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Income Tax Appellate Tribunal, MUMBAI BENCH “E”, MUMBAI
Before: Shri Mahavir Singh & Shri G Manjunatha
Date of hearing 24-10-2017 Date of pronouncement 27-10-2017 O R D E R
Per G Manjunatha, AM :
This appeal filed by the assessee is directed against the order of CIT(A)- 28, Mumbai dated 05-02-2016 and it pertains to AY 2011-12.
The brief facts of the case are that the assessee is an individual and proprietor of Richa Steels, engaged in the business of trading in iron & steel.
The assessee has filed return of income for the assessment year 2011-12 on 30-09-2011 declaring total income of Rs.12,90,080/-. The AO received information from the Investigation Wing that the assessee has entered into bogus purchase transactions with six parties, viz. Chetana Enterprises, Diamond Traders, Donnies Trading P Ltd, N.R. Traders, Trisha Enterprises, Mercury Enterprises, totaling to Rs.3,21,36,571/-. During the assessment proceedings, the AO called upon the assessee to produce details of purchases made from the above parties along with necessary evidences. The AO also required the assessee to produce parties in person alongwith necessary evidences. The assessee has filed invoices along with payment proof.
However, no proof like lorry details, transportation details, excise gate pass, etc. was produced. The assessee also could not produce the parties before the AO for examination. The AO, based on the information received from the Investigation Wing, coupled with further enquiries conducted during the course of assessment proceedings, came to the conclusion that purchases from above parties are bogus in nature and accordingly rejected books of account u/s 145(3) and estimated net profit at 25% on total bogus purchases from above six parties.
Aggrieved by the assessment order, the assessee preferred appeal before CIT(A) and reiterated its submissions made before the AO. The assessee further contended that the AO was erred in estimating net profit at 25% of the alleged bogus purchases. The assessee also contended that the AO has not pointed out any discrepancy in stock registers or make out any case of sales
made outside the books of account. The AO never disputed sales declared by the assessee. In the absence of any incorrectness in the books of account, it is incorrect on the part of the AO to treat purchases from above parties as bogus, merely on the basis of information received from Investigation Wing. The CIT(A), after considering relevant submissions of the assessee and also relying upon certain judicial precedents including the decision of Hon’ble Gujarat High Court in the case of Bholanath Poly Fab Pvt Ltd 355 ITR 290 (Guj) and also CIT vs Simit P Sheth 356 ITR 451 (Guj) scaled down estimation of net profit to 12.5%. 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) was erred in estimating net profit at 12.5% on the alleged bogus purchases ignoring evidences filed by the assessee to prove the genuineness of purchases. The Ld.AR further submitted that the net profit estimated by the CIT(A) is on higher side when compared to the nature of business of the assessee. The assessee is in the business of trading in iron & steel where he derives net profit of 0.32% to 0.52%. The assessee further contended that it has furnished complete details of purchases and sales and the AO has not pointed out any discrepancy in quantitative details of items traded by the assessee. Therefore, he requested to reduce the net profit estimated by the CIT(A). The Ld.AR further contended that the assessee has paid VAT after the assessment order was Sales-tax department in respect of purchases from those six parties as the sales-tax department has denied input credit, therefore, requested to give credit for VAT paid on total purchases from the above parties.
The Ld.DR, on the other hand, strongly supported the order of CIT(A).
We have heard both the parties, perused the material available on record and gone through the orders of authorities below. The AO has estimated net profit of 25% on total alleged bogus purchases from six parties on the ground that the purchases from those parties were bogus in nature as the parties were involved in providing accommodation entries. According to the AO, though the assessee has furnished purchase bills and payment proof, failed to furnish further evidences like lorry receipts, weighment slips and excise gate pass to prove the genuineness of purchases. The assessee contends that net profit determined by the CIT(A) is on higher side when compared to the nature of business of the assessee. The assessee further contended that he is engaged in trading in iron and steel where he derives a net profit margin of 0.32% to 0.52% as against this, the CIT(A) has determined the net profit at 12.5%. The assessee further contended that he had furnished complete details of quantitative details of stock. The AO has not pointed out any discrepancy in stock details. The AO, neither disputed sales declared by the assessee nor
made out any case of sales made outside the books of account. Therefore, estimation of net profit at 12.5% on total such purchases is totally incorrect.
Having heard both the sides and considered material on record, we find that the assessee has failed to prove the purchases from six parties as genuine in the backdrop of clear findings of the AO that the parties were involved in providing accommodation entries. This is further strengthened by the fact that the sales-tax department has demanded additional tax from the assessee on total purchases from those six parties in their assessments. The sales-tax department has denied input tax credit on the so-called purchases from the above parties. From the above facts, it is evident that purchases from those six parties were not genuine. At the same time, it is also an undisputed fact that the AO has not pointed out any discrepancy in books of account or stock details furnished by the assessee. The assessee has furnished complete details of stocks. The AO has never disputed sales declared by the assessee. In the absence of any incorrectness in books of account or stock details, addition cannot be made towards bogus purchases on the basis of information received from Investigation Wing. Under these facts, what needs to be taxed is only the profit element embedded in such purchases. Various Courts and Tribunals, in case of bogus purchases have taken a consistent view that only the profit element embedded in such purchases needs to be taxed. The Ahmedabad
Bench of the Tribunal, in the case of CIT vs Vijay Proteins Ltd 58 ITD 428 (Ahd), under similar set of facts, directed the AO to estimate net profit of 12.5%. In the case of CIT vs Simit P Sheth (supra), the Hon’ble Gujarat High Court observed that no uniform yardstick can be applied for estimation of net profit as it is dependent upon facts and circumstances of each case. The co-ordinate bench of ITAT, Mumbai has taken a consistent view and directed the AO to estimate 12.5% net profit on bogus purchases. Therefore, considering the facts and circumstances of the case and also in view of the consistent view taken by the Tribunal, we are of the view that it is fair and reasonable to estimate 12.5% net profit on alleged bogus purchases. The CIT(A), after considering relevant facts has rightly directed the AO to estimate the net profit of 12.5% on the alleged bogus purchases. We do not find any error or infirmity in the order of CIT|(A); hence, we are inclined to uphold the findings of the CIT(A) and reject the ground raised by the assessee.
8. Coming to the alternative submission of the assessee that he has paid additional VAT on alleged bogus purchases from those six parties, after finalization of assessment orders by the Sales-tax department. The assessee further submitted that the Sales-tax department has denied input tax credit on purchases from those six parties for which the assessee has paid VAT.
Therefore, credits need to be given for VAT payment out of net profit estimated on total alleged bogus purchases. We find force in the arguments of the assessee for the reason that if the assessee had paid additional VAT on purchases from those six parties, credit needs to be given for VAT payment out of net profit estimated. The assessee has filed notice of demand and assessment order passed by VAT authorities alongwith payment details to justify additional payment of VAT on those purchases. Therefore, we are of the view that the issue needs to be examined by the AO in the light of the claim of assessee that it has paid additional VAT on purchases from those six parties. Hence we set aside the issue to the file of the AO for the limited purpose of verification whether the assessee has paid additional VAT on purchases from those six parties on denial of input tax credit by Sales-tax department. If the claim of the assessee is found to be correct, then the AO is directed to allow credit for payment of VAT on purchases from those six parties out of net profit determined on the alleged bogus purchases.
In the result, appeal filed by the assessee is partly allowed, for statistical purpose.
Order pronounced in the open court on 27th October, 2017.