law. Before going further it is necessary to advert the finding of the CIT(A) on record.:-
“AO was not required to force their attendance. It was for the appellant to produce them as per Civil Procedure Code which applies to the income-tax proceedings also. It is trite that once a transaction is shown to be of the nature of income the onus shifts to the assessee to show that the same was not taxable. Instead of producing them for verification the appellant merely repeating the submissions that the transactions were reflected -in the books and payments were made by cheque, In these circumstances, it can thus be safely assumed that the appellant has grossly failed i6 his. duty to mitigate the burden cast upon him in so far as proving the genuineness of the transaction from the said are concerned In this regard it is also pertinent to mention that while dealing with the concept of burden of proof, onus of proving is always on the person who makes the claim and not on the Revenue, as being made out by the Ld. AR in his submission. The onus to prove that apparent, is not the real one, is on the party who claims it to be so as held by the Hon'ble Supreme Court In the case of CIT v. Daulat Ram Rawatmull [1973] 87 1W 349 and CIT v. Durga Prasad More, In the latter case, it has been held by the Apex Court that though an apparent statement must be considered real until it was shown that there were reasons to believe that apparent was not the real, in a case where an authority relied on self-serving recitals in documents, it was for the party to establish the proof of those recitals; the taxing authorities were entitled to look into the surrounding circumstances to find out reality of such recitals. 5.6 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 534/M/2016 A.Y.2010-11 against him. Therefore, onus is always on a person who asserts a proposition or fact and in the instant case, the appellant has miserably failed to lead evidence and hence, onus is a determining factor. The Hon’ble Supreme Court, in the case of Chuharmal Y. CIT [1988] 172 ITR 250 138 Taxman 190 highlighted the fact that the principle of evidence law are not to be ignored by the authorities, but at the same time, human probability has to be the guiding principle, since the AO is not fettered, by technical rules of evidence, as held by the Hon'ble Supreme Court in the case of Dhakeswan Cotton Mills Ltd. V CIT [1954] 26 JTR 775, The Hon’ble Supreme Court, in the case of Chuharmal (supra) held that what was meant by saying that Evidence Act did not apply to the proceedings under Income-tax Act, 1961, was that the rigours of Rules of evidence, contained in the Evidence Act was not applicable; but that did not mean that when the taxing authorities were desirous of invoking the principles of Evidence Act, in proceedings, before them, they were prevented from doing so. It was further held by the Hon’ble Apex Court that all the Section 110 of the Evidence Act, 1872 did, was to embody a salutary principle of common law jurisprudence viz, where a person was found in possesson of anything, the onus of proving that he was not its owner, was on that person Thus, this- principle could be attracted to a set of circumstances that its conditions and was applicable to taxing proceedings. 5.7 The Ld. AR in his submissions has relied on a number of decisions at High Court Tribunal including those in the case of Nikunj Eximp in 1TA No. 5604 of 2010 to suggest that no addition-coult be made on account of disallowance of bogus purchases. 5.8 Having gone through the above case laws they are distintitshab1e from this case because, in the present case so much of investigation was done including those by another Government authority, viz., Maharashtra Sales Tax author-Thy before whom affidavits were filed stating that only bogus bills were supplied without delivery of goods. Further, on verification of the bills/Invoices produced by the AR it is noticed that no vehicle numbers have been given in so far as delivery of the purchases are concerned and therefore, it is certain that no such purchases were actually made from the parties from whom bills were procured and hence no delivery could have been made. In the case before the Hon'ble Bombay High Court in Nikunj Eximp (supra), the 534/M/2016 A.Y.2010-11 suppliers had not appeared before the Assessing Officer and from the judgment it appears that It was not a case of the suppliers being non-existent. However, in the present case in appeal, the alleged supplier has been found to be non-existent. This is not merely a case where the supplier has failed to appear before the Assessing Officer. Hence, the judgment of the Hon’ble Bombay High Court relied upon by the appellant would be of no help, in fact, in a later decision in Nikunj Eximp (2014) 48 Taxmann.com 20 (Bom) Hon’ble Bombay High Court on the very same issue of obtaining bogus bills dismissed the assesses Writ Petition filed against notice u/S. 148 of the Act. 5.9 The: appellant in his submissions also relied upon the Hon'ble JTAT, Mumba, decision in the case of Rajeev Kalathit vs. DCIT ITA No 6727/M/2012. In the case of Rajeev Hon'ble Tribunal deleted the addition on the ground that investigation was not taken to the logical end by calling for the details and verifying them properly Apart from that transportation of goods were not verified properly that case in view of the same ITAT came to the conduct of that sufficient evidences are not. thereon file to endorse the view taken by the AO and the order of the FM was confirmed However, in the present case, AO called for and verified all the details and proper investigation was made which was discussed in the assessment order in detail by the Id. AO. Apart from that the appellant could not prove that the transportation of the goods was realty took place from the six parties, despite given a specific opportunity by the AU. Thus, all the cases retied upon by the appe1tant for relief won't come to the rescue of the appellant, since the facts and circumstances in the present case are clearly distinguishable from the cited cases. 510 Hon'ble Allahabad High Court while dealing with the issue of bogus purchase in the case of Sri Ganesh Rice Mills vs. Commissioner of Income-tax [2007] 294 JTR 316 (ALL.), held as under: 'Where Assess/ag Officer had recorded a finding that in order to lower profits, bogus purchases had been introduced and Tribunal upheld such finding, addition on account of disallowance of such purchases was justified [Assessment year 1984-85] The assessee was engaged in the production of grain, pulses, rice etc. The Assessing Officer treated five purchases as bogus. That was done after making enquiries 534/M/2016 A.Y.2010-11 wherein he. found that the p3rt7es mentioned at item, Nos. 4 and 5 never existed He therefore, made addition. The Tribunal also held that the purchases were bogus. Held that it was not the case of the assessee that he was a trader. On the other hand, the assessee was a manufacturer and in manufacturing process, chuni-bhusi also got manufactured as a by product. It was not the case of the assessee that it had made the purchases of chuni-bhusi from other persons also. The Assessing Officer had recorded a finding that in order to lower the profits, the bogus purchases had been introduced. Taking into consideration the entire and circumstances of the case, the findings recorded by the Tribunal could not be said to be based on irrelevant material and consideration. The assessee being a manufacturer of chuni-bhusi had not been able establish the purchases in question which had been made from the non-existent Thins. Further, the tv firms owned by the brothers of Me partners of the assessee-firm were said to have purchased. the from the non-existent firms and even the • invoices/W1 had been prepared by the, minimum of the applicant Merely because, the applicant had been dealing, with the firm, that would not found be bogus and were no other purchases of chuni- bhusi the benefit of 'deduction of: such purchase had rightly been disallowed. 5.11 In Samurai. Software (P.) Ltd. v. Commissioner of Income- tax (2008) 299 ITR 324 (RAJ.), it was held as under: 118, The Tribunal considered the matter in Paragraph '6 of its order thus: 16. We have carefully considered the rival submission of the parties, perused the mater/al available on record and the decision relied upon by the learned representative. We find that as a result of search on the assessee-company, the purchases totalling to Rs 4,37,048 were not found recorded in the seized books of account of the assessee-company. No 511/render was made on behalf of the company by any of the directors of the assessee- company. The surrender was made by Shri Mahesh Toshniwal, one of the directors of the company in his individual and not an behalf of the assessee-company and the sume was considered in his personal assessment Under the law, the company is a separate juridical person. The surrender made by 5/in Mahesh Toshniwal, in his individual capacity is not binding on the assessee-company.
ITA. No.567/M/2016 534/M/2016 A.Y.2010-11 Shri Mahesh Toshniwal in his personal statement, has nowhere stated that the surrender was made on behalf of the assessee- company. We also find that even in the return filed in response to a notice under section 148, the assessee-company did not include the said amount of bogus purchases. The assessee-company has not placed any mater/al as to show that the said purchases, in fact, belong to S/in Mahesh Toshniwal and not the assessee-company. Linden these drcumgta7ce5, we do not find any merit in the plea of the learned authorised representative that s//ice the said amount of purchases has been added in the hands of 5kM Mahesh Toshniwal, no addition can be made in the hands of the assessee-company, it is a settled law that the tax has to be levied on the real person. Under these circumstances and keeping in view the decision of the hon’ble Delhi /-1,'h Court as relied on by the learned Departmental representative in the case of CIT v La Med/ca [2001] 250 ITR 57, we are of the view that the assessee-company has debited bogus purchases in its books of account which the assessee-company could not substantiate anc. accordingly, the Commissioner of Income-tax (Appeals) was not justified in deleting the add/don of Rs. 4,37,048, which is directed to be reversed, and added in the me of the assessee-company. Consequently, the a mad by the Assessing Officer amounting to Rs. 4,3,7,048 is upheld. The by the Revenue; is therefore, allowed" 9 The Tribunal, thus, by its order dated June 10, 2002, set as the Commissioner of India the addition of Rs. 4,37,048/n the hands of the done by the Assessing Officer.
In so far as the addition of Ps. 4,37,048 in the hands appellant company Is concerne4e are satisfied with given 0 the Tribunal in paragraph 6 of its order. The addition of the amount of Rs. 4,37,048/n the hands of the appellant-company cannot be said to be unjustified. 5.12 In the case of Indian Woollen Carpet Factory vs income-tax Appellate Tribunal [2002J 125 TAXMAN 763 (RM.) it was. held as under: 7f the transactions were genuine and if the parties had migrated somewhere else, their latest addresses should have been supplied and burden was on the assessee to prove the genuineness of the transactions, the assessee claimed that the purchases were genuine. It was live that no loan had been taken from those. The case the Assessing Officer was that the assessee claimed some purchases from some parties, whom he could not produce or those parties 534/M/2016 A.Y.2010-11 were not available when the summon under section 131 was issued Therefore, the initial dispute was with regard to genuineness of the transaction regarding purchase of wool from the parties, the assessee had failed to discharge the onus to prove the genuineness of the transactions, mere mentioning of section 68 did not affect the addition made when transactions were found bogus. 5.13 In Sanjay Oilcake Industries vs. Commissioner of Income- tax 2009 316 ITR 274 (GUJ), it was held as under 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 traceable. That goads were received from the patties other than the person who had issued bills for such goods. Though the purchases are to have been made by making payment thereof by account payee cheques, the cheques have been deposited in hank account 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 i5 not possible is no material to dislodge such finding The is not whether die purchase pace effect& in the books of accountnatd7es- the purchase price stated to have been to other persons. The issue is whatever the purchase price paid by the ase5see is reflected as rejected by the recipient. The assessee by set of evidence available on record, made itposib1e for the for the purpose of as to whether the payment5 made by the assessee have been actually received by the, apparent sellers. Hence, the estimate made by the two appellate authentic 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. 5.14 In Bholanath Polyfab Pvt. Ltd. 355 ITR 290 (Guj), the facts of the case were that the assessee was engaged in the business of trading in finished fabrics. For the A.Y. 2005-06, the Assessing Officer held that the purchases worth 40,69,546/- were unexplained. He, therefore, disallowed such expenditure claimed by the assessee and computed the total Income of If 41,10,187f. The Issue was carried in appeal by the assessee before the Id. CIT (A) who rejected the appeal, upon which the assessee went in further appeal before the Hon’ble Tribunal, The Hon'ble Tribunal substantially allowed the assesses appeal. In so far as the question of bogus purchase is concerned, the Hon'ble Tribunal concurred 534/M/2016 A.Y.2010-11 with the Revenue's views that such purchases were made from bogus parties. The Tribunal noted that the Assessing Officer had issued notice to all parties from whom such purchases were allegedly made. Such notices were returned unserved by the postal authorities with the remark that the address was incomplete. The Inspector deputed by the Income- tax Department also could not find any of the parties available at the given addresses. Though the assessee had claimed to have made payment by account payee cheques, upon verification it was found that the cheques were encashed by some other parties and not by the supposed sellers. 5.15 Having come to such a conclusion, however, the Tribunal was of the opinion that the purchases may have been made from bogus parties, nevertheless,' the purchases themse4ves were not bogus. The Tribunal adverted to the facts band data on record and came to the conclusion that the entire quantity of opening stock, purchases and the quantity manufactured during the year under consideration were 1d by. the assessee. The purchases of the entire 1,02,514 were 'sold during the year under consideration. The Hon'ble Tribunal, therefore, accepted the assesses contention that the finished goods were purchased by the assessee, may be not from the parties shown in the accounts., but from other sources. In that view, Of the matter, the Tribunal was of the opinion that not the entire amount, but the profit margin embedded in such amount would be subjected to tax. The Tribunal relied on it earlier decision in the case of Sanket Steel Traders vs. ITO [IT appeal Nos. 2801 & 2937 (Ahd) of 2008, dated 20-05-2011] and also made reference to the Tribunal's decision in the case of Vijay Proteins Ltd. vs. Asstt. CIT [1996] 58 ITD 428 (Ahd) On appeal by the Department, the Hon’ble Gujarat High Court held as follows: 'We are of the opinion that the Tribunal committed no error. Whether the purchases ffiemsehe5 were bogus or whether the patties from whom such purchases were allegedly made were bogus is essentially a questfol7 of fact. The Tribunal having examined the evidence on record came to the conclusion that the assessee did purchase the cloth and sell the fin/shed goods. In that view of the matter, as natural corollary, not the entire amount covered under such purchase, but the profit element embedded therein would be subject to tax. This was the view of this Court in the case of Sanjay 01/cake Jndu5tries vs. QY (2009) 316 IT!'? 274 (Guj). Such decision is also followed by this Court in a judgment dated August16, 2011, in Tax Appeal No, 679 of 2010 in the case 534/M/2016 A.Y.2010-11 of CIT vs. Kishor Amrutlal Pate in the result, tax appeal is dismissed': 5.16 In the present case, the Ld. AO has shown that the parties in question were non-existent. The appellant has not been able to disprove the findings of the Ld. ro9 the non-existence of the parties. However, the Ld. AO after examining the evidences did not disturb the sales and the income on such sale of goods Ld. AO has not disturbed the quantitative details of the stock. Ld. A.O. not having doubted the genuineness of sales, could not have gone ahead and made addition in respect of the total amount debited towards such purchases. Without disturbing the quantitative details and sales, the issue would boil down to finding out the dement of profit embedded in bogus purchases which the appellant would have made from some respectfully following the decision of the High Court In.11141161anath Polyfab Pvt. Ltd. (supra), It is conducted that the profit margin embedded in such amounts of purchases could only be disallowed subjected to tax. 5.17 Having decided that the profit margin only to be subjected to tax, now we have to see what is the percentage to be adopted for taxing, especially when It vanes from trade to trade. Hon’ble Gujarat High Court in the case of CIT vs. Simit Sheth (2013) 38 Taxmann.com 385 (Guj), was seized with a similar issue where the A.0. had found that some of the alleged suppliers of steel to the assessee had not supposed, any goods but had only provided sale bills and hence, purchases from the said parties were held to be bogus. The A.O. 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 assesses 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 (Gui) and further approved the decision of Ahmedabad Bench, ITAT in the case of Vijay Proteins 58 ITD 428. 534/M/2016 A.Y.2010-11 518 In the case of Vijay Proteins (supra). the Hon'ble ITAT was seized Without suppliers of oil cakes where 33 parties were found to be bogus oy the departmental authorities even though payments were made to the said parties by cross cheques and in fact the AD. in that case had brought adequate material on record to prove that the cross cheques had not been given to parties from whom supplies were allege procured but these were encashed from a bank account in the. name of another entity, possibly hawala dealer. Subsequently, the, money deposited In that account was withdrawn in cash almost on the same day. The Tribunal however, held that if the purchases were made from open market without insisting for genuine, the suppliers may be willing to sell the project at a in less rate :2S compared to a rate Which they may charge in which the dealer to give genuine sale disallowance n respect of that sale Keeping all such factors in mind, the Tribunal estimated an element of profit. percentage of the overall purchase price accounted for in the books of accounts through fictitious invoices. 5.19 Further, 1n the case of M/s. Sanket Steel Traders (1TA No.2801/Ahd/ 2008 dated 20.05-2011 it was, inter-alia, stated as under: '3. At the time of hearing before us, it Ld. submitted by the Learned Counsel that the addition sustained is referred in support of this contention he referred to the decision of the Tribunal in the case of ITO vs Sun Steel 92 777 (A/id) 1126 wherein the Tribunal has seemed the addition of ?50,0001- on account of bogus purchases. However, we find that the fact in the above case were different. In the above case the assessee has shown purchases of ?27,39,4101-, safe of r 28,17,2071- and Gross Profit at 947401-. The Assess/rig Officer made the addition of 27,39,407/- for bogus purchases. If the above sum is added to the Gross Profit, the Gross Profit works out 2,83,41,24,71- which was more than the sale itself, The Tribunal held that it is impossible that the Gross Profit is more than the sale itself The Tribunal also found that the assessee has maintained the quantitative details in respect of materials purchased and sold. Considering peculiar 43ct5 of that case, the Tribunal arrived at the cOflClU5fofl that it would be fair and reasonable to estimate the addition at T 50,0001- as against the addition of ?27,3.9,4071- made by the Assessing Officer. However, the Learned Commissioner of Income tax (Appeals)
ITA. No.567/M/2016 534/M/2016 A.Y.2010-11 considering the facts of the assesses case, has sustained the addition at 1259vo. While doing so he has also relied upon the decision of the Tribunal in the case M/s. Vijay Proteins Ltd. 55 TV (A/id 76. In the case of M/s. Vijay Proteins Ltd. the Tribunal has sustained the addition of 25% of the bogus purchases. However, considering the facts of the assesses case the CIT(A) restricted the disallowance to 12596 a 25% mode in the case of M/s. V/jay Proteins Ltd from these facts evident that the =(A) has sustained the addition at 12.5% of the purchases considering the fads of the assessee cased We, therefore, do not find any Justifica.t/on to interfere with the order of the CJT(A) m this regard. The same is sustained." After considering the and the arguments of both the sides, we are of the opinion that it would meet ends of Justice, if the disallowance Is sustained at 12.5010 of the purchase from these two parties. The Assessing Officer is directed to work out the disallowance accordingly- Since the It’s of the assessee case are identical, we respectfully following decision of the ITAT. direct the Assessing Officer 12.5% of the purchases made during the year under consideration. 5.20 As stated ear1ter,in the present case the Id A 0 $iirnsetf held that the purchases were not bogus though the party from whom then purchase were made by • the appe11nt was round to be bogus and that is the reason for which they were not produced during the assessee merit proceedings. The motive behind obtaining bogus bills thus, appears to be inflation of purchase price so as to suppress true profits. Estimation ranging from 12.5% to 25% has been upheld by the Hon'ble Courts depending upon the nature of the business. As held in the case of Simit P. Sheth (supra) no uniform yardsticks could be applied to estimate the rate of profit and it varies with the nature of business. Taking all the facts into consideration and also taking into the findings of the Hon'ble Courts on this issue, I am of the view that estimation of 17.5% of profit would meet the ends of justice. Therefore, I direct the AO to estimate profit of 17.5% on the total alleged bogus purchases from the six parties as the profit element embedded in such purchases. Accordingly, the ground of appeal is partly allowed. 5.21 During the present proceedings, in the submissions dated 20/11/2015, the appellant along with other arguments also put that, without prejudice to the above if at all the said purchases are treated as bogus then the appellant pray that the income should be 534/M/2016 A.Y.2010-11 applied to the extent of profit embedded in the transaction only and not the full amount of purchase because the goods were procured and quantity is tallied and the GP declared by the appellant be deducted. In para 23 of the same submissions it is stated that the assessee has disclosed gross profit of 5.470/0 on a turnover of turnover Rs.7,55,93,096/- in the case of M/s Phinolek Steel & Engg. Co and 5.47% on 2,33,24,034 in the case of M/s United sales in the first year of function. In the submissions dated 20-11- 15 vide para- 23, the Learned Counsel of the appellant requested to consider deduction of the profit percentage already declared in the return of income on such purchases, in case estimation of profit is considered on the bogus purchases. The request of the appellant is considered and the ratio followed by the Hon'ble 1TAT, Mumbai Bench in the case of Madhukant B. Gandhi in 1TA No 1950/Mum/2009 dated 23-02-2010 wherein the Hon'ble JTAT while estimating the profits on the bogus purchases reduced the average of GP already declared in the previous years From the above information submitted about the GP ratios in the present case. the average GP is worked. out to above 5% in both the concerns, declared by the appellant Following the ratio in the case of Gandhi(supra), it is held that the net addition sustained In this case would be 17.5% - 50/a 7.5%. The net addition sustained would be 17.5%- 5% (GP already admitted) 125%%. AU is directed to verify the correct total purchases made from the six parties and calculate the profit as per the percentage decided as the profit element on the said purchases in addition to the regular profit offered to tax; However, the AO is directed to check the total purchases 1mm all the six parties because, it is observed from the details submitted during the present proceedings that AO committed a mistake by adopting a wrong amount as purchases made from the party M/s Asian Steel by the concern M/s. Phinolek Steel & Engg. Co. the amount of total purchase is taken as Rs. 86,16,371/-, whereas as per the account copy submitted, the total purchases made during the year is Z 1,05,96,371/- from the said party. AO is directed to re-check the total purchases from all the six parties and adopt the decided percentage of profit net i.e. 12,50/o, as the profit embedded on the purchases made from these parties. Accordingly, Ground Nos. 1 to 6 are partly allowed.
Ground No. 7 of the appeal relates to charging of Interest u/s. 234B, 234C and 234D by the Assessing Officer. This ground is consequential in nature as far as the charging of interest under 534/M/2016 A.Y.2010-11 sections 2348/234C and 2340 of the Act is mandatory and not discretionary as held by the Apex Court in the case of Anjuman N Ghaswala reported in (252 ITR 1) and in the case of CIT vs. Hindustan Bulk Carriers (259 1TR 449). For the statistical purpose, this should be taken to be dismissed grounds of appeal
7. Ground No, 8 of the appeal relates to initiation of penalty proceedings u/s 271(1)(c) of the Act. As far as challenging the initiation of penalty proceedings are concerned this ground of appeal is premature as no penalty has been imposed by the Assessing Officer. There is no remedy against mere initiation of penalty proceedings u/s. 246k of the LT. Act. However, the appellant shall be at liberty to approach this office in case such penalty is imposed by the AO in future For the statistical purpose, to be dismissed grounds of appeal.
8. Ground No 9 of the appeal says that the appellant says that the appellant craves leave to add, alter, classify, reclassify, delete or modify any of the above grounds of appeal and requests to consider each of the above grounds without prejudice to one another. No such option has been exercised by the appellant during the appellate proceedings and all the grounds are considered as requested by the appellant Therefore, it is clear that this ground of appeal is academic in nature and no decision is required in respect of this ground of appeal. For the statistical purpose, this should be taken to be dismissed ground of appeal.”
6. On appraisal of the above said finding, we noticed that the assessee nowhere produced any evidence in support of his claim, therefore, the CIT(A) has passed the order on the basis of decision Hon’ble Gujarat High Court in the case of CIT Vs. Simit Sheth (2013) 38 Taxmann.com 385 (Guj) . The Hon’ble High Court while passing the order has also considered the case titled as Vijay M. Mistry Construction Ltd. 355 ITR 498 (Guj) and Vijay Proteins 58 ITD 428 Ahmedabad Bench, ITAT, the CIT(A) has also placed reliance upon the order passed by the Hon’ble ITAT Mumbai Bench 534/M/2016 A.Y.2010-11 Madhukan B. Gandhi in dated 23.02.2010 wherein the Hon’ble ITAT while estimating the profits on the bogus purchases reduced upto the average of GROSS PROFIT already declared in the previous years. Turning to the case in hand, the assessee failed to prove his purchase from the six parties whose names have been mentioned above to the tune of Rs.1,63,44,175/-. The sale is not disputed. The assessee might have purchased the said material from the grey market to avoid the Sales Tax, VAT and Excise etc. The profit embedded in the said purchase has been taken into consideration to the extent of 12.5% in addition to the regular profit offered to tax. The CIT(A) has also considered the number of cases while deciding the matter of controversy but the yardstick taken into consideration by the CIT(A) in the case of of CIT Vs. Simit Sheth (2013) 38 Taxmann.com 385 (Guj). The percentage of profit embedded into the purchase to the extent of 12.5% has rightly been taken into consideration to the facts and circumstances of the case. Accordingly, we are of the view that the CIT(A) has decided the matter of controversy judiciously and correctly which is not required to interfere with at this appellate stage. Accordingly, this issue is decided in favour of the revenue against the assessee. ITA NO.534/M/2016:- 534/M/2016 A.Y.2010-11
The facts of the present case are quite similar to the facts of the case as discussed in therefore, there is no need to repeat the same.
The revenue has raised the following grounds .:- “On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in allowing relief to the assessee to the extent impugned in the grounds enumerated below:
1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in the confirming addition @ 17.5% of total purchases held as bogus by the AO?
2. The appellant prays that the order of the CIT(A) on the above ground be set aside and that of the AO be restored.
3. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary.” ISSUE NO.1:-
9. Under this issue the revenue has challenged the deletion of addition of bogus purchase to the tune of Rs.1,63,35,816/- which has been restricted to the extent of 12.5% of the gross profit of bogus purchase. This issue has already been discussed and decided while deciding the ITA. No. 567/M/2016 in which we found it justifiable to the extent of addition @ 12.5% of the bogus purchase. Accordingly, this issue is decided in favour of the assessee against the revenue. In result, appeal filed by the revenue is hereby ordered to be dismissed. 534/M/2016 A.Y.2010-11