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Revenue by : Shri T. A. Khan (DR) Assessee by : None Date of hearing : 21.09.2017 Date of Pronouncement : 21.09.2017 Order Under Section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by Revenue under section 253 of the Income-tax Act (the Act) is directed against the order of Commissioner of Income –tax (Appeals)-44 [ld. CIT(A)], Mumbai dated 03.09.2015 for the Assessment Year (AY) 2011-12. The Revenue has raised the following grounds of appeal. 1) "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in restricting addition of unexplained expenditure to Rs.7,47,695/- (@ 8% of Rs.93,46,177) u/s. 69C of the I.T. Act on account of bogus purchases as against the addition of Rs.93,46,177/- made by the AO without appreciating that the assessee has not produced any cogent Shri Harshad V. Sheth evidence to substantiate the fact that it had taken actual delivery of goods purchased from the parties and that the notices under 133(6) issued to the parties from whom alleged bills were received were returned undelivered by the postal authorities with the remark 'not available at this address' and the assessee has also failed to produce the purchase parties before the AO." 2) "On the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in deleting the disallowance made by the AO overlooking the statement given by the party and explicit finding of the investigation carried out by the Sales Tax Department and corroborated by the enquiries of the AO." 3) "The appellant prays that the order of the Ld. CIT(A) on the above ground be set aside and that of the Assessing Officer be restored."
Brief facts of the case are that the assessee is a proprietor of M/s. Shreenath Traders engaged in the business of trading in Iron and Steel, filed his return of income for relevant Assessment Year on 29.09.2011 declaring total income of Rs. 11,95,020/-. The assessment was completed on 20.03.2014 under section 143(3) of the Act. The Assessing Officer while passing the assessment order made the disallowance of Rs. 93,46,177/- on account of bogus purchases. On appeal before the ld. CIT(A), the disallowance was restricted @ 8% of the bogus purchases. Hence, aggrieved by the order of ld. CIT(A), the Revenue has filed the present appeal before us.
None appeared on behalf of assessee despite repeated calls. We have heard the ld. Departmental Representative (DR) for the Revenue and perused the material available on record. The ld. DR for the Revenue supported the Shri Harshad V. Sheth order of Assessing Officer and argued that the assessee has shown the purchases from nine parties who were declared as hawala dealers by the Sales Tax Department, Government of Maharashtra. The Investigation Wing of the Income-tax Department is also made the enquiries about the hawala dealers and find that the hawala dealers were involved in issuing bogus bills without delivery of material or goods. The assessee has shown his purchases from all hawala such dealers only to inflate the property. It was argued that the order of ld. CIT(A) may be reversed and the Assessing Officer be restored.
We have considered the submission of ld. DR for the Revenue and perused the material available on record. The Assessing Officer during the assessment proceeding observed that the assessee has shown the purchases from following nine who were declared as hawala parties:
Sr. No. Name of the dealer Amount (Rs.) Shivrai Traders 2,76,464 1. 2. Nisha Enterprise 16,69,408 GhataliaSteels/Divine Enterprises 13,77,923 3. 4. Krishna Trading Co. 2,97,425 5. Vijay Trading Co. 3,78,102 6. Bhagyalaxmi Steel Industries. 4,32,750 7. Jineshwar Enterprises 9,32,257 Anmol Feromet Pvt.Ltd. 8. 14,02,782 9. Aadeshwar Steel & Engg.Co. 25,79,066 Total 94,46,177 5. The Assessing Officer issued notice under section 133(6) of the Act to all the above nine parties. The postal authorities returned all the notice with the 3 Shri Harshad V. Sheth remark “Not Known”, except in case of M/s. Shreenath Traders as unclaimed after issuing two intimations. The assessee was asked to provide the addresses and whereabouts of all the dealers for verification and also prove the genuineness of the purchases. The assessee instead of filing addresses of the parties furnished the copy of Ledger Account of the parties.
However, the evidence of the assessee was not accepted by the Assessing Officer and the Assessing Officer made the addition of entire purchases from nine parties for Rs. 93,46,177/-. The assessing officer relied on the statement of the various parties recorded, information and the documents furnished by the sales tax department. On appeal before the ld. CIT(A), the assessee contended that the Assessing Officer has not considered the copy of Ledger Account, Bank Statement, Stock-Register in detailed and on details of purchases, item wise, quantity-wise and corresponding sales of all the materials. The assessee also contended that the Assessing Officer has made the addition of entire purchases instead of bringing any material on record.
After considering the submission of the assessee, the ld. CIT(A) give the following finding:
“5.7· It is seen from the TAR that a summary of item wise sales and purchases in quantity is given. There is no opening stock or closing stock. The total sales is Rs 11,82,85,463/- and net profit shown is Rs 12,46,549/- (1.05%).The purchases are Rs 10,93,12,169/- and gross profit margin is Rs 89,73,294/- (7.58%).The impugned purchases at Rs 93,46,177/- is 8.5% of the total purchases shown. Since this is a case of trading, if - Shri Harshad V. Sheth purchases are held entirely as bogus, the corresponding sales cannot be held to have taken place. The- disallowance made by AO has resulted in GP % of 15.48% and NP of 10.9% which is quite high for trading in steel. On similar facts in the case Harshad V. Seth HUF, where the impugned purchases were Rs 96,87,457/- and some of the impugned parties were also same, the Ld. CIT(A) upheld disallowance at 8% of impugned purchases. Therefore, 8% of the purchases i.e. 8% of Rs.93,46,177/- which works out to of Rs. 7,47,695/- is upheld for lack of credible evidence being provided by the appellant to substantiate the purchases. The appellant gets relief of Rs.85,98,482/-.”
From the finding of the ld. CIT(A), we have noted that ld. CIT(A) examined the item wise sales and purchases of the assessee. The ld. CIT(A) further examined the Gross Profit/Net Profit ratio during the relevant AY, the ld. CIT(A) further examined the percentage of bogus purchases/impugned purchases equally the entire purchases during the year and concluded that as the assessee is a Trader, if the purchases are held as bogus, the corresponding sales cannot be held to have taken place in absence of purchase. On the basis of his observation, the ld. CIT(A) restricted the addition @ 8% of the impugned/bogus purchases. The ld CIT(A)has already examined the profitability embedded in the alleged bogus purchases. The ld CIT(A) brought the revenue leakage in the said transaction to tax.