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Income Tax Appellate Tribunal, MUMBAI BENCH “A”, MUMBAI
Before: SHRI D.T. GARASIA & SHRI G. MANJUNATHA
Per D.T. GARASIA, Judicial Member:
1. The present appeal has been preferred by the Revenue against the order dated 08.02.2016 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2010-11.
The brief facts of the case are that the assessee is an individual engaged in business of trading in iron and steel goods under the name and style of Three A Brothers. During the year the Assessing
2 Shri Jai Prakash Jindal, (Prop. of M/s. Three A Brothers) Officer (hereinafter referred to as the AO) found that assessee had made bogus purchases from following parties: Sr. Name of the party Amount of No. Purchase
Atlas Enterprises Rs.27,27,129/- 2. Jain Trading Corpn. Rs.2,07,06,340/- 3. Atlantic Traders Rs.41,79,256/- Total Rs.2,76,12,725/-
The assessee was asked to produce the above parties for verification. There was no compliance of notice under section 133(6). Therefore, the AO has made the addition on account of bogus purchases of Rs.2,76,12,725/-.
Matter carried to the Ld. CIT(A) and the Ld. CIT(A) has allowed the claim by observing as under: “5.9 In the instant case, the appellant is not in a position to prove the existence of the suppliers. There is enough circumstantial evidence casting a doubt on the nature of the transaction. I am of the firm belief that the appellant had made cash purchases from other parties which were not recorded in the books. The appellant took only bills from these 3 parties as accommodation to explain the purchases. However, the entire purchase from these 3 parties cannot be added as bogus and what needs to be taxed is the profit element embedded in such transaction. The AO has disallowed 100% of these bogus purchases. While doing so, the AO has lost sight of the fact that the total purchases of the appellant during the year were Rs.5,20,80,458. The disallowance on account of 100% bogus purchases are 53% of the total purchases. This begs the question as to wherefrom the appellant could have made sales of Rs.5,29,22,821 if 53% of his purchases are bogus. Clearly this cannot be allowed to stand. As already discussed there is a certain doubt on the purchase transactions of the appellant, but not so much as to call for 100% disallowance. I would be inclined to follow the judicial wisdom on the matter and disallow a reasonable sum of the purchases. On a conspectus of facts, I am of the opinion that the disallowance made by the AU should be reasonably restricted to the GP rate of the appellant during the year which is 1.6% of the bogus purchases. I therefore direct the AO to estimate the 3 Shri Jai Prakash Jindal, (Prop. of M/s. Three A Brothers) disallowance by adopting 1.6% of Rs.2,76,12,725. The disallowance made by the AO is restricted to a sum of Rs. 4,39,506. Ground no 1&2 are partly allowed.”
We have heard the Ld. D.R. Ld. D.R. relied upon the decision of the Tribunal, Ahmedabad Bench in the cases of Shwetambar Steels vs. ITO Ahmedabad and Ganesh Rice Mills vs. CIT (294 ITR 316). The facts in the present case show that assessee could not produce the parties from whom goods are stated to have been purchased. The suppliers were found to be engaged in providing bogus bill without actual dealing of goods. In this regard, the assessee has stated that they had submitted quantitative details of stock with respect of the sales with purchases from the parties during the assessment proceedings. The assessee has submitted the detail of corresponding sales in respect of the purchase from the said parties. As mentioned above the AO has never disputed or examined the aspect of sales receipts. Since the sales made by the assessee was not doubted or disputed by the AO and he has accepted the sales receipts of the assessee as it is, therefore, the AO cannot deny that purchases were not made by the assessee and the material was not used for its sales. What is under dispute is the purchases from the parties from whom bills have been taken and cheques have been issued to them. Purchases are not in dispute but the parties from whom purchase are shown to have been made are disputed and suspicious. The AO had made the addition as some of the suppliers were declared hawala dealers by the VAT Department. This may be a good reason for making further investigation but the AO did not make any further
4 Shri Jai Prakash Jindal, (Prop. of M/s. Three A Brothers) investigation and merely completed the assessment on suspicion. Once the assessee has brought on record the details of payments by account payee cheque, it was incumbent on the AO to have verified the payment details from the bank of the assessee and also from the bank of the suppliers to verify whether there was any immediate cash withdrawal from their account. No such exercise has been done or findings recorded. There was no detailed investigation made by the AO himself. It is also found that the payments have been made by account payee cheque which are duly reflected in the bank statement of the assessee. There is no evidence to show that the assessee has received cash back from the suppliers. Merely because the suppliers did not appear before the AO or some confirmation letters were not furnished, one cannot conclude that the purchases were not made by the assessee. This view is supported by the decision of Nikunj Eximp Enterprises vs. CIT 216 Taxman 171 (Bom). To this extent, we are of the view that if the assessee has fulfilled its onus of making the payment by cheque and has supplied the addresses of the sellers then it cannot be presumed that supplier were bogus simply because the sellers were not found at the given address. There is a considerable time gap between the period of purchase transaction and period of scrutiny proceedings. The AO has not brought any material on record to show that there is suppression of sales. It is basic rule of accountancy as well as of taxation laws that profit from business cannot be ascertained without deducting cost of purchase from sales. Estimation of profit ranging from 12.5% to 15% has been upheld by 5 Shri Jai Prakash Jindal, (Prop. of M/s. Three A Brothers) the Hon'ble Gujarat High Court in the case of CIT vs Simit P Sheth 356 ITR 451 (Guj.). Respectfully following the decision of Hon’ble Gujarat High Court in the case of CIT vs. Simit P. Sheth 38 taxman 385 (Guj), we dismiss the departmental appeal.
In the result, departmental appeal is dismissed.
Order pronounced in the open court on 13.10.2017.