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Income Tax Appellate Tribunal, MUMBAI BENCH “J”, MUMBAI
Before: SHRI C.N. PRASAD, HONBLE & SHRI RAJESH KUMAR, HONBLE
O R D E R PER C.N. PRASAD (JM) 1. These two appeals are filed by the Revenue against different orders of the Learned Commissioner of Income Tax (Appeals)-38, Mumbai dated 28.06.2017 for the Assessment Years 2009-10 and 2010-11.
2 & 5734/MUM/2016 Jaishankkar R. Mishra 2. The only grievance of the Revenue in its appeals is that the Ld.CIT(A) erred in estimating profit at 6% on the alleged bogus purchases as against the entire purchases treated as bogus by the Assessing Officer.
Though notice was issued to the assessee fixing the date of hearing of appeal on 10.08.2017, none appeared on behalf of the assessee. Therefore, we proceed to dispose off these appeals on hearing the Ld.DR.
Briefly stated the facts are that the assessments of the assessee were reopened u/s. 147 and reassessments were completed on 25.03.2014 u/s. 143(3) r.w.s. 147 of the Act determining the income of the assessee at ₹.2,57,01,020/- and ₹.2,42,84,500/- for the Assessment Years 2009-10 and 2010-11 respectively. The Assessing Officer while computing the income of the assessee treated purchases of ₹.2,45,41,328/- and ₹.2,28,24,496/- as non-genuine/bogus purchases for these two assessment years respectively for the reason that the purchases made by the assessee from some of the dealers referred to in Page No.2/3 of the Assessment Orders are non-genuine. According to the Assessing Officer the dealers are providing only the accommodation entries as deposed by them before Investigation Authorities of Sales Tax Department of Maharashtra Government and the notice issued to the dealers by the Assessing Officer were returned unserved. The Assessing 3 & 5734/MUM/2016 Jaishankkar R. Mishra Officer also observed that confirmation of the concerned party, copy of transport receipts, copy of stock register, etc., were not furnished by the assessee. Therefore, for these reasons Assessing Officer concluded that the purchases made by the assessee are non-genuine and entire purchases from the dealers referred to in Page No.2/3 of the Assessment Order were treated as bogus and non-genuine purchases.
On appeal the Ld.CIT(A) restricted the addition/disallowance to 6% of the bogus purchases for these two assessment years. Ld. DR vehemently supported the orders of the Assessing Officer in bringing to tax the entire bogus purchases.
We have heard the Ld. DR, perused the orders of the authorities below. The Ld.CIT(A) restricted the addition/disallowance to 6% observing as under: - “3.1.10 The facts of the case are that, in this case neither the AO rejected the books of accounts of the appellant as no defects were found by the AO in them nor it is his case that he cash was withdrawn from the bank accounts of the suppliers immediately after cheques were deposited. Further the sales shown have been accepted as it is by the Assessing Officer. In fact, the quantitative tally of stock has also not been doubted by the Assessing Officer. However, the fact remains that the above 4 parties have been declared as Hawala Parties by the Sales Tax Department. Therefore, the purchases of the appellant from these 4 parties are not established. Hence the 3.1.11 Therefore, if sales are not doubted or proved non genuine by the AO, then the logical corollary is that the appellant has definitely made the purchases or else wherefrom he could have effected the sales. Further AO has accepted that the sales may be from purchases made from other parties which were not recorded in the hooks of account. Hence purchases per se cannot be doubted. However, what is under dispute is the purchases from these 4 parties from whom bills have been taken and cheques have been issued. In fact, out of the total purchases of the appellant at Rs.3,53,38,550/-, quantum of bogus purchases made from the alleged parties is of Rs.2,45,41,328/- which means that rejection of the total purchases from the four Hawala/suspicious dealers will result into an absurd result in terms of GP of 75% of sales as against 6.67% declared by the appellant which would be unjustified.
3.1.12. In the present facts and circumstances of the case, it is observed that the case of the AO is that the appellant only took bills from these 4 parties to explain the purchases made albeit from open market. Merely because the suppliers did not appear before the AO or confirmation letters were not furnished one cannot conclude that purchases were not made by the assessee, for which reliance is placed on the decision of CIT vs. M/s. Nikunj Exim Enterprises Pvt. Ltd. 216 Taxman 171 Bombay High Court wherein the Hon'ble Bombay High Court has held that "the respondent assessee having been filed letters of confirmation of suppliers, copies of bank statement showing entries of payment through account payee cheques to the suppliers and no fault with regard to it being found and the books of accounts not being rejected and the 5 & 5734/MUM/2016 Jaishankkar R. Mishra sales not being doubted, the purchases cannot be treated as bogus and be disallowed merely on the basis of suspicion. One cannot conclude that the purchases were not made by the respondent assessee when there are materials on record to prove otherwise.” ………….
3.1.19 Therefore the possible profit out of purchases made through non genuine parties is required to be estimated. The estimation of rate of profit must necessarily vary with the nature of business and no uniform yardstick should be adopted for which reliance is placed on the recent judgment in the case of CIT vs. Simit P. Sheth 356 ITR 451 (Guj.) of Hon'ble Gujrat High Court wherein disallowance on account of bogus purchases in the case of traders was sustained at 12.5% of the alleged bogus purchases.
3.1.20 In such a case, the best course of action would be to apply GP ratio and confirm certain percentage of alleged purchases to cover any leakage of revenue. In the given circumstances, in view of the above facts, I propose to apply 6% GP on the alleged purchases of Rs.2,45,41,328/- which seems to be justified in view of the nature of business of the appellant, which works out to Rs.14,72,480/- (6% of 2,45,41,328/-) which would cover all possible leakages of revenue. The appellant therefore gets a relief of Rs.2,30,68,848/-.”
Further, the Hon'ble Gujarat High Court in the case of Bholanath Polyfab Pvt. Ltd [355 ITR 290] held that when the assessee made purchases and sold the finished goods as a natural corollary not the entire amount covered under such purchases would be subject to tax but only the profit element embedded therein. Similar view has been taken by the 6 & 5734/MUM/2016 Jaishankkar R. Mishra Hon'ble Gujarat High Court in the case of CIT v. Simit P. Seth [38 taxman.com 385]. Simply because the parties were not produced the entire purchases cannot be added as held by the Bombay High Court in the case of CIT v. Nikunj Eximp [216 Taxman.com 171]. Thus, we do not see any infirmity in the order passed by the Ld.CIT(A) in sustaining the addition to the extent of 6% of the purchases treated as non-genuine by estimating the profit element in such bogus purchases for the Assessment Years 2009-10 and 2010-11.
In the result, Revenue appeals are dismissed.
Order pronounced in the open court on the 06th October, 2017.