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Income Tax Appellate Tribunal, MUMBAI BENCH “L”, MUMBAI
Before: Shri C.N. Prasad & Shri G Manjunatha
O R D E R Per G Manjunatha, AM : This appeal filed by the assesse is directed against the order of CIT(A)-42, Mumbai dated 09-08-2016 and it pertains to AY 2009-10. 2. The brief facts of the case are that the assessee is an individual is engaged in the business of civil construction, filed his return of income for the AY 2009-10 on 30-09-2009 declaring total income of Rs.44,08,204. Basically, the civil construction works carried out by the assessee is in the nature of road repairing and debris clearing for BMC, a local body. In this case, the 143(3) on 28-11-2011 determining a total income of Rs.47,92,956. Subsequently, the AO received information from the office of the DGIT (Inv), Mumbai to the effect that the assessee has been a beneficiary of bogus purchase bills issued by hawala operators listed by the Sales-tax department. Based on the information, the AO reopened the assessment on the ground that income chargeable to tax had been escaped assessment within the meaning of section 147 of the Income-tax Act, 1961. In response to notices u/s 143(2) and 142(1), the authorised representative of the assessee appeared from time to time and filed the details, as called for. During the course of assessment proceedings, the AO noticed that the assessee has purchased from 3 parties, viz. Om Corporation, Raj Traders, and Sunrise Enterprises amounting to Rs.43,48,834. The AO, further observed that all the above three parties appeared in the list of hawala operators prepared by Sales- tax department, therefore, called upon the assessee to furnish necessary details to justify purchases from those parties. In response to notice, the assessee has filed copies of purchase bills and copy of bank statement to prove payment against such purchases however, stated that the said parties have not paid VAT to the CTO, therefore, they have been declared a hawala operators.
The AO, after considering necessary submissions of the assessee observed that though the assessee has filed certain documents like purchase bills and payment proof, but failed to justify the purchases with further evidences in the backdrop of clear findings of the Sales-tax department that the parties are hawala operators indulging in providing accommodation entries. Therefore, he opined that purchases from the above parties are bogus in nature and accordingly disallowed total purchases from above parties of Rs.43,48,834 and added back to the total income of the assessee. Aggrieved by the assessment order, assessee preferred appeal before CIT(A).
Before the CIT(A), assessee reiterated its submissions made before the AO. It was further submitted that purchases from the above parties cannot be declared bogus merely on the basis of statement of third party ignoring evidences filed by the assessee like purchase bills, delivery challans and payment proof. The assessee further submitted that his purchases are supported by valid purchase bills and also payment has been made through proper banking channels. The AO has not made out any case of sales outside the books of account nor pointed out any discrepancy in stock registers. The AO has not disputed the sales declared by the assessee. In the absence of any finding as to the incorrectness of books of account and stock details, merely on the basis of information received from Sales-tax department, purchases cannot be doubted. The CIT(A), after considering relevant submissions of the assessee and also relying upon certain judicial precedents observed that no evidence of BMC is furnished. The assessee also could not co-relate the purchase of any actual work done. In fact, the assessee has remained completely silent on the issue of actual work executed. The documents gathered during the course of assessment proceedings clearly indicates that purchases from the above parties are bogus in nature. The unsigned bills, delayed payments, the withdrawal of the payments from the bank account of M/s Sunrise Enterprises and the inability of the assessee to co-relate the purchases made from the hawala dealers undoubtedly prove the fact that the assessee has only taken bogus bills of purchases to reduce its taxable income.
With these observations, the CIT(A) confirmed additions made by the AO towards bogus purchases. Aggrieved by the order of CIT(A), the assessee is in appeal before us.
The Ld.AR for the assessee submitted that the Ld.CIT(A) erred in sustaining addition towards alleged bogus purchases without providing copy of affidavits / statement of suppliers and also without affording an opportunity of cross examination of such suppliers. The Ld.AR further submitted that without prejudice to the above, the Ld.CIT(A) failed to appreciate that the addition towards alleged bogus purchases is excessive and unreasonable. The assessee is in the business of civil construction and derives gross profit of 9.54 to 10.72% in the preceding financial years and accordingly if at all any addition is warranted, addition may be restricted to the gross profit declared by the assessee in earlier years. On the other hand, the Ld.DR strongly supported the order of CIT(A). 4. We have heard the parties, perused material available on record. The AO made addition towards purchases on the basis of information received from Maharashtra Sales-tax department which informed that the parties are involved in providing accommodation entries without any business activity.
According to the AO, notices issued u/as 133(6) were returned unserved.
Therefore, the AO opined that though the assessee has furnished certain evidences to justify purchases from above parties, but failed to prove the genuineness of purchases in the backdrop of clear findings of Maharashtra Sales-tax department that the parties are involved in providing accommodation entries. It is the contention of the assessee that purchases from above parties are genuine in nature as its purchases are supported by valid purchase bills, delivery challans and payment for such purchases has been made through proper banking channels. The assessee further contended that additions cannot be made towards purchases merely on the basis of third party information ignoring the evidences filed to justify purchases. The assessee further contended before the lower authorities that the AO neither pointed out any error or discrepancy in the books of account nor did make out any case of sales made outside the books of account. In the absence of any finding as to incorrectness of books of account, addition cannot be made towards bogus purchases.
Having heard, we find force in the contention of the assessee for the reasons that the AO has made additions only on the basis of information received from Maharashtra Sales-tax department, ignoring the evidences filed by the assessee in the form of purchase bills, delivery challans and payment proof. The assessee, on the other hand, filed certain evidences in the form of purchase bills and payment proof to prove the genuineness of purchases.
Therefore, we are of the considered view that addition cannot be made towards alleged bogus purchases only on the basis of information received from Maharashtra Sales-tax department. At the same time, it is also an undisputed fact that the notices issued u/s 133(6) were returned unserved.
The assessee has failed to furnish correct addresses of the parties. Under these circumstances, it is very difficult to accept that the purchases from those parties are explained to the satisfaction of the AO. Under these facts and circumstances what needs to be taxed is only the profit element in such purchases but not the total purchases made from alleged bogus parties. This view has been further supported by the decision of Ahmedabad Tribunal in the case of Vijay Protiens Ltd (supra) wherein it was held that only profit element embedded in bogus purchases needs to be taxed. We further notice that the Hon’ble Gujarat High Court in the case of Bholanath Poly Fab Pvt Ltd 355 ITR 290 (Guj) observed that whether purchases themselves were to be taxed or whether parties from whom such purchases made were bogus is essentially a question of fact and the Tribunal having examined the evidence on record concluded that the assessee did purchase cloth and sold goods, the entire purchase would not be subjected to tax. In yet another case, the Hon’ble Gujarat High Court in the case of Simit P Sheth (supra) has held that no uniform yardstick can be applied for estimation of net profit which is dependent upon facts and circumstances of each case. The co-ordinate bench of ITAT, Mumbai in several cases has taken a view that only the profit element embedded in bogus purchases needs to be taxed. Accordingly, estimated net profit of 12.5% on bogus purchases. Therefore, considering the facts and circumstances of the case and also being consistent with the view taken by the co-ordinate bench, we are of the view that only profit element embedded in purchases needs to be taxed. Hence, we direct the AO to estimate net profit of 12.5% on total purchases made from the above parties.
In the result, appeal filed by the assessee is partly allowed.
Order pronounced in the open court on 31st October, 2017.