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Facts
The assessee, a dealer in industrial solvent, filed an income tax return for AY 2010-11. Upon receiving information about bogus purchase bills from 'hawala dealers', reassessment proceedings were initiated. The Assessing Officer (AO) treated purchases worth Rs. 2,75,25,669/- as bogus and added it to the income.
Held
The CIT(A) restricted the addition on account of bogus purchases to 12.5%. The Tribunal found that the CIT(A) based the decision on extraneous facts and directed the CIT(A) to re-examine the issue, considering the genuineness of purchases and sales, and to pass a reasoned order.
Key Issues
Disallowance of bogus purchases and the extent of addition on account thereof.
Sections Cited
148, 143(3), 147, 142(1), 129, 133(6), 131, 250, 253, 144, 145
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Income Tax Appellate Tribunal, MUMBAI BENCH “B” MUMBAI
Before: SHRI OM PRAKASH KANT & SHRI RAJ KUMAR CHAUHAN
These cross-appeals by the assessee and the Revenue are appeals by the assessee and the Revenue are appeals by the assessee and the Revenue are directed against order dated 06.11.2023 passed by the Ld. directed against order dated 06.11.2023 passed by the Ld. directed against order dated 06.11.2023 passed by the Ld. Commissioner of Income Commissioner of Income-tax (Appeals) – National Faceless Appeal National Faceless Appeal Centre, Delhi for assessment year 2010 Centre, Delhi for assessment year 2010-11.
The grounds raised by the assessee are reproduced as under: The grounds raised by the assessee are reproduced as under: The grounds raised by the assessee are reproduced as under:
Invalid Reopening:
1.
1. Invalid Reopening: a. The Id. A.O. has erred in law and on facts in issuing notice a. The Id. A.O. has erred in law and on facts in issuing notice a. The Id. A.O. has erred in law and on facts in issuing notice u/s 148. b. The Id. A.O. has formed the reasons for reopening relying blindly on b. The Id. A.O. has formed the reasons for reopening relying blindly on b. The Id. A.O. has formed the reasons for reopening relying blindly on the information received from DIT(Inv.) the information received from DIT(Inv.) c. The Id. A.O. has not passed order disposing objections to reopening. c. The Id. A.O. has not passed order disposing objections to reopening. c. The Id. A.O. has not passed order disposing objections to reopening. d. The hon. CIT(A) erred in law and on facts in confirming issu d. The hon. CIT(A) erred in law and on facts in confirming issu d. The hon. CIT(A) erred in law and on facts in confirming issue of notice u/s 148. notice u/s 148. e. Your appellant prays that the reopening is bad in law. e. Your appellant prays that the reopening is bad in law.
2. Invalid Assessment Procedure: 2. Invalid Assessment Procedure: a. The Id. A.O. has erred in law and on facts while passing a. The Id. A.O. has erred in law and on facts while passing a. The Id. A.O. has erred in law and on facts while passing assessment order u/s 143(3) r.w.s. 147. assessment order u/s 143(3) r.w.s. 147. b. The Id. A.O. has not conducted any indepe b. The Id. A.O. has not conducted any independent inquiry of his own. ndent inquiry of his own. c. The Id. A.O. has issued notice u/s 143(2) dated 07/03/2016 just c. The Id. A.O. has issued notice u/s 143(2) dated 07/03/2016 just c. The Id. A.O. has issued notice u/s 143(2) dated 07/03/2016 just before the time of completing the assessment is about to end on the time of completing the assessment is about to end on the time of completing the assessment is about to end on 31/03/2016. The notice u/s 143(2) was not served on the appellant. The notice u/s 143(2) was not served on the appellant. The notice u/s 143(2) was not served on the appellant. d. The Id. A.O. has not issued d. The Id. A.O. has not issued any notice u/s 142(1) after issuing any notice u/s 142(1) after issuing notice u/s 143(2). u/s 143(2). e. The Id. A.O. has not issued any notice u/s 129 for change in e. The Id. A.O. has not issued any notice u/s 129 for change in e. The Id. A.O. has not issued any notice u/s 129 for change in incumbent.
Nirmit Jatin Lathia 3 4828/MUM/2023 ITA Nos. 4784, 4828/MUM/2023 f. The Id. A.O. has not provided any material relied upon by him to the f. The Id. A.O. has not provided any material relied upon by him to the f. The Id. A.O. has not provided any material relied upon by him to the appellant. g. The Id. A.O. has not issued notice u/s 1 g. The Id. A.O. has not issued notice u/s 133(6) or 131 to any of the 33(6) or 131 to any of the parties. h. The hon. CIT(A) erred in law and on facts in confirming the actions h. The hon. CIT(A) erred in law and on facts in confirming the actions h. The hon. CIT(A) erred in law and on facts in confirming the actions of the Id. A.O. i. Your appellant prays that the assessment order passed without i. Your appellant prays that the assessment order passed without i. Your appellant prays that the assessment order passed without proper procedure should be quashed. proper procedure should be quashed.
Invalid Assessment: 3. Invalid Assessment: a. The Id. A.O. has erred in law and on facts in passing order u/s . A.O. has erred in law and on facts in passing order u/s . A.O. has erred in law and on facts in passing order u/s 143(3) r.w.s. 147. 143(3) r.w.s. 147. b. The Id. A.O. has issued notice u/s 143(2) at the fag end of the year b. The Id. A.O. has issued notice u/s 143(2) at the fag end of the year b. The Id. A.O. has issued notice u/s 143(2) at the fag end of the year as an afterthought. This notice u/s 143(2) has not been served on the as an afterthought. This notice u/s 143(2) has not been served on the as an afterthought. This notice u/s 143(2) has not been served on the appellant. c. The hon. CIT(A) has c. The hon. CIT(A) has erred in law and on facts in confirming the erred in law and on facts in confirming the order u/s 143(3) r.w.s 147. order u/s 143(3) r.w.s 147. d. Your appellant prays that the assessment order u/s 143(3) r.w.s. d. Your appellant prays that the assessment order u/s 143(3) r.w.s. d. Your appellant prays that the assessment order u/s 143(3) r.w.s. 147 is invalid.
Disallowance of Bogus Purchases: 4. Disallowance of Bogus Purchases: a. The Id. A.O. erred in law and on facts in making a 100% a. The Id. A.O. erred in law and on facts in making a 100% a. The Id. A.O. erred in law and on facts in making a 100% disallowance of the alleged bogus purchases. lowance of the alleged bogus purchases. b. The hon. CIT(A) erred in law and on facts in restricting the b. The hon. CIT(A) erred in law and on facts in restricting the b. The hon. CIT(A) erred in law and on facts in restricting the disallowance to 12.5% only of the bogus purchases disallowance to 12.5% only of the bogus purchases. c. The assessment order is passed u/s 143(3) r.w.s. 147 and not u/s c. The assessment order is passed u/s 143(3) r.w.s. 147 and not u/s c. The assessment order is passed u/s 143(3) r.w.s. 147 and not u/s 144. Therefore there cannot be an Therefore there cannot be any estimation of profits especially when y estimation of profits especially when books of accounts have not been rejected. books of accounts have not been rejected. d. Your appellant prays that the profit earned from the purchases has d. Your appellant prays that the profit earned from the purchases has d. Your appellant prays that the profit earned from the purchases has already been accounted and therefore there should not be any further already been accounted and therefore there should not be any further already been accounted and therefore there should not be any further addition. e. In the alternative, th e. In the alternative, the appellant prays that the addition has to be e appellant prays that the addition has to be restricted to the GP ratic of the appellant. restricted to the GP ratic of the appellant.
5. Violation Of The Provisions Of Natural Justice: 5. Violation Of The Provisions Of Natural Justice: a. The Id. A.O. has erred in law and on facts in passing the a. The Id. A.O. has erred in law and on facts in passing the a. The Id. A.O. has erred in law and on facts in passing the assessment order in violation of the provisions of na order in violation of the provisions of natural justice. tural justice.
Nirmit Jatin Lathia 4 4828/MUM/2023 ITA Nos. 4784, 4828/MUM/2023 b. The Id. A.O. has not provided any material relied upon by him to the b. The Id. A.O. has not provided any material relied upon by him to the b. The Id. A.O. has not provided any material relied upon by him to the appellant. c. The Id. A.O. has not conducted any independent inquiry of his own. c. The Id. A.O. has not conducted any independent inquiry of his own. c. The Id. A.O. has not conducted any independent inquiry of his own. d. The hon. CIT(A) erred in law and on facts in confirming the actions d. The hon. CIT(A) erred in law and on facts in confirming the actions d. The hon. CIT(A) erred in law and on facts in confirming the actions of the Id. A.O. e. Your appellant prays that the assessment order passed in violation e. Your appellant prays that the assessment order passed in violation e. Your appellant prays that the assessment order passed in violation of the provisions of natural justice be treated as invalid. of the provisions of natural justice be treated as invalid.
6. Cross Examination: 6. Cross Examination: a. The Id. A.O. has erred in law and on facts in relying on statements a. The Id. A.O. has erred in law and on facts in relying on statements a. The Id. A.O. has erred in law and on facts in relying on statements of third persons without providin of third persons without providing for opportunity of cross examination g for opportunity of cross examination to the appellant. the appellant. b. The hon. CIT(A) erred in law and on facts in confirming the action of b. The hon. CIT(A) erred in law and on facts in confirming the action of b. The hon. CIT(A) erred in law and on facts in confirming the action of the Id. A.O. by not providing the cross examination to the appellant. the Id. A.O. by not providing the cross examination to the appellant. the Id. A.O. by not providing the cross examination to the appellant. c. Your appellant prays that the additions made merely o c. Your appellant prays that the additions made merely on the basis of n the basis of third party statements without providing for cross third party statements without providing for cross-examination should examination should be deleted.
Erroneous Order by Hon. CIT(A) 7. Erroneous Order by Hon. CIT(A) a. The hon. CIT(A) has erred in law and on facts in passing the order a. The hon. CIT(A) has erred in law and on facts in passing the order a. The hon. CIT(A) has erred in law and on facts in passing the order u/s 250. b. The hon. CIT(A) has erred in not disposing b. The hon. CIT(A) has erred in not disposing all the grounds of appeal. all the grounds of appeal. c. The hon. CIT(A) has relied on wrong facts in the Order u/s 253. The c. The hon. CIT(A) has relied on wrong facts in the Order u/s 253. The c. The hon. CIT(A) has relied on wrong facts in the Order u/s 253. The hon. CIT(A) has erred in assuming that the books of accounts have hon. CIT(A) has erred in assuming that the books of accounts have hon. CIT(A) has erred in assuming that the books of accounts have been rejected when they have not been rejected. The assessment been rejected when they have not been rejected. The assessment been rejected when they have not been rejected. The assessment order has been passed u/s 143 order has been passed u/s 143(3) and not u/s 144. d. The appellant had requested the hon. CIT(A) to direct the Id. A.O. to The appellant had requested the hon. CIT(A) to direct the Id. A.O. to The appellant had requested the hon. CIT(A) to direct the Id. A.O. to produce the assessment records since the appellant did not have any produce the assessment records since the appellant did not have any produce the assessment records since the appellant did not have any records available with him. The hon. CIT(A) has not given any such records available with him. The hon. CIT(A) has not given any such records available with him. The hon. CIT(A) has not given any such direction to the Id. A.O. direction to the Id. A.O. e. The appellant had made partial submissions. The hon. CIT(A) has . The appellant had made partial submissions. The hon. CIT(A) has . The appellant had made partial submissions. The hon. CIT(A) has passed order on the basis of partial submissions without providing the passed order on the basis of partial submissions without providing the passed order on the basis of partial submissions without providing the appellant another opportunity to submit balance written submissions. appellant another opportunity to submit balance written submissions. appellant another opportunity to submit balance written submissions. f. Your appellant prays that the erroneous order u f. Your appellant prays that the erroneous order u/s 250 be quashed. /s 250 be quashed.
Nirmit Jatin Lathia 5 4828/MUM/2023 ITA Nos. 4784, 4828/MUM/2023 2.1 The grounds raised by the Revenue are reproduced as under: The grounds raised by the Revenue are reproduced as under: The grounds raised by the Revenue are reproduced as under:
1. Whether on the facts and in the circumstances of the case and in Whether on the facts and in the circumstances of the case and in Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A)has erred in restricted the addition @ 12.5% of law, the Ld.CIT(A)has erred in restricted the addition @ 12.5% of law, the Ld.CIT(A)has erred in restricted the addition @ 12.5% of alleged bogus purchases as against the alleged bogus purchases as against the addition made by the addition made by the Assessing Officer by disallowing the total non Assessing Officer by disallowing the total non-genuine purchases genuine purchases debited by the assessee, ignoring the facts that the assessee neither debited by the assessee, ignoring the facts that the assessee neither debited by the assessee, ignoring the facts that the assessee neither produced any documentary evidence nor produced the parties before produced any documentary evidence nor produced the parties before produced any documentary evidence nor produced the parties before the Assessing Officer to prove th the Assessing Officer to prove the genuineness of the parties and the e genuineness of the parties and the associated purchase transactions?" associated purchase transactions?"
2. Whether on the facts and in the circumstances of the case and in Whether on the facts and in the circumstances of the case and in Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A)was justified in restricting the addition on account of law, the Ld.CIT(A)was justified in restricting the addition on account of law, the Ld.CIT(A)was justified in restricting the addition on account of purchases from the bogus parties to 12.5% purchases from the bogus parties to 12.5% ignoring the facts that the ignoring the facts that the assessee had neither maintained any day assessee had neither maintained any day-to-day stock register and day stock register and inward outward register nor submitted the copy of ledger accounts of inward outward register nor submitted the copy of ledger accounts of inward outward register nor submitted the copy of ledger accounts of the the the hawala hawala hawala parties parties parties before before before the the the AO AO AO during during during the the the assessment assessment assessment proceedings?" 3. Whether on the facts Whether on the facts and in the circumstances of the case and in and in the circumstances of the case and in law, the Ld.CIT(A) was justified in restricting the addition on account law, the Ld.CIT(A) was justified in restricting the addition on account law, the Ld.CIT(A) was justified in restricting the addition on account of purchases from the bogus parties to 12.5% ignoring the findings of of purchases from the bogus parties to 12.5% ignoring the findings of of purchases from the bogus parties to 12.5% ignoring the findings of the Hon'ble Gujarat High Court in the case of N.K. Protein Ltd. vs the Hon'ble Gujarat High Court in the case of N.K. Protein Ltd. vs the Hon'ble Gujarat High Court in the case of N.K. Protein Ltd. vs DCIT, against which the SLP was dismissed by Hon'ble Supreme T, against which the SLP was dismissed by Hon'ble Supreme T, against which the SLP was dismissed by Hon'ble Supreme Court (2017) 84 taxmann.con 195, wherein 100% of addition was (2017) 84 taxmann.con 195, wherein 100% of addition was (2017) 84 taxmann.con 195, wherein 100% of addition was confirmed by the Court?" confirmed by the Court?" 3. Briefly stated, facts of the case are that the assessee an Briefly stated, facts of the case are that the assessee an Briefly stated, facts of the case are that the assessee an individual, is a dealer i , is a dealer in industrial solvent. The return of income for e return of income for the year under consideration was filed on 14.10.2010 declaring the year under consideration was filed on 14.10.2010 declaring the year under consideration was filed on 14.10.2010 declaring total income at Rs.2,07,530/ Rs.2,07,530/-. Subsequently, on receipt of . Subsequently, on receipt of information from the Investigation Wing information from the Investigation Wing of the Income of the Income-tax Department that assessee availed bogus purchase bills from Department that assessee availed bogus purchase bills Department that assessee availed bogus purchase bills ‘hawala dealers’, the Assessing Officer issued notice u/s 148 of the , the Assessing Officer issued notice u/s 148 of the , the Assessing Officer issued notice u/s 148 of the Income-tax Act, 1961 (in short ‘the Act’) and reassessment tax Act, 1961 (in short ‘the Act’) and reassessment tax Act, 1961 (in short ‘the Act’) and reassessment proceedings were commenced. The reassessment was completed by proceedings were commenced. The reassessment was completed by proceedings were commenced. The reassessment was completed by the Assessing Officer in terms of section 147 of the Act on the Assessing Officer in terms of section 147 of the Act on the Assessing Officer in terms of section 147 of the Act on 14.03.2016 assessing total income at Rs.2,77,33,199/-. In the said 14.03.2016 assessing total income at Rs.2,77,33,199/ 14.03.2016 assessing total income at Rs.2,77,33,199/ Nirmit Jatin Lathia 6 4828/MUM/2023 ITA Nos. 4784, 4828/MUM/2023 reassessment order, the Assessing Officer treated the purchases of reassessment order, the Assessing Officer treated the purchases of reassessment order, the Assessing Officer treated the purchases of Rs.2,75,25,669/- as bogus accommodation entry and added the as bogus accommodation entry and added the as bogus accommodation entry and added the same to the returned income. The list of said purchase parties is same to the returned income. The list of said purchase parties same to the returned income. The list of said purchase parties reproduced as under: reproduced as under:
S. No. Name Amount Amount 1. J B Interlink J B Interlink 17,29,670 17,29,670 2. Universal Trading Company Universal Trading Company 33,17,836 33,17,836 3. Pioneer Trading Company Pioneer Trading Company 39,16,042 39,16,042 4. Revika Trade Impex Pvt. Ltd. Revika Trade Impex Pvt. Ltd. 45,94,763 45,94,763 5. P. K. Trading Co. P. K. Trading Co. 9,90,912 6. S. P. Corporation S. P. Corporation 6,17,864 7. J. B. Traders J. B. 8,27,957 8. L.P. Traders L.P. Traders 8,98,560 9. Purab Enterprises Purab Enterprises 13,56,938 13,56,938 10. Bhakti Enterprises Bhakti Enterprises 20,37,876 20,37,876 Ashapura Enterprises / Akshad Ashapura Enterprises / Akshad 11. Enterprises Enterprises 72,37,251 72,37,251 Total Total 2,75,25,669/ 2,75,25,669/- 4. On further appeal, the Ld. CIT(A) held that against the bogus On further appeal, the Ld. CIT(A) held that against the bogus On further appeal, the Ld. CIT(A) held that against the bogus bills, assessee must have made bogus purchases from the market assessee must have made bogus purchases from the market assessee must have made bogus purchases from the market in cash at lower prices and therefore, the Ld. CIT(A) confined the in cash at lower prices and therefore, the Ld. CIT(A) confined the in cash at lower prices and therefore, the Ld. CIT(A) confined the addition against bogus purchases @ 12.5% of such bogus purchase addition against bogus purchases @ 12.5% of such bogus purchase addition against bogus purchases @ 12.5% of such bogus purchase of Rs.2,75,25,669/-. A . Against the above finding of the Ld. CIT(A) gainst the above finding of the Ld. CIT(A), both the assessee and the Revenue are before the Tribunal by th the assessee and the Revenue are before the Tribunal by th the assessee and the Revenue are before the Tribunal by raising the grounds as reproduced above. raising the grounds as reproduced above.
We have heard rival submission of the parties and perused the We have heard rival submission of the parties and perused the We have heard rival submission of the parties and perused the relevant material including the Paper book containing paged 1 to 85 relevant material including the Paper book containing paged 1 to 85 relevant material including the Paper book containing paged 1 to 85 by the assessee. We fi by the assessee. We find that the Assessing Officer received nd that the Assessing Officer received information from the Investigation Wing that assessee received information from the Investigation Wing that assessee received information from the Investigation Wing that assessee received Nirmit Jatin Lathia 7 4828/MUM/2023 ITA Nos. 4784, 4828/MUM/2023 bogus purchase bills/invoices issued by the accommodation entry bogus purchase bills/invoices issued by the accommodation entry bogus purchase bills/invoices issued by the accommodation entry provider i.e. the bogus hawala dealers. The Assessing Officer provider i.e. the bogus hawala dealers. The Assessing Officer provider i.e. the bogus hawala dealers. The Assessing Officer referred to the relevant rep referred to the relevant report of the Sales Tax Department wherein ort of the Sales Tax Department wherein sellers/dealers were not doing it is observed that those concern it is observed that those concerned sellers/dealers actual business of purchases and sale purchases and sales and were merely providing merely providing accommodation entry. He further referred that those parties had accommodation entry. He further referred that those parties had accommodation entry. He further referred that those parties had categorically stated on oath that they had merely merely provided accommodation bills and no actual ommodation bills and no actual delivery of the goods was given. delivery of the goods was given. The Assessing Officer attempted to verify existence of those parties The Assessing Officer attempted to verify existence of those parties The Assessing Officer attempted to verify existence of those parties however, said parties were not found on their given address, however, said parties were not found on their given however, said parties were not found on their given therefore, the Assessing Officer asked the assessee to produce sing Officer asked the assessee to produce sing Officer asked the assessee to produce those parties along with necessary document along with necessary document in support of in support of genuineness of the transaction. But the assessee failed to produced those parties the transaction. But the assessee failed to produced those parties the transaction. But the assessee failed to produced those parties The Assessing Officer and justify the genuineness of the purchases. and justify the genuineness of the purchases. The Assessing Officer also noted that assessee had not maintained day to day stock noted that assessee had not maintained day to day stock noted that assessee had not maintained day to day stock register or inward outward register. The assessee had neither register or inward outward register. The assessee had neither register or inward outward register. The assessee had neither submitted ledger account of those ‘hawala parties’ nor produced submitted ledger account of those ‘hawala parties’ nor produced submitted ledger account of those ‘hawala parties’ nor produced documentary evidences in support of genuineness of transaction. documentary evidences in support of genuineness of transaction. documentary evidences in support of genuineness of transaction. Therefore, the Assessing Officer r he Assessing Officer rejected book result results to the extent of erroneous purchase invoking section 145 of the Act. In the of erroneous purchase invoking section 145 of the Act. of erroneous purchase invoking section 145 of the Act. circumstances, the Assessing Officer disallowed the entire bogus circumstances, the Assessing Officer disallowed the entire bogus circumstances, the Assessing Officer disallowed the entire bogus purchases amounting to Rs.2,75,25,669/ purchases amounting to Rs.2,75,25,669/-. But the Ld. CIT(A) . But the Ld. CIT(A) rejected the addition to the extent of 12.5% of such allowed bogus he addition to the extent of 12.5% of such allowed bogus he addition to the extent of 12.5% of such allowed bogus purchases of Rs.2,75,25,669/ purchases of Rs.2,75,25,669/- observing as under:
Nirmit Jatin Lathia 8 4828/MUM/2023 ITA Nos. 4784, 4828/MUM/2023
6. Decision 6.1 This appeal has been filed by the appellant to this office that the This appeal has been filed by the appellant to this office that the This appeal has been filed by the appellant to this office that the addition of Rs. 2,75,25,669/ addition of Rs. 2,75,25,669/- treated as non-genuine purchase o genuine purchase of goods be deleted. 6.2 The AO noted in the assessment order that the appellant was asked to 6.2 The AO noted in the assessment order that the appellant was asked to 6.2 The AO noted in the assessment order that the appellant was asked to produce all the above mentioned parties but no one attended. produce all the above mentioned parties but no one attended. produce all the above mentioned parties but no one attended. Thereafter, AO recorded that the genuineness of the transaction was not verifiable to AO recorded that the genuineness of the transaction was not verifiable to AO recorded that the genuineness of the transaction was not verifiable to an amount of Rs. an amount of Rs. 2,75,25,669/- and the same was disallowed and added and the same was disallowed and added back to the income. back to the income. 6.3 In view of the detailed discussion above, considering that the In view of the detailed discussion above, considering that the In view of the detailed discussion above, considering that the evidences of actual delivery of goods has not been demonstrated either evidences of actual delivery of goods has not been demonstrated either evidences of actual delivery of goods has not been demonstrated either before the AO or before the undersigned, before the AO or before the undersigned, (The AO has stated in his AO has stated in his assessment order that assessee has not maintained properly the assessment order that assessee has not maintained properly the assessment order that assessee has not maintained properly the records, records, records, many many many vouchers/bills vouchers/bills vouchers/bills are are are self self self made, made, made, some some some of of of the the the vouchers/bills are unsigned and many vouchers are without vouchers/bills are unsigned and many vouchers are without vouchers/bills are unsigned and many vouchers are without description of the details). description of the details). and I have no hesitation hol and I have no hesitation holding thai the purchases are not genuine. This part of the appellant's contentions is purchases are not genuine. This part of the appellant's contentions is purchases are not genuine. This part of the appellant's contentions is rejected. 6.4 At the same time, it is seen that the AO has conceded in his order it is seen that the AO has conceded in his order 6.4 At the same time, that the material allegedly purchased has been entered in the that the material allegedly purchased has been entered in the that the material allegedly purchased has been entered in the books.Thus the reasonable Thus the reasonable conclusion can be drawn that purchases have conclusion can be drawn that purchases have been made from market in cash at the lower prices and used in its been made from market in cash at the lower prices and used in its been made from market in cash at the lower prices and used in its business. 6.5 The question arises as to what can be reasonable basis for computing The question arises as to what can be reasonable basis for computing The question arises as to what can be reasonable basis for computing such disallowance. In this respect, I find significant support such disallowance. In this respect, I find significant support such disallowance. In this respect, I find significant support form the decision of the Hon'ble High Court of Bombay in the case of Principal decision of the Hon'ble High Court of Bombay in the case of Principal decision of the Hon'ble High Court of Bombay in the case of Principal Commissioner of Income Tax vs. Batliboi Environmental Commissioner of Income Tax vs. Batliboi Environmental Engineering Ltd Engineering Ltd [2022] wherein it was held as under; [2022] wherein it was held as under; 4. As regards first question, the Tribunal has upheld the finding 4. As regards first question, the Tribunal has upheld the finding 4. As regards first question, the Tribunal has upheld the finding and conclusion of the Commissioner of Income Tax (Appeals) conclusion of the Commissioner of Income Tax (Appeals) conclusion of the Commissioner of Income Tax (Appeals) whereby the Commissioner (Appeals) directed the Assessing whereby the Commissioner (Appeals) directed the Assessing whereby the Commissioner (Appeals) directed the Assessing Officer to disallow to disallow 12.5% bogus purchases and to add 12.5% of the 12.5% bogus purchases and to add 12.5% of the amount of purchases as income of the Appellant. The argument amount of purchases as income of the Appellant. The argument amount of purchases as income of the Appellant. The argument advanced is that advanced is that the bogus purchases ought to have been the bogus purchases ought to have been disallowed in totality. The learned counsel for the parties have disallowed in totality. The learned counsel for the parties have disallowed in totality. The learned counsel for the parties have placed before us the decisions of the Division Bench in the cases of placed before us the decisions of the Division Bench in the cases of placed before us the decisions of the Division Bench in the cases of Pr. Commissioner of Income Tax v. M/s.Mohommad Haji Adam & Pr. Commissioner of Income Tax v. M/s.Mohommad Haji Adam & Pr. Commissioner of Income Tax v. M/s.Mohommad Haji Adam & Co.1 Co.1 and and Pr.Commissioner Pr.Commissione r of of Income Income Tax Tax v. v. Pramshakti Pramshakti Distributors Pvt.Ltd.2 wherein the Division Bench has observed Distributors Pvt.Ltd.2 wherein the Division Bench has observed Distributors Pvt.Ltd.2 wherein the Division Bench has observed that if the factum of sales has been accepted by the Department that if the factum of sales has been accepted by the Department that if the factum of sales has been accepted by the Department then even if it is established that there were bogus purchases, it is then even if it is established that there were bogus purchases, it is then even if it is established that there were bogus purchases, it is not necessary that entire amo not necessary that entire amount should be added to the income of unt should be added to the income of the Assessee as there cannot be a sale without purchase. the Assessee as there cannot be a sale without purchase." the Assessee as there cannot be a sale without purchase." 6.6 In the Case of PCIT vs. Pinaki D Panani, of 2017 In the Case of PCIT vs. Pinaki D Panani, ITA No. 1543 of 2017 dated In the Case of PCIT vs. Pinaki D Panani, ITA No. 1543 of 2017 08.01.2020, the Hon'ble Bombay High Court held as follows; 08.01.2020, the Hon'ble Bombay High Court held as follows; 08.01.2020, the Hon'ble Bombay High Court held as follows; Nirmit Jatin Lathia 9 4828/MUM/2023 ITA Nos. 4784, 4828/MUM/2023 ".... Assuming that the Respon ".... Assuming that the Respondent-Assessee the purchasers tom Assessee the purchasers tom whom the purchases were made were bogus, in view of the finding whom the purchases were made were bogus, in view of the finding whom the purchases were made were bogus, in view of the finding of fact that the material was consumed the question would be of of fact that the material was consumed the question would be of of fact that the material was consumed the question would be of extending the percentage of net profit on total turnover. This would extending the percentage of net profit on total turnover. This would extending the percentage of net profit on total turnover. This would be a matter of calculation be a matter of calculation by the concerned authority. In this by the concerned authority. In this context, if the Commissioner of Income Tax (Appeals) and the context, if the Commissioner of Income Tax (Appeals) and the context, if the Commissioner of Income Tax (Appeals) and the Tribunal chose to follow the percentage arrived by the Settlement Tribunal chose to follow the percentage arrived by the Settlement Tribunal chose to follow the percentage arrived by the Settlement Commission in the Respondent Commission in the Respondent-Assessee's own case for the other Assessee's own case for the other years, this exercise cannot b years, this exercise cannot be considered as irregular of illegal." e considered as irregular of illegal." 6.7 In view of the above judicial precedents, factual aspects of the case, 6.7 In view of the above judicial precedents, factual aspects of the case, 6.7 In view of the above judicial precedents, factual aspects of the case, the addition shall be confined to 12.5% of the alleged bogus purchases of the addition shall be confined to 12.5% of the alleged bogus purchases of the addition shall be confined to 12.5% of the alleged bogus purchases of Rs. 2,75,25,669/ Rs. 2,75,25,669/-.” (emphasis supplied externally) (emphasis supplied externally) 5.1 We find that in para 6.3, the Ld. CIT(A) has referred to certain in para 6.3, the Ld. CIT(A) has referred to certain in para 6.3, the Ld. CIT(A) has referred to certain observations of the Assessing Officer of the Assessing Officer, interalia, many vouchers/bills many vouchers/bills are self made, some of the vouchers/bills are unsigned and many are self made, some of the vouchers/bills are unsigned and many are self made, some of the vouchers/bills are unsigned and many vouchers are without description of the details vouchers are without description of the details. But, the Assessing . But, the Assessing Officer has not made any such comments in his assessment order. Officer has not made any such comments in his assessment order. Officer has not made any such comments in his assessment order. Further, the Ld. CIT(A) has concluded that the Assessing Officer Further, the Ld. CIT(A) has concluded that the Assessing Officer Further, the Ld. CIT(A) has concluded that the Assessing Officer conceded in his order that the material allegedly purchased had been conceded in his order that the material allegedly purchased had been conceded in his order that the material allegedly purchased had been entered in the books. On perusal of t . On perusal of the assessment order, we do not he assessment order, we do not find any such observation by the Assessing Officer. The Assessing find any such observation by the Assessing Officer. The Assessing find any such observation by the Assessing Officer. The Assessing Officer has particularly mentioned that no day to day stock register Officer has particularly mentioned that no day to day stock register Officer has particularly mentioned that no day to day stock register or inward outward register was maintained by the assessee. or inward outward register was maintained by the assessee. or inward outward register was maintained by the assessee. Therefore, the Ld. CIT(A) has d Therefore, the Ld. CIT(A) has decided the issue in dispute ecided the issue in dispute on the basis of facts extraneous to the case facts extraneous to the case, therefore, the decision of the the decision of the Ld. CIT(A) is perverse of the facts. Ld. CIT(A) is perverse of the facts. In the circumstances, we feel it In the circumstances, we feel it appropriate to set aside the order of the Ld. CIT(A) for deciding appropriate to set aside the order of the Ld. CIT(A) for deciding appropriate to set aside the order of the Ld. CIT(A) for deciding afresh after taking into consideration facts on record of the case. king into consideration facts on record of the case. king into consideration facts on record of the case. The Ld. CIT(A) is required required to examine the circumstances under to examine the circumstances under Nirmit Jatin Lathia 10 4828/MUM/2023 ITA Nos. 4784, 4828/MUM/2023 which 100% disallowance of bogus purchase could be made or the which 100% disallowance of bogus purchase could be made or the which 100% disallowance of bogus purchase could be made or the circumstances under which percentage of such bogus purchases circumstances under which percentage of such bogus purchases circumstances under which percentage of such bogus purchases could be disallowed. The Ld. CIT(A) is directed to pass a reasoned ed. The Ld. CIT(A) is directed to pass a reasoned ed. The Ld. CIT(A) is directed to pass a reasoned order after taking into consideration the facts of the case, order after taking into consideration the facts of the case order after taking into consideration the facts of the case particularly one to one correlation of bogus purchases and particularly one to one correlation of bogus purchases and particularly one to one correlation of bogus purchases and corresponding sales with the help of day to day stock register and corresponding sales with the help of day to day stock register and corresponding sales with the help of day to day stock register and verification of genuineness of those corresponding sales uineness of those corresponding sales uineness of those corresponding sales . The grounds of appeal of the assessee as well as Revenue are grounds of appeal of the assessee as well as Revenue are grounds of appeal of the assessee as well as Revenue are accordingly allowed for statistical purposes. accordingly allowed for statistical purposes.
In the result, both the appeals of the assessee and Revenue In the result, both the appeals of the assessee and Revenue In the result, both the appeals of the assessee and Revenue are allowed for statistical purposes. are allowed for statistical purposes.