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PER PAWAN SINGH, JUDICIAL MEMBER:
This appeal by Revenue u/s 253 of the Income-Tax Act (“The Act”) is directed against the order of ld. CIT(A)-12, Mumbai dated 02.08.2016 for Assessment Year (AY) 2009-10. The Revenue has raised the following grounds of appeal:
1. "On the facts and in the circumstances of the case and in the law, the Learned CIT(A) has erred in deleting the addition of Rs. 83,78,783/- on account of Bogus purchases without appreciating the fact that the assessee could not bring any evidence on record to the satisfaction of the Assessing Officer to show that the purchases are genuine".
2. The appellant prays that the order of the CIT(Appeals) on the above grounds be set aside and that of the Assessing Officer be restored.
- M/s Indo Tube Tech Pvt. Ltd.
Brief facts of the case are that the assessee-company is engaged in the business of Building materials including Steels Breaks, HR Sheets, MS Beams, Coils and Pipes etc., filed its return of income for relevant AY on 29.09.2009 declaring total income of Rs. 7,45,270/-. The return was processed u/s 143(1) vide order dated 22.02.2011 accepting the return income. The assessment was re-opened u/s 147 of the Act. The notice u/s 148 dated 14.03.2014 was served upon the assessee. Reasons of re-opening were also served upon the assessee. The assessment was re-opened on the basis of information received from Investigation Wing of the Income-tax Department that the assessee has obtained accommodation bill of purchases from Hawala dealers during the relevant FY. The AO received information that the assessee has received accommodation bill from the following parties:
Name of Purchase Party A.Y. Amount Siddhivinayak Steel 2009-10 688,500 Chanchal Tube Corporation 2009-10 459,000 Surat Tube Corporation 2009-10 441,000 Asian Steel 2009-10 450,000 Sagar Steel Traders 2009-10 485,576 Rupani & Co. 2009-10 5854,707 Total 83,78,783
During the assessment proceeding, the assessee was asked to submit purchase bill, ledger copy of the said parties and sale-tax return by the said parties and all documentary evidence for the transaction. The assessee vide its reply dated 09.02.2015 and submitted the purchase details, ledger account and the bills. The assessee also furnished the bank account showing 2 M/s Indo Tube Tech Pvt. Ltd. the proof of payment. The confirmations of the said parties were also filed.
The contention of the assessee was not accepted by the AO holding that the assessee failed to produce the corroborative evidence relating to the transaction of goods and genuineness of the purchases. The assessee could not submit any confirmation or to provide the address of the parties. The AO treated the entire purchases from six parties as bogus transaction and thereby disallowed the aggregate of purchases from six parties for l Rs.83,78,783/-. On appeal before the ld. CIT(A), the assessee has challenged he re-opening of the assessment as well as addition on account of bogus purchases. The ld. CIT(A) upheld the re-opening, however, the addition of Rs. 83,78,783/- was deleted. Aggrieved by the order of ld. CIT(A), the Revenue has filed the present appeal before us.
We have heard the ld. Departmental Representative (DR) for the Revenue and ld. Authorized Representative (AR) for the assessee and perused the material available on record. The ld. DR for the Revenue argued that the AO made the disallowance of purchases in absence of sufficient evidence to prove the genuineness of purchases. The assessee failed to produce any documentary evidence about the delivery of goods and mode of transportation. The ld. CIT(A) deleted the entire addition despite insufficient evidence available on record. The ld. CIT(A) passed a very cryptic order. The order passed by ld. CIT(A) is not sustainable as the same does not contain the proper reasoning. The ld. DR for the Revenue prayed 3 M/s Indo Tube Tech Pvt. Ltd. that though the entire addition was liable to be sustained which has been deleted by ld. CIT(A). The ld. DR for the Revenue further prayed that there is sufficient material on record even to sustain the reasonable disallowance.
On the other hand, the ld. AR of the assessee supported the order of ld. CIT(A). The AR of the assessee argued that the ld. CIT(A) after considering the evidences related to stock-register and evidence and the reasons as to why the evidence on transportation was not available, granted the relief to the assessee. The AO during the re-assessment proceeding has not make any investigation nor brought any material on record against the assessee. The AO has neither issued any notice under section 133(6) or any summons to the said hawala parties. The purchases made by assessee are genuine one.
The assessee made the payment through banking channel. The assessee had duly proved about the consumption of the material was not disputed by the AO. The AO made the disallowance of 100% of purchases from six parties without any incriminating material. The AO relied upon the information of third party without giving any opportunity to the assessee for cross- examination of such parties. The assessee has declared the Gross Profit of 3% during the relevant AY. In support of his submission, the ld. AR of the assessee relied upon the following decisions:
1. 1. Shri Harilal Chunilal Jain vs. ITO (ITA No. 4570/M/2014). 2. Shri Ganapatrai Sanghavi vs. ACIT (ITA No. 2826/M/2013). 3. CIT vs. Nikunj Eximp Enterprises (P) Ltd. 35 Taxmann.com 384, Bombay. 4. CIT vs. Harilal Bhambhani, (Mum HC). 5. CIT vs. MUL Healthcare Products Ltd. (Mum HC).
6. ACIT vs. Say India Jewellers Pvt. Ltd. (ITA No. 6735/M/2010). 4 M/s Indo Tube Tech Pvt. Ltd.
Rameshkumar & Co. vs. ACIT (ITA No. 2959/M/2014).
Neeta Textiles vs. ITO (ITA No. 6138/Mum/13. 9. DCIT vs. Rajiv J. Kalathil (ITA No. 6727/M/12). 10. ACIT vs. Ramila Pravin Shah (ITA No. 5246/M/13. 11. ACIT vs. M/s. G.V. Sons (ITA No. 2239/M/12. 12. ACIT vs. Shri Mahesh K. Shah (ITA No. 5194/M/14. 13. ACIT vs. Steel Line India. 14. M/s Geolfe Orgainices vs. ACIT (ITA No. 3699/M/16). 15. DCIT vs. Shri Shivshankar R. Sharma (ITA No. 4260/M/15. 16. Reshma Enterprises vs. ITO (ITA No. 6246/M/13). 5. We have considered the rival submission of parties and have gone through the orders of authorities below. The AO re-opened the assessment under section 147 vide notice dated 14.03.2014. The assessment was re-opened on the basis of information received from the investigation wing and Sale Tax Department, Government of Maharashtra. During the assessment proceeding, the AO asked the assessee to substantiate the purchases from all six parties along with the documentary evidence. The assessee field its reply dated 09.02.2015 along with the reply the assessee furnished the copy of purchases details, ledger account and bills along with statement of payment made through banking channel. No confirmations from the said parties were filed. The assessee contended that the parties are not available at the given address. The assessee also contended that third party information cannot be used against the assessee. The contention of the assessee was not accepted by AO holding that the assessee failed to produce any corroborative evidence as the assessee neither filed confirmation nor furnished the address of the parties. The AO treated the entire purchases as bogus and made the - M/s Indo Tube Tech Pvt. Ltd. addition of aggregate amount of Rs. 83,78,783/-. The ld. CIT(A) deleted the entire addition holding as under:
“8.3 The appellant's AR has made the submission during appellate proceedings. I have carefully perused the assessment order and the submission made by the appellant. The real issue which is noticed is that the appellant, during assessment proceedings, has, vide letter dated 9.2.2015, furnished the copy of stock register and explained the reason as to why the evidence of transportation was not available with him. The A.O. has not disputed this fact in the assessment order. There was one to one purchase and sale. The A.O. has accepted the sales and it is held that without purchase there cannot be sales. Accordingly, I find merit in the submission of the appellant and its reliance on various case laws. Therefore, ground of appeal no 2 is allowed.”
6. We have noted that the AO has not made any independent enquiry. The AO has not rejected the books of account of the assessee. The AO disallowed the entire purchases that assessee could not filed confirmation and the addresses of the said parties. The AO has not issued any notice to the alleged bogus parties either under section 133(6) or under section 131 of the Act. The AO has not considered the Gross Profit and Net Profit for earlier and subsequent year vis-à-vis the alleged bogus purchases. The ld. CIT(A) passed a non-speaking order. The ld. CIT(A) deleted the entire addition without giving any reasoning. The ld. CIT(A) simply concluded that the assessee furnished copy of stock-register and explained the reason as to why the evidence of transportation was not available. In our view, the order of ld. CIT(A) is not sustainable. However, we are of the considered view that under the Income-tax Act, the only real income can be taxed by the Revenue. We may further conclude that even if the transaction is not verifiable because of the certain reasons or the reasons explained by M/s Indo Tube Tech Pvt. Ltd. assessee is not acceptable to the Revenue, the only taxable is the taxable income component and not the entire transaction in order to fulfill the revenue leakage, the Revenue authority on the basis of fact of the particular case may brought to tax only the profit attributable on such purchases. We are also of the opinion that in such cases in order to fulfill the gap of revenue leakage, the disallowance of reasonable percentage of the impugned purchases would meet the end of justice. Considering the fact of the present case, when the assessee has declared Gross Profit of 3%, we are of the view that disallowance of 8% of the impugned/bogus purchases of (Rs.83,78,783/-) would meet the end of justice. Similar view was taken by Hon’ble Bombay High Court in case of CIT vs. Hariram Bhambhani (92 CCH 006) relied by ld. AR of the assessee. With utmost regard to the various decision relied by ld. AR of the assessee, we find that the ratio of the decision are based on the factual matrix of each and every case and no straight jacket formula can be adopted in the cases of bogus purchases.
Hence, we direct the AO to disallow 8% of impugned / bogus purchases. In view of the above observation, the appeal of the Revenue is partly allowed. 7. In the result, appeal filed by the Revenue is partly allowed. Order pronounced in the open court on 17th day of October 2017.