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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 revenue against order dated 14/07/2016 passed by the Ld. Commissioner of Income Tax (Appeals)-24, Mumbai, pertaining to the Assessment Year 2011-12, whereby the Ld. CIT (A) has partly allowed 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 company engaged in the business of manufacturing and trading of Gas Detection instruments, filed its return of income for the assessment year under consideration declaring total income of Rs.1,74,57,330/-. The return was processed u/s 143(1) of the Act.
Subsequently, on the basis of information received from the Sales Tax Department regarding bogus purchases made by various companies including the present assessee from hawala entities which used to issue bogus bills, the assessment was re-opened u/s 147 of the Act. The assessee was one of the companies, which had made bogus purchases from the said entities. As per the information, the assessee company during the year relevant to the assessment year under consideration made bogus purchases to the tune of Rs. 67,43,250/- from three bogus entities namely; Kawality Enterprise, Sunny International and MS Giriraj Enterprises.
In response to the notice u/s 148 of the Act the authorized representative appeared before the AO and submitted that the original return filed u/s 139(1) of the Act, may be treated as return of income in response to the said notice. The assessee objected the re-opening, however, the assessee’s objection was rejected. During the re-assessment proceedings, the assessee could not establish the genuineness of the transaction. Accordingly, show cause notice was issued as to why the amount of bogus purchases should not be added to the income of the assessee. The assessee submitted that the purchases were genuinely made through broker and the goods were directly delivered at the sites. The assessee further submitted that the payments were made to the parties through banking channels. To substantiate its claim, the assessee submitted copies of purchase invoices, details of assets purchased copy of bank statements etc. The assessee however, failed to produce confirmation from the parties and evidence to establish consumption of goods. Since, the assessee could not satisfy the AO by producing sufficient evidence to prove the genuineness of the transaction, the AO made addition of Rs. 67,43,250/- to the income of the assessee and determined the total income of the assessee at Rs. 2,42,00,580/-.
Feeling aggrieved, the assessee challenged the assessment order before the Ld. CIT (A). The Ld. CIT (A) after hearing the assessee partly allowed the appeal and restricted the addition to 12.5% of the total amount of bogus purchases determined by the AO.
The revenue has raised the following effective grounds of appeal against the impugned order passed by the Ld. CIT (A):-
(i) “On the facts and circumstances of the cases, the Ld. CIT (A) erred in estimating the profit to the extent of 12.5% of the purchases of Rs. 67,43,250/- as the profit element embedded in such purchases in addition to the regular profit without giving any findings as to how 12.5% GP can be taken since the corresponding expenditure have already been claimed in the P&L account and further erred in ignoring the assessee object failure to prove the purchases when the onus was cast upon him by the statute.
(ii) On the facts and circumstances of the cases, the Ld. CIT (A) erred in directing to restrict the addition to 12.5% of Rs. 67,43,250/- of bogus purchases on the ground that the A.O. had not doubted the consumption/sales of the purchases claimed to have been made from the alleged parties. (iii) On the facts and circumstances of the cases, the Ld. CIT (A) erred in not appreciating the fact that the assessee had not produced evidences in the shape of stock register during the course of re-assessment proceedings to substantiate its claim that the goods claimed to have been purchased from alleged parties were actually consumed/sold. (iv) On the facts and circumstances of the cases, the Ld. CIT (A) has decided the issue by relying upon the ratio of case lawas M/s Simit P. Sheth (2013) 38 Taxmann.com 385 (Guj) and M/s Bholanath Polyfab Pvt. Ltd. 335 ITR 290 (Guj) and M/s Sanket Steel Traders without appreciating the fact that in all the aforesaid cases the assessee had maintained the quantitative records contrary to the instant case where no such record were produced before the A.O. for examination.”
Before us, the Ld. Departmental Representative (DR) submitted that the Ld.CIT (A) has wrongly restricted the addition to 12.5% of the bogus purchases made by the assessee during the relevant year. Since, the assessee has failed to prove genuineness of the transaction, the Ld. CIT(A) ought to have confirmed the addition made by the AO.
On the other hand, the Ld. counsel for the assessee relying on the findings of the Ld. CIT(A) submitted that since the assessee has furnished the copies of purchase invoices, details of assets purchased, bank statements etc. and further proved that the payments were made through banking channels, the Ld. CIT (A) has rightly restricted the addition made by the AO. The Ld. counsel further submitted that since, the findings of the Ld. CIT(A) is based on the law laid down by the various High Courts and the decisions of the various Bench of the Income Tax Appellate Tribunal, there is no merit in the revenue’s appeal therefore the same is liable to be dismissed.
We have heard the rival submissions and perused the entire record and also gone through the cases relied upon by the authorities below as well as referred before us. The only grievance of the revenue is that the Ld. CIT (A) has wrongly restricted the addition made by the assessee to 12.5%. We notice that the AO has not rejected the books of account and accepted the sales shown by the assessee. Since, the AO has not rejected the sales shown during the relevant year, the entire amount of purchases cannot be added to the income of the assessee as there cannot be sale without any purchase. If the assessee had not purchased the goods in question from the parties concerned, it implies that purchases were made from the parties other than those mentioned in the books of account. Hence, there is no justification in making addition of the entire amount of bogus purchases determined by the AO. Under these circumstances, the AO ought to have made addition keeping in view the profit element embedded in the purchases in question.
The Hon’ble Bombay High Court In CIT Vs. Nikunj Eximp Enterprises Pvt. Ltd. 372 ITR 619 (Bom), 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. Hence, following the principles law laid down by the Hon’ble High Courts of Bombay and Gujarat, discussed above, we dismiss all the grounds of appeal of the revenue and uphold the order of the Ld. CIT(A) and direct the AO to make addition @ 12.5% of the total amount of bogus purchases to the income of the assessee.
In the result, appeal filed by the revenue for assessment year 2011-12 is dismissed Order pronounced in the open court on 23rd October, 2017.