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Income Tax Appellate Tribunal, ‘I’ BENCH, MUMBAI
Before: SHRI G.S.PANNU, AM & SHRI RAVISH SOOD, JM
आदेश / O R D E R
PER RAVISH SOOD, JUDICIAL MEMBER
The present appeal filed by the assessee is directed against the order passed by the CIT(A)-30, Mumbai, dated 19.02.2016, which in itself arises from the order passed by the A.O u/s 143(3) r.w.s. 147 of the Income Tax Act, 1961 (in short „the Act‟), dated 19.03.2014. The P a g e | Shri Mahesh Kumar D. Chandak Vs. DCIT assessee assailing the order of the CIT(A) had raised before us the following grounds of appeal:- “Being aggrieved by the order of the Learned Assessing Officer (A.O) u/s 143(3) r.w.s 147 of the Income Tax Act, 1961, (the „Act‟), as confirmed by Learned Commissioner of Income Tax (Appeals)-30 [CIT (A)], your appellant prefers an appeal against the same on following grounds, which, it is prayed, may be considered without prejudice to one another:
1. On the facts and circumstances of the case and in law, the Id. CIT(A) erred in upholding A.O's action of reopening of assessment u/s.147 of the Act which is bad in law.
2. On the facts and circumstances of the case and in law, the CIT(A) erred in confirming the action of A.O considering purchases from certain parties aggregating to Rs.32,68,914/- as Bogus Purchases and directing the A.O to make addition by estimating profit © 17.5% as reduced by the average gross profit ratio of last three years, of the alleged bogus purchases.
3. On the facts and circumstances of the case and in law, the CIT(A) erred in confirming the action of A.O in levying interest u/s 234B and 234C of the Act. The appellant craves to leave to add, alter, amend, delete or modify any of the above referred grounds of the appeal.”
The assessee is an Individual engaged in the business of trading in ferrous and non-ferrous metals as a sole proprietor under the name and style of M/s Hi-Tech Metal & Tubes. The assessee had filed his „return of income‟ for the year under consideration, viz. A.Y. 2009-10 on 28.09.2010, declaring total income of Rs.15,02,920/-. The „return of income‟ of the assessee was processed as such u/s 143(1) of the „Act‟. The case of the assessee was thereafter taken up for scrutiny assessment and his income was assessed at Rs. 47,71,840/-.
That information was gathered by the Sales-tax Authorities, Maharashtra that certain parties were engaged in the business of providing bogus purchase bills. The A.O was in receipt of information from the office of the DGIT(Inv.) that the assessee had during the year P a g e | Shri Mahesh Kumar D. Chandak Vs. DCIT taken accommodation entries from certain parties for inflating his purchases, as under:-
TIN Name PAN Amount of Sales to assessee in F.Y. 2008-09 27280526504V Rajendra Impex India ABEPS2046P Rs. 26,87,748/- 27930587111V Newzone Multitrade AAECM7719B Rs. 5,81,166/- Private Limited Total Rs. 32,68,914/- The A.O acting on the basis of the aforesaid information reopened the case of the assessee u/s 147 of the „Act‟.
During the course of the assessment proceedings the A.O in order to ascertain the genuineness of purchases claimed by the assessee in its „books of accounts‟ to have been made from the aforesaid parties, viz. (i). M/s Rajendra Impex India; and (ii). M/s Newzone Multitrade Private Limited, thus issued notices u/s 133(6) of the „Act‟ to the said respective parties. The notices sent by the A.O were however returned undelivered by the postal authorities, with the remark “not known”. The A.O thus in the backdrop of the aforesaid facts called upon the assessee to produce the said parties for examination, as well as place on record documentary evidences to support the genuineness and veracity of the purchase transactions, viz. (i). bank statements of the parties showing the receipt of the payments from the assessee; (ii). their „returns of income‟ alongwith P & loss a/c, Balace sheet for A.Y. 2009-10; and (iii). confirmation of the „ledger account‟ of the assessee as appearing in the „books of accounts‟ of the aforesaid parties. However, the assessee in compliance to the aforesaid directions of the A.O, in his attempt to P a g e | Shri Mahesh Kumar D. Chandak Vs. DCIT prove the genuineness of the purchases, therein placed on record bills, delivery challans, confirmation letters and copy of ledger a/c‟s. The assessee further furnished with the A.O the disposal statement of goods purchased from the above parties, alongwith ledger copies of customers to whom goods under consideration had been sold, alongwith LR, C Form etc. The assessee further failed to produce the respective parties for examination before the A.O. The A.O after deliberating on the material produced by the assessee, therein concluded that though it remained as a matter of fact that the assessee had not made any genuine purchases from the aforesaid bogus parties, nevertheless the purchases themselves were not bogus. The A.O thus in the backdrop of the aforesaid facts holding a conviction that as the assessee had not made any purchases from the aforementioned bogus parties, but from unknown parties operating in the open/grey market, therefore, it could safely be concluded that the purchases actually made by the assessee were sourced out of his undisclosed income. The A.O thus in the backdrop of his aforesaid view made an addition of the peak investment of Rs. 32,68,914/- in respect of the purchases made by the assessee from the aforesaid parties and added the same to his total income u/s 69C.
The assessee being aggrieved with the order passed by the A.O, therein carried the matter in appeal before the CIT(A). That during the course of the hearing of the appeal it was submitted by the assessee that though the genuineness and veracity of the purchase transactions was duly substantiated during the course of the assessment proceedings, however, the A.O failing to appreciate the facts of the case and the material placed on his record in the right perspective, had wrongly held the purchase transactions to be bogus.
P a g e | Shri Mahesh Kumar D. Chandak Vs. DCIT It was submitted by the assessee that now when the purchases and the corresponding sales were concededly correlated before the A.O, therefore, there was no reason for drawing of any adverse inferences in respect of the genuineness of the purchase transactions. The ld. A.R in order to drive home his aforesaid contention submitted that the payments in respect of the aforesaid purchase transactions were made to the supplier parties vide account payee cheques, and the documents supporting the veracity of the purchases under consideration were produced for verification before the A.O. The assessee thus tried to impress upon the CIT(A) that now when the genuineness of the purchase transactions had been established before the A.O, therefore, there was no reason for him to have drawn adverse inferences as regards the genuineness of the purchase transactions. The CIT(A) after deliberating on the contentions of the assessee in the backdrop of the facts of the case, however, did not find favor with the submissions of the assessee. The CIT(A) observed that the assessee had as a matter of fact failed to substantiate the genuineness of the purchases made by the assessee from the aforesaid parties, which as per the information received from the Sales Tax Department were providing bogus purchase bills. The CIT(A) thus observed that the assessee despite sufficient opportunity had failed to substantiate the genuineness of the purchases transactions claimed to have been made from the aforesaid parties. It was thus observed by the CIT(A) that in the backdrop of the information received by the A.O from the Sales Tax Department that the assessee had obtained accommodation entries from the aforesaid parties, a very heavy onus to substantiate the genuineness of the purchase transactions was cast upon the assessee, which the latter however had failed to discharge to the hilt. The CIT(A) further observed that the very fact that the assessee had made payments to the respective parties vide account payee cheques P a g e | Shri Mahesh Kumar D. Chandak Vs. DCIT could not be taken as a conclusive proof of genuineness of the purchase transactions. The CIT(A) thus in the backdrop of his aforesaid observations held a strong conviction that it was a clear case where the genuineness of the purchase transactions could not be established by the assessee. The CIT(A) observed that though the A.O had not doubted the genuineness of the sales, but it remained as a matter of fact that the assessee had made the purchases of the goods, though not from the parties in question, but from unknown parties operating in the open/grey market. It was thus concluded by the CIT(A) that though it remained as a matter of fact that the assessee had not made any genuine purchases from the aforesaid bogus parties, nevertheless the purchases themselves were not bogus.
The CIT(A) in the backdrop of his aforesaid observations concluded that now when the A.O had not doubted the genuineness of the sales, therefore, he could not have gone ahead and made an addition in respect of the peak investment in respect of the correlating purchases. It was observed by the CIT(A) that now when the A.O had recorded a finding that the assessee had made purchases, though not from the aforesaid parties, but from certain unknown parties, therefore, an addition towards the peak investment in respect of the said purchases was not justified. The CIT(A) thus concluded that as held by the Hon’ble High Court Gujarat in the case of CIT Vs. Bholanath Ployfab Pvt. Ltd (2013) 355 ITR 290 (Guj), in a case where it is established that the assessee had made the purchases of the goods, although not from the parties in question but from unknown parties operating in the open/grey market, then only the profit margin embedded in such amount of purchases could be brought to tax. The CIT(A) thus holding a conviction that the sole issue involved in the case before him was to fairly quantify the element P a g e | Shri Mahesh Kumar D. Chandak Vs. DCIT of profit embedded in the bogus purchases claimed by the assessee to have been made from the aforesaid parties. The CIT(A) thus taking support of the judgment of the Hon’ble High Court of Gujarat in the case of CIT Vs. Simit P. Sheth (2013) 356 ITR 451 (Guj), wherein a similar issue was there before the High Court, as well as relying on the view arrived at by the Hon’ble High Court in the case of CIT Vs. Vijay M. Mistry Construction Ltd. (2013) 355 ITR 498 (Guj), wherein the order of the ITAT, Ahmedabad, Bench in the case of Vijay Proteins (58 ITD 428) was approved, thus concluded that there could be no uniform yardstick for estimating the rate of profit in respect of bogus purchases, as the same was bound to vary from business to business. The CIT(A) thus being of the considered view that the various Hon‟ble Courts had upheld an estimated profit involved in bogus purchases, in the range of 12.5% to 25%, thus concluded that an estimation of such profit could be fairly taken at 17.5% of the aggregate value of the bogus purchases pertaining to the aforesaid parties. The CIT(A) in the backdrop of his aforesaid observations, further found favor with the contention of the assessee that the estimation of profit at 17.5% of the aggregate value of the bogus purchases was liable to be reduced by the percentage of profit as was declared by the assessee. The CIT(A) thus in all fairness after referring to the order passed by the ITAT, Mumbai, in the case of Madhukant B. Gandhi (ITA No.1950/Mum/2009, dated 23.02.2010), thus directed the A.O to reduce the estimation of 17.5% of profit by the average G.P of the assessee for the last three years, which as per the latter worked out at 5.4%. The CIT(A) thus on the basis of his aforesaid observations upheld an addition of 12.1% [i.e 17.5% (-) 5.4%] of the aggregate value of the bogus purchases.
P a g e | Shri Mahesh Kumar D. Chandak Vs. DCIT 7. The assessee being aggrieved with the order of the CIT(A) had carried the matter in appeal before us. The ld. Authorized Representative (for short A.R) at the very outset submitted that he was not pressing ground of appeal no. 1, wherein the validity of the reopening of the assessment u/s 147 was assailed before us. That in light of the concession of the ld. A.R, the Ground of appeal No. 1 is dismissed as not pressed. The ld. A.R restricted his submissions in respect of the estimated addition of 12.1% [i.e. 17.5% (-) 5.4%] as had been upheld by the CIT(A) in respect of the aggregate value of the bogus purchases of Rs.32,68,914/-. It was submitted by the ld. A.R that as the assessee was a trader in ferrous and non-ferrous metals, therefore, the addition of 12.1% (supra) sustained by the CIT(A) was highly exorbitant. The ld. A.R averred that the addition in respect of the bogus purchases in all fairness may be restricted to 5%, keeping in view the nature of business of the assessee. Per contra, the ld. Departmental Representatives (for short D.R) in order to drive home his contention that already a substantial relief had been allowed to the assessee by the CIT(A), therein submitted that the Hon’ble Supreme Court while dismissing the „Special Leave Petition‟ („SLP‟) of the assessee in the case of N.K Proteins Ltd. Vs. DCIT[SLP(C)…CC No(s).769 of 2017], had upheld the addition of the entire amount of bogus purchases. It was thus submitted by the ld. D.R that the CIT(A) had already taken a liberal view and restricted the addition only to the extent of an estimated profit element of 12.1% (supra), and thus the assessee was not entitled for any further relief. It was thus submitted by the ld. D.R that the appeal of the assessee lacked any merit and was liable to be dismissed.
We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material P a g e | Shri Mahesh Kumar D. Chandak Vs. DCIT available on record. We have given a thoughtful consideration to the facts of the case and are of the considered view that it remains as a matter of fact that the assessee had failed to substantiate the genuineness and veracity of the purchase transactions, which as claimed by him were made from the aforesaid parties ,viz. (i). M/s Rajendra Impex India; and (ii).M/s Newzone Multitrade Private Limited. We are of the considered view that the CIT(A) had rightly observed that the only addition which could have been made in the hands of the assessee, in the backdrop of the facts involved therein, was in respect of the profit element embedded in the purchases made by the assessee from the unknown parties operating in the open/grey market. Thus, the issue involved in the present appeal boils down to the aspect as to what would be the reasonable estimation of the profit element embedded in the purchases made by the assessee from the aforesaid parties, viz. (i). M/s Rajendra Impex India; and (ii). M/s Newzone Multitrade Private Limited. We find ourselves to be in agreement with the view of the CIT(A) that there cannot be a uniform yardstick for quantification of the profit element, as the same is bound to vary with the nature of business. We find that the CIT(A) had initially estimated the profit element at 17.5% of the aggregate value of the purchases made by the assessee from the aforesaid accommodation entry provider concerns, but thereafter, taking cognizance of the order passed by a coordinate bench of the Tribunal in the case of Madhukant B. Gandhi (supra), had thus concluded that the profit element to the extent which had already been declared by the assessee on the sale of such goods in its „books of accounts‟, and offered for tax, in all fairness was liable to be reduced from the aforesaid estimated profit rate of 17.5%. We find that the CIT(A) after taking cognizance of the average G.P. rate of 5.4% of the assessee for the last three years, had reduced the same from the estimated profit of P a g e | Shri Mahesh Kumar D. Chandak Vs. DCIT 17.5% (supra). Thus, the CIT(A) on the basis of his aforesaid observations had sustained an addition of 12.1%(supra) of the aggregate value of the bogus purchases made by the assessee. We have given a thoughtful consideration to the facts involved in the case of the present assessee and after deliberating on the observations arrived at by the CIT(A) find ourselves to be in agreement with his view that the addition in the backdrop of the facts involved in this case, was liable to be restricted only to the extent of the profit element which was embedded in the bogus purchases claimed by the assessee to have been made from the aforesaid parties, viz. (i). M/s Rajendra Impex India; and (ii). M/s Newzone Multitrade Private Limited. We however are of the considered view that the CIT(A) in the backdrop of the facts of the case should have in all fairness restricted the initial estimation of profit at 12.5% (supra), as against the profit rate of 17.5% (supra) so adopted by him. We thus in the backdrop of our aforesaid observations substitute the estimation of the initial profit rate of 17.5% adopted by the CIT(A), by a rate of 12.5%. We are further of the considered view that in the backdrop of the order of the coordinate bench of the Tribunal in the case of Madhukant B. Gandhi (supra), the CIT(A) should have directed reduction of the gross profit rate declared by the assessee during the year under consideration, from the aforesaid initial profit rate so estimated by him, and not the average gross profit rate for the last three years. We have been informed by the ld. A.R that the G.P. rate for the year under consideration stood reflected at 6.32%. We thus in the backdrop of our aforesaid observations direct the A.O to reduce the estimated profit rate of 12.5% (supra) by the profit percentage of 6.32% (supra) pertaining to the year under consideration. We thus in the backdrop of our aforesaid observations sustain the consequential addition at 6.18% [i.e. 12.5% (-) 6.32%] of the aggregate value of purchases made P a g e | Shri Mahesh Kumar D. Chandak Vs. DCIT by the assessee from the aforesaid parties, viz. (i). M/s Rajendra Impex India; and (ii). M/s Newzone Multitrade Private Limited. That before parting we direct the A.O to verify the claim of the ld. A.R that the G.P rate declared by the assessee during the year under consideration worked out at 6.32%(supra).The Ground of appeal
no. 2 is thus partly allowed.
9. The appeal of the assessee is partly allowed. Order pronounced in the open court on 01.09.2017