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Income Tax Appellate Tribunal, “K”, BENCH, MUMBAI
Before: SHRI RAJENDRA, AM & SHRI RAM LAL NEGI, JM
आदेश / O R D E R
PER RAM LAL NEGI, JM
This appeal has been filed by the assessee against order dated 17/08/2016 passed by the Ld. Commissioner of Income Tax (Appeals)-30, Mumbai, pertaining to the Assessment Year 2009-10, whereby the Ld. CIT (A) has dismissed 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’).
Brief facts of the case are that the assessee engaged in the business of trading in ferrous and non-ferrous metal, filed its return of income for the assessment year under consideration declaring the total income of Rs. 2,95,880/-. The return was processed under section 143 (1) of the Act.
Subsequently, on the basis of information received from the Sales Tax Department regarding bogus purchases made by various companies including the present assessee from hawala entities which used to issue bogus bills without selling any goods, the assessment was re-opened u/s 147 of the Act. The assessee was one of the beneficiaries of such bogus bills, which had made bogus purchases from 19 such entities. As per the information, the assessee company during the year relevant to the assessment year under consideration made bogus purchases to the tune of Rs. 1,52,45,620/-.
In response to the notice u/s 148 of the Act, the authorized representative appeared before the AO and submitted some of the details called for by the AO. During the re-assessment proceedings, the assessee could not establish the genuineness of the transaction. Accordingly, show cause notice was issued as to why the amount of bogus purchases should not be added to the income of the assessee. The assessee submitted that the purchases were genuinely made and the payments were made through account payee cheques, however, the assessee could not produce the documents such as delivery challan, transport receipt, goods inward register maintained at godown. The assessee also failed to produce the party before AO. Since, the assessee could not satisfy the AO by producing sufficient evidence that the transactions were genuineness, the AO made addition of Rs. 19,05,703/- i.e. 12.5% of the bogus purchases shown by the assessee.
Feeling aggrieved, the assessee challenged the assessment order before the Ld. CIT (A). The Ld. CIT (A) after hearing the assessee dismissed the appeal of the assessee and sustained the addition made by the AO. The assessee is in appeal against the impugned order passed by the Ld. CIT (A).
The assessee has raised the following effective grounds of appeal
against the impugned order passed by the Ld. CIT (A):- 1. “On the facts and in law, the Ld. CIT (A) erred in sustaining an addition to the extent of 12.5% of the purchases, amounting to Rs. 19,05,703/- made as the profit element embedded in purchases from the alleged bogus parties on the ground that the motive of obtaining the bogus bills was inflation of purchases price so as to suppress true profit without appreciating the fact that appellant had earned G P at the rate of 6.42% from the sale of alleged bogus purchases against the G P ratio of 6.99% for the year.
2. On the facts and in law and without prejudice to ground no. 1, the Ld. CIT (A) erred in sustaining an addition to the extent of 12.5% of the alleged bogus purchases without appreciating the fact that the overall GP was 6.99% and appellant had already shown G P at the rate of 6.42% on the alleged bogus purchases. Further, the average GP of 5 years is 7.79% and hence if at all addition has to be sustained, it should be restricted to 1.37% (7.79 – 6.42) of the alleged bogus purchases, amounting to Rs. 2,04,515/-.”
7. Before us, the Ld. counsel for the assessee submitted that since the assessee has furnished the copies of purchase invoices, details of assets purchased, bank statements etc. and further proved that the payments were made through banking channels, the Ld. CIT (A) has wrongly sustained the addition made by the AO. Relying on the judgment of the Hon’ble Bombay High Court in CIT Vs. Nikunj Eximp Enterprises Pvt. Ltd. 372 ITR 619 (Bom), the Ld. counsel submitted 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. Since, the AO has not rejected the sale, the addition cannot be made on the ground of bogus purchases.
8. On the other hand, the Ld. Departmental Representative (DR) submitted that since assessee has failed to prove genuineness of the transaction, the Ld.CIT (A) has rightly sustained the addition of 12.5% of the total amount of bogus purchases made by the AO. Since, the findings of the Ld. CIT (A) are based on the decisions of various Courts and the ITAT, there is no merit in the appeal of the assessee. Hence, the appeal is liable to be dismissed.
We have heard the rival submissions and perused the entire record and also gone through the cases relied upon by the authorities below as well as referred before us. The only grievance of the assessee is that the Ld. CIT (A) has wrongly confirmed the addition made by the AO. The evidence on record suggest that the assessee had not purchased the goods in question from the parties concerned, but the purchases were made from the parties other than those mentioned in the books of account. Hence, there is no merit in the contention of the assessee that the goods were genuinely purchased. Under these circumstances, the AO has rightly made addition in question keeping in view the profit element embedded in the purchases in question.
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 observed 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. Accordingly, we hold that the purchases in question were made by the assessee from gray market in order to evade VAT/other taxes applicable during the relevant period. 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. Hence, following the principles of law laid down by the Hon’ble High Courts of Bombay and Gujarat, discussed above, we uphold the order of the Ld. CIT(A) and direct the AO to make addition @ 12.5% of the total amount of bogus purchases to the income of the assessee.
In the result, appeal filed by the assessee for assessment year 2009-10 is dismissed.
Order pronounced in the open court on 9th November, 2017.