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Income Tax Appellate Tribunal, SMC BENCH, PUNE
Before: SHRI D. KARUNAKARA RAO, AM
आदेश आदेश / ORDER आदेश आदेश
PER D. KARUNAKARA RAO, AM :
The Revenue filed the main appeal ITA No.2985/PUN/2016 against the
order of CIT(A)-1, Nashik, dated 05-10-2016 for the A.Y. 2011-12. Assessee
also filed Cross Objection for the same.
I shall first proceed to adjudicate the Cross Objection filed by the
assessee.
2 ITA No.2985/PUN/2016 and C.O. No.08/PUN/2017 M/s. Trinity Steel Profiles Pvt. Ltd.,
C.O.No.08/PUN/2017 – By Assessee (Arising out of ITA No.2985/PUN/2016)
Grounds raised by the assessee in the Cross Objection read as under:
“The following grounds are taken without prejudice to each other -
On facts and in law,
1] The Ld. CIT(A) erred in partly confirming the addition made by the A.O. towards purchases made from alleged hawala parties on the basis of information received from Sales Tax Dept. Without appreciating that no addition was warranted on facts of the case.
The Ld.CIT(A) erred in holding that the profit on purchases made from alleged hawala parties should be estimated @15% of such purchases for the reason that the probability that the impugned purchases could have been made from another party could not be denied and thus, the invoices issued by alleged hawala parties could be over- priced/inflated.
The Ld.CIT(A) failed to appreciate that the assessee had duly demonstrated that the purchased made from the alleged hawala parties were in fact at a rate lower than or equal to the purchases made from other parties which were treated as genuine by the A.O. and hence, there was no reason to hold that the impugned purchases could have been inflated and thus, the addition sustained is without any cogent basis.
The learned CIT(A) failed to appreciate that- a. The purchases made by the assessee from the above party were supported by tax invoices and other documentary evidences and hence, there was no reason to doubt the genuineness of the said purchases merely on the basis of uncorroborated statement of such supplier. b. The payments to the said party were made through banking channel and the A.O. had not brought any evidence on record to show that the payments made by the assessee to the said party was withdrawn by it and returned to the assessee in cash and hence, in the absence of any contrary evidence, there was no reason to doubt the genuineness of the payments made to the said party.
The learned CIT(A) ought to have appreciated that –
a. The copies of statements of the alleged hawala parties recorded by the Sales Tax Dept. were not confronted to the assessee and hence, the addition made in the case of the assessee on the basis of the said statements was not justified in law.
b. The A.O. had himself admitted in the asst. Order that he was not able to locate the above alleged hawala party and thus, the A.O. was in no position to grant the opportunity of cross examination of this party to the assessee and hence, in view of the ratio laid down by Hon’ble Supreme Court in the case of Andaman Timber Industries Vs. CCE (Civil Appeal No.4228/2006 dated 02-09-2015), the addition made solely on the basis of statement of such supplier recorded at the back of the assessee was not justified at all.
3 ITA No.2985/PUN/2016 and C.O. No.08/PUN/2017 M/s. Trinity Steel Profiles Pvt. Ltd.,
c. After considering the same statement of the alleged hawala supplier, the Sales Tax Dept. had not disputed the fact that there has been actual transfer of goods between the assessee and the supplier and hence, the assessee has been made liable to pay VAT on such transfer of goods which has not been deposited by the supplier and therefore, the Income Tax Dept. is not justified in raising additional tax liability on the assessee in respect of these purchases by adopting a contrary interpretation of the same statement to the effect that there has been no actual transfer of goods.
Without prejudice, the assessee submits that the addition made by estimating profit on alleged hawala purchases @15% is very high and the same may be restricted to a reasonable level considering the facts of the case.
The appellant craves leave to add, alter, amend or delete any of the above grounds of appeal.”
Briefly stated relevant facts are that assessee is a company and is
engaged in the business of trading in Iron and Steel. Assessee filed the return
of income on 28-09-2011 declaring total income of Rs.2,47,148/-. Assessee has
shown the net profit at 0.43% on the gross turnover of Rs.2,82,37,173/-. On
the basis of information received from the Investigation Wing of Sales Tax
Department, AO issued notice u/s.148 of the Act to the assessee. AO found
that assessee made suspicious purchases from couple of suppliers namely, (1)
Canzoom Enterprises amounting to Rs.17,14,404/- and (2) Sahara Traders
Corporation amounting to Rs.8,58,785/-. Eventually, at the end of assessment
proceedings u/s.143(3) r.w.s. 147 of the Act, the AO made addition of entire
sum of Rs. 25,73,189/- and held that the purchases made by the assessee are
bogus ones. Of course, assessee filed purchase bills, related bank transaction
statements etc. to ascertain the facts relating to purchases and the fact of
making payment to the sellers.
In the First Appellate proceedings, the CIT(A) vide his consolidated
order dated 05-10-2016 for A.Yrs. 2009-10, 2010-11 and 2011-12 held that
profit should be estimated at 15% of the turnover. Contents of Para No.6.1 of
4 ITA No.2985/PUN/2016 and C.O. No.08/PUN/2017 M/s. Trinity Steel Profiles Pvt. Ltd.,
the order of CIT(A) are relevant and therefore, the same are extracted here as
under :
“6.1 I have considered the facts of the case and the rival contentions, the material on record. In the instant case, the information regarding hawala dealers was received from Sales Tax Department. The AO after considering the submission of the assessee held that purchases made from hawala dealers tantamount to bogus purchase and made an addition of Rs.81,48,113/-, Rs.1,16,48,157/- & Rs.25,73,189/- for the A.Ys. 2009-10, 2010-11 & 2011-12 respectively. However, the Assessing Officer has not made any comments on the quantitative details of purchase and sale filed by the assessee nor he has brought any evidence on record to show that the assessee has received cash in lieu of cheque issued for the purchases. It is also an established fact that the assessee has not been able to produce the party either before AO or me. The whereabouts of the impugned purchase party is also not known. In such circumstances, the fact that the purchases are indeed made from the impugned parties cannot be verified. It is plausible that the purchase is made from one party and bills are procured from other. However, the fact that no averment on sale is made cannot be overlooked. Considering the totality of facts, in my view, this is not a case of bogus purchase but rather a case of bogus parties. It is possible that assessee has over invoiced his purchase to reduce his taxable income. In steel market, this phenomenon is of common occurrence. To meet the ends of justice and to offset any leakage of revenue, in my considered view, the profit should be estimated at 15% of the turnover in all the three types, i.e. A.Y. 2009-10, 2010-11 & 2011-12.
Aggrieved with the part relief given by the CIT(A), assessee preferred
the present Cross Objection before the Tribunal with the grounds extracted
above. Further, aggrieved with the order of CIT(A) the Revenue has also filed
the appeal.
At the outset, Ld. Counsel for the assessee submitted that the order of
the CIT(A) adopting 15% of gross profit on the turnover for the assessment
year under consideration is on higher side. He further submitted that assessee
has established the trail of goods and the payments are made through banking
channels. In support of the same, Ld. Counsel for the assessee relying on
various decisions of Pune Bench of the Tribunal on this issue prayed for
adopting a reasonable percentage.
5 ITA No.2985/PUN/2016 and C.O. No.08/PUN/2017 M/s. Trinity Steel Profiles Pvt. Ltd.,
Per Contra, Ld. DR for the Revenue relied on the order of AO and prayed
for confirming the entire addition of Rs.25,73,189/-.
I heard both the sides and perused the orders of the Revenue and the
decisions relied on by the Ld. Counsel for the assessee. This is a case where
assessee is alleged to have resorted to bogus purchases amounting to
Rs.25,73,189/- involving two suppliers. The AO made addition of entire such
purchases as per the discussion given in Para in Para No.4.4 of the assessment
order. At the end of the First Appellate proceedings, the CIT(A) adopted 15%
of the Net Profit on the turnover and partly allowed the appeal of the assessee.
The CIT(A) in the last line of Para No.6.1 of his order has erroneously held that
“profit should be estimated at 15% of the turnover” of the assessee for
the year. In other words, CIT(A) treated the entire turnover as bogus and in
effect, CIT(A) rejected the book results. This decision of CIT(A) has the effect
of enhancement of the assessment. CIT(A) should do the same only after
issuing show cause notice, which was not issued at all. Therefore, the
language used in the order of CIT(A) is erroneous and the same needs to
understood to restrict to the alleged bogus purchase of Rs.25,73,189/- only.
Therefore, in the Cross Objection, filed by the assessee, in Ground No.2,
assessee made corrections to the conclusion of the CIT(A) on this issue and
submitted that profit rate of 15% on the bogus purchases is on the higher side.
In any case, applying Net Profit rate of 15% to the entire turnover which
includes the accounted turnover is unsustainable, in principle.
Therefore, on the amended conclusion of restricting the addition to 15%
of such bogus purchases only, I proceed to adjudicate the issue. As such,
making entire addition of Rs.25,73,189/- is not approved at all by the Pune
Bench of the Tribunal in various cases where the assessee is not found fault
6 ITA No.2985/PUN/2016 and C.O. No.08/PUN/2017 M/s. Trinity Steel Profiles Pvt. Ltd.,
with the matters relating to trail of goods, bank payments, etc. In this case,
the assessee furnished all the documents required for evidencing the
purchases, payments for purchase of the goods, etc. Of course, it is true that
the said documents were suspected by the authorities. Considering the same,
I am of the opinion that the Net Profit rate of 15% adopted by the CIT(A) as
contested by the assessee is on higher side.
Further, I find that similar issue of bogus purchases has been decided by
the Tribunal in series of decisions. I find the Coordinate Bench of the Tribunal
in the case of Mr. Khan Afzalhussain Mohd. Saie Vs. DCIT – ITA Nos. 2708 and
2709/PUN/2016, dated 23-03-2018 confirming the addition to only 10% of
such alleged bogus purchases apply to the facts of this case. I therefore, find it
to relevant to extract the findings given by the Tribunal in Para No.11 of order
of Tribunal here as under :
“11. Now, coming to the merits of addition. The issue raised in the present appeal is against bogus purchases. We have already adjudicated similar issue in series of decisions with lead order in M/s. Chhabi Electricals Pvt. Ltd. Vs. DCIT in ITA No.795/PUN/2014, relating to assessment year 2010-11, order dated 28.04.2017. The assessee in the first year i.e. assessment year 2009-10 has maintained quantitative details. In other words, it has the evidence of purchasing goods and its sales. In such circumstances, at best, higher gross profit rate can be applied. Following our decision in earlier orders, we hold that GP rate of 10% over and above GP declared by the assessee in its books of account, be applied to work out the additional income in the hands of assessee. The ground of appeal No.3 raised by the assessee is thus, partly allowed.”
Considering the same, I direct the Assessing Officer to make addition in
the hands of assessee by adopting GP rate at 10% of bogus purchases only
made by the assessee. Consequently, rest of the grounds/arguments raised by
the assessee in the Cross Objection are dismissed. Accordingly, the grounds
raised by the assessee are partly allowed.
In the result, the Cross Objection of the assessee is partly allowed.
7 ITA No.2985/PUN/2016 and C.O. No.08/PUN/2017 M/s. Trinity Steel Profiles Pvt. Ltd.,
ITA No.2985/PUN/2016 – By Revenue
In this appeal, the Revenue contends that the entire addition of
Rs.25,73,189/- needs to be confirmed. This approach of the Revenue is not
approved by the Tribunal. Consequently the grounds raised by the Revenue
are dismissed.
In the result, the appeal of the Revenue is dismissed.
To sum up, the Cross Objection of the assessee is partly allowed and the
appeal of the Revenue is dismissed.
Order pronounced on this 25th day of May, 2018.
Sd/- (D.KARUNAKARA RAO) लेखा सद� / ACCOUNTANT MEMBER पुणे / Pune; �दनांक Dated : 25th May, 2018. Satish
आदेश आदेश क� आदेश आदेश क� क� �ितिलिप क� �ितिलिप �ितिलिप अ�ेिषत �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order is forwarded to : अ�ेिषत
अपीलाथ� / The Appellant; 1. ��यथ� / The Respondent; 2. आयकर आयु�(अपील) / The CIT(A)-1, Nashik 3. आयकर आयु� / The CIT-1, Nashik 4. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, पुणे “SMC” / 5. DR ‘SMC’, ITAT, Pune; गाड� फाईल / Guard file. 6.
आदेशानुसार आदेशानुसार आदेशानुसार/ BY ORDER,स आदेशानुसार
स�यािपत �ित //True Copy//
Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune