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Income Tax Appellate Tribunal, “I”, BENCH, MUMBAI
Before: SHRI RAJENDRA, AM & SHRI RAM LAL NEGI, JM
आदेश / O R D E R PER RAM LAL NEGI, JM These appeals have been filed by the assessee against two orders dated 28/07/2016, passed by the Ld. CIT (A)-44, Mumbai, pertaining to the Assessment Years 2010-11 & 2012-13 respectively, whereby the Ld. CIT (A) has partly allowed both the appeals filed against assessment order u/s 143(3) read with section 147 and 143(3) of the Income Tax Act, 1961 (for short ‘the Act’) respectively. Since these appeals pertain to the same assessee and the facts and the issues involved are identical, both the appeals were clubbed, heard together and are being disposed of by this common order for the sake of convenience.
Brief facts of the case are that the appellant/assessee an individual running a proprietary concern under the name and style of M/s United Engineering, filed its return of income for the relevant assessment year declaring the total income of Rs. 8,39,865/-. The assessment was reopened on the basis of information received from Sales Tax Department and DGIT (investigation) Mumbai that the assessee has obtained accommodation entries from bogus concerns, engaged in the business of providing bills without actual delivery of goods, during the financial year relevant to the assessment year under consideration. The assessee was accordingly asked by the AO to show cause as to why the purchases made from the said concerns should not be treated as bogus purchase and why the amount should not be treated as unexplained expenditure u/s 69C of the Act and why the amount should not be added to the total income. After hearing the contention of the assessee, the AO treated the purchases so made as bogus and added Rs. 99,21,048/- to the income of the assessee and determined the total income of the assessee at Rs.1,07,60,913/-. In appeal the CIT(A) restricted the addition to 13.85% on the basis of GP ratio for the concerned assessment year. Still aggrieved, the assessee is in appeal before the Tribunal.
The assessee has raised the following effective grounds of appeal against the impugned order passed by the Ld. CIT (A):-
1. “Learned C.I.T. (A) 44 erred in confirming Addition of Rs. 1374065/- based on extra G.P of 13.85% on so called Hawala Purchases of Rs. 9921048/- Appellant prays to delete Addition of Rs. 1374065/-.
2. Learned C.I.T. (A) 44 erred in not giving any basis for taking extra G.P of 13.85% over and above Gross Profit of 13.85% disclosed in the relevant year. Appellant prays to delete extra G.P of 13.85% amounting to Rs. 1374065/-.
3. Learned C.I.T (A) 44 erred in taking extra G.P of 13.85% over & above regular G.P of 13.85% thereby making Total G.P of 27.70% which is not possible in business carried by Appellant, hence Appellant prays to delete sum of Rs. 1374065/- being amount of extra G.P of 13.85%.
4. Learned C.I.T (A) 44 erred in ignoring details of sales along with quantitative details, against purchase of Rs. 9921048/- thereby purchases are fully explained, hence no question of extra G.P based on such purchases and Appellant prays for deletion of Rs. 1374065/-.
5. Learned C.I.T (A) 44 erred in ignoring Appellants submissions that Copies of information received from Sales Tax Department and DGIT (Investigation) and Statement recorded on oath before Sales Tax Officer were not furnished to us, hence any addition even by way of extra G.P is against Principal of Natural Justice, hence Appellant prays for deletion of Addition of Rs. 1374065/-.
6. Learned C.I.T (A) 44 erred in ignoring Appellants submissions that no independent investigation by Assessing Officer was made, hence any addition even by way of extra G.P is against Principal of Natural Justice, hence Appellant prays for deletion of Addition of Rs. 1374065/-.
7. Learned C.I.T (A) 44 erred in ignoring Appellants submissions that opportunity of cross examination of parties of whom purchases are treated as bogus purchases was not allowed and confirming extra G.P of 13.85% on such purchases is against Principal of Natural Justice. Appellant prays for deletion of Addition of Rs. 1374065/-.
8. Learned C.I.T (A) 44 erred in not considering facts that Lorry Receipts for each purchases & sales were produced, hence confirming addition of extra G.P is without any base, hence Appellant prays for deletion of Addition of Rs. 1374065/-.
9. Learned C.I.T (A) 44 erred in not giving speaking order on reopening Assessment u/s 148 based on some information received from Sales Tax Department without making independent investigation, hence Notice u/s 148 is bad in law.”
3. Before us, the Ld. counsel for the assessee submitted that the Ld. CIT(A) has wrongly sustained the addition to the extent of 13.85% on the basis of the GP rate for the assessment year under consideration. The Ld. counsel further contended that the purchases in question were genuine and the assessee had made payments through banking channels. The finding of AO is based on the names appearing in the list of suspicious dealers published by the Sales Tax Department. The assessee has produced purchase and sale details, copy of VAT return, details of inward register along with bill No., date and quantity, details of outward register along with bill No. and date and closing stock list etc. in order to prove genuineness of the transaction. The Ld. counsel further submitted that neither the information received from the Sales Tax Department was provided to the assessee nor the assessee was asked to produce the parties from whom, the purchases were made before the AO. Therefore, the findings of the AO are based on surmises and conjectures and the Ld. CIT (A) has wrongly relied on the findings of the AO. Since, the purchases made were genuine the Ld. CIT (A) has wrongly sustained the addition to the extent of 13.85% of the total bogus purchases.
4. On the other hand, the Ld. Departmental Representative (DR) relying on the findings of the Ld. CIT (A) submitted that since the assessee has failed to prove the genuineness of the transaction of purchases, the Ld. CIT (A) has rightly sustained the addition on the basis of the GP rate shown by the assessee for the assessment year under consideration.
We have heard the rival submissions and also perused the material on record. The only issue involved in this appeal is whether the Ld. CIT(A) has erred in sustaining addition of 13.85% of the bogus purchases made by the assessee? We notice that the Ld. CIT (A) has sustained addition of 13.85% of the total bogus purchases made from the different parties by the assessee, holding that the transactions with the said parties were bogus. However, the Ld. CIT (A) has further observed that in case of a trader, if there is no purchase of materials there cannot be any sales. The Ld. CIT (A) has further observed that the AO has not brought on record any material to create doubt in the sales as the AO has not conducted any enquiry of his own. AO has also not rejected the books of account of the assessee. Further, the Ld. CIT (A) has relied on the judgment delivered by the Hon’ble Allahabad High Court in the case of CIT vs. Jagdish Prasad Tiwari, 220 taxmann 141, judgment of Hon’ble Bombay High Court in M/s Nikunj Enterprises 372 ITR 619 (Bom) and the judgment of Hon’ble Supreme Court in the case of Sarswati Oil Traders vs. CIT 254 ITR 259 (SC) and following the ratio laid down in the aforesaid cases, the Ld. CIT (A) sustained the addition to the extent of 13.85% holding that the profit element on the total component in dispute needs to be added to the income of the assessee. We further notice that the Ld. CIT (A) has taken the gross profit rate shown by the assessee for the assessment year under consideration.
The Hon’ble Bombay High Court In CIT Vs. Nikunj Eximp Enterprises Pvt. Ltd. 372 ITR 619 (Bom) has held that merely because the suppliers had not appeared before the Assessing Officer or the CIT (A) one could not conclude that the purchases were not made by the respondent/assessee. The Hon’ble Gujrat High Court in CIT vs. Simit P. Seth 356 ITR 451(Guj) upheld the decision of the Tribunal and sustained the addition 12.5% of the total bogus purchases holding that only profit element embedded in such purchases can be added to income of the assessee.
So in the light of the law laid down by the Hon’ble High Courts in the cases referred above and the Hon’ble Supreme Court in the case of Sarswati Oil Traders vs. CIT 254 ITR 259 (SC) relied upon by the Ld. CIT(A), we modify the order of the Ld. CIT (A) and restrict the addition to 12.5% of the total amount of alleged bogus purchases made by the assessee during the financial year relevant to the assessment year under consideration. Accordingly, we partly allow the appeal of the assessee and direct the AO to compute the addition @ 12.5% of the total bogus purchases made by the assessee. (Assessment Year: 2012-13)
The assessee filed its return of income for the A.Y. 2011-12 declaring the total income of Rs. 3,86,020/- the return was processed u/s 143 (1) of the Act. The case was selected for scrutiny. During assessment proceedings, it was noticed that the assessee had shown purchases from two parties which were found to be bogus. Accordingly, the AO made addition of Rs. 48,25,375/- holding the said purchases as unexplained expenditure of the assessee u/s 69C of the Act. Similarly, the assessee had shown sundry credits at Rs. 1,15,84,496/-. After hearing the assessee, the AO disallowed 20% of the aforesaid amount i.e. Rs. 13,51,824/- and added the same to the income of the assessee. Further, the assessee had claimed to have made expenditure of Rs. 51,91,684/- and debited the P&L Account. The AO after hearing the assessee disallowed 25% of the total amount claimed i.e. Rs. 12,97,867/- and added the same to the income of the assessee and determined the total income of the assessee at Rs. 78,61,080/-.
2. In appeal, the Ld. CIT (A) restricted the addition to 19.22% of the total amount of alleged bogus purchases on the reasoning given in the assessee’s own case for the A.Y. 2010-11 discussed above. As regards, disallowance of 20% made by the AO on account of sundry creditors, the Ld. CIT (A) confirmed the findings of the AO on the ground that the assessee has shown the gross profit rate for the concerned assessment year at 19.22%. So far as disallowance of 25% of the expenses claimed by the assessee is concerned, the Ld. CIT (A) deleted the addition made on ad hoc basis.
Still aggrieved, the assessee has raised the following effective grounds of appeal against the impugned order passed by the Ld. CIT (A):-
1. “Learned C.I.T. (A) 44 erred in confirming Addition of Rs. 927437/- based on extra G.P of 19.22% on so called Hawala Purchases of Rs. 4825375/- Appellant prays to delete Addition of Rs. 9274437/-.
2. Learned C.I.T. (A) 44 erred in not giving any basis for taking extra G.P of 19.22% over and above Gross Profit of 19.22% disclosed in the relevant year. Appellant prays to delete extra G.P of 19.22% amounting to Rs. 927437/- 3. Learned C.I.T (A) 44 erred in taking extra G.P of 19.22% over & above regular G.P of 19.22% thereby making Total G.P of 38.44% which is not possible in business carried by Appellant, hence Appellant prays to delete sum of Rs. 927437/- being amount of extra G.P of 19.22%. 4. Learned C.I.T (A) 44 erred in ignoring details of sales along with quantitative details, against purchase of Rs. 4825375/- thereby purchases are fully explained, hence no question of extra G.P based on such purchases and Appellant prays for deletion of Rs. 927437/-. 5. Learned C.I.T (A) 44 erred in ignoring Appellants submissions that Copies of information received from Sales Tax Department and DGIT (Investigation) and Statement recorded on oath before Sales Tax Officer were not furnished to us, hence any addition even by way of extra G.P is against Principal of Natural Justice, hence Appellant prays for deletion of Addition of Rs. 927437/-. 6. Learned C.I.T (A) 44 erred in ignoring Appellants submissions that no independent investigation by Assessing Officer was made, hence any addition even by way of extra G.P is against Principal of Natural Justice, hence Appellant prays for deletion of Addition of Rs. 927437/-.
7. Learned C.I.T (A) 44 erred in ignoring Appellants submissions that opportunity of cross examination of parties of whom purchases are treated as bogus purchases was not allowed and confirming extra G.P of 19.22% on such purchases is against Principal of Natural Justice. Appellant prays for deletion of Addition of Rs. 927437/-.
8. Learned C.I.T (A) 44 erred in not considering facts that Lorry Receipts for each purchases & sales were produced, hence confirming addition of extra G.P is without any base, hence Appellant prays for deletion of Addition of Rs. 927437/-. 9. Learned C.I.T (A) 44 erred in confirming addition of 20% of creditors outstanding (other than credits of so called Hawala Purchase) as on 31.03.2012 amounting to Rs. 6759121/- amounting to Rs. 1351284/- without giving speaking order for such disallowances for other creditors. Appellant prays for deletion of Addition of Rs. 1351284/-. 10. Learned C.I.T (A) 44 erred in confirming addition of Rs. 1351284/- being 20% for creditors outstanding (other than creditors outstanding of so called Hawala Purchase) Rs. 6759121/- on the basis that in case of Hawala purchase extra G.P of 19.22% is confirmed, hence addition of 20% on other creditors outstanding is in line that without giving any reasoning or speaking order for confirming addition of Rs. 1351284/- Appellant prays for deletion of same.
11. Learned C.I.T (A) 44 erred in confirming addition of Rs. 1351284/- being 20% of other creditors outstanding without any base or rejecting other purchase or rejecting Books of Accounts
The first issue relate to the bogus purchases and confirmation of addition to the extent of 19.22% of the total amount bogus purchases in question. Since, under the similar circumstances we have restricted the disallowance to 12.5% of the total amount of bogus purchases in assessee’s own case for the A.Y. 2010-11 aforesaid, for the same reasons we restrict the addition to 12.5% in this case also. Accordingly, we partly allow this ground of appeal of the assessee and direct the AO to compute the addition afresh.
5. Second issue pertains to confirmation of 20% of the sundry creditors amounting to Rs. 13,51,824/-. The Ld. counsel for the assessee submitted that the assessee has filed details of sundry creditors including name and addresses before the AO. Moreover, AO has already disallowed the purchases from two parties, u/s 69C of the Act and the same parties also figure in the list of sundry creditors. The Ld. CIT (A) has wrongly sustained the addition holding that the gross profit rate shown by the assessee for the relevant assessment year is 19.22%. On the other hand, the Ld. DR relying on the findings of the Ld. CIT (A) submitted that since the gross profit rate shown by the assessee is 19.22%, the Ld. CIT (A) has rightly confirmed the disallowance of 20% made by the AO.
6. Having heard the rival submissions, we are of the considered view that the addition of 12.5% of the total amount would meet the ends of justice as we have already restricted the addition to 12.5% of the total bogus purchases made by the assessee from the two parties whose name also appear in the list of sundry creditors. Hence, we set aside the finding of the Ld. CIT (A) on this issue and restrict the addition to 12.5% of the total amount in question and direct the AO to compute the addition accordingly.
In the result, appeals filed by the assessee for assessment years 2010-11 and 2012-13 are partly allowed.
Order pronounced in the open court on 07th Sept., 2017.