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Income Tax Appellate Tribunal, MUMBAI BENCH “E”, MUMBAI
Before: Shri Joginder Singh & Shri G Manjunatha
O R D E R Per G Manjunatha, AM : This appeal filed by the assessee is directed against the order of the CIT(A)-14, Mumbai dated 22-09-2015 and it pertains to AY 2009-10.
The brief facts of the case are that the assessee company engaged in the business of civil construction, supply of building materials and site maintenance, filed its return of income for A.Y. 2009-10 on 30-09-2010 declaring Nil income. The assessment was completed u/s 143(3) of the Act, on 25-03-2011 accepting the income returned by the assessee. Subsequently, the assessment was reopened by issue of notice u/s 148 of the Income-tax Act,
1961 for the reasons recorded which states that information gathered / available in the office revealed that the assessee has obtained bogus bills of Rs.3,59,37,837 from entities, who were listed in the sales-tax department website declaring them as hawala dealers by the sales-tax department, Mumbai thereby inflating the expenses and suppressing the profits. In response to notice the assessee, vide letter dated 05-08-2014 submitted that return filed on 30-09-2009 may be treated as compliance to the notice u/s 148.
The case has been selected or scrutiny. Notices u/s 143(2) and 142(1) of the Act were issued.
During the course of assessment proceedings, the AO asked the assessee as to why the tax bills obtained from the entities listed on the website of Maharashtra Sales-tax Department should not be disallowed and added to the total income of the assessee. In response to notice, the assessee submitted that purchases from the parties listed on the website of Maharashtra Sales-tax Department are genuine purchases, which are supported by proper purchase bills and payment for such purchases has been made through proper banking channels. In order to verify the contention of the assessee, notice calling for information u/s 133(6) of the Act, was issued to the parties directing them to produce necessary evidences in support of purchases claims to have been made from them. The notice sent u/s 133(6) were returned unserved and AO. Based on the information received from the Investigation Wing coupled with further enquiries conducted during the assessment proceedings, the AO came to the conclusion that purchases from the parties listed on the website of Maharashtra Sales-tax Department are bogus and hence, by relying upon the decision of Hon’ble Gujarat High Court in the case of CIT vs Smit P Sheth of 2012 and CIT vs Bholanath Poly Fab (P) Ltd ITA No.63 of 2012 estimated gross profit at 30.12% on total alleged bogus purchases from the parties and added back the same to the total income of the assessee.
Aggrieved by the assessment order, the assessee preferred appeal before CIT(A) and submitted that the AO was erred in estimating gross profit of 30.12% on alleged bogus purchase merely on the basis of list prepared by Maharashtra Sales-tax Department, despite furnishing of evidences to prove the purchases as genuine. The assessee further submitted that it had furnished necessary evidences in the form of purchase bills and payment proof for having paid the amount by cheque. The AO in the absence of any evidence of monies having flown back from the said parties, merely on the basis of suspicions and surmises estimated gross profit of 30.12% on the alleged hawala purchases. The assessee further submitted that it has already reported a gross profit of 30.12% in the relevant financial year which is quite
high when compared to similar nature of business. Therefore, further addition of 30.12% would mean that the assessee has earned gross profit of 60.24% which is not at all tenable. The CIT(A), after considering the submissions of the assessee and also relying upon certain judicial precedents observed that the AO made additions only because the name of the parties appeared in the list of sales-tax department and the parties were not produced before the AO.
Further, the AO himself contended that in the present case assessee has already disclosed gross profit of 30.12% which is much more than the profit estimated in the decisions relied upon by the AO. Therefore, looking into the entire facts of the case and relying upon the decisions relied upon, in his opinion, no addition was warranted towards alleged purchases; therefore, the addition made by the AO was deleted. Aggrieved by the order of CIT(A), revenue is in appeal before us.
The Ld.DR submitted that the Ld.CIT(A) has erred in deleting the addition made by the AO towards gross profit on alleged bogus purchases. The Ld.CIT(A) failed to appreciate the fact that the burden of proof cast on the assessee was of very high degree and the assessee failed to discharge the burden by producing the parties in person before the AO for cross examination. The facts gathered by the AO during the course of assessment proceedings and the information received from the Investigation Wing clearly
establishes that the assessee is the beneficiary of bogus purchase bills taken from hawala operators. Therefore, the AO has rightly made additions towards gross profit on alleged bogus purchases and his order should be upheld.
The Ld.AR for the assessee, on the other hand, submitted that the AO has made additions towards gross profit on alleged bogus purchases merely on the basis of information received from sales-tax department despite furnishing of evidences to prove the purchase. The assessee has filed necessary evidences to justify the purchases. However, the AO has ignored all the evidences to make additions purely on suspicion and surmises only on the ground that the parties were not appeared before the AO. The facts remain that the assessee has submitted the details about purchases from those parties and payments have been made through banking channels, which have not been disputed.
The assessee has declared more than 30% gross profit for the relevant financial year which fact has been ignored by the AO, though the GP declared by the assesee is much higher than the gross profit in similar line of business. The Ld.AR further submitted that the AO has taken purchases from Ganesh Trading Co twice, even though the reasons recorded for reopening of the assessment shows one purchase from Ganesh Trading Co. Therefore, he requested to exclude Ganesh Trading Co from the second list of entities taken for estimation of gross profit.
We have heard both the parties and perused the materials available on record. The AO made additions towards gross profit on alleged bogus purchases based on the information received from Investigation Wing which states that the assessee is one of the beneficiaries of bogus purchase bills obtained through hawala operators. The AO further was of the opinion that though assessee has furnished certain documents to justify purchases, failed to produce parties in person. It is the contention of the assessee that merely because parties were not appeared before the AO, genuineness of the purchases cannot be doubted when the assessee has furnished all details to justify purchases from the parties. The assessee further contended that the AO has not only ignored the gross profit declared by the assessee which is higher than the gross profit declared in similar line of business, made further addition of 30.12% on alleged bogus purchases would certainly amount to estimating gross profit at 60.24% which is quite arbitrary and on higher side.
The AO has made addition towards bogus purchases which is supported by the list prepared by sales-tax department and information gathered during the course of assessment proceedings which clearly establishes that the parties are hawala operators involved in providing accommodation entries without actual delivery of goods. Therefore, there is no merit in the arguments of the assessee that purchases from the so-called parties are genuine in nature.
Having said so, let us examine whether in case of bogus purchases addition can be made for the entire purchases or the addition can be made only of the profit element embedded in such purchases. The Hon’ble Gujarat High Court in the case of CIT vs Vijay Proteins Ltd has considered similar issue and after analyzing the issue of bogus purchases, has upheld estimation of gross profit at 12.5% on alleged bogus purchases. The Hon’ble Gujarat High Court in the case of CIT vs Smit P Sheth has also considered a similar issue of bogus purchases and after considering the facts observed that no uniform yardstick can be applied for estimating gross profit on bogus purchases which is dependent upon the facts of different cases. The co-ordinate bench of ITAT, in a number of cases has taken a consistent view and directed the AO to estimate gross profit of 12.5% on alleged bogus purchases. Keeping in view all the facts and circumstances of the case and also following the ratios of the case laws discussed above, we are of the considered view that estimation of gross profit at 12.5% on total alleged bogus purchases would meet the ends of justice.
Therefore, we direct the AO to estimate gross profit at 12.5% on the alleged bogus purchases. 9. Coming to the argument of the Ld.AR that while estimating gross profit on alleged bogus purchases, the AO has taken two amounts from Shree Ganesh Trading Co even though reasons recorded for reopening of assessment shows
Shree Ganesh Trading Co. The Ld.AR for the assessee submitted that this has been discussed by the CIT(A) in his order at para 5 and gave a categorical finding that in case of Shree Ganesh Trading Co, the actual transaction as per the ledger account filed before the AO has to be taken. We find force in the argument of the assessee for the reason that the AO has taken two lists of parties for the purpose of estimation of gross profit on bogus purchases. The name of Shree Ganesh Trading Co has appeared in both the lists. But for the reasons recorded for reopening of the assessment, total purchase from Shree Ganesh Trading Co is Rs.1,62,66,830, however, the AO has taken two purchases from Shree Ganesh Trading Co. The assessee claims that he had furnished ledger extract of Shree Ganesh Trading Co, as per which total purchases from the party at Rs. 1,62,66,830. This fact has been accepted by the Ld.CIT(A). Therefore, we are of the view that the issue needs to be re- examined by the AO in the light of the claim of the assessee that the purchases from Shree Ganesh Trading Co has been taken twice for the purpose of estimation of gross profit. If the claim of the assessee is found to be correct, then the AO is directed to exclude the name of Shree Ganesh Trading Co from the second list of entities considered for estimation of gross profit on alleged bogus purchases. Hence, we set aside the issue for the limited purpose of verification of purchases from Shree Ganesh Trading Co and direct the AO to consider the issue in the light of explanation of the assessee before estimating