MODY INTERIORS P.LTD,MUMBAI vs. ASST CIT 16(3), MUMBAI

आदेश / O R D E R

Per Sandeep Gosain, Judicial Member:

(AY 2010-11) 3. First of all we take up assessee’s appeal in 2010-11). The grounds of appeal are mentioned herein below:-

1.0 On facts and circumstances of the case and in law, Ld. CIT(A) erred in upholding the re-opening of assessment as valid on ignoring the fact that there is no reason to believe of escapement of income and in absence of fresh tangible material and independent application of mind, thus notice u/s 148 and consequential re- assessment order u/s 147 is bad in law; 2.0 On facts and circumstances of the case and in law, Ld. CIT(A) erred in confirming the disallowance of Rs. 19,30,714/- @ 12.50% on disputed purchase of Rs. 1,54,45,712/- made from suppliers declared as suspicious dealers by the Maharashtra Sales tax department; 3.0 The Ld. CIT(A), before sustaining the disallowance of purchase, on estimation basis @ 12.50%, erred in ignoring the understated vital facts, being; a) The entire addition has been made only on the basis of information received from the Sales tax department without bringing credible evidence on record; b) The appellant made entire payments for disputed purchases through banking channel by A/c payee cheques; c) The Gross profit ratio disclosed in impugned year @ 21.80% is in excess to earlier 2 years disclosed @ 19.05% and 14.67%; d) The statement of 31-d parties recorded at back of the appellant and without allowing an opportunity of cross examination used against the appellant is erroneous; e) The Ld. AO has not rejected appellant's books of accounts u/s 145(3), thus estimation made on adhoc basis is unjustified.

4.0 Without prejudice, an alternate prayer is made to adopt the concept of real income and restrict the disallowance @ 5% of alleged non-genuine purchase since normal profits corresponding to disputed purchase is been offered to tax.

The appellant craves leave to add, amend, alter, and/or withdraw any of the grounds of appeal at the time of hearing.

As per the facts of the case, the assessee is engaged in the business of interior decoration and works contractor. The return on income declaring total income of Rs. 32,13,854/- was filed on 21.09.10. Subsequently, information was received by the AO from DGIT(Inv.), Mumbai related to bogus purchase entries received from the Sales Tax Department, Maharashtra. The AO had information that some of the parties from whom the assessee had made purchases were bogus and they are engaged in the business of providing bills without actual delivery of goods. The AO carried out investigations and after seeking reply from the assessee, disallowed the claim of purchase amounting to Rs. 1,54,45,712/- as bogus purchases and added the same to the total income of the assessee. Aggrieved by the order of AO, assessee preferred appeal before Ld. CIT(A) and Ld. CIT(A) after considering the case of both the parties partly allowed the appeal of the assessee and restricted the addition @ 12.5% of the total bogus purchases. Now before us, the assessee as well as revenue have filed their respective appeals. However at present, we are dealing with the appeal filed by the assessee.

Ground No. 1. 4. This grounds raised by the assessee relates to challenging the validity of reopening.

5. We have heard the counsels for both the parties and we have also perused the material placed on record as well as the orders passed by revenue authorities. AO issued notice u/s 148 of the I.T. Act after receiving information from the Sales Tax Department that some of the parties from whom the assessee had made purchases were bogus and they are engaged in the business of providing bills without actual delivery of goods and thus there was escapement of income from assessment. This information received from the Investigation wing construed ‘tangible material’ for the purpose of reopening the assessment. Hence reopening of the assessment by the AO and upheld by Ld. CIT(A) is valid. Hence this ground raised by the assessee is dismissed. Ground No. 2 to 4.

6. Since all the grounds raised by the assessee are inter-connected and inter-related and relates to challenging the confirmation of disallowance @ 12.5% of the bogus purchases, therefore we thought it fit to dispose of the same through the present common order.

7. We have heard the counsels for both the parties and we have also perused the material placed on record as well as the orders passed by revenue authorities. Before we decide the merits of the case, it is necessary to evaluate the orders passed by Ld. CIT(A). The Ld. CIT(A) has dealt with the above grounds raised by the revenue in para no. 5 of its order. The operative portion of the order of Ld. CIT(A) is contained in para no. 5.1 to 5.4 of its order and the same is reproduced below:-

5.1 In the appellant's submission, appellant states that they had submitted the following documents:- (a) Names and addresses of disputed purchase parties; (b) Ledger account of the suppliers; (c) Purchase bills; (d) Delivery challans; (e) Bank statements evidencing the payments by account payee cheques; (f) Quantitative details of purchas6 and consumption of goods; (g) Sale bills; (h) Comparative chart of G.P. ratio of impugned year and earlier 2 years. 5.2 Further, appellant states that addition of entire purchases would be unjustified as it would lead to a case of taxing the entire sales without allowing the deduction of corresponding purchase. According to the appellant, there cannot be a case of only sales without corresponding purchase. Appellant further states that during the year under consideration, gross profit was shown as 21.80% whereas for A.Y.2009-10, it was only 19.05% and for A.Y.2008-09 it was 14.67%. It was further stated that all payments were made by cheque through banking channels which can be verified by the AO. Further, appellant prays that the concept of real income be adopted to estimate the suppressed income of Rs.7,72,286/- @ 5% on disputed purchase. Appellant has further relied on following case laws:- (a) CIT vs. Nikunj Eximp Enterprises (P) Ltd. [35 Taxmann.com 384 (Born.)] (b) ITO vs. Shri Deepak Popatlal Gala (ITA No.5920/Mum/2013) (c) Paras Organics Pvt. Ltd. vs. DCIT (ITA No.2369/Mum/2014) (d) Hiralal Chunilal Jain vs. ITO (ITA No.4547/Mum/2014) (e) Shri Ganpatraj A. Sanghvi vs. ACIT (ITA No.2826/Mum/2013) (f) ACIT vs. Ramila Pravin Shah (ITA No.5246/Mum/2016) (g) CIT vs. Simit P. Sheth [38 Taxmann.com 385 (Guj.)] (h) CIT vs, Bholanath Poly Fab Pvt. Ltd. [355 ITR 290 (Guj.)] (i) CIT vs. Nangalia Fabrics Pvt. Ltd. [40 Taxmann.com 206 (Guj.)] (j) DCII vs. Rajeev C. Kalathi (ITA No.6727/Mum/2012) (k) ACIT vs. C. V. Sons (ITA No.2239/Mum/2012 & 2240/Mum/2012) (I) ITO vs. Eagle Impex (ITA No.5697/Mum/2010) (m) Madhukant B. Gandhi vs. ITO (ITA No. 1 950/Mum/2009) (n) CIT vs. President Industries [258 ITR 654 (Guj.)] (o) CIT vs. Baichand Ajit Kumar [263 ITR 610 (MP)] (p) CIT vs. Leaders Valves (P) Ltd. [285 ITR 435 (P&H)] (q) CIT vs. M. K. Brothers [163 ITR 249 (Guj.)] 5.3 In the appellant's submission, appellant states that appellant had furnished names and addresses of disputed parties, ledger accounts of suppliers, purchase bills, delivery challans, bank statements evidencing payment by account payee cheques, quantity tally and sale bills to justify the genuineness of recorded purchase and payments thereon. Further, appellant states that disallowance of entire purchases would be unjustified and it would lead to taxing the entire sales without allowing deduction of corresponding purchases. Appellant further states that there cannot be a case of only sales without corresponding purchase. In short, if there is a sales, then it is required to be presumed that there is a corresponding purchase against such sale. 5.4 I have considered the appellant's submission and order passed by the AO. An identical situation has arisen in the case of CIT Vs. Simit P. Sheth (Guj.) of Hon'ble Gujarat High Court where it is held that when total sales is accepted by the AO, he could not have questioned the very basis of purchases in entire purchases but only the profit element embedded in such purchases can be added as income of the assessee. Accordingly, Hon'ble High Court allowed the order of Tribunal estimating the share profit rate of 12.5%. In the present case also, AO had accepted the total sales of the appellant, hence in view of the above Gujarat High Court decision, only profit element embedded in the bogus purchases can be added to the total income of the appellant. Thus relying on the decision of Hon'ble Gujarat High Court, in the present case also by adopting 12.5%, the disallowance will be reduced to Rs.19,30,714/-. AO's addition is upheld for Rs.19,30,7141- and balance amount of Rs.35,14,998/- is deleted. The ground of appeal is partly allowed.

After having gone through the facts of the present case as well as considering orders passed by revenue authorities and submissions made by both the parties, we find that Ld. CIT(A) while dealing with the above grounds have considered the facts and based its findings by following the judgment of Hon’ble Gujrat High Court in the case of CIT Vrs. Simit P. Sheth. No new facts or contrary judgments have been brought on record before us in order to controvert or rebut the findings so recorded by Ld CIT (A). Therefore, there are no reasons for us to interfere into or deviate from the findings recorded by the Ld. CIT (A). Hence, we are of the considered view that the findings so recorded by the Ld. CIT (A) are judicious and are well reasoned. Resultantly, these ground raised by the assessee stands dismissed.

I.T.A. No. 3339/Mum/2017 (AY 2010-11) 8. Now we take up revenue’s appeal in (AY 2010-11). The grounds of appeal are mentioned herein below:-

1. On the facts and in the circumstances of the case and in law, whether the Ld. CIT(A) has erred in sustaining addition of Rs. 19,30,174/- only on estimate basis although the entire purchase of Rs.1,54,45,712/- made by the assessee is bogus in nature to the extent of without actual delivery of goods.

2. On the facts and circumstances of the case and in law, whether the Ld.CIT(A) has erred in not appreciating the ratio laid down in the case of N.K. Proteins Limited Vs DCIT in SLP No.769 of 2017. 3. The appellant prays that the order of CIT(A) on the above ground be set aside and that of the Assessing officer be restored. 4. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary.

Since, we have already decided the case of assessee in AY 2010-11-07 and uphold the order of CIT(A), therefore, based on our findings in the case of assessee, we dismissed the appeal of revenue.