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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
Before: SHRI D.T. GARASIA
Per D.T. Garasia, Judicial Member:
The present appeal has been preferred by the Revenue against the order dated 20.03.2017 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2009-10.
The brief facts of the case are that the assessee is an individual engaged in business of Trading of iron and steel as proprietor of M/s. Recron Steels. During the year the Assessing Officer (hereinafter referred to as the AO) found that assessee had made bogus purchases from following parties: Sr. Name of the party Amount of No. Purchase (Rs)
Pooja Trading Company 75,724/-
The assessee was asked to produce the above parties for verification. There was no compliance of notice under section 133(6). Therefore, the AO has made the addition on account of bogus purchases of Rs.2,00,374/-.
Matter carried to the Ld. CIT(A) and the Ld. CIT(A) has partly allowed the claim by observing as under: “6 On going through the facts of the case discussed above, I am of the considered opinion that the purchases of Rs.41.20,076/-made by the appellant from various parties are from hawala dealers. These dealers only gave the bills and there was no actual sale and purchase transactions and no transfer of goods. At the same time, when the sales are accepted by AC, which were not possible without corresponding purchases. Further the appellant also reconciled item wise sales against the said purchases To add further, if entire bogus purchases are added to the income of the appellant then the net profit rate will go up to 90% which is abnormal for the trading business Therefore, it can be inferred that the appellant had made purchases in the open market which were used in trading and had obtained bills from the Hawala operators. Under such circumstances the likelihood of the purchases being inflated cannot be ruled out and there is no material to dislodge such findings. It is not known at what price the appellant actually made the purchases from third parties. In this process the appellant saved on the sales-tax / VAT and enhanced his profit by manipulating the purchases. In various decisions, appellate authorities had held that if as a Trader, the assessee sold certain quantity of material; he would have purchased the same quantity from some source. When the total sale is accepted, the AO could not have questioned the very basis of the purchases. The appellate authorities in such cases have restricted the additions varying from 3% (Shri Jitendra Motani l.T,A.No.5927/Mum/2009 A.Y 2006-07 and l.T.A.Nos.3024 to 3028/Mum/08 for A.Yrs.2001-02 to 2003-04 and 2005-06) to 12.5% (Simit P. Sheth 356 ITR 451, Gujrat,). The appellate authorities have also stressed upon the reasonability of the profit shown by the assessee while making any such disallowance (Ramesh Kumar and Co. v/s ITAT Mumbal (ITA No. 2959/Mum/2014). In the case of the assessee, out of total purchases of Rs, 43,44,838/-, the Purchases of Rs. 41,20,076/- are disallowed by the AO, which works out to about
3 Shri Dinesh Devchand Sanghvi 95%. As the assessee has shown GP of 6 to 7% in different years. in view of discussion above it would be appropriate if 7% of unproved purchases amounting to Rs.41,20,076/-, an amount of Rs.2,88,405/- is disallowed which will be over and above the profits shown by the appellant in his return of income. 7. In the result the ground of appeal is partly allowed.”
5. I have heard the rival contentions of both the parties. Ld. D.R. relied upon the decision of the Tribunal, Ahmedabad Bench in the cases of Shwetambar Steels vs. ITO Ahmedabad and Ganesh Rice Mills vs. CIT (294 ITR 316). The facts in the present case show that assessee could not produce the parties from whom goods are stated to have been purchased. The suppliers were found to be engaged in providing bogus bill without actual dealing of goods. In this regard, the assessee has stated that they had submitted quantitative details of stock with respect of the sales with purchases from the parties during the assessment proceedings. The assessee has submitted the detail of corresponding sales in respect of the purchase from the said parties. As mentioned above the AO has never disputed or examined the aspect of sales receipts. Since the sales made by the assessee was not doubted or disputed by the AO and he has accepted the sales receipts of the assessee as it is, therefore, the AO cannot deny that purchases were not made by the assessee and the material was not used for its sales. What is under dispute is the purchases from the parties from whom bills have been taken and cheques have been issued to them. Purchases are not in dispute but the parties from whom purchase are shown to have been made are disputed and suspicious. The AO had made the addition as some of the suppliers were declared hawala dealers by the VAT Department. This may be a good reason for 4 Shri Dinesh Devchand Sanghvi making further investigation but the AO did not make any further investigation and merely completed the assessment on suspicion. Once the assessee has brought on record the details of payments by account payee cheque, it was incumbent on the AO to have verified the payment details from the bank of the assessee and also from the bank of the suppliers to verify whether there was any immediate cash withdrawal from their account. No such exercise has been done or findings recorded. There was no detailed investigation made by the AO himself. It is also found that the payments have been made by account payee cheque which are duly reflected in the bank statement of the assessee. There is no evidence to show that the assessee has received cash back from the suppliers. Merely because the suppliers did not appear before the AO or some confirmation letters were not furnished, one cannot conclude that the purchases were not made by the assessee. This view is supported by the decision of Nikunj Eximp Enterprises vs. CIT 216 Taxman 171 (Bom). To this extent, I am of the view that if the assessee has fulfilled its onus of making the payment by cheque and has supplied the addresses of the sellers then it cannot be presumed that supplier were bogus simply because the sellers were not found at the given address. There is a considerable time gap between the period of purchase transaction and period of scrutiny proceedings. The AO has not brought any material on record to show that there is suppression of sales. It is basic rule of accountancy as well as of taxation laws that profit from business cannot be ascertained without deducting cost of purchase from sales. Estimation of profit ranging from 12.5% to 15% has been upheld by 5 Shri Dinesh Devchand Sanghvi the Hon'ble Gujarat High Court in the case of CIT vs Simit P Sheth 356 ITR 451 (Guj.). Respectfully following the decision of Hon’ble Gujarat High Court in the case of CIT vs. Simit P. Sheth 38 taxman 385 (Guj), I dismiss the departmental appeal.
In the result, departmental appeal is dismissed.
Order pronounced in the open court on 23.11.2017.