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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 29/09/2016 passed by the Ld. Commissioner of Income Tax (Appeals)-37, 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 an individual engaged in the business of renting of computer, peripherals, laptop and server etc. filed his return of income declaring the total income of Rs. 40,05,050/-. 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 dealers which used to issue bogus bills, the assessment was re-opened u/s 147 of the Act by issuing notices u/s 148 of the Act. In response to notices u/s 143(2) and 142(1) the authorized representative of the assessee appeared and furnished the details called for. As per the information, the assessee during the year relevant to the assessment year under consideration made bogus purchases to the tune of Rs. 2,98,82,729/- from seven bogus entities mentioned in the assessment order.
Accordingly, AO issued notices u/a 133(6) of the Act, to the parties concerned, however, the same were received back un-served. The assessee was further asked to produce the parties or submit confirmation from them, but the assessee neither produced the parties before the AO nor filed confirmation. So, the assessee could not establish the genuineness of the purchases in question. 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 and to substantiate its claim, the assessee submitted copies of bills and invoices, details of payments made copy of bank statements etc. The assessee however, failed to produce confirmation from the parties. 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. 2,98,82,729/- to the income of the assessee. Further, the assessee had claimed depreciation @ 60% in respect of computers used one year, the AO disallowed the depreciation claimed amounting to Rs. 23,51,273/- on the ground that the purchases made were bogus. Similarly, AO disallowed the depreciation of Rs. 32,26,264/-claimed by the assessee @ 30% in respect of computers used for less than six months for the same reasons. Accordingly, AO determined the total income of the assessee at Rs. 3,94,65,320/-
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 amount of bogus purchases debited to the trading account i.e., Rs. 1,44,76,073/-. Against the said order the assessee is in appeal before the Tribunal.
The revenue has raised the following effective grounds of appeal against the impugned order passed by the Ld. CIT (A):-
1. “On the facts and in the circumstances of the case and in Law, the Ld. CIT (A) has erred in restricting the profit @ 12.5% of Rs. 1,44,76,073/- on account of bogus purchases.
2. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in not considering that the addition was made on the basis of information received from DIT (Inv) and Sales Tax Department, Maharashtra with regard to bogus purchases made by the assesee from dealers without supply of actual goods.
3. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in not considering that the hawala dealers have admitted on oath before the Sales Tax Authorities that they have not sold any material to anybody. 4. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in not considering that the notices u/s 133(6) issued to purchase parties were returned back unserved and the assessee also failed to prove the genuineness of the transactions or produce the confirmation of the parties. 5. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in estimating the profit at 12.5% on the total alleged bogus purchases from Hawala Operator.
6. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in treating purchases of Rs. 1,54,06,653/- as capital expenditure whereas there is no evidence adduced by the assessee to substantiate the purchase and use of the new capital asset.
7. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in disallowing the depreciation @ 12.5% of total disallowance of Rs. 55,77,537/-.
8. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in relying upon the decision in the case of CIT Vs. Simit P. Seth 356 ITR 451 (Guj), in as much that no independent enquires were conducted by the AO in that case, whereas in the instant case, inquiries were conducted and adverse finding were also communicated to the assessee and hence the ratio laid down therein are not applicable to the instant case.
9. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in not appreciating the ratios laid down by the Hon’ble Delhi High Court in the case of CIT Vs. La Medica (2001) 59 DRJ 404. 10. Without prejudice to the above, the Ld. CIT (A) erred in not appreciating the ratios laid down by the Hon’ble Gujarat High Court in the case of Vijay Proteins Ltd. Vs. CIT (2015) 58 taxmann.com 44.
6. Before us, the Ld. Departmental Representative (DR) relying on the assessment order 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. The Ld. DR further submitted that the Ld. CIT(A) has wrongly followed the decision of the Hon,ble Gujarat High Court rendered in CIT vs. Smith P Seth 356 ITR 451(Guj) as in that case the AO had not made any independent enquiries where as in the present case after conducting enquiry findings were communicated to the assessee. On the other hand the Ld. CIT(A) has erred in not appreciating the ratio laid down by the Hon’ble Delhi High Court in CIT vs. La Medica (2001) 59 DRJ 404. Without prejudice, the Ld. DR further submitted that the Ld. CIT(A) has erred in not appreciating the ratio laid down by the Hon’ble Gujarat High Court in Vijay Proteins Ltd. vs. CIT(2015) 58 taxmann. com 44.
7. 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% of the amount debited to the trading account. The operative part of the impugned order reads as under: “Considering the totality of facts before me, as well as the judicial opinion available, I am inclined to agree with the appellant’s stand that the addition is excessive. The A.O. has disallowed the amount of Rs.2,98,82,729/-on account of bogus purchases. It is evident from submission of the appellant that out of total purchases of Rs. 2,98,82,729/-, the appellant had debited only Rs. 1,44,76,073/-to the trading account and revenue purchase of Rs. 1,54,06,653/-transfer to the fixed assets and it was not debited to the profit and loss account. The said purchases are in the nature of fixed assets and capitalized under the head of computer. No amounts out of said purchases have been claimed as deduction in profit and loss account. In other words, the same is not a revenue expenditure, therefore, disallowance made by A. O. Cannot be justified. Hence, A. O. is directed to delete the addition of Rs. 1,54,06,653/-. However, the A.O. has disallowed the depreciation of Rs. 55, 77, 537/-. The said disallowance appears excessive. Therefore, A. O. is directed to disallow the depreciation 12.5% on total disallowance of Rs. 55, 77, 537/- i.e.,Rs.6,97,192/-. The appellant therefore gets relief of Rs. 48, 80, 345/– minus (RS 55, 77, 537-6, 97, 192/–).
5:13 Further, the appellant has debited alleged purchase of RS 1, 44, 76, 073/– and the A. O. has disallowed the same and added back to the total income of the appellant. The disallowance appears to be excess, I am of the view that estimation of profit at 12.5% would meet the ends of Justice. Therefore, I direct the AO to estimate profit of 12.5% on the total purchases in question which works out to Rs. 18, 09, 509/– (12.5% of Rs. 1, 44, 76, 073/–). The appellant therefore gets relief of Rs. 1, 26, 66, 564/– (Rs. 144, 76, 073 minus Rs. 18, 09, 508). The grounds raised are party allowed.”
We notice that findings of the Ld. CIT(A) are based on the ratio laid down by the Hon’ble Gujarat High Court in CIT vs. Simit P. Seth 356 ITR 451(Guj). 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. Under these circumstances, the Ld. CIT(A) has restricted the 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 (supra) 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, in view of the law laid down by the Hon’ble High Courts of Bombay and Gujarat, discussed above, we do not find any infirmity in the order of the Ld. CIT(A). We, therefore upheld the findings of the Ld. CIT(A) and dismiss all the grounds of appeal of the revenue and direct the AO to compute the addition in terms of the CIT(A) order.
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.