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Income Tax Appellate Tribunal, “H” BENCH, MUMBAI
Before: SHRI SHAMIM YAHYA, AM & SHRI AMARJIT SINGH, JM
per the information, M/s. Shine Star Impex Pvt Ltd., is a bogus party and was operating on commission basis and there was no actual sale of goods from whom the assessee claimed to have purchased goods amounting to Rs.38,74,528/-.
Based upon the above information assessing officer made the assessment as under:
8) From the details with regard to the purchase of raw materials, submitted by assessee vide letter dated 11-11-2014, it is seen that the assessee shown to have made purchases from M/s.Sunshine Import & Export Pvt Ltd., on different dates and the same has been reflecting in his books of account. 9) In this context, it is to be mention here that as per the information received, the purchases from the above mentioned party proved to be bogus. The payments made by cheques against such bogus purchase bills to these Hawala Operators, however in the later stage they are received back in cash. The Hawala Operator gets only a commission for the services rendered - giving accommodation entries, as alleged and confirmed by them. Usually these
(A.Y. 2008-09) ACIT vs. Neelam Shishir Kothari purchases from Hawala Operators are shown on credit. The reasons for these purchases being on credit are not far to seek. One of the reasons is that the bills are not arranged in normal day-to-day conduct of business but much later than the date of corresponding sale. Obviously these bills have to be back dated and the payment by cheque can only be made after the actual date on which bills are subsequently obtained. For this reason entries in accounts for such purchases will be on credit. Another reason for this is that it is normal human tendency for every businessman to trade a little beyond what his cash flow permits. Consequently he is usually short on liquidity. The genuine suppliers press for their payments and such payments to them get precedence. The assessee therefore delays showing payments against bogus purchases (Hawala Operator does not press for the payment as he has not supplied the goods) - waiting for the liquidity position to ease. So the fact is that before the date of sale, the assessee makes purchases from undisclosed parties whereas the purchases are shown on credit in the accounts from Hawala Operators, which has been done in the assessee's case. The bills were raised at fag end of the financial year and the payments were made by cheque in the subsequent year. The entire amount of Rs.38,74,528/- is shown as creditors in the books of account of the assessee. 10) Thus, the above facts prove that the transaction with M/s.Sunshine Import & Export Pvt Ltd., is proved to be the bogus as per the statement recorded of Shri Saurabh Garg, one of the Director of Sunshine Import & Export Pvt Ltd., and the entries in books of account and subsequent payments to the said party. 11) Therefore, after giving ample opportunity the assessee failed to submit the details of purchase transactions with M/s.Sunshine Import & Export Pvt Ltd., and substantiate that the purchases are genuine. Therefore, Rs.38,74,528/- is disallowed and added back to the income of the assessee.
Against the above order, the assessee appealed before the learned CIT(A). Ld. CIT(A) noted that the assessing officer has not made any enquiry himself. Learned CIT(A) sustained the addition at the rate of 7% of the bogus purchase by holding as under: Thus, in the light of above judicial prepositions, it can be held that when the Assessing Officer has admitted the corresponding sales/consumption, the entire purchase cannot be disallowed. In the case of CIT vs. Simit P. Sheth reported (A.Y. 2008-09) ACIT vs. Neelam Shishir Kothari in 38 Taxmann.com 385, Hon'ble Gujarat High Court has merely approved the addition of profit to such transaction. Respectfully, following the judgement relevant to this issue, as the appellant has not established the purchases from the above parties and, considering the fact that there is a consumption or use of the said material, as admitted by the Ld. Assessing Officer, the embedded element of profit has to be ascertained. The nature of business of individual assessee has to considered with reference to extension of profit. In the case of Simit P. Sheth, profit was taken @ 12.5%, however, in this case Gross Profit has never been more than 7%. In this year, Appellant has shown Gross Profit @6.67% whereas in 2009-10, it is @ 6.81%. Considering the overall facts and circumstances of the case, the element of profit in respect of such purchases has to be additionally considered because when there is a sale, there is a purchase which may not be from M/s. Shine Star Impex Pvt. Ltd. but from open market. Hence, in such circumstances, profit has to be considered nearer to the normal profit of the business. In this case, as held earlier, entire purchase has not been established. Therefore, in the interest of justice, a reasonable view is required to be taken. The Appellant is a manufacturer and seller of jewellery and considering the normal trend of profit, it is found appropriate to apply the ratio of 7% of such purchases having additional profit margin. Thus, the disallowance of expenditure with reference to embedded G.P. @7% is to be disallowed and not the entire purchase price of Rs.38,74,528/-. Thus, disallowance of expenditure of Rs.2,71,216/- with reference to profit is sustained and rest of the disallowance of Rs.36,03,311/- is deleted.
Against the above order of learned CIT(A), the assessee is in appeal before the ITAT.
We have heard the learned departmental representative and perused the records.
None appeared on behalf of the assessee despite notice. It is noted that earlier also no one has attended on behalf of the assessee. Hence, this appeal is being decided by hearing the learned departmental representative and perusing the records.
We find that credible and cogent information was received in this case by the assessing officer that certain accommodation entry provider/bogus suppliers were (A.Y. 2008-09) ACIT vs. Neelam Shishir Kothari being used by certain parties to obtained bogus bills. The assessee was found to have taken accommodation entry/bogus purchase bills during the concerned assessment year from different parties. Based upon this information assessment was reopened. On the basis of this information, in the course of assessment, the assessing officer noted that the purchases were booked by obtaining bills at the fag end of the year. The payment for the same was made in the next year. He held that the purchase bills are bogus. He disallowed 12.5% of the bogus purchase. Up on assessee's appeal, the learned CIT(A) upheld the reopening and held that Assessing Officer has not made any enquiry himself, hence learned CIT-A sustained only part of the addition. He restricted the disallowance 7% being profit embedded there in.
In these circumstances, the learned departmental representative has referred to Hon’ble Gujarat High Court decision in the case of Tax Appeal No. 240 of 2003 in the case of N K Industries vs Dy CIT, order dt 20/06.2016, wherein 100% of the bogus purchases was held to be added in the hands of the assessee and tribunals restriction of the addition to 25% of the bogus purchases was set aside. It was expounded that when purchase bills have been found to be bogus, 100% disallowance was required. The special leave petition against this order alongwith others has been dismissed by the Hon’ble Apex Court vide order dt 16 .1 2017.
We find that the facts of the present case are different. The assessing officer has not made any enquiry himself. He has only noted that on the basis of information
(A.Y. 2008-09) ACIT vs. Neelam Shishir Kothari received from Sales Tax Department and the fact that all the purchases have been booked in credit at the end of the year, he was treating the same to be bogus and disallowing 12.5% thereof. In such circumstances, in our considered opinion, the learned CIT(A) is correct in restricting the disallowance to 7% on the reasoning mention in his appellate order as above. Accordingly, we do not find any infirmity in order of learned CIT(A). Hence, we uphold the order of ld. CIT(A).