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Income Tax Appellate Tribunal, ‘L’ BENCH, MUMBAI
Before: SHRI RAJENDRA, AM & SHRI RAVISH SOOD, JM
आदेश / O R D E R
PER RAVISH SOOD, JUDICIAL MEMBER:
The present appeal filed by the revenue is directed against the order passed by the CIT(A)-18, Mumbai, dated 05.01.2017, which in itself arises from the assessment order passed by the A.O u/s. 143(3) r.w.s.147 of the Income tax Act, 1961, (for short Act), dated P a g e | ACIT Vs. M/s. Taprath Polymers 27.02.2015. The revenue assailing the order of the CIT(A) had raised the following grounds of appeal before us:-
“1. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in restricting the disallowance of the alleged purchases of Rs.34,81,845/-claimed to have been made from the alleged hawala parties to 12.5% i.e. Rs.4,35,231/- thereby granting a relief of Rs.30,46,614/- by ignoring the fact that neither the parties nor the confirmation letters was produced either during the course of assessment proceedings or during the appellate proceedings which would prove that the purchases alleged to have been made were genuine.
2. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in restricting the disallowance of the purchases made from the various parties who were proven accommodation entry providers as per the finding made by the Sales Tax authorities in consequence to the investigation carried out.
On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in ignoring the decision by the Hon'ble Punjab & Haryana High Court in the case of J.R. Solvent Industries (Pvt.) Ltd. (2012) (22 taxmann,com 115) wherein it was held that where purchases were made from a non-existing seller, same would be held to be bogus even if complete quantitative details of purchase were available in the assessee's books of account 4. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in following the judicial pronouncements of M/s. Simit P. Sheth (2013) 18 Taxmann.com 385 (Guj), M/s. Bholanath Polyfab Pvt.Ltd. 335 ITR 290 (Guj) and M/s. Sanket Steel Traders dated 20/05/2011 which were rendered in cases where the assessees were traders whereas in the instant case the assessee is a Manufacturing company and as such those decisions were not applicable to the facts of the present case.
5. The appellant prays that the order of the CIT (A) on the above grounds be set aside and that of the A.O. be restored.
6. The appellant craves leave to amend or alter any grounds or add a new ground which may be necessary”
Briefly stated, the facts of the case are that the assessee company which is engaged in the business of manufacturing, import and export of Synthetic rubber SBR and Synthetic rubber NGSR had filed its return of income for A.Y 2009-10 on 14.09.2009, declaring P a g e | ACIT Vs. M/s. Taprath Polymers total income at Rs.1,32,24,350/-, which was accepted as such u/s. 143(1) of the ‘Act’. The A.O on the basis of information received from the Sales Tax Department that the assessee had during the year under consideration made bogus purchases from the following parties:
Name of the Parties Amount Deepali Enterprises Rs.9,54,452/- M.R. Corporation Rs.12,58,875/ Smeeta Impex Pvt. Ltd. Rs.3,79,350/- Engineering Service Center Rs.8,89,168/- Total Rs.34,81,845/- , thus reopened the case of the assessee u/s 147 of the ‘Act’. That during the course of the assessment proceedings the A.O issued Notices u/s. 133(6) to all the four parties, which however were returned by the postal authorities with the remarks as under:
Sr. No. Name of the party Remarks 1. Deepali Enterprises Left 2. M.R. Corporation Left 3. Smeeta Impex Pvt. Ltd. Acknowledgment not received 4. Engineering Service Center Intimation posted That in the backdrop of the aforesaid factual matrix the A.O directed the assessee to produce the respective parties, as well as place on record the details in respect of the purchase transactions claimed to have been made from them. Though the A.O had specifically asked the assessee to submit proof of delivery of goods, ledger accounts of parties, bank statement for the entire year highlighting the payments made to these parties, copies of bills issued by the aforesaid parties along with the copy of ledger account and bank statement, the P a g e | ACIT Vs. M/s. Taprath Polymers assessee however failed to comply with the directions and did not furnish the complete details. That though the A.O had called upon the assessee to establish the chain of the items which were purchased from the aforesaid parties and demonstrate as to how the same had been utilized in the manufacturing process, however, the assessee expressed its inability to produce any of the parties and submitted that it was not possible to correlate each item purchased from the aforementioned parties with its utilization in its manufacturing business. The assessee in its attempt to prove the genuineness of the purchase transactions made from the above mentioned parties, therein stressed on the fact that the payments towards the purchase consideration were made to them through banking channel. The A.O however not finding favour with the submissions of the assessee, therein held a conviction that the assessee had as a matter of fact not made any genuine purchases from the aforementioned parties, but had only obtained accommodation entries from them in the garb of purchases. The A.O thus being of the view that in the backdrop of the information received from the Sales Tax Department, a very heavy onus was cast upon the assessee to disprove the allegation that it had merely taken accommodation entries from the aforesaid parties and rather to the contrary prove the genuineness and veracity of the purchase transactions to the hilt, had however failed to discharge the onus so cast upon it. The A.O thus holding a conviction that the assessee had not made any genuine purchases from the aforementioned parties, but had merely taken accommodation entries from them during the year under consideration, therefore, made an addition of the entire amount of the bogus purchases aggregating to the Rs.34,81,845/- in the hands of the assessee.
P a g e | ACIT Vs. M/s. Taprath Polymers 3. The assessee being aggrieved with the order passed by the A.O carried the matter in appeal before the CIT(A). The CIT(A) agreed with the observations of the A.O that the assessee had failed to substantiate the genuineness and veracity of the purchase transactions. However, the CIT(A) after deliberating on the contentions of the assessee in the backdrop of the facts of the case, therein observed that as the A.O had not given any adverse finding in respect of the consumption/sales of the goods under consideration, therefore, concluded that the genuineness of the sales were not in doubt. The CIT(A) thus on the basis of the aforesaid facts concluded that now when the genuineness of the sales had not been doubted by the A.O, therefore, it was not permissible on his part to have made addition in respect of the aggregate value of the purchases claimed by the assessee to have been made from the aforesaid parties, as the same would lead to absurd profit. The CIT(A) thus in the backdrop of his aforesaid observations concluded that in the totality of the facts involved in the case of the present assessee, the addition was liable to be restricted only to the extent of the profit element embedded in the aforesaid purchases, which could safely be held to have been made by the assessee from the open/grey market. The CIT(A) thereafter relying on the judgment of the Hon’ble High court of Gujarat in the case of CIT Vs. Simit P. Sheth (2013) (38 taxaman.com 385) (Guj), and the order of the ITAT, Ahemadabad Bench, in the case of the Vijay Protiens (58 ITD 428), therein concluded that the addition in the hands of the assessee was liable to be restricted to the extent of the profit element embedded in making the purchases from the open/grey market, which could fairly be taken at 12.5% of the aggregate value of the bogus purchases of Rs. 34,81,845/-. The CIT(A) thus on the basis of his aforesaid observations restricted the addition in the hands of P a g e | ACIT Vs. M/s. Taprath Polymers the assessee to 12.5% of the aggregate value of the purchases made by the assessee from the aforementioned parties.
The department being aggrieved with the order of the CIT(A) had carried the matter in appeal before us. That the assessee respondent despite being put to notice as regards the hearing of the appeal had however failed to put an appearance before us. We thus being left with no other alternative therein proceed with the hearing of the appeal, and as per Rule 25 dispose of the same after hearing the appellant revenue. The ld. Departmental Representative (for short ‘D.R’) relied on the order of the A.O and submitted that in the totality of the facts involved in the case, the addition of the entire value of the bogus purchases was rightly made in the hands of the assessee. It was thus averred by the ld. D.R that the CIT(A) had erred in restricting the addition to 12.5% of the aggregate value of the bogus purchases claimed by the assessee to have been made from the aforementioned parties. The ld. D.R thus submitted that the order of the CIT(A) may be set aside and that of the A.O be restored.
We have heard the ld. Departmental Representative, perused the orders of the lower authorities and the material available on record. We have given a thoughtful consideration to the facts of the case and find ourselves to be in agreement with the view taken by the A.O that the assessee had absolutely failed to substantiate the genuineness and veracity of the purchase transactions claimed by it to have been made from the aforementioned parties. We are however unable to persuade ourselves to be in agreement with the A.O that the aggregate value of the bogus purchases of Rs. 34,81,845/-(supra) was liable to be added to the income of the assessee. We are of the considered view that now when it remains as a matter of fact that the consumption /sales of the goods under consideration had not been doubted by the P a g e | ACIT Vs. M/s. Taprath Polymers A.O, therefore, in the backdrop of the said factual position, there was no justification on his part in making the addition of the entire value of the bogus purchases in the hands of the assessee. We are of the considered view that now when the sales of the goods are not doubted, therefore, the addition in the hands of the assessee was liable to be restricted only to the extent of the profit element involved in making the purchases of the goods under consideration from the open/grey market. We have given a thoughtful consideration to the issue before us and are of the considered view that the CIT(A) after duly deliberating on the facts of the case had rightly concluded that the additions in the hands of the assessee was liable to be restricted to the profit margin involved in making the purchases from the unknown suppliers operating in the open/grey market. We further find that the profit margin so arrived at by the CIT(A) at 12.5% of the value of the aggregate purchases claimed by the assessee to have been made from the aforementioned parties, also does not suffer from any infirmity. We thus being of the view that the order passed by the CIT(A) is a well reasoned order which cannot be faulted with, therefore, find no reason to take a departure from the view arrived at by him, and thus uphold his order.