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Income Tax Appellate Tribunal, “J”
आदेश / O R D E R
Per Sandeep Gosain, Judicial Member:
The present Appeal filed by the assessee is against the order of Commissioner of Income Tax (Appeals)-39, Mumbai dated 04.11.16 for AY 2010-11 on the grounds mentioned herein below:-
Mrunal Shamsunder Naik i) On the facts and in the circumstances of the case and in law, the learned C.l.T.(A) erred in sustaining an addition of Rs.71,02,726/- as bogus purchases and not genuine purchases, being worked out @ 12.5% on Purchase of Rs.5,68,21,809/-. ii) On the facts and in the circumstances of the case and in law, the learned C.l.T.(A) erred in holding that purchases from following parties are not genuine as the appellant failed to produce these parties in response to notices u/s 133(6) issued to these parties before the Assessing Officer for verification of purchases as per remarks mentioned against each of them and that the Sales Tax Authorities had treated these parties as hawala dealers. Sr. Name of the Party Nature of Amount Remarks No. Transaction involved (Rs.) . 1 M/s. Mahavir Enterprises Purchases 65,68,312 Left 2 M/s. Navpad Exports P. Ltd.Purchases1,86,16,913 No Reply 3 M/s. Sai Leela Trading P. Ltd. Purchases42,89,372 Left 4 M/s. Siddhi Enterprises Purchases1,86,94,438 Not Known 5 M/s. Siddhi Vinayak Traders Purchases86,52,774 Left Total 5,68,21,809 iii) On the facts and in the circumstances of the case and in law, the learned C.I.T.(A) erred in relying on alleged intimation from Sales Tax / VAT Authorities that the aforesaid parties were indulging in Hawala dealings, without bringing anything on record that Mrunal Shamsunder Naik these parties had really confirmed before the Sales Tax Authorities, that these parties were issuing hawala bills particularly when the Sales Tax Department website www.mahavat.gov.in showed that the list circulated by the Sales Tax / VAT Department was of suspected hawala dealers and not the list of hawala dealers. iv) On the facts and in the circumstances of the case and in law, the learned C.l.T.(A) erred in v) The appellant craves, leave to add, alter, amend or delete any ground(s) of appeal either before or during the course of hearing of the appeal.
The brief facts of the case are that the assessee is an individual and engaged in the business of Sign Board Printing and Fixing. During the course of assessment proceeding, it was noticed by the AO that the assessee has shown purchases of Rs. 6,52,29,409/- from six parties and accordingly in order to verify the same, necessary notices u/s 133(6) of the I.T. Act were issued which were returned back unserved in case of five out of six parties. The AO also found that the parties were black listed by the Sales Tax Department of Maharashtra Govt, accordingly the Mrunal Shamsunder Naik assessment was completed by treating the purchases from the five parties amounting to Rs. 5,68,21,809/- as bogus and added the whole amount to the total income of the assessee. The AO also disallowed the purchases made from M/s Shiv Enterprises amounting to Rs. 84,07,600/- as the assessee was unable to prove genuineness of the purchases and consequently the said amount was also added to the income of the assessee. Aggrieved by the order of AO, assessee preferred appeal before Ld. CIT(A) and Ld. CIT(A) after considering the case of both the parties partly allowed the appeal of the assessee by restricting the addition @ 12.5% of the total purchases. Now before us, the assessee has preferred the present appeal by raising the above grounds. Ground No. (i) to (iv) 3. Since all the grounds raised by the assessee are inter- connected and inter-related and relates to challenging the order of CIT(A) in restricting the disallowance on account of bogus purchases, therefore we thought it fit to dispose of the same through the present common order.
Mrunal Shamsunder Naik 4. We have heard the counsels for both the parties and we have also perused the material placed on record as well as the orders passed by revenue authorities. Before we decide the merits of the case, it is necessary to evaluate the orders passed byLd. CIT(A). The operative portion of the order ofLd. CIT(A) contained in para no. 6 to 8 of its order and the same is reproduced below:-
I have carefully considered submissions made on behalf of the appellant, and the assessment order. Whether a transaction of purchase is genuine or not is always a question of fact and the primary onus is on the assessee to prove the genuineness of purchase. In CIT v. Korlay Trading Co Ltd (1998) 232 ITR 820(Cal.)(HC), It was held by the Hon'ble High Court that Initial burden is on the assessee to prove the genuineness of purchase. In the present case, the Sales Tax Department, Mumbai had identified over 1100 Hawala Operator (bogus bill issuers) and over 37,000 beneficiaries involving amounts aggregating to over Rs.20,000 crores and statements of the Hawala operators were also recorded. Subsequently, the office of the DGIT(Inv.), Mumbai carried out action by way of searches and survey on the basis of such information
Mrunal Shamsunder Naik which has resulted in establishing bogus purchases. Based on specific input from the DIT(Inv), Mumbai that the assessee had entered into Hawala Transactions for obtaining bogus purchase bills from the said parties, further enquiries were conducted by the AO. 6.1 On the issue of genuineness of purchase pgna onus is on the assessee to establish identity of the persons from whom the purchases were shown to have been made and genuineness of such transactions. In a case, where it was established by one Govt, department (sales tax in this case) that the parties from whom purchases were shown to have been made are indulging into Hawala transactions, the onus on the assessee is even greater to establish genuineness of transaction as it was found that such Hawala Operators have never sold any goods, but have issued only bogus bills to the beneficiaries for a meagre commission. I have taken note of the fact that an effort was made by the Id. AO to conduct independent enquiry and accordingly summons u/s 131 /notices u/s 133(6) of the Act were issued to the impugned parties from whom such purchases were claimed to have been made but genuineness of the transaction could not be confirmed independently as those parties were not found at their given addresses. The appellant failed to Mrunal Shamsunder Naik produce the parties and also did not provide their current addresses so as to make any further enquiry feasible on the part of the AO. Documents submitted by the appellant, in the circumstances, are self serving documents as the said parties are not available to confirm the same Independently. On the issue of burden of proof, It is pertinent to note that It was held in the case of CIT v. U.M. Sha, Properier, Shrenik Trading Co. [73] 3 TR 396 (Born.) that If the parties had received the summons but did not appear, the assessee could not be blamed. However, Where the summons was returned with the postal remark 'not known' (and 'not found'), the said is an endorsement of the presupposed that at the specific address furnished by the assessee the addressee could not be traced. In such cases, the question of issuing_asecond summons would arise only if the address given earlier was erroneous, and not when It was almost Identical as held inthe case of Ram Kumar JaLan v. CIT (1976] 105 ITR 331 (Born.). In the case of Indian Woollen Carpet Factory vs. Income-tax Appellate Tribunal [2002) 125 TAXMAN 763 (RAJ.) it was held that “If 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...",
Mrunal Shamsunder Naik 6.2 As to the claim of the appellant that the payments were made through banking channels, it is pertinent to note that this is a case where substance is under serious doubt and not the form. In the case where an assessee obtains bogus bills he wilt certainty obtain purchase bills from the said parties and may also make payment through banking channels to create evidence to establish sanctity of form as evidence. However, what is important is that the said parties are not available for further enquiry or verification to confirm the substance of the claimed transactions. However, it is not enough if there are documents evidencing an apparent situation, if such documents do not record a real transaction, but are made to cover up what could be inferred reasonably as unreal. In McDowell and Co. vs CTO( 1985)154 ITR 148(SC) the position of law is that if substance attracts tax, the form can be ignored by the tax collector. Further, In the case of Assistant Commissioner of Income-tax v. Tribhovandas Bhimji Zaveri [2000] 74 lTD 92(MUM.), Hon'ble Mumbai Bench of ITAT white dealing with the issue of bogus purchases where similar arguments were advanced to buttress the claim of purchases, held that "Considering the number of coincidences involved in the scheme, we are of the view that the entire scheme has been planned and coordinated by the -firm. In the Mrunal Shamsunder Naik case of Homi Jehangir Gheesta v. CIT 11961141 ITR 135, the Apex Court held that while deciding an issue, the Tribunal can consider probabilities properly arising from the facts alleged or proved and by doing so the Tribunal does not indulge in conjectures, surmises or suspicions. The Apex Court expressed a similar view in the case of Sumati Dayai v. CIT [1995] 214 ITR 801 / 80 Taxman 89 (SC) and held that the decision of an adjudicating body based on surrounding circumstances and human probabilities is not bad in law and deserves to be upheld. In the case of McDowell & Co. Ltd. v. Cr0 (1985) 154 ITR 148/22 Taxman 11, the Apex Court held that colourable devices are not part of legitimate tax planning. 6.3 It Is found that the assessee has placed reliance on several decisions of Hon'bte ITAT Mumbai as general reference without being specific as to how the facts as appearing in those cases were exactly similar to the facts of this case. I have carefully considered the facts of the case and the judicial pronouncements retied upon by the appellant and I am of considered opinion that the facts of this case is not similar to those cases relied upon by the appellant. In the case of NIKUNJ EXIMP ENTERPRISES PVT LTD. vs. COMMISSIONER OF INCOME TAX, MUMBAI, of 2010, Hon'ble High Court was satisfied Mrunal Shamsunder Naik that purchases of goods have been re-a5onaluty proved by e1denccs of pymt and physical delivery of goods purchased. Similar observations are there in other cases as welt. However, in this case, it is found that the assessee could not provide any evidences regarding physical delivery of goods as the assessee failed to produce any third-party evidence in respect of the same. In fact, Hon'bte [TAT Mumbai has in the case of Shri Rajeev G. Katathil Vs. DCIT (ITA No. 67271Mum12012 dt, 20.08.2014 AY 2009-10), observed that "Transportation of goods to the site is one of the deciding factor to be considered for resolving the issue." In this case, however, it is an admitted fact that there are no evidences of transportation of goods as the assessee has not been able to furnish any evidence to establish delivery of the goods claimed to have been purchased from these parties. Furthermore, the evidences in respect of delivery of goods assume more significance in view of the fact that the parties from whom purchases were claimed to have been made were found to be indulging into activity of issuing bogus bills of purchase and none of these parties have independently confirmed to the Id. AO that the assessee had actually made purchases from them. In the case before the Hon'bLe Bombay High Court in Nikunj Eximp (supra), the Mrunal Shamsunder Naik suppliers had not appeared before the Assessing Officer and from the judgment it appears that it was not a case of the suppliers have been found to be non- existent or have denied having made any transaction with the appellant. However, in the present case in appeal, the alleged suppliers have 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, which has been followed in the decisions of the Hon'ble ITAT Mumbai, relied upon by the appellant, would be of no help to the appellant. In the given facts and circumstances of the case, I am of the considered opinion that the Id. AO has rightly held that the purchases claimed to have been made from the said five parties amounting to Rs. 5,68,21,809/- are not genuine and the claim of the assessee is not acceptable to that extent. 6.4 However, in the case of Purchase of Rs. 84,07,600/- from M/S Shiv Enterprises, it is found that name of this party has not been mentioned by the Id. AO as appearing in the list of 1-14.4.-..lu were Ld in providin; bo;us bills of purchases as found to be black listed by Sales-tax department of Maharashtra Government. Further, the notice issued to this party u/s 133(6) was duly served but no reply was received.
Mrunal Shamsunder Naik There is no dispute that the payments were made by cheque and the purchase could not be held as bogus merely because the party concerned has not reply to the notice of the AO, more so when there is no other or additional evidence to form a belief that the purchases made from this party was in-genuine. From the assessment order, it transpires that the id. AO did not carry out any worthwhile independent inquiry in the matter. He has totally ignored the documentary evidences submitted by the appellant. Once evidences relating to a transaction is submitted before the Id. AO, the onus shifts on him to prove these as non-genuine or bogus. The AO has not discharged the onus casted on him by conducting any prima fade enquiry about business activity of the said concern and genuineness of the transaction when existence of the said concern was proved by service of notice issued u/s 133(6) of the Act. The assessment proceedings were wide open and the AO could have carried out independent investigation to prove his argument regarding these transactions being non-genuine. As such, in the absence of any contrary evidence placed on record, the transaction cannot be treated as bogus or paper transaction. Simply because the reply to notice issued u/s 133(6) was not made, the AO cannot conclude that the transaction is bogus or have no credential value.
Mrunal Shamsunder Naik Therefore, the decision of the AO treating the said purchase as bogus or non-genuine transactions is not in order and cannot be justified. The AO is accordingly directed to delete the addition made on account of purchase of Rs. 84,07,600/- from MIS Shiv Enterprises.
Having said that, another issue which requires consideration as regard this ground is — that whether it was justified to disallow and add the whole amount of purchases claimed frnm thp rpct of the five parties as discussed earlier and treat the same as income of the appellant. Ld. AO has not doubted the sales. This leads us to a circumstances where there is no doubt or dispute about the business activities of the appellant and the sates of the goods made by it. There is also no doubt about the fact that the appellant actually made purchases of the goods which were eventually sold as reflected in it's books of account. 7.1 The issue has been considered by Hon'ble ITAT Ahmedabad in the case of Vijay proteins Ltd. Vs ACIT (1996) 58 lTD 428 (Ahd.) This issue has subsequently came under consideration in CIT v. Sanjay OIL Cake Industries v. CIT (2009) 316 ITR 274 (GuJ.)(HC). where in AO had information that these parties are hawala entry givers and entire purchases were added. Tribunal restricted the addition to 25% of purchases as profit of the assessee . Both the assessee and Revenue Mrunal Shamsunder Naik filed an appeal before the Court, but the Hon'bte High Court affirmed the view of Tribunal. 7.2 It is a known fact that in the case of purchases made from open market without any genuine bills, the suppliers are more than willing to sell those products at a much lower rate as compared to the rate which they may charge in case the dealer has tr genuine sate invoice In rpect of that sate and supply the goods. There could be considerable factors due to which there is bound to be a substantial difference between the purchase price of unaccounted material and rate of purchase of accounted for goods. There could be saving on account of sales-tax and other taxes and duties. The suppliers or the manufacturers make a substantial saving in the income-tax in respect of income from sale of unaccounted goods produced and sold by them. This could be one of the factors due to which the seller would be willing to charge lower rates for unaccounted goods as compared to accounted for goods. Similar views were expressed in BhoLanath Polyfab Pvt. Ltd. 355 ITR 290 (Guj). Having come to such a conclusion, however, the Tribunal was of the opiiion that not the entire amount, but the profit margin embedded in such amount would be subjected to tax. The Tribunal relied on its earlier decision in the case of Sanket Steel Traders vs. ITO (IT appeal Nos.
Mrunal Shamsunder Naik 2801 E 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. 4&sstt.CIT [1996] 58 lTD 428 (Ahd). On appeal by the Department, the Hon'ble Gujarat High Court held "We are of the opinion that the Tribunal committed no error...... 7.3 In CIT vs President Industries (2002) 258 ITR 654(Guj)(HC) it was held that only profit embodied on sate proceeds can be taxed. In CIT vs Batachand Ajit Kumar(2003) 263 ITR 610(MP)(HC)(612-613) it was held that suppressed sale cannot be the income only net profit can be assessed. In Sanjeev Woolen Mills Vrs. CIT(2005) 279 ITR 434(sC) it was observed that it is a settled principle of income-tax law that it is the real income which is taxable under the Act. Hon'ble Gujarat High Court in the case of CIT vs. %nit Sheth (2013) 38 Taxmann.com 385 (Guj), has sustained addition to the extent of 12.5% of the bogus purchase. Whereas In Shri Madhukant B. Gandhi vs ITO, Bench "B" dt. 23/02/2010(AY 2005- 06)(mum.)(Trib.) The AO treated parties as bogus and made disallowances. Hon'ble ITAT, in the given facts of the case restricted the disallowance to 5% only in respect of the disputed purchase. 7.4 The Ld. A.O. in this case has held that the parties from whom the purchases were made by the appellant Mrunal Shamsunder Naik were found to be bogus and that is the reason for which the addition has been made. It has been held in the case of Simit P. Sheth (supra) that no uniform yardstick could be applied to estimate the rate of profit and it varies with the nature of business. Considering the judicial pronouncements on this matter as above, the nature of the business of the assessee, and facts and circumstances of the case, I am of the considered view that estimation of 12.5 % as profit embedded in impugned purchases shown from the said five parties and adding the same to the total income returned, would meet the ends of justice. I accordingly direct the AO to compute profit to the extent of 12.5% of thc bogus put amounting to Ks 5,68,21,809/-, which works out to Rs. 71,02,726/- and treat the same as income of the appellant. The addition made on this account is accordingly restricted to Rs.71,02,726/-( being 12.5% of Rs. 5,68,21,809/-). The appellant gets relief for the balance amount. The Ground is partly allowed.
In the event, Appeal is partly Allowed.
After analyzing the aforementioned order passed by Ld. CIT(A) as well as hearing the parties at length, we are of the considered view that Ld. CIT(A) while dealing with said grounds had considered the facts available on record and has rightly held Mrunal Shamsunder Naik that the AO has not made any worthwhile independent inquiry and detailed investigation and further the AO has also not rejected the books of the account of the assessee neither verified immediate cash withdrwal from the bank account of the suppliers nor he has brought on record any other material to strengthen his case. The Ld. CIT(A) further rightly held that merely because the suppliers did not find at the address, one cannot conclude that the purchases were not made by the assessee. We also find that there is nothing on record to show that the assessee has suppressed the sales. No new facts or contrary judgments have been brought on record before us in order to controvert or rebut the findings so recorded by Ld CIT (A). The Ld. CIT(A) while passing the order has relied upon the orders passed by Hon’ble High Court and has rightly concluded while making estimation @ 12.5%. Therefore, we find no reasons to interfere into or deviate from the findings recorded by the Ld. CIT (A). Hence, we are of the considered view that the findings so recorded by the Ld. CIT (A) are judicious and are well reasoned. Resultantly, this ground raised by the assessee stands dismissed.
Mrunal Shamsunder Naik 5. In the net result, the appeal filed by the assessee is dismissed. No order as to cost. Order pronounced in the open court on 8th Nov, 2017 Sd/- Sd/- (R. C. Sharma) (Sandeep Gosain) लेखासदस्य / Accountant Member न्याययकसदस्य / Judicial Member मुंबई Mumbai;यदनांकDated : 08.11.2017 Sr.PS. Dhananjay आदेशकीप्रनिनिनिअग्रेनर्ि/Copy of the Order forwarded to : अपीलाथी/ The Appellant 1. 2. प्रत्यथी/ The Respondent 3. आयकरआयुक्त(अपील) / The CIT(A) आयकरआयुक्त/ CIT- concerned 4. 5. यवभागीयप्रयतयनयध, आयकरअपीलीयअयधकरण, मुंबई/ DR, ITAT, Mumbai 6. गार्डफाईल / Guard File आदेशधिुसधर/ BY ORDER,