HEMANT R. SANGHAVI,MUMBAI vs. ASST CIT 16(2), MUMBAI

These are the cross appeals filed by assessee and revenue against the order of CIT(A)-30, Mumbai dated 26/10/2015 in the matter of order passed u/s.143(3) r.w.s. 147 of the IT Act.

We have considered rival contentions and carefully gone through the orders of the authorities below. Facts in brief are that assessee is engaged in business of import and sale of Iron and Steel. The assessee filed his return of income for the year under appeal on 29/09/2009 declaring total income of Rs.93,55,210/-. Assessment was reopened u/s 148 of the Act on the basis of the information received that the assessee was involved in making bogus purchases through hawala dealers and on enquiry the address of the parties were incorrect and also such parties were not traceable. The Assessment was completed u/s 143(3) r.w.s 147 of the Act by the AO on 21/03/2014 determining the total income at Rs.2,16,99,640/-.

By the impugned order CIT(A) restricted the addition to the extent of 12.5% and also observed that since assessee has declared average GP of 5% after reducing 5% from 12.5%, he upheld net addition to the extent of 7.5% (i.e.12.5% - 5%).

Against the above order of CIT(A) both assessee and revenue are in further appeal before us.

Reliance was placed on the decision of the Hon'ble Bombay High Court in the case of CIT v. Nikunj Eximp Enterprises (P.) Ltd. (372 ITR 619) [Refer Page No 77 to 78 of Legal Paper Book ("LPB") attached herewith as Annexure I] wherein the Hon'ble Bombay High Court has upheld the findings of the tribunal that where the assessee filed letters of confirmation of suppliers, copies of bank statement showing entries of payment through account payee cheques to suppliers and stock reconciliation statements, sale of purchased goods was not doubted, the transactions were supported with evidences and confirmations, in such an event merely because the suppliers have not appeared before the AO or the CIT(A), one cannot conclude that the purchases were not genuine.

Further reliance was placed on the following judicial pronouncements wherein it was held that addition on the bash that the parties were not produced before the Ld. AO and the summons returned unserved is not sustainable: • CIT v. Nagalia Fabrics (P.) Ltd. (40 taxmann. :om 206) (Guj.) • ACIT v. Tarla R Shah (ITA No. 5295/M/20I3 (Mum.) • ITO v. Vaman International (P.) Ltd (ITA No. 754/M/2015) (Mum.) • Balaji Textile India Private Limited v. Third ITO (49 ITD 1 77) (Mum.) • ITO v. Karsan Nandu (77 taxmann.com 275) (Mum)

As per learned AR in terms of following decisions wherein it was held that addition on the basis of general statements/affidavits before the Sales Tax Department without implicating the assessee is not sustainable: • CIT v. M.K. Brothers (1987) (30 Taxman 547) (Guj.) • ACIT v. M/s. Parshva Enterprises (ITA. No. 5288/M/2013) (Mum.) • DCIT v. Shri Shivshankar R. Sharma (ITA No. 5149/M/20I4) (Mum) • ITO v Vaman International (P.) Ltd (ITA No. 794/M/201 5) (Mum) • Shri Jigar Vinaychandra Shah v. ITO (ITA No. 1223/M/2014) (Mum) • ITO v. M/s. Uni Packs (India) (ITA No. 5239/M/20I3) (Mum)  DCITv. Rajeev G. Kalathi l(51 taxmann.com 514) (Mum.) 10. As per learned AR during the course of assessment proceedings, the assessee had produced copies of stock statements confirming the inward movement of goods and copies of invoices of the transport as well as unloading charges incurred by the assessee. The aforesaid evidence has not been rejected by the AO or even being commented upon. The assessee humbly submits that since the sales as well as the stock statements have not been rejected by the AO, the purchases made by the assessee cannot be treated as bogus as no sales can be affected if there are no purchases. The assessee would like to rely on the following decisions to further his case: • Nikunj Eximp Enterprises Pvt. Ltd. (372 ITR 619) (Bom) • CIT vs. Nangalia Fabrics Pvt. Ltd (40 taxmann.com 206) (Guj.) • Balaji Textile Industries P. Ltd. v. Third Income-tax Officer (49 ITD 177) (Mum.) • RajeshP. Soni vs. ACIT(100 TTJ 892) (Ahmd.)

The assessee would thus like to submit that the applicable sales tax rate in Maharashtra for Iron and Steel is 4% and the gross profit percentage declared by the Appellant is 5%. Thus, the total disallowance to be made, may, at best, be restricted to 1.5% [4% + 2.5% (industry average rate of profit) - 5% (already offered)].

We found that exactly on the similar issue of bogus purchases, the Tribunal in assessee’s own case in the A.Y.2010-11 has upheld the addition of 7.5% on account of such bogus purchases vide its order dated 17/02/2017. The precise observation of the Tribunal was as under:- “5. We have heard the rival contentions of both the parties looking to the facts and circumstances of the case we find that in this case the CIT(A) has considered that quantity details were maintained and Assessing Officer has no doubt about the genuineness of the sales. Therefore addition in respect of the mix credit balances on purchase subject when the AO himself recorded the evidence that assessee has made the purchase from some other party. Therefore what can be added is the profit embedded in bogus purchases which are to be added. The CIT(A) has considered the decision of Hon’ble Gujarat High court in Case Bholanath Poly Fab Pvt. Ltd. 355 ITR 290 (Guj) wherein the Gujarath High Court has held Purchases from the bogus party and if party was not produced before the AO for confirmation the only profit element can be added, in that case the Tribunal has held that the purchase were made from the bogus parties, nevertheless, the purchases themselves were not bogus to the entire quantity of opening stock, purchases and sales were tallying and hence only the profit margin embedded in such amount would be subjected to tax. The Gujarat High Court has considered that whether purchases themselves are bogus or whether the parties from whom such parties were made bogus as essential question of fact and when it is evidence of record that assessee had produced the cloth and sell the finished goods, the entire amount covered under such purchase would not be subjected to tax. 6. In this case the CIT(A) has categorically heard that quantity details were maintained and Assessing Officer has no doubt about the genuineness of the sale. Therefore this finding of fact that the assessee has made purchase but assessee had made the purchase from the other parties. Therefore we are of the view that when the assessee submitted the ledger account of the parties, copies of the bills, transport bills, loading and unloading bills along with the bank statement in which the 58/Mum/2016 Shri Hemant R. Sanghavi payment is made to such party. Therefore assessee did purchase from different sources. Therefore considering the same we are of the view that the CIT(A) has justified. We also find from the decision of Hon’ble Gujarat High court in Case of CIT v. Simit Sheth (2013) 38 Taxmann.com 385 (Guj) wherein the similar issue had come up before the Hon’ble High Court and wherein the tribunal has held that the alleged suppliers of steel to the assessee assessee have not supplied the goods but only provided sale bills and hence the purchases from the said parties is held to be bogus. The CIT(A) has held that assessee indeed has purchased not from the mentioned partied from other parties from gray market and sustain addition as profit of the assessee, similar in this case the facts are nearer to the facts of this case. Assessing Officer himself has stated that assessee might have purchased from the unknown sources which has known to the assessee. Therefore we are of the view that the CIT(A) has justified in his action and our interference is not required. In the result the assessee appeal is dismissed.”

In the result, appeal of the assessee and revenue are dismissed.