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Facts
The assessee, engaged in reselling and distributing chemicals, filed returns for A.Y. 2009-10 and 2010-11. The Assessing Officer (AO) received information that the assessee obtained accommodation entries for bogus purchases aggregating to Rs. 60,58,884/-. The AO treated these purchases as unexplained expenditure and made additions to the assessee's income.
Held
The Tribunal noted that while the assessee's purchases were found to be bogus, the profit element needed to be considered. Based on industry rates, GP ratio, and judicial decisions, the addition was restricted to 6% of the purchase transactions.
Key Issues
Whether the additions made by the revenue authorities on account of bogus purchases were justified, and if so, at what rate.
Sections Cited
143(3), 147, 250, 271(1)(c), 69C
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Income Tax Appellate Tribunal, “F” BENCH
Before: SHRI PAVAN KUMAR GADALE & SHRI GIRISH AGRAWAL
सुनवाई क� तार�ख/Date of Hearing 27.05.2024 घोषणा क� तार�ख/Date of Pronouncement 30.05.2024 ORDER PER PAVAN KUMAR GADALE, JM: These are the two appeals filed by the assessee against the separate orders of Commissioner of Income Tax (Appeals) (CIT(A)-26 Mumbai passed u/sec 143(3) r.w.s 147 and U/sec 250 of the Act.
2.Since issues involved in these two appeals are common and identical, hence they are clubbed, heard and a consolidated order is passed.For the sake of convenience, we shall take up as lead case and facts narrated. The assessee has raised the following grounds of appeal:
2 & 508/MUM/2024 Felie Amit Bavisi, Mumbai . Ground No. 1: Addition of a sum of Rs. 7,57,360/- as profit on boqus purchases. Based on the facts and circumstances of the case and in law, the learned CIT(A) erred in adding back a sum of Rs.7,57,360/- i.e. a gross profit @ 12.5% on Rs. 60,58,884/- on account of purchases made from M/s Shreenath Trading Company, M/s Great International and M/s Manav Impex, alleging that the Appellant was a beneficiary of the accommodation bills accepted during the captioned assessment year. Further, the learned CIT(A) failed to appreciate that all the purchase and sale transactions entered into by the Appellant have been made through normal banking channels and by way of account payee cheques or cash and are corroborated by purchase invoices and ancillary documents. Ground No. 2: Surge in Gross Profit Ratio @ 12.5% The Ld. CIT(A) failed to take into account the actual average GP ratio of the business of the Appellant which is around 3.5% to 4% as against the alleged GP ratio @ 12.5% on Rs. 60 ,58,884/- Ground No. 3: The Ld. CIT (A) erred in imposing penalty under the provisions of section 271(1)(c) of the Act amounting to Rs * 0.2 ,54,120/- Ground No. 4: The Appellant craves leave to add, to alter or to amend the aforesaid ground of appeal
3. The Brief facts of the case are that, the assessee is engaged in the business as reseller and distributor of chemicals. The assessee has filed the return of income for the A.Y 2009-10 on 29.09.2009 disclosing a total income of Rs.14,67,300/- and the assessment was completed u/sec 143(3) of the Act on 24.11.2021 assessing a total income of Rs.14,90,330/-. Subsequently the Assessing
3 & 508/MUM/2024 Felie Amit Bavisi, Mumbai . Officer (AO) has received information DGIT(Inv) Mumbai that the assessee has obtained accommodation entries by way of bogus purchase bills as per Sales Tax Department, Maharashtra and the assessee is one of the beneficiary. The AO found that in the F.Y 2008-09, the assessee has obtained accommodation bills/ bogus purchases from three parties aggregating to Rs.60,58,884/-. Therefore the AO has reason to believe that the income has escaped assessment and issued notice u/sec 148 of the Act. In compliance to the notice, the assessee has filed the letter to treat the return of income filed earlier as due compliance to notice issued u/sec 148 of the Act. Subsequently the AO has issued notice u/sec 143(2) and u/sec 142(1) of the Act along with questionnaire.In compliance to the notice, the Ld. AR of the assessee appeared from time to time and submitted the details and the case was discussed. The AO on perusal of the information found that the assessee has made purchases from three parties aggregating to Rs. 60,58,884/- and the AO to test check the genuineness of purchase transactions has issued notice u/s 133(6) on the parties, i.e two notices were returned un served by postal authorities and in one case though the notice is received by the party but there is no proper compliance. Further the AO has issued a show cause notice to treat the purchases as unexplained expenditure u/s 69C of the Act. The assessee in response to show cause notice has submitted a letter with details of purchases, invoice copies, confirmation with parties.
4 & 508/MUM/2024 Felie Amit Bavisi, Mumbai . Whereas the AO was not satisfied with the explanations and dealt on various facts, modus operandi of the transactions and is of the opinion that purchase transactions are not genuine. Whereas in respect of the two parties, the A.O has estimated the income @ 12.5% of alleged bogus purchases which worked out to Rs. 5,16,665/- and with regard to purchases from another party,the A.O has made 100% addition of alleged bogus purchases of Rs. 19,25,560/- and assessed the total income of Rs.39,32,550/- and passed the order u/sec 143(3) r.w.s 147 of the Act dated 26.03.2015.
Aggrieved by the order, the assessee has filed an appeal with the CIT(A), whereas the CIT(A) has considered the grounds of appeal, submissions of the assessee and findings of the AO in scrutiny assessment. Whereas the CIT(A) has sustained the addition of Rs. 5,16,665/- and in respect of the purchase transaction of Rs.19,25,560/-, the CIT(A) has restricted the addition @ 12.5% of the amount and partly allowed the assessee appeal. Aggrieved by the order of the CIT(A), the assessee has filed an appeal before the Honble Tribunal.
5. At the time of hearing, the Ld. AR submitted that the CIT(A) has erred in confirming the percentage addition of purchases made by the AO and the CIT(A) also erred in estimating the income @12.5% irrespective of the facts that the assessee has submitted the information available with the lower authorities in 5 & 508/MUM/2024 Felie Amit Bavisi, Mumbai . the proceedings. The Ld. AR submitted that the profit element from the assessee’s business transactions is less than the addition made by the revenue authorities. Further Ld. AR substantiated the submissions with the range of Gross profit ratio between 4 % to 4.83 % maintained as per the books of Accounts and the return of income was filed for earlier and subsequent years. Further the Ld.AR substantiated the submissions with factual paper book, judicial decisions and prayed for allowing the appeal. Per Contra, the Ld. DR submitted that the assessee has not proved the genuineness of the purchases transactions and failed to produce parties and the Ld.DR relied on the order of the CIT(A).
We heard the rival submissions and perused the material on record. The sole disputed issue envisaged by the Ld. AR that the CIT(A) erred in treating the purchases made by the assessee from the parties are bogus and the CIT(A) also erred in observing that these transactions are bogus and these parties are only providing accommodation entries and has estimated the income @12.5% But the fact remains that, the assessee has made bogus purchases transactions to save the taxes and profit element embedded has to be considered. The Ld.AR submitted that the profit margin/element in the business range between 4% to 4.8% and both the revenue authorities has over looked the factual aspects of the purchase transactions and the Ld.AR substantiated with material evidences in the paper book on the purchase transactions. We find the contentions of the Ld.AR are 6 & 508/MUM/2024 Felie Amit Bavisi, Mumbai . realistic and duly supported by the material evidence and judicial decisions on the estimation of profit element. We considering average industry rate, the GP ratio and VAT component embed in the transactions, judicial decisions and to meet the ends of justice restrict the addition @ 6% of the purchase transactions. Accordingly, we set-aside the order of the CIT(A) and direct the assessing officer to estimate the income @ 6% on unapproved/ bogus purchases and We partly allow the grounds of appeal in favour of the assessee. ITA No. 508/Mum/2024, A.Ys. 2010-11.
As the facts and circumstances in this appeal is identical to A.Y 2009-10 (except variance in figures) and the decision rendered in above paragraphs would apply mutatis mutandis for this appeal also. Accordingly, we partly allow the grounds of appeal of the assessee.
In the result, both the appeals filed by the assesse are partly allowed.