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Assessee represented by : Sh. Mayur J. Gosrani-AR Revenue represented by : Sh. V. Justine Sr -DR Date of hearing : 02.08.2017 Date of order : 08.08.2017 Order under section 254(1) of Income-tax Act Per Pawan Singh Judicial Member; 1. This appeal by revenue under section 253 of Income-tax Act (‘Act’) is directed against the order of Commissioner (Appeals)- 40, Mumbai dated 18.03.2016 for assessment year 2011-12. Though, the revenue has raised as many as five grounds of appeal. However, as per our considered view the only substantial ground of appeal is “whether the learned Commissioner (Appeals) erred in facts and in law in restricting the addition under section 69C @ 20%.” Rest of the grounds of appeal are either narration of facts or argumentative in nature.
Brief facts of the case are that assessee was carrying his business in the proprietorship concern in the name of M/s Technocorp (India) dealing in manufacturing of spare parts of lamp making machine. The assessee filed his return of income for relevant assessment year on 29 September 2011 declaring total income at Rs. 1,49,51,000/-. During the year under consideration the assessee has shown income from ‘Salary’ income from M/s Desmi Equipments Private Limited, income from ‘House property’, ‘Business Income’, ‘Long-term Capital Gain’ and income from ‘Other Sources’. The assessment was completed on 25th March 2014. The Assessing Officer (‘AO’) while passing assessment order made the addition of Rs. 42,86,307/- on account of bogus purchases holding that the assessee has made purchases from the parties whose names were listed in the list of hawala traders, which were revealed in the investigation carried out by the Sales Tax Department of government of Maharashtra and Director General of Income tax (invest). On appeal before Commissioner (Appeals) the addition was restricted @ 20% of the impugned purchases. Aggrieved, by the order of Commissioner (Appeals) the revenue has filed present appeal before us.
We have heard the learned departmental representative (DR) for revenue and the learned assessee’s representative (AR) for the assessee and perused the material available on record. The learned DR for the revenue argued
that assessing officer made the inquiry during the assessment proceedings about the parties from the assessee has shown the purchases. The assessee made the purchases from six of parties whose names were listed in the list of the hawala dealers, who were issuing bills only and not doing any business. In fact there was no transaction of business the bills was provided as accommodation bills only. The assessing officer issued notice under section 133(6) to all six parties from whom the assessee has shown purchases. None of the party complied with the direction of the notice under section 133(6) of the Act. The assessee was asked to prove the genuineness and to produce the parties for verification. The assessee neither produced the parties nor could prove the genuineness of purchases. The assessee purchased material from six such parties, those names appeared in the list of hawala traders on the basis of information received from the Investigation Wing of the Income tax Department. None of the parties appeared in response to the notice under section 133(6) issued by assessing officer. The assessing officer asked the assessee to substantiate its claim and to produce the parties and documents related to payment and delivery receipts of the material. The assessee could not produce the delivery proof. Thus, the assessing officer on the basis of material available before him concluded that the assessee failed to establish the delivery of goods purchased. The assessing officer disallowed the entire purchases from all six parties for Rs.42,86,307 /- The learned Commissioner (Appeals) without appreciating the fact of the case restricted the disallowance /addition @ 20% of the bogus purchases. The learned DR of the revenue would argue that order of assessing officer may be restored by reversing the order of Commissioner (Appeals). On the other hand the learned AR for the assessee argued that assessee has proved the genuinity of transaction. Assessee produced various documents with regard to receipt of goods, stock receipt, and receipt of Weigh Bridge of weight of goods purchased by the assessee. The Octroi receipt for payment of octroi duty etc. It was argued that all the payments were made through account payee cheques. Copy of ledger account was also submitted. Copies of bank statement showing the payment to the parties were also submitted. In support of his submission the learned AR of the assessee relied upon the decision of Tribunal in case of ACIT Versus Tarla Shah dated 02.02.2016 , DCIT Versus Sharad V. Shah ITA No.746/Mumbai/2015 dated 21.09.2016 and Ashwin Purshotam Bajaj Vs ITO in ITA No.4636/Mumbai/2014. The learned AR of the assessee prayed for dismissal of the appeal filed by the revenue.
We have considered the rival submission of the parties and have gone through the orders of authorities below. The assessing officer during the assessment order have noticed that the assessee has shown to have made the purchases from the following parties: Name of the party Amount of purchases (Rs) Swastik Enterprises Rs.4,55,439/- Anshu Mercantile P. Limited Rs.2,64,930/- Choksi Bros Rs. 9,33,146/- Ridhi Sidhi Group Rs. 2,00,695/- Kamalnayan Exim P Ltd. Rs. 2,51,909/- Comex Trading Co. Rs. 2,60,417/- Patel Tradelink P Limited Rs. 5,86,103/- HR Sales P. Limited Rs. 13,32,668/- Total Rs. 42,86,307/- 5. The assessing officer issued notice to all the parties under section 133 (6) of the Act. None of the party responded to the notice of assessing officer. The assessing officer asked the assessee to substantiate his claim about the purchases from these six parties and to produce purchase bills, corresponding sales, and transportation bills of the goods. In response to the quarries of the assessing officer the assessee submitted the invoices raised by parties. However, no document related to the transportation was produced. The assessee was asked to produce the parties for verification, but the assessee could not produce anyone of the parties. The assessing officer on the basis of the documents furnished before him treated the entire purchases as bogus. The assessing officer not disputed the sale or consumption of the material. The statement of account of assessee was not rejected. Similar contention was made by the assessee before the Commissioner (Appeals). The learned Commissioner (Appeals) observed that the assessing officer has not doubted the consumption / sales. The motive behind obtaining the alleged bogus bills appears to be inflation purchase price so as to suppress the true profits. The assessing officer has not disputed nor examines the sale. Once sales are accepted the corresponding purchases have not to be considered and cannot be disregarded in totality. The learned Commissioner (Appeals) further observed that the assessee may have purchases from the other parties which were not recorded in the books and may have only bills from these parties as a condition to explain the purchases. The purchases themselves are not bogus but the purchase parties shown in the books are bogus. Therefore, the entire purchases from these parties cannot be added as bogus and profit element embedded therein need to be taxed in such circumstances. The learned Commissioner (Appeals) after referring various decisions of Tribunal as well as of different High Court’s further observed that estimations ranging from 12.5% to 25% have been upheld by various Superior Courts depending upon the nature of business. No uniform yardstick could be applied to estimate the rate of profit; it may
vary from the nature of business. After considering the facts of the present case and the various decisions of Superior Courts the learned Commissioner (Appeals) estimated profit @ 20% embedded in the impugned purchases shown from the tainted parties/hawala dealers and directed the assessing officer accordingly. We are also of the considered view that under Income -tax Act, only real income can be taxed by the Revenue. We may further conclude that even if the transaction is not verifiable, because of any reasons, the only taxable is the taxable income component and not the entire transaction. And after considering the facts of the case and the rival contentions of the parties we are also of the opinion that in order to fulfil the gap of revenue leakage the disallowance of reasonable percentage of such purchases would meet the end of justice. The learned Commissioner (Appeals) has already restricted the disallowance @20% of the disputed purchases after considering the facts of the case. The case law relied by learned AR of the assessee is not helpful to the assessee as we are dismissing the appeal of the revenue, moreover, the assessee has neither filed any appeal against the order of Commissioner (Appeals) nor cross objections in the appeal of revenue. Thus, in our considered view, the order passed by learned Commissioner (Appeals) needs no interference at our end. The Hon’ble Bombay High Court in CIT Vs Hariram Bhambhani in of 2013 decided on