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Income Tax Appellate Tribunal, BENCH “F” MUMBAI
Before: SHRI D.T.GARASIA, JM & SHRI RAJESH KUMAR, AM
सुनवाई की तारीख /Date of Hearing : 6.9.2017 घोषणा की तारीख /Date of Pronouncement : 26..10.2017 आदेश / O R D E R PER RAJESH KUMAR, A. M: These two appeals by the Revenue are directed against the common order dated 23.2.2017 passed by the ld.CIT(A)-44, Mumbai for the assessment years 2008-09 and 2009-10 wherein the revenue has challenged the restricting the addition to 2.61%(Rs. 3,52,968) and 2.58% (Rs. 1,84,844/-) against the 100% addition by the AO of Rs.1,35,23,697/- and 2 I . T . A . N o . 3 1 7 8 a n d 3 1 7 9 / M u m / 2 0 1 7 Rs.71,64,483/- on account of bogus purchases for the respective years respectively.
Since issue involved in both the appeals is common, for the sake of convenience we are deciding the appeal for the assessment year 2008-09 first.
Ground raised
by the revenue is against the confirmation of part restriction of addition at Rs.3,52,968/- at the rate of 2.61% of Rs.1,35,23,697/- by the ld.CIT(A) against 100% addition made by the AO on the disallowance of bogus purchases.
4. Facts of the case are that the assessee filed return of income on 3.07.2008 declaring total income of Rs.3,46,384/-. The return was processed u/s 143(1) of the Act. Thereafter, the AO reopened the assessment and issued notice u/s 148 dated 10.2.2015 reopening of the assessment after AO received the information from the DGIT(Inv), Sales Tax Department, Government of Maharashtra that the assessee had taken accommodation entries of purchase amounting to Rs.1,35,23,697/- during FY 2007-08 from two parties viz.(i) Atharv Business P Ltd and, (ii)Sumukh Commercial Pvt Ltd Capetown Mercantile P Ltd amounting to Rs.75,02,457/- and 60,21,240/- aggregating to Rs.1,35,23,697 after forming an opinion that income has escaped assessment for the AY 2008-09. Thereafter the statutory notices u/s 143(2) and 142(1) were issued and served upon the assessee. Therefore, the 3 I . T . A . N o . 3 1 7 8 a n d 3 1 7 9 / M u m / 2 0 1 7 AO vide show cause notice dated 1.1.2016 called upon the assessee to furnish details along with documentary evidences to prove the genuineness of the said purchases. The assessee replied the notice vide his letter dated 12.1.2016 which is forming part of assessment order at pages 3 and 4. The AO considered the reply of the assessee and rejected the same on the ground that the assessee failed to produce copy of purchase invoices, delivery challans, transportation bills, octroi slips, stock register evidencing the goods purchased from the aforesaid parties regarding receipt of material at the assessee’s site and other documentary evidences. The assessee also failed to produce the parties for verification. It has also been recorded by the AO that Shri Pravin Kumar Jain has given statement on oath u/s 132(4) of the Act, that he has given accommodation entries and not entered into actual transaction of sale of goods. The AO also issued notices to the parties u/s 133(6) of the Act to verify the genuineness of purchases but the parties failed to file the details as called for by the AO. Therefore the AO came to the conclusion that the aforesaid concerns were only on papers which do not exist in reality. The only work these parties do is to issue accommodation entries after charging commission. Accordingly, the AO added the sum of Rs.1,35,23,697/- u/s 69C of the Act and assessment was framed at Rs.1,38,70,080/- vide order dated 25.1.2016 passed under section 143(3) r.w.s.147 of the Act.
4 I . T . A . N o . 3 1 7 8 a n d 3 1 7 9 / M u m / 2 0 1 7 Aggrieved by the order of AO, the assessee preferred an appeal before the FAA.
During the course of appellate proceedings, the assessee submitted details of purchases made from these parties, like party wise details of sales showing quantity and amount, party wise details of purchase showing quantity and amount, confirmations of purchases from the parties, bank statements of Canara Bank and Standard Chartered, addresses of parties, copies of VAT, Audit report under form 704 and other details which is forming part of appellate order at pages 4 and 5. The First Appellate Authority, after considering the contentions of the assessee came to the conclusion that the entire bogus purchases cannot be added to the income but rather GP on these purchases should be added. Accordingly the CIT(A) directed that the GP of 2.61% should be applied and thus partly sustained the addition at Rs.3,52,968/- on the ground that the assessee itself declared GP of 2.61% during the year. While coming to this conclusion, the ld.CIT(A) followed the decision in the cases of (i) Diagnostics V/s CIT (334 ITR 111), (ii) M/s Nikunj Enterprises (372 ITR 619(Bom) and (iii) Sarawathi Oil Traders V/s CIT 254 ITR 259 (SC).
The ld. DR contended before us that the ld.CIT(A) did not consider facts on record that the purchases were bogus and made from the parties whose names were listed in the website of Sales Tax Department of 5 I . T . A . N o . 3 1 7 8 a n d 3 1 7 9 / M u m / 2 0 1 7 Government of Maharashtra. The notices issued u/s 133(6) of the Act calling for various details from the hawala parties were not furnished. The ld DR submitted that the onus is cast upon the assessee to prove the genuineness of the purchases was not discharged and hence the purchases remained unproved. The ld. DR relied upon the decision of the AO and prayed that the order of ld.CIT(A) be set aside and that of AO be restored.
The ld AR on the other hand submitted that the ld CIT(A) has passed a very reasoned order applying the GP on the bogus purchases after considering the details and various contentions of the assessee and therefore the same deserved to be upheld.
After hearing both the parties and on perusal of the record, we find that the assessee undoubtedly has availed hawala entries from the 2 parties mentioned hereinabove and is a beneficiary of bogus purchases. No doubt, the parties mentioned above are listed in the website of Government of Maharashtra as a suspicious dealers and providing bogus bills to various parties without providing, supplying and giving actual physical delivery of the materials mentioned in the bills. The AO disallowed and added 100% of such bogus purchases to the total income of the assessee on the ground of non genuine purchases which the assessee failed to prove. We also find from the appellate order, the assessee during the course of appellate proceedings before the ld.CIT(A) has observed that it is the profit which is to brought to 6 I . T . A . N o . 3 1 7 8 a n d 3 1 7 9 / M u m / 2 0 1 7 tax and not the total amount of purchases but made addition equal to the net profit declared by the assessee. We are not in agreement with the decision of the first appellate authority restricting the addition to 2.61% of bogus purchases. The basic idea to apply GP on the bogus purchases is to bring to tax savings which the assessee has made by purchasing the goods from the grey market such as non payment of VAT and other incidental charges. But in the present case the GP applied by the ld.CIT(A) is too low vis-a-vis the savings of the assessee. In our view it would be reasonable, if the GP applied is 7.00% minus GP declared by the assessee which comes to 4.39%. Therefore, we set aside the order of ld.CIT(A) and direct the AO to apply a GP of 4.39%.
The issue involved in the present appeal is identical to one as decided by us in supra. Therefore our findings in ITA No. 3178/M/2017 would mutati mutandis apply to this appeal as well. Accordingly the AO is directed to apply 4.42% on the bogus purchases.
In the result, the appeals of the Revenue are partly allowed. Order pronounced in the open court on 26th Oct, 2017. Sd sd (D.T.GARASIA) (RAJESH KUMAR) Judicial Member Accountant Member म ुंबई Mumbai; ददन ुंक Dated :. 26.10.2017 Sr.PS:SRL: