DEEPAK ENGINEERS,MUMBAI vs. ITO 31(1)(4), MUMBAI

The ground of appeal

Brief facts of the case are as under: The assessee is a partnership firm engaged in the business of manufacturing of slotted angles, bings, heavy duty pallets, racks, etc. the assessee had filed its return of income on 11.08.2009 declaring a total income of Rs.3,81,053/-. The return of income was merely processed under section 143(1) of the Act. Subsequently, the Assessing Officer received information from the Sales Tax Department and also from the office of the DGIT(Inv.), Mumbai that the assessee is a beneficiary of accommodation bill of purchases from certain bogus hawala dealers. The information was that the concerned dealers had not sold any actual goods but had given accommodation entries of sales to the assessee. As per the A.O., the details of the bogus purchases from the suppliers as claimed by the assessee are as under: Sr. no. Name of the party Amount (Rs.) 1 M/s. Aijin Enterprises 26,68,577 2 M/s. Amizara Trading Corporation 6,13,857 3 M/s. Shantinath Steel 1,58,774 Total 34,41,208

Upon assessee’s appeal, the learned CIT-A confirmed the addition. The learned CIT(A) held as under: The net conclusion that can be arrived at from the above discussion is that where the sales and purchases are verifiable and proven e.g. to or from government bodies or agencies etc no addition may be made. If however, the purchases are bogus but the direct sales are proved, the assumptions are that the purchases were made from unknown parties and the AO can apply a profit rate to determine the liability of the assessee. It is also seen that putting an onus on the AO to trace the money trail or verify the withdrawals from the banks etc may give more pointers but it is not sufficient by itself and the 1TAT has not accepted such an argument in the case of Shri Ganpatraj A Sanghavi (supra). If the bogus purchases are unproved and are declared consumed by assessee itself

Against the above order, the assessee has filled appeal before the ITAT.

I have heard the ld. Departmental Representative and perused the record. None appeared on behalf of the assessee despite several notices. Upon careful consideration, I find that credible and cogent information was received in this case by the assessing officer that certain accommodation entry provider/bogus suppliers were being used by certain parties to obtain bogus bills. Assessee was found to have taken accommodation entry/bogus purchase bills during the concerned assessment year from different parties. Based upon this information, the assessment was reopened. The credibility of information relating to reopening remains un-assailed. In such factual scenario, the assessing officer has made the necessary enquiry. Assessee has not been able to provide any confirmation from any of the party. Assessee has also not been able to produce any of the parties. Necessary evidence relating to transportation of the goods was also not on record. In this factual scenario, it is amply clear that assessee has obtained bogus purchase bills. Mere preparation of documents for purchases cannot controvert overwhelming evidence that the providers of these bills are bogus and non-existent.

The Sales Tax Department in its enquiry has found the parties to be providing bogus accommodation entries. Assessee has not been able to produce any of the (A.Y. 2009-10) Deepak Engineers vs. ITO parties. Neither the assessee has been able to produce any confirmation from these parties. In such circumstances, there is no doubt that these parties are non-existent. I find it further strange that assessee wants the Revenue to produce assessee's own vendors, whom the assessee could not produce. The purchase bills from these non- existent /bogus parties cannot be taken as cogent evidence of purchases. In light of the overwhelming evidence, the Revenue authorities cannot put upon blinkers and accept these purchases as genuine. This proposition is duly supported by Hon’ble Apex Court decision in the case of Sumati Dayal 214 ITR 801 and Durga Prasad More 82 ITR 540.

In the present case, the assessee wants that the unassailable fact that the suppliers are non-existent and thus bogus should be ignored and only the documents being produced should be considered. This proposition is totally unsustainable in light of above apex court decisions.

I find that in this case the sales have not been doubted. It is settled law that when sales are not doubted, 100% disallowance for bogus purchase cannot be done. The rationale being no sales is possible without actual purchases. This proposition is supported from Hon'ble jurisdictional High Court decision in the case of Nikunj Eximp Enterprises (in writ petition no 2860, order dt 18.6.2014). In this case, the Hon’ble High Court has upheld 100% allowance for the purchases said to be bogus when sales are not doubted. However, the facts of the present case indicate that assessee has made purchase from the grey market. Making purchases through the grey market gives the assessee savings on account of non-payment of tax and others at the expense of the exchequer. In such situation, in my considered opinion, on the facts and circumstances of the case, 12.5% disallowance out of the bogus purchases meets the end of justice. Accordingly, I direct that addition in this case be restricted to 12.5% of the bogus purchases.