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Income Tax Appellate Tribunal, “F” Bench, Mumbai
O R D E R Per Bench :-
These cross appeals are directed against the orders passed by Ld Ld CIT(A)-54, Mumbai separately for each of the years, viz., for assessment years
2 M/s. J. Kumar Infraprojects Limited 2007-08 to 2012-13. All these appeals were heard together, since identical issues are contested therein. Hence all these appeals are being disposed of by this common order, for the sake of convenience.
In all these years, the addition relating to bogus purchases have been confirmed by Ld CIT(A) partially. Hence both the parties are in appeal, i.e., the revenue is challenging the relief granted and the assessee is challenging the additions sustained.
The facts relating to the issues are discussed in brief. The assessee is engaged in the business of executing infrastructure projects like construction of bridges, flyovers, roads etc., mostly executing contracts obtained from Government. The assessee was earlier subjected to search operations on 25- 08-2009 and consequent thereto, the assessments were completed u/s 143(3) r.w.s. 153A of the Act. Subsequently, the assessee was subjected to survey operations u/s 133A of the Act on 16.08.2012. In the meantime, the revenue had received information from the Sales tax department of Maharashtra that certain dealers are indulging in providing accommodation bills without actually supplying materials. After comparing the purchases booked by the assessee with the information received from the Sales tax department, it was noticed that the assessee has purchased materials from such parties in various years as detailed below:- Assessment year Amount (Rs. in lakhs) 2007-08 230.68 2008-09 7.03 2009-10 10.06 2010-11 781.31 2011-12 947.34 2012-13 124.98 The assessing officer disallowed entire amount of purchases. However, the Ld CIT(A) restricted the addition to 12.50% of the value of purchases cited above. Hence both the parties are in appeal challenging the relief granted/addition sustained by Ld CIT(A). In assessment years 2009-10 and 2010-11, the AO
3 M/s. J. Kumar Infraprojects Limited disallowed purchases to the tune of Rs.156.89 lakhs and Rs.72.73 lakhs respectively on the ground that some of the suppliers, during the post survey enquiries, have denied the sales made to the assessee. The Ld CIT(A) confirmed the same and hence the assessee has filed appeals challenging the said decision of Ld CIT(A).
4. The Ld CIT-D.R submitted that the suppliers have confirmed before the sales tax authorities that they have not supplied the goods at all. Further the assessee could not furnish evidences to show the movement of materials. In respect of post-survey investigations, certain suppliers have denied the transactions of sales. Hence the AO was justified in disallowing entire value of purchases. She submitted that the AO has taken support of the decisions rendered by Hon’ble Delhi High Court in the case of CIT Vs. La Medica (2001)(250 ITR 575) and the Hon’ble Punjab & Haryana High Court in the case of J.R. Solvent Industries (P) Ltd (2012)(251 CTR 160).
5. The Ld CIT-DR further submitted that the Hon’ble Supreme Court has confirmed addition of entire amount of bogus purchases in the case of N.K. Proteins (2017-TIOL-23-SC-IT dated January 16, 2017) by dismissing the SLP filed by the assessee. She further submitted that the decision rendered by Hon’ble Supreme Court in the above said case has been followed by the Hon’ble Rajasthan High Court in the case of CIT Vs. M/s Carpet Mahal (D.B. Income tax Appeal No.170/2009 dated 10-05-2017). The decision rendered by Hon’ble Gujarat High Court in the case of Vijay Proteins Ltd (ITR No.139/1996 dated 9-12-2014), wherein 25% of value of purchases was confirmed, has been confirmed by Hon’ble Supreme Court, vide its order dated 06-04-2015 passed in SLP No.8956/2015. Accordingly the Ld D.R submitted that the Ld CIT(A) was not justified in restricting the addition to 12.50% of the value of bogus purchases.
6. The ld A.R submitted that the assessing officer has made the disallowance of purchases made from suspicious dealers u/s 69C of the Act.
4 M/s. J. Kumar Infraprojects Limited He submitted that the provisions of sec. 69C shall be applicable only in cases where any expenditure was incurred outside the books of account. In the instant cases, the assessee has duly recorded all the purchases in its books of accounts and hence the AO was not correct in law in invoking the provisions of sec. 69C of the Act. He submitted that the Sales tax department has listed those suppliers as suspicious dealers, who did not pay the VAT tax and that does not mean that they did not supply goods. He submitted that the assessing officer has fully placed reliance on the reports of the Sales tax department without confronting the same with the assessee. He submitted that the assessee has furnished all the evidences to prove the genuineness of purchases like purchase bills, delivery challans, payment details, Gross received Note etc. He submitted that the assessee is executing work in more than 25 places and the concerned supervisors are sometimes authorized to procure the goods, which they mostly procure through brokers. Hence there may not be direct connection between the suppliers and the assessee. Normally, the transportation of goods is done by the suppliers and hence the good were supplied to the door steps of the assessee. He submitted that the work executed by the assessee is verified by the government officials at the completion of each stage and certify the quality and quantity. He submitted that the Ld CIT(A) did not consider these factual aspects relating to the business of assessee and has proceeded to confirm 12.50% of the value of purchases by following the decision rendered in the case of Simit P Sheth (356 ITR 451)(Guj).
7. The Ld A.R submitted that the survey officials have taken a statement from the director of the assessee company, wherein he was confronted with the report of the sales tax department. He submitted that the director has categorically denied the allegations made by the sales tax department and has submitted that the goods were actually purchased. Despite this fact, the assessing officer has proceeded to treat the impugned purchases made from the suspicious dealers as bogus purchases. He submitted that the said suspicious dealers have defaulted from payment of VAT tax and hence, in 5 M/s. J. Kumar Infraprojects Limited order to escape from the tax liability, they might have given self serving statements denying the sales. He submitted that the assessing officer has not disproved the evidences furnished by the assessee. Accordingly he submitted that the assessing officer was not justified in placing reliance on the information available with the sales tax department without disproving the ample evidences furnished by the assessee. He submitted that the Ld CIT(A) had called for a report from the AO during the course of appellate proceedings, but the AO did not furnish the same.
8. The Ld A.R further submitted that the profit marging declared by the assessee over the years is reasonable and consistent. Further the value of alleged bogus purchases forms miniscule percentage of total value of purchases. Hence the presumption drawn by the tax authorities should not be sustained. He further submitted that the assessing officer has made the disallowances without rejecting books of accounts. The ld A.R placed reliance on the following case laws to support his various contentions:- (a) CIT Vs. Nikunj Eximp Enterpries (2015)(372 ITR 619)(Bom) (b) ITO Vs. Karsan Nandu (2017)(77 Taxmann.com 275)(Mum-Trib) (c) Fancy Wear Vs. ITO (ITA No.1596 & 1597/M/2016 dt. 20-09-17)
The Ld A.R further submitted that the decision rendered by Hon’ble Supreme Court in the case of N.K. Proteins Ltd (supra) is distinguishable on facts. In the above said case, the revenue unearthed blank bill books, blank signed cheque books, letter heads and vouchers of suppliers in the premises of the assessee during the course of search conducted on 24.02.1999. After the cheques were issued in favour of suppliers, cash was withdrawn from the supplier’s account immediately upon realization of cheques. Under these set of facts, the purchases were disallowed. He submitted that, in the instant case, neither such kind of documents nor any connection between the assessee and suppliers were found. He submitted that the other two cases relied upon by the AO are also distinguishable on facts. He submitted that, in the case of Vijay Proteins Ltd (supra), on which the Ld D.R had placed reliance, the 6 M/s. J. Kumar Infraprojects Limited Hon’ble Gujarat High Court confirmed addition to the extent of 25% of value of purchases. He submitted that, in the following cases, the Hon’ble jurisdictional Bombay High Court has confirmed the deletion of disallowances made on account of bogus purchases:- (a) Babulal C Borana (2008)(282 ITR 251)(Bom) (b) CIT Vs. Ashish International (ITA No.4299 of 2009 dated 22-02-2011) (c) CIT Vs. Nikunj Eximp Enterprises (2015)(372 ITR 619)
9. The Ld CIT-DR, in the rejoinder, submitted that the assessee had made general statement before the Ld CIT(A), on which he had called for a report from the AO. In any case, the non-submission of the report by AO cannot be taken advantage of by the assessee. He submitted that the initial responsibility to prove the purchases lie upon the assessee. In the instant case, the assessee has failed to substantiate the manner of delivery of goods, stock records like M-book, quantity register, consumption details etc. Hence it cannot be said that the assessee has proved the genuineness of purchases. Accordingly she contended that the orders passed by AO should be upheld.
10. With regard to the disallowance of purchases on the basis of post search enquiries, the Ld A.R submitted that the suppliers have given self serving statements and hence the tax authorities should not have made disallowance by disregarding the evidences available with the assessee. The Ld D.R, on the contrary, supported the orders passed by Ld CIT(A).
We have heard rival contentions and perused the record. We have earlier noticed that the assessing officer has disallowed the purchases made from suspicious dealers on the basis of information received from the Sales tax department. The Ld CIT(A) has restricted the addition to 12.50% of value of purchases made from the suspicious dealers by following the decision rendered by Hon’ble Gujarat High Court in the case of Simit P Sheth (supra). For the sake of convenience, we extract below the decision rendered by Ld
7 M/s. J. Kumar Infraprojects Limited CIT(A) in AY 2008-09. In other years, the Ld CIT(A) has rendered his decision on identical reasoning. “6.4.1 I have considered the submissions of the appellant and perused the materials available on record. The appellant has requested to delete the addition made u/s 69C of the Act on account of bogus purchase at Rs. 7,03,464/-. During the course of appellate proceedings the appellant has raised objections against reopening of assessment u/s 147 of the Act on the ground that the same is based on conjectures, surmises and assumption and not on any tangible material pertaining to the appellant. It was also submitted that the reopening of assessment ought to be based on AO's reasons to believe and not on some borrowed reasons. The contentions of the appellant have been considered carefully. It is admitted fact that in Grounds raised in appeal the appellant has not challenged the validity of reopening of assessment. Further the appellant has also not requested to admit any additional ground. In view of same, the appellant contention in respect of validity of reopening of assessment is liable to be rejected at threshold level and need not be adjudicated. Otherwise also, the records suggest that in this case information along with the relevant documents and incriminating statements were received/obtained from the Sales Tax Department, Govt. of Maharashtra. Thereafter a survey action u/s 133A of the Act was conducted on 16.08.2012 wherein the various incriminating materials/information was found/gathered and then only the Ld. AO has issued notice u/s 148 of the Act after recording proper satisfaction. From the Para 4.1 of the impugned assessment order it is observed that the reasons of reopening was supplied to the appellant and the objections filed by the appellant was disposed off/rejected by the Ld. AO on 06.03.2014. Hence all the legal requirements of the law have been met while reopening of assessment and completion thereof. In view of the facts discussed the contention of the appellant challenging the reopening of assessment are devoid of any merit and hence rejected.
6.4.2 On the merits of additions made u/s 69C of the Act the main contentions of the appellant are that its books are audited under Companies Act and Income Tax Act u/s 44AB and as per VAT audit under Maharashtra Sales Tax Act: it had transactions with all the three parties under considerations and all the payments were made through cheque only and all the requisite details and supporting documents viz. Sample bills, Delivery Challans, purchase orders, Goods received note (GRN) and bank statement have been produced during the course of assessment as well as appellate proceedings; its clients are Government Authorities and Government Corporation like MMRDA (Mumbai Metropolitan Regional Development Corporation Ltd), MSRDC (Maharashtra State Road Development Corporation Ltd), PCMC (Pimpiri Chincwad Municipal Corporation), TMC (Thane Municipal Corporation), PMC (Pune Municipal Corporation), UPRNL (Uttar Pradesh Rajkiya
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Nirman Ltd) and such contracts have been carried out as per satisfaction of such Government authority which used to be from Government department and at each stage of the construction verification was carried out by the concerned departmental authority; payments are release by such Government clients only after verification of work carried out; detailed consumption chart of materials/goods has also been submitted; The AO has not disputed such consumption of material/goods; no defects have been found in its books and hence the AO has not rejected its books of account; entire gross turnover has been accepted by the AO and when sales are accepted as genuine then the corresponding purchases cannot be bogus. In view of the above the appellant has submitted that the purchases under considerations were genuine and further even the Ld. AO has given a finding to that effect in the impugned assessment order. In support of its claim the appellant has also relied upon various decisions, as detailed above. The contentions of the appellant have been considered carefully. It is admitted fact the above referred three dealers/parties form whom impugned purchases claimed to have been made and 'which have been treated as bogus, were appearing as "Hawala dealers/parties on the website of Sales Tax Department, Govt. of Maharashtra. The Sales Tax Department, Govt. of Maharashtra after extensive inquiries and investigation has declared these three parties under consideration as "Hawala Dealer". Most of such dealers/ parties in their statements given before the Sales Tax Department, Govt. of Maharashtra have admitted that they have not sold any goods to anybody and they are engaged in providing accommodation bills for certain commission or they are name lender and some were not traceable on their given address. Even the appellant has admitted that in relation to such purchases under consideration certain procedures like goods received notes, day to day inventory registers etc were not maintained. The ld. AO has also given a factual finding that copies of statements, depositions and affidavit filed before the Sales Tax Department, Govt. of Maharashtra establish beyond doubt that the dealers/parties under considerations did not supply any goods to the assessee and they are into issuing bills without delivering any goods or services and further the payment received by these parties is returned to the assessee in cash after deducting small commission. The judicial pronouncements on which appellant has relied upon are not applicable to the facts of present case as they were rendered on a different sets of fact. In such cases, there were no findings that the payment made to such parties had come back to the assessee. Further in the present case no transport bills in respect of impugned purchases evidencing the movement of goods have been submitted. The evidences submitted in form of Bills/invoice copies, delivery challan, purchase order and goods received note are documents either prepared by the appellant or such alleged Hawala Dealers. Further the Ld. AO has made verifications of returns of income filed by the above referred dealers/parties and his finding is under :
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In absence of any independent third party proof, viz. bills of transporter for movement of goods/material it cannot be held that the appellant has proved that the goods/material under considerations were purchased from above referred three parties and hence the appellant's contentions in this respect are rejected.
6.4.3. Now the question arises that in the event of appellant not proving that it had purchased goods/materials from above referred dealers/parties whether entire such bogus purchases can be disallowed or added u/s 69C of the Act. From the perusal of Page 8 of impugned assessment order it is observed that the Ld. AO has held that the purchase of the appellant, per se is not the issue and these alleged purchases are not being treated as bogus. It has also been held by the Ld. AO that it is true that the goods have somehow entered in the appellant's regular business and the appellant was unable to give any convincing or cogent explanation as to how these goods happened to come in its possession. The Ld. AO has further held that the appellant has incurred expenditure on such purchases which is not explained and the purchases are not being treated as bogus or sham rather the expenditure incurred on such purchases is treated as unexplained. In view of above after relying on the decision of the Hon'ble Delhi High Court in the case of CIT vs. La Medica, reported in 250 ITR 275 and of Hon'ble Punjab & Haryana High Court in the case of J.R. Solvent Industries P Ltd vs. CIT has held that the purchases under considerations were not purchased from above mentioned parties and hence added a sum of Rs. 7,03,464/- as unexplained expenditure u/s 69C of the Act.
6.4.4 From the above finding of the Ld. AO it is evident that he neither doubted nor has held the purchases under considerations are bogus, i.e the appellant did purchase goods/materials of Rs. 7,03,464/. The only finding of the Ld. AO is that the said purchase of Rs. 7,03,464/- were not made from the above referred dealers/parties, but were purchased from somewhere else, i.e from open market, and hence has treated the said Rs. 7,03,464/- as unexplained expenditure. The said finding of the Ld. AO has to be viewed with his other factual finding given in Para 5.10 of impugned order that "the payment received by these parties is returned to 10 M/s. J. Kumar Infraprojects Limited the assessee in cash after deducting small commissions. Since the Ld. AO had found that the purchases were not bogus, so no doubt has been raised by him in respect of material consumption, WIP and Sales as per books of account. The Ld. AO has also not rejected the books of accounts of the appellant. In similar facts of the case the Hon'ble ITAT, Ahmedabad in the case of Shri Smit P Sheth vs ITO in & 3293/Ahd/2009, for A.Y. 2006-07 vide its order dated 24.02.2012 has held as under :
"Facts in brief as emerged from the corresponding assessment order passed u/s.143 r.w.s. 147 of the 1.T. Act dated 31-12-2008 were that assessee individual is in the business of trading in steel on wholesale basis. It may not be out of place to mention that Gross Profit of Rs.7,42,524/- on sale of Rs.3,04,52,701/- was declared having GP rate at 2.43% as against the GP of the immediate past year at 3.56%. An intimation was received by the Assessing Officer from DDIT (Inv.)-1, Baroda. According to the said intimation, during the course of verification of banking transactions in the case of Shri Amratbhai Poonambhai Prajapati, Prop of Bhavna Trading Co. & Bhagyodaya Enterprises, Shri Kantilal Mangilal Shaarma, Prop of Miakshi Enterprises and Shri Jayantilal Mangilal Sharma, Prop of Arun Industrial Corporation and as per the admission in their statements recorded on oath, it was found that no sales were made by them to any party. It was intimated that those parties were simply issuing sale bills against those sales bills they were receiving "dalali". The modus operandi was that on issuance of sales bills the amount of cheque was received and on encashment of the said cheque after deducting "dalali" the balance amount was withdrawn in cash and returned to the respective parties. Therefore, the issuance of bogus sale bills was confirmed by those parties. On the basis of these facts, the Assessing Officer has held that barring invoices and delivery challans, there was no other document to prove that the purchases have actually been made by the assessee. There was no lorry receipt, transportation details, number of weighment, excise gate pass etc., no document was produced during the assessment proceedings. After examining the bank accounts and other evidences AO has held that alleged purchases from Bhavna Trading Co., Minaxi Enterprise and Arun Ind. Corporation was not genuine purchase and therefore the said amount of bogus purchases of ` 41,04,903/- was taxed in the hands of the assessee. it may not be out of place to mention that books of account u/s. 145(3) of the Act was rejected and profit of the assessee was estimated at Rs.5 lokh. Both the additions were contested before the Ld. CIT(A).
5. After examining the book results of the past year, Ld. C'IT(A) has held
11 M/s. J. Kumar Infraprojects Limited that there was a regular arrangement of providing accumulation sales bills. However, he was of the view that faking into account the business results 30% of the purchases cost would be reasonable amount to be confirmed to cover the profits of the assessee. Resultantly, to the extent to Rs. 12,31,471/- was deleted. This is the reason that both the sides are now in appeal- As for as addition of estimated income of Rs.5 lakh is concerned some was deleted, however, Revenue is not in appeal.
6. Ld. AR Mr. Soparkar has contested that the assessee has maintained the quantitative details of purchases and sole of steel. He has pleaded that the auditor has given the quantitative details as per the Special Auditor which confirms the maintenance of quantitative record. It was enquired from the Bench that whether the stock register and quantity- wise purchases and sales are available on record, however, the answer is negative. Further, it has also been enquired that whether the weighment details, excise gate pas, transportation details etc., are on record and again the answer was a negative, The Ld. AR has informed that almost in identical situation in the case of AC1T v. M/s. Kulubi Steel in order dated 16-12-2010 vide para-8 has held as under:-
“8. From the above, it is evident that the assessee did not make any effort to controvert the finding recorded by the DD1T (Investigation) and it made no efforts to produce the seller parties on the other hand it claimed that it is not his responsibility to produce the seller. It is a settled law that onus is on the assessee to establish the genuineness of the purchase. The assessee has produced various evidence with regard to the receipt of the goods by it. it. Stock register, receipt of weigh- bride for weighment of goods purchased by the assessee, octroi receipt of the payment of octroi duty etc. After considering the entire material, we are of the opinion that the assessee did not purchase the goods from the parties mentioned in the sales bill. At the some time, it did purchase the goods from some other suppliers, may be without bill. Therefore, purchase rate as mentioned in the alleged soles bill cannot be accepted. Any person indulging in the practice of purchasing goods from the grey market and obtaining bogus bills of some other parties, would do so for getting some benefit. But what would be the magnitude of the benefit would depend upon facts of each case. In the case of Vijay Proteins, ITAT held that such benefit to be 25% and therefore sustained the disallowance for bogus purchase at 25%. In the case of Sunsteel (supra), the /TAT deemed it fit to sustain the disallowance for a lumpsum amount of Rs.50,000/-. However, we find that in the case of Shri Anubhai Shivial (supra) the ITAT has considered both the decisions in the case of Vijay Proteins and Sunsteel (supra) and thereafter sustained the disallowance at 12.5%. Relevant findings of the 1TAT in the case of Anubhai ShivaId reads are under:
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3. At the time of hearing before us, it is submitted by the learned counsel that the addition sustained is excessive. In support of this contention he referred to the decision of the Tribunal in the case of ITO Vs. Sun Steel 92 TTJ (Ahd) 1126 wherein the Tribunal has sustained the addition of Rs.50,000/-on account of bogus purchases. However, we find that the facts in the above case were different. In the above case, the assessee has shown purchases of Rs.27,39,410/-, sale of Rs.28,17,207/- and OP at Rs.94,740/-. The Assessing Officer made the addition of Rs.27,39,407/- for bogus purchases. If the above sum is added to the GP, the GP works out Rs.28,34,1247/- which was more than the sale itself. The Tribunal held that it is impossible that the GP is more than the sale itself. The Tribunal also found that the assessee has maintained the quantitative details in respect of materials purchased and sold. Considering peculiar facts of that case, the Tribunal arrived at the conclusion that it would be fair and reasonable to estimate the addition at Rs.50,000/- as against the addition of Rs.27,39,407/- made by the Assessing Officer. However, the learned Commissioner of Income Tax (Appeals) considering the facts of the assessee's case, has sustained the addition at 12.5%. While doing so, he has also relied upon the decision of the Tribunal in the case of M/s. Vijay Proteins Ltd. 55 TTJ (Ahd) 76. In the case of A4/s. Vijay Proteins Ltd., the Tribunal has sustained the addition of 25% of the bogus purchases. However, considering the facts of the assessee's case the C1T(A) restricted the disallowance to 12.5% as against 25% made in the case of M/s. Vijay Proteins Ltd. From these facts it is evident that the CIT(A) has sustained the addition at 12.5% of the non-genuine purchases considering the facts of the assessee's case. We, therefore, do not find any justification to interfere with the order of the CIT(A) in this regard. The same is sustained.'
Likewise, in another appeal decided by /TAT Ahmedabad bench "D" in the case of Smt. Sajjandevi B Jain vs. ITO in /TA No.609/Ahd/2009 A.Y. 2005-06 order dated 13-01-2012. Again it was held that in respect F‘,ki of bogus purchases the addition is to be restricted to 12.5%, relevant pare 7.1 reproduced below:-
"7.1 Considering the facts and circumstances of the case and the findings of the Id. AO and following the ratio of the decision in the case of Vijay Proteins (supra) and in the case of MIS. Bholanath Ply Fab P. Ltd. -vs- lTO in and M/s. Raj Exports -vs- ITO in ITA No.2801/Ahd/2008, relied on by the Id. A.R., we restrict the addition to 12.5% of the bogus purchase made by the assessee. Thus, 12.5% of Rs. /2,86,373/- i.e. Rs.1,60,797 /- is added to the income of the as instead of the addition of Rs. 12,86,373/- added by the Id. AO and confirmed
13 M/s. J. Kumar Infraprojects Limited by the Ld. CIT(A). The Id. AO is hereby directed to make addition, as indicated above. Thus, this ground of the assessee is partly allowed."
7. Having heard the submissions of both sides, we have been informed that the malpractice of bogus purchase is mainly to save 10% sales tax etc. It has also been informed that in this industry about 2.5% is the profit margin. Therefore, respectfully following the decisions of the co- ordinate bench pronounced on identical circumstances, we hereby direct that the disallowance is required to be sustained at 12.5% of the purchases from those parties. With these directions, we hereby decide. The grounds of the rival parties which are partly allowed".
The above referred decision of the Hon'ble ITAT, Ahmedabad has been upheld by the Hon'ble Gujarat High Court in the same case reported in 38 taxmann.com 385, and has held as under:
"It is this judgment of the Tribunal which is in challenge before us at the hands of the Revenue. Learned counsel, Mr. Parikh, vehemently contended that the Commissioner (Appeals) and the Tribunal both committed a serious error in overturning the Assessing Officer's decision to make full addition of Rs. 41,04,903 when the purchases are found to be bogus. There was thereafter no question of retaining only a portion thereof for addition to the income of the assessee. Counsel heavily relied on the decision of a Division Bench of this court in the case of Asstt. CIT v. Pawanraj B Bokadia [Tax Appeal No. 2345 of 2009, dated September 27, 2011], wherein this court was pleased to allow the Revenue's appeal and reinstate the entire additions of the bogus purchases made by the Assessing Officer.
In the present case, however, we notice that before the Commissioner (Appeals), the assessee pointed out that the assessee was trading in steel. Once his sale of "x" quantity of steel is accepted, the purchases of the same. quantity had to be believed. It was canvassed that the assessee had made sales of 1,10,786 metric tons of steel. Therefore, there had to be a matching quantity of purchase of steel also. It was argued that since the Assessing Officer accepted the sales of the steel, equivalent of purchase also must be believed. It was in this background that the Commissioner (Appeals) made the following observations :-
"4.3.1 I have considered the submissions of the authorized representative and the order of the Assessing Officer. It has been admitted that there was a regular arrangement for providing accommodation sales bills. The appellant has not been able to provide a confirmation from the supplier that the goods where indeed supplied to the appellant. It is an established fact that the 14 M/s. J. Kumar Infraprojects Limited onus lies on the appellant to prove that the purchases are genuine. The appellant has made the payments in cheque and the soles made by the appellant have been accepted in toto by the Assessing Officer. Hence, it is to be presumed that though the bills made have been given by M/s. Bhavna Trading Co., M/s. Minakshi Enterprises and M/s. Arun Industrial Corporation the actual purchases have not been made for them. It can, therefore, be concluded that the appellant has made purchases from persons in the open market. Taking into account all the relevant facts of the case I hold that 30 per cent of the purchases cost would be a reasonable amount to be. confirmed, to cover the profits of the appellant. Hence, the addition to the extent of Rs. 12,31,471 is confirmed and the balance of Rs. 28,73,432 is directed to be deleted."
We are broadly in agreement with the reasoning adopted by the Commissioner (Appeals) with respect to the nature of disputed purchases of steel. It may be that the three suppliers from whom the assessee claimed to have purchases the steel did not own up to such sales. However, the vital question while considering whether the entire amount of purchases should be added back to the income of the assessee or only the profit element embedded therein was to ascertain whether the purchases themselves were completely bogus and non-existent or that the purchases were actually made but not from the parties from whom it was claimed to have been made and instead may have been purchased from grey market without proper billing or documentation.
In the present case, the Commissioner of Income-tax (Appeals) believed that when as a trader in steel the assessee sold certain quantity of steel, he would have purchases the same quantity from some source. When the total sale is accepted by the Assessing Officer, he could not have questioned the very basis of the purchases. In essence, therefore, the Commissioner (Appeals) believed the assessee's theory that the purchases were not bogus but were made from the parties other than those mentioned in the books of account.
That being the position, not the entire purchase price but only the profit element embedded in such purchases can be added to the income of the assessee. So much is clear by the decision of this court. In particular, the court has also taken a similar view in the case of CIT Vs. Vijay M. Mistry Construction Ltd. [2013] 355 /TR 498 (Guj) and in the case of CIT Vs. Bholanath Poly Fab (P) Ltd. (2013) 355 ITR 290 (Guj). The view taken by the Tribunal in the case of Vijay Proteins Ltd. Vs. Asstt.
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CIT (1996) 58 ITD 428 (Ahd) came to be approved.
If the entire purchases were wholly bogus and there was a finding of fact on record that no purchases were made at all, counsel for the Revenue would be justified in arguing that the entire amount of such bogus purchases should be added back to the income of the assessee. Such were the facts in the case of Pawanraj B. Bokadia (supra)
This being the position, the only question that survives is what should be the fair profit rate out of the bogus purchases which should be added back to the income of the assessee. The Commissioner adopted the ratio of 30 per cent of such total sales. The Tribunal, however, scaled down to 12.5 per cent. We may notice that in the immediately preceding year to the assessment year under consideration the assessee had declared the gross profit at 3.56 per cent of the total turnover. If the yardstick of 30 per cent, as adopted by the Commissioner (Appeals), is accepted the gross profit rate will be much higher. In essence, the Tribunal only estimated the possible profit out of purchases made through non-genuine parties. No question of law in such estimation would arise. The estimation of rate of profit return must necessarily vary with the nature of business and no uniform yardstick can be adopted.
In the result, the tax appeal is dismissed."
6.4.5. From the facts available on records, it is observed that in the present case also the Ld. AO has not disbelieved the purchases to the extent of impugned sum of Rs. 7,03,464/-. The Ld. AO has held that the impugned purchases were not made from above referred dealers/parties but from somewhere else/open market. The appellant has also submitted that the NP rate in assessment years where such addition on account of bogus purchases have been made are either better or comparable of NP rate of other assessment years, where no such additions on account of bogus purchases were made and in support of same it has submitted NP chart which has been reproduced above. The facts and circumstances of the present case are similar to that of facts adjudicated by the Hon'ble ITAT in the above referred case of Simit P Sheth and confirmed by the Hon’ble Gujarat High court and hence respectfully following the same it is held that 12.5% of impugned bogus purchases will be sufficient to cover the profit element on such bogus purchases. In view of above discussion the addition on account of bogus purchases is restricted to 12.5%. Hence the addition of Rs. 87,933/-(being 12.5% of Rs. 7,03,4641-) is UPHELD and the balance addition of Rs. 6,15,531/- (Rs. 7,03,464 –Rs.87,933) is DELETED. Accordingly, the Ground No.1 raised in appeal is partly allowed.”
16 M/s. J. Kumar Infraprojects Limited
During the course of hearing, both the parties relied upon various case laws, which dealt with the issue of disallowance of bogus purchases. There should not be any dispute that the disallowances of purchases is a factual aspect and hence the facts prevailing in each case determines the validity or otherwise of disallowance. For example, the facts that prevailed in the case of M/s N.K.Proteins (supra) warranted 100% disallowance and at the same time, the facts prevailed in the case of Vijay Proteins (supra) warranted 25% disallowances. Both these cases have been examined by Hon’ble Supreme Court also. The assessee had also placed reliance on certain case laws decided by Hon’ble Bombay High Court, wherein the entire addition has been deleted. In this connection, it is apposite here to extract the following observations made by the co-ordinate bench in the case of M/s Fancy Wear (ITA No.1596 & 1597/Mum/2016 dated 20-09-2017:- “5. We have heard rival submissions and perused the material before us and will like to decide the matter on the basis of the facts of the case under consideration. We are aware that different benches of the Tribunal have dealt the issue of bogus purchases in different manners depending upon certain facts. But all the matters are fact based and orders are limited to those facts only, as stated by FAA. In one of the cases, where one of us was party to the addition made by the AO for alleged bogus purchases, it was held that considering the facts of that case the assessee had not proved the genuineness of the transaction and that the order of the FAA was justifiable. But in another case addition made by the AO was deleted depending on the facts of that matter. In short, no case can be treated as a precedent of binding nature, as far as alleged bogus purchases are concerned.”
Hence we have to decide the issues before us on the basis of facts available on record.
In the instant cases, the assessee was subjected to search operations on 25.08.2009 and during the course of search no evidence against alleged bogus purchases were found. Again the assessee was subjected to survey operations on 16-08-2012 and during the course of survey operations only, the revenue has used the information received from the sales tax department about suspicious dealers by putting questions about the dealers. It is pertinent to 17 M/s. J. Kumar Infraprojects Limited note that the director of the assessee company has categorically denied the allegation of bogus purchases. Subsequently, during the course of assessment proceedings also, the assessee explained about the nature of activities carried on by it, i.e., it was executing projects at different locations and the material requirements are received from various sites; sometimes, the materials were procured by the supervisors themselves; sometimes, the purchases were made through brokers; the materials were supplied at the doorsteps of the assessee etc. Regarding the evidences, the assessee has furnished the copies of invoices, delivery challans, Goods received note, payment details etc. It is pertinent to note that the Goods received note is prepared only when the goods were actually received. The assessee has also submitted the consumption chart of materials. Further, it was submitted that the work executed by the assessee was subjected to verification by the concerned Government authorities and they have not found fault with the same. The Ld CIT(A) has also noticed that the issue before the assessing officer was not about the bogus nature of purchases, but about the explanations furnished by the assessee. The Ld CIT(A) has noticed that the AO has accepted the fact that the goods have, somehow, reached the hands of the assessee.
In view of the above facts, the Ld CIT(A) has taken the view that the disallowance of entire amount of purchases was not warranted in the instant cases. Considering the fact, which were discussed by us in the preceding paragraphs, we are of the view that the conclusion so reached by Ld CIT(A) cannot be found fault with. However, we are unable to agree with the quantum of addition sustained by ld CIT(A). We notice that the Ld CIT(A) has determined the quantum of addition of 12.50% of the value of purchases by following the decision rendered by Hon’ble Gujarat High Court in the case of Simit P Sheth (supra). In our view, the rate of 12.50% was determined on the basis of facts available in the case of Simit P Sheth (surpa) and the same cannot be applied in a straight jacked manner.
18 M/s. J. Kumar Infraprojects Limited
In the instant case, the following table shows the financial results of the assessee over the years:-
The additions relating to alleged bogus purchases are Rs.230.68 lakhs, Rs.7.03 lakhs, Rs.10.07 lakhs, Rs.781.31 lakhs, Rs.947.34 lakhs and Rs.124.98 lakhs respectively in assessment years 2007-08, 2008-09, 2009-10, 2010-11, 2011-12 and 2012-13. As contended by Ld A.R, the alleged bogus purchases form a small percentage of the total turnover of the assessee. We also notice that there was no abnormal variation in the rate of net profit declared by the assessee. In a hypothetical situation, where other things being equal, the alleged bogus purchases should have reduced the rate of profit. This is not the case in the instant appeals. This fact also further fortifies the view taken by the Ld CIT(A) that only profit element, if any, embedded in the alleged bogus purchases may be added.
We notice that, in the case of Simit P Sheth, the rate of profit of 12.50% was fixed by taking into account savings on account of VAT tax plus profit element, if any in such purchases. In the instant cases, the Ld A.R submitted that the applicable vat rate is around 4%. Considering this aspect and on a conspectus of the matter, we are of the view that the profit element embedded in the alleged bogus purchases may be fixed at 6% and in our view, the same would bring this dispute to a logical end. Accordingly we modify the orders
19 M/s. J. Kumar Infraprojects Limited passed by Ld CIT(A) and direct the AO to sustain addition to the extent of 6% of value of alleged bogus purchases made from suspicious dealers.
The assessee is also challenging the addition of Rs.156.89 lakhs and Rs.72.73 lakhs relating to bogus purchases made in AY 2009-10 and 2010-11 on the basis of post-survey enquiries. Subsequent to survey operations, the AO made enquiries with some of the suppliers and found that the turnover shown in their respective return of income was less than the value of goods claimed to have been supplied to the assessee. The AO made further enquiries with them and all of them stated that they did not supply goods to the assessee. On the strength of the said statements, the AO disallowed purchases made from those suppliers and the same resulted in an addition of Rs.156.89 lakhs in AY 2009-10 and Rs.72.73 lakhs in AY 2010-11. Before Ld CIT(A), the assessee submitted that these purchases have been made at work sites and reiterated that they are genuine. The assessee also furnished details of payments made to prove that the payments were made through banking channels to the very same suppliers. However, the Ld CIT(A) was not convinced with the contentions of the assessee and accordingly sustained the additions made in both the years.
We heard the parties on this issue. We notice that the assessing officer has relied upon the statements given by the suppliers. It is pertinent to note that these suppliers have not been branded as hawala dealers by the Sales tax department. Thus we notice that the basis for making this addition is same except the source, i.e., the earlier additions were based on the information received from the sales tax department and these additions are based on post- survey enquiries. We notice that the assessee has reiterated very same contentions in respect of these additions also. We have earlier noticed that the rate of profit declared by the assessee is consistent over the years. The documents available with the assessee also show that the purchases were made and payments have been given. We notice that the assessing officer did not enquire as to where the payments against those supplies have reached. In 20 M/s. J. Kumar Infraprojects Limited our view, the AO should have shown that the concerned suppliers have not actually received the payments as claimed by them by making necessary enquiries with the banks. In the absence of any such enquires, in our view, the evidences furnished by the assessee in support of the purchases could not be rejected easily. Since we have already taken a particular view in respect of purchases made from suspicious dealers and since the facts are identical in respect of both the issues, we are of the view that very same view taken in respect of these additions also. Accordingly we set aside the orders passed by Ld CIT(A) on these issues in AY 2009-10 and 2010-11 and direct the AO to sustain addition to the extent of 6% of the value of purchases made from those suppliers also.
In the result, all the appeals of the assessee are partly allowed and the appeals of the revenue are dismissed.
Order has been pronounced in the Court on 2.11.2017.