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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 12/08/2016 passed by the Ld. Commissioner of Income Tax (Appeals)-40, 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 a partnership firm engaged in the business of manufacturing of Industrial Heating System and supply of material pertaining to coal gas fire, filed its return of income for the assessment year under consideration declaring the total income of Rs. 98,39,231/-.
Thereafter AO received information from the Sales Tax Department and Director General of Income Tax (Inv.) (DGIT), Mumbai, that some of the businessmen including the present assessee had obtained bogus purchase bills from hawala dealers. As per the information the assessee obtained bogus purchase bills from M/s Tara Enterprises, M/s Arihant Traders, M/s Universal Enterprises and M/s Skand Industries amounting to Rs. 42,40,002/-. Accordingly, the AO holding that income to the extent of purchases from the bogus dealers has escaped assessment within the meaning of 147 of the Act, issued notice u/s 148 after recording the reasons. In response of the said notice, the assessee furnished copy of original return of income already filed. The authorized representative of the assessee appeared before the AO in response to the notices u/s 143 (2) and 142(1) of the Act and submitted the details called for.
During the course of assessment proceedings, the assessee was confronted with the material available with the AO in the form of information received from the Sales Tax Department and DGIT (Inv.), Mumbai was further asked to furnish supporting evidence in order to prove the genuineness of purchases in question. The assessee submitted that since all the evidence including the material consumed and subsequent sale of the material have been provided to prove the purchases, the entire purchases should not be treated as bogus. The assessee, however, expressed its inability to produce the parties for verification, The AO rejected the contention of the assessee and following the judgment of Hon’ble High Court of Gujarat in the case of Simit P. Sheth 356 ITR 451 made addition of 12.5% of the total purchases made by the assessee during the assessment year under consideration. The AO also made other disallowances and thereby determined the income of the assessee at Rs. 1,06,84,230/-.
In first appeal, the Ld. CIT (A) dismissed the appeal filed by the assessee against the assessment order passed by the AO.
Against the said order passed by the Ld. CIT (A) the assessee has preferred the present appeal by raising the following effective ground.
“That on the facts and circumstances of the case and in law, the learned CIT (A) has erred in confirming the disallowance of Rs. 7,80,000/- being 12.5% of the purchases made from alleged MVAT party listed on MVAT site as hawala trader as unexplained expenses u/s 69C of the Income-tax Act, 1961 and reason assigned for doing so are wrong and contrary to the provision of Income-tax Act, 1961 and rules made there under.”
Before us, the Ld. Counsel for the assessee submitted that the Ld. CIT (A) has wrongly upheld that findings of the AO. Since, the addition has been made on the basis of information received from the Investigation Wing of the Income Tax Department; the addition in question is bad in law. The Ld. Counsel relying on the ratio laid down by the Hon’ble Bombay High Court in CIT Vs. Nikunj Eximp Enterprises Pvt. Ltd. 372 ITR 619 (Bom) 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 by the respondent/assessee. Hence, The findings of the Ld. CIT (A) are contrary to the law laid down in the aforesaid case.
On the other hand, the Ld. Departmental Representative (DR) submitted that since, the 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 assessee during the relevant year.
We have heard the rival submissions and also gone through the orders passed by the authorities below including the cases relied upon by the assessee and the AO and the CIT (A). The only grievance of the assessee is that the Ld. CIT (A) has wrongly affirmed the addition of 12.5% of the total amount of bogus purchases made by the assessee. In our considered opinion the Ld. CIT(A) has rightly upheld the findings of the AO that the assessee has not purchased the goods from the aforesaid ‘hawala’ dealers. Since, the sales have not been disputed, it can be concluded that the purchases have been made from gray market without paying VAT and other taxes applicable during the relevant period. So far as the addition of 12.5% is concerned, the Ld. CIT (A) has affirmed the findings of AO holding as under:-
“5.24 The Ld. A.O. in this case has held that the parties from whom the purchases were made by the appellant were found to be bogus and that is the reason for which it was not produced during the assessment proceedings. Not having doubted the consumption/sales, the motive behind obtaining bogus bills thus, appears to be inflation of purchase price so as to suppress true profits. As mentioned above, the AO had never disputed the sales. Once sales are accepted, corresponding purchases have to be considered and cannot be disregarded in totality. Looking to the market trend, the appellant may have made purchases from other parties which were not recorded in the books, and took only bills from these parties as accommodation, to explain the purchases. The purchases themselves are not bogus but the purchase parties shown in books are. Therefore, the entire purchase from these parties cannot be added as bogus and what needs to be taxed is the profit element embedded in such transactions. Estimations ranging from 12.5% to 25% have been upheld by the Hon’ble Gujarat High Court, depending upon the nature of the business. It has been held in the case of Simit P. Sheth that no uniform yardstick could be applied to estimate the rate of profit and it varies with the nature of business. Therefore, I am of the view that estimation of 12.5% as profit embedded in impugned purchases shown from the said parties and adding the same to the total income returned, would meet the ends of justice. Therefore, the addition made by the Ld. AO of Rs. 7,80,000/- being 12.5% of the alleged bogus purchases of Rs. 62,40,002/- is justified. Hence, this ground of appeal filed by the appellant is hereby dismissed.”
The Hon’ble Bombay High Court In CIT Vs. Nikunj Eximp Enterprises Pvt. Ltd. (supra), 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. 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. Since, the findings of the Ld. CIT(A) is in accordance with the principles law laid down by the Hon’ble High Courts of Bombay and Gujarat, discussed above, we do not find any reason to interfere with the same. Hence, we uphold the order of the Ld. CIT(A) and sustain the addition of 12.5% of the total amount of bogus purchases made by the assessee. We therefore, dismiss the sole ground of appeal 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 27th October, 2017.