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Facts
The assessee's assessment for AY 2010-11 was reopened based on information from the Maharashtra Sales-tax Department, indicating bogus purchases of Rs. 79,31,982/- from hawala operators who provided accommodation entries without actual goods delivery. The Assessing Officer (AO) disallowed these purchases as the assessee failed to prove genuineness, produce parties, or furnish necessary documents, initially making an addition based on a higher margin of profit. The CIT(A) restricted this addition to 5% of the bogus purchases, amounting to Rs. 3,96,600/-, citing judicial precedents that if sales are genuine, only the profit element on bogus purchases should be taxed.
Held
The Income Tax Appellate Tribunal (ITAT) noted that the assessee did not appear and that the appeal was filed by the Revenue. The ITAT found that the CIT(A) had thoroughly examined the case, including relevant High Court and Tribunal decisions, and issued a reasoned order. Upholding the CIT(A)'s decision, the ITAT concluded that the restriction of the addition to 5% of the bogus purchases was fair and reasonable and found no reason to disturb it.
Key Issues
Whether the Ld. CIT(A) erred in restricting the addition for alleged bogus purchases to 5% of Rs. 79,31,982/- instead of 100%, despite the assessee's failure to substantiate the genuineness of such purchases and evidence from the Sales-tax Department regarding hawala transactions.
Sections Cited
Section 250, Section 143(1), Section 147, Section 148, Section 133(6)
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Income Tax Appellate Tribunal, MUMBAI BENCH “E”, MUMBAI
Before: SHRI AMIT SHUKLA & SHRI RATNESH NANDAN SAHAY
O R D E R Per: Ratnesh Nandan Sahay, Accountant Member:
1. 1. This appeal has been filed against the order of the Ld. CIT Appeal passed u/s 250 of the Income Tax Act [the ‘Act’ in short] vide DIN & Order No. ITBA/ NFAC/S/250/2023-24/1059149142(1) dated 28/12/2023 for the Assessment Year 2010-11.
2. Following grounds of appeal have been raised: 1. "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in restricting the addition @ 5% as against 100% addition made by the M/s. Shankarlal Bhimraj Bhansali Assessing Officer on account of bogus purchases of Rs. 79,31,982/- by ignoring the fact that the Sales Tax Department, Govt of Maharashtra has proved beyond doubt that alleged eight parties were declared as howala traders, who were involved in providing only accommodation entry of purchases/sales transaction and the assessee was found to be one of the beneficiary of accepting accommodation entry for the purchases.?" 2. "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in restricting the addition @ 5% as against 100% addition made by the Assessing Officer on account of bogus purchases of Rs. 79,31,982/-, by ignoring the fact that action of the Assessing Officer was based on credible information received from the Sales Tax Department, Maharashtra State, and that the assessee during course of proceedings failed to produced any concrete evidence to establish the genuineness and creditworthiness of purchase transactions and of alleged parties/hawala Traders?" 3. "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in restricting the addition 5% as against 100% addition made by the Assessing Officer on account of bogus purchases of Rs. 79.31,982/-, by ignoring the fact that assessee could neither the quantity tally of day to day purchases, Sales, Stocks and corresponding values nor could produce the parties for verification in spite of opportunity provided by the Assessing Officer ?" 4. "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in restricting the addition @ 5% as against 100% addition made by the Assessing Officer on account of bogus purchases of Rs.79,31,982/ without appreciating the fact that the Assessing Officer has given detailed reasoning for quantifying the additions and Ld.CIT(A) has erred in not providing the adequate reasons for pegged to restrict the addition @ 5% as against 100% of bogus purchases?"
5. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in restricting the addition 5% as against 100% addition made by the Assessing Officer on account of bogus purchases of Rs. 79,31,982/-, by ignoring the fact that it is a settled position in law that when an expenditure related to M/s. Shankarlal Bhimraj Bhansali purchases, is claimed and debited to the Trading/profit and Los account, the onus is on the assessee to substantiate and prove the genuineness of the claim and commercial expediency of incurring such expenditure, which the assessee has failed to prove the during the assessment proceedings?” 6. "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in restricting the addition 5% us against 100% addition made by the Assessing Officer on account of bogus purchases of Rs. 79,31,982/-, without appreciating the ratio in the decision of the Hon'ble Supreme Court in the case of N.K Proteins Ltd, wherein the court has held that when the purchases are from bogus suppliers, the entire purchases are liable to be disallowed?" 7. "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in restricting the addition @5% as against 100% addition made by the Assessing Officer on account of bogus purchases of Rs. 79,31,982/- without appreciating the fact that in the case of Swetamber Steels Ltd.(supra), the Hon'ble ITAT, Ahmadabad had confirmed the disallowance of the bogus purchase in entirety stating that the purchases shown from respective parties were found non-genuine and the decision of the ITAT was upheld by Hon'ble Gujarat High Court and also Hon'ble Supreme Court.?” 8. “This appeal is being filed as it is covered under the exception provided in para 10(e) of the CBDT's Circular No.3 of 2018 dated 11.07.2018 as amended vide F.No.279/Misc. 142/2007- ITJ(Pt) dated 20.08.2018.”
9. The appellant craves leave to amend or alter any grounds or add a new ground which may be necessary.”
The facts of the case, in brief, are that the assessee had filed his returns of income for A.Y. 2010-11 on 01.10.2010 declaring total income at Rs.7,63,020/- The return was processed u/s.143(1) of the I.T. Act. Subsequently, information was received by the AO that Maharashtra Sales-tax Department has unearthed a fraudulent racket in which it was M/s. Shankarlal Bhimraj Bhansali found that certain parties have issued bogus bills without actual delivery of goods and published the list of such parties as Hawala operators by the Sales-tax Department. According to the details received, the assessee, Shri Shankarlal B. Bhansali, was one of the beneficiaries of such bogus purchases to the tune of Rs.79,31,982/- Based on this information, case was re- opened u/s. 147 of the Act by issuing notice u/s. 148 of the Act dated 03.11.2014. Thereafter, a show-cause notice was issued to the assessee to explain why the purchases made from these entry-providers amounting to Rs.79,31,982/- should not be treated as bogus? The assessee was also asked to furnish the details such as correct & complete addresses of these parties, purchase details, invoices/bills, copies of ledger accounts, details of transportation of goods i.e. lorry receipts, documentary evidence reflecting the relevant entries of having received such goods in the premises of the assessee and having consumed such goods, details of payment made to these parties, etc. In response to that, the assessee did furnish the addresses of the above mentioned parties and the AO did issue notice u/s. 133(6) of the Income Tax Act, 1961 to the said parties at the addresses provided by the assessee through registered post, however, the notices could not be served and were returned back unserved by the postal authorities with the remarks ‘not known’ or ‘no such address,’ ‘left’ etc. The Ld. assessing officer, therefore, held that it is a settled position in law that when the expenditure is claimed to have M/s. Shankarlal Bhimraj Bhansali been incurred and debited to the Trading/ Profit & Loss A/c., the onus is on the assessee to substantiate and prove the genuineness of the claim and the commercial expediency of incurring such expenditure. In the circumstances, following the principle of natural justice, the assessee was given an opportunity vide order-sheet dated 05/03/2015 for establishing the genuineness of these parties and the purchases made from them with adequate supporting evidences and also to produce the parties before the undersigned along with the books of accounts as these parties were found to be prima facie non existing. The assessee, however, neither produced any party nor submitted any confirmation from them. It simply stated that all the transactions have been made through the banking channels and are duly recorded in his books of account.
The Assessing officer, however, was not convinced with the explanations offered by the assessee on following reasons:- (i) The Sales-tax Department of Maharashtra has conducted independent enquiries and found that the said five parties were engaged in the business of providing accommodation entries by issuing bogus bills without delivery of any goods. (ii) The assessee could not file documentary proof such as delivery challans, transport receipts, octroi receipt, receipt of weighbridge, excise gate pass, goods inward register etc. for verification.
M/s. Shankarlal Bhimraj Bhansali (iii) The notice issued u/s.133 (6) of the I.T. Act to the parties was returned unserved by the postal authorities with the remark "not known". (iv) The assessee failed to produce the five parties before the AO despite given several opportunities. (v) Further, the AO was having in possession of affidavits/statements/deposition given by the alleged suppliers of the goods before Maharashtra Sales-tax Department admitting therein that the said purchases were bogus.
The AO finally concluded as under:- “Therefore, an addition on account of a higher margin of profit would be fair and equitable. Hence, following the decision of the Gujarat High Court in the case of CIT vs. Simit P. Sheth (2013) reported in 356 ITR 451 (Guj.) and also giving due consideration to the fact that the assessee has recorded such purchases in the books of account and also agreed for a GP based addition, I am of the considered opinion that, it would be just and fair if profit element embedded in such purchases is taken as the profit earned from purchases shown to have been made from the above mentioned non-genuine parties. Therefore, an amount of Rs.24,66,519/- being 12.5% of the total non-genuine purchases of Rs. 1,97,32,146/- is added to the total income of the assessee as profit earned from such purchases.”
M/s. Shankarlal Bhimraj Bhansali 6. Aggrieved by the order of the AO, the assessee filed appeal before the Ld. CIT (A) who restricted the addition to 5% of the alleged bogus purchases by holding as under:- “5. The submission made by the appellant has been duly considered inter alia the facts of the case. Before this office, the appellant has contended that no positive evidence was brought on record by the AO to prove the allegation that impugned purchases were bogus except relying on the statements of the Sales-tax Department. It is seen that the main reason of the AO for making addition is an information received from Sales-tax Department, Maharashtra due to suspicious transactions made by certain parties wherein it was revealed that no actual purchase or sale made with the parties concerned. These businesses were simply taken in the books of accounts without there being any actual conduct of business. Per contra the assessee has vehemently claimed that allegation of the AO about bogus purchases/accommodation entry was not correct. The assessee has claimed that entire purchases and sales were genuine & verifiable with reference to the documents- purchase bills, stock register, bank statement showing payment to these concerns. Since the entire sales have been accepted by the AO in terms of quantity and amount, then as per the assessee there is no scope for doubting the purchase of material which duly supported by all the documentary evidences and M/s. Shankarlal Bhimraj Bhansali payments were also made through proper banking channels. Undoubtedly, apart from this information, there is no positive evidence brought on record by the AO to substantiate his findings that the assessee has actually received only accommodation bills without actually receiving any goods shown as purchases. 5.1 . At the outset, it is somewhat understandable that the AO had some legitimate reasons to doubt the genuineness of purchases because the assessee did not produce the concerned purchase parties. The AO is at liberty to issue notices u/s.133(6) which were received back unserved. Moreover, Transportation Bills/Delivery Challans were not produced. From the available facts on the records, it is amply clear that the assessee failed to produce these parties for verification of genuineness of purchase. One has to consider the findings of Sales-tax Department about such racket showing assessee as one of the beneficiaries. This fact cannot be simply brushed aside. It is a matter of common knowledge that when such organized activity of 'bogus/accommodation bill' is carried out, then incidental or back paper work is done in a systematic manner, e.g. proper bills are issued, payments done through Cheques, Returns are filed, TIN Nos. obtained etc. In order to verify the facts, the assessee was asked to produce the parties in persons before AO for their cross-examination. But the M/s. Shankarlal Bhimraj Bhansali assessee failed to produce them before the AO for verification of cross-examination with regard to the genuineness of purchases. 5.2 . It is the considered opinion that when the sales have been accepted as genuine the entire purchases cannot be treated as non- genuine. Following the binding precedent of Hon'ble Gujarat High Court in the case of Bholanath Polyfab Pvt. Ltd [355 ITR 290] wherein it was 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 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]. In view of the legal position cited supra and considering the facts of this case, taking a holistic view, it is hereby sustained the addition @5% of impugned purchases of Rs.79,31,982/- which worked out to Rs.3,96,600/. The ratio of Hon'ble High Court is binding and facts of the present case are also quite applicable and hence the addition to the extent of Rs.3,96,600/- is upheld and a relief of Rs.75,35,382/- M/s. Shankarlal Bhimraj Bhansali (Rs.79,31,982 - Rs.3,96,600) is granted. The grounds of appeal are partly allowed.”
7. Aggrieved by the impugned order of the Ld. CIT (A) the present appeal has been filed. During the appellate proceedings before us, the appellant relied on the order of the Assessing officer and reiterated that the addition was made on credible information received from sales tax department and the assessee couldn’t substantiate that the purchases made by him were genuine. Neither the parties were produced before the AO nor was any confirmation from them furnished. The assessee had already admitted that the purchases were bogus and had agreed to the reasonable GP addition.
8. We have considered the submissions made by the appellant. Since no one appeared from the assessee side, we decide the issue on the basis of the facts of the case and the legal position. We find that this is a case of admitted bogus purchases. The Ld. CIT (A) has already discussed all the issues involved in this case at length. He has also examined the decisions of various High Courts and the Tribunals and passed a reasoned order. The Departmental Representative also didn’t point out any infirmity in the order of the Ld. CIT (A) except that the G.P addition shouldn’t have been restricted to 5% of the bogus purchases. Though, the appellant has taken one of the grounds that 100% addition should be made on account of bogus purchases, the AO, itself, has made GP addition of 12.5% without giving any rational for that. We, therefore, hold that there is no M/s. Shankarlal Bhimraj Bhansali need to disturb the order passed by the Ld. CIT (A) which we consider as fair and reasonable. 9. In the result, appeal is dismissed. Order pronounced in the open court on 25.06.2024.