SHYAM K GYANCHANDANI,ULHASNAGAR vs. ACIT CIR (2), KALYAN

Brief facts of the case by reference to which the Assessing Officer made the addition are summarized as under:-

The Sales Tax Department has established that the party M/s. Neptune corporation from whom the appellant has made purchases is involved in providing accommodation entries and the appellant is also one of the beneficiaries. To verify the genuineness of the purchase transaction, the AO issued notices u/s 133(6) of the Act and deputed inspector; but whereabouts of the party/supplier was not known. Thereafter, various opportunities, vide notices u/s. 142(1) dt. 2.8.2013, 05.05.2014 & 04.09.2014 were given. In response, on various dates, the appellant furnished audit report, bank statement, copy of ledger a/c, delivery challans of sales. According to AO, the appellant . Shri Shyam K.Gyanchandani. was playing delay tactics and furnished details only on 27.03.2015 and therefore, due to lack of co-operation, no time was left to make enquiry from bankers that whether any cash was withdrawn from the account of the payee. The AR of the appellant has relied upon in the case of DCIT vs. Rajeev D. Kalathil in the ITAT was guided by the following factors: a) Proof of transportation of goods b) Fact that part of the goods received by the assessee was forming part of closing stock c) payment through banking channels d) No proof of immediate cash withdrawal by suppliers. However, in this case, the said factor laid down by ITAT to prove the movement of goods are absent and the nature of goods involved in impugned purchases being steel, cement, etc which cannot be moved without proper mode of transport. The AO further stated that merely because the assessee could arrange for the requisite paperwork, the purchase cannot be held as genuine. In this regard, the AO has placed reliance in the decision in the case of Hon. ITAT Delhi Bench in the case of DCIT Vs. Phoolwati Devi (2009) 314 ITR ATI (Delhi) and Sumati Dayal Vs. CIT (1995) 214 ITR 801. Therefore, the AO made addition of Rs.5,44,589/- as bogus purchases and added to the total income of the appellant.

Upon assessee’s appeal, learned CIT(A) confirmed the addition, only to the extent of 25% by holding as under:- “From the above discussion, it is seen that the appellant did not produce the Hawala dealers before the Assessing Officer for cross examination/verification. The appellant has booked the aforesaid purchases in its books of accounts as expenses, therefore, the onus to prove the genuineness and correctness of the purchase transactions lies with the appellant by producing the unverifiable party, but failed to do so. The statement or affidavit filed by the unverifiable/Hawala dealer before the Sales Tax Department has evidentiary value, which cannot be ignored. If the purchases were genuine in toto, the appellant could have . Shri Shyam K.Gyanchandani. filed counter affidavit and should not have paid the VAT on behalf of the unveriflable/Hawala dealer, but failed to do so. There are various reasons as to why the unverifiable/Hawala dealer was absconding and also not appeared before the Assessing Officer for cross examination during assessment proceedings, whereas in other purchases no such anomaly have been found by the Assessing Officer. At least, the appellant could have produced copy of return filed along with P & L a/c and B/S of unverifiable/Hawala dealer before Assessing Officer, but failed to do so. From the above discussion, it can be concluded that, it is case where the goods were received from the party other than the persons who had issued the bills of such goods. Though the purchases were shown to have been made by making payment to unverifiable/Hawala dealer but goods must have come from grey market, therefore, under such circumstances, the chances of purchase cost being inflated could not be ruled out. Therefore, in principle the judgment of Hon'ble SC is relied upon i.e. in the case of Lachminarayan Madan Lal vs. CIT 86 ITR 439(SC), wherein held that even if there is an agreement between assessee and agents for payment, that does not bind Income tax officer to allow the payment was made exclusively and wholly for the purposes of the business. The AR has given the GP ratio for A,Ys. 2009-10, 2010-11 & 2011-12 @ 5.04%, 5%, 5.08% & NP @ 0.57%, 1% &. 1.06% respectively. The appellant has produced the corresponding sales register of purchases made from unverifiable dealer. However, no day-to-day stock register is maintained and there was no prove to show the movement of goods as purchases being LDO and Furnance Oil, which cannot be moved without proper mode of transport. The case laws relied upon by the appellant are not similar to the facts of the case of the appellant. However,on the purchases there were corresponding sales and the payments were made by account payee cheques, therefore,the disallowance of entire purchases made from the so-called hawala dealers is not justifiec, In appellant's own case . Shri Shyam K.Gyanchandani. for A.Y.2011-12, the disallowance @ 25% of unverifiable purchases made from -nveriflable/hawala dealer has been made. Considering the totality of the facts of the case, I am of the considered opinion to disallow 25% of unverifiable purchases made from unverifiable/Hawala Dealer. Accordingly, the book result of the appellant is rejected u/s.145(3) of the Act. The disallowance @ 25% out of unverifiable purchases from unverifiable/hawala dealer had been upheld in the following cases: (1) Sanjay Oil Cake Industries Vs CIT (2008) 316 ITR 274 (Guj) (2) Vijay Proteins Ltd Vs ACIT 58 ITD 428 (Abd) (3) M/s Nand Kishore Meghraj Jewellers, Jaipur CO. No. 105/JP/09 arising out of by ITAT Jaipur (4) M/s. Trident Jewellers ITAT Jaipur ITA No. 552/JP/2013. In view of the above stated facts, the disallowance @ 25% of Rs.5,44,589/-works out to Rs.1,36,147/- and the same is added to the total income of the appellant. The appellant get relief of Rs.4,08,442/-i.e.(5,44,598-l,36,147).”

I have heard both the learned Counsel and perused the records.

Up on careful consideration of the facts of the case, I find that overwhelming evidence have been referred by the authorities below that the impugned purchases are bogus. There is no evidence of the actual movement of the goods under dispute. In these circumstances learned Departmental Representative has referred to Hon’ble Gujarat High Court decision in the case of Tax Appeal No 240 of 2003 in the case of N K Industries vs Dy CIT , order dated 20.06.2016, wherein 100% of the bogus purchases will held to be added in the hands of the assessee and tribunals restriction of the addition to 25% of the bogus purchases was set aside. The . Shri Shyam K.Gyanchandani. Special Leave Petition against this order along with others has been dismissed by the Hon’ble Apex Court vide order dated 16.1. 2017.

I find that in this case the sales have not been doubted. It is settled laws that when sales are not doubted 100% disallowance for bogus purchase cannot be done. This proposition finds support from the Hon’ble Gujarat High Court in the same combined order as mentioned above in case of therein. This proposition is further supported from Hon’ble jurisdictional High Court decision in the case of Nikunj Eximp Enterprises. However, the facts of the present case indicate that assessee has made purchase from the grey market. Making purchase through the grey market gives the assessee savings on account of non-payment of tax and others at the expense of exchequer. In similar situation on the facts and circumstances of the case a disallowance of 12.5% of the bogus purchase has been considered to meet the ends of justice in a number of cases at the Mumbai Tribunal following Hon’ble Gujarat High Court decision in the case of Simit P.Seth. Accordingly, I hold that the disallowance in this case should be restricted to 12.5% of the bogus purchase. However, I modify the order of the learned CIT(A) and direct that only 12.5% of bogus purchase should be disallowed.

In the result, this appeal by the assessee stands partly allowed. Order pronounced on this 05th day of July, 2017. Sd/- (Shamim Yahya) ACCOUNTANT MEMBER मुंबई Mumbai; �दनांक Dated : 05th July, 2017. Devdas* . Shri Shyam K.Gyanchandani. आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. आयकर आयु�त(अपील) / The CIT, Mumbai. 4. आयकर आयु�त / CIT(A), Mumbai 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR, ITAT, Mumbai 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, True copy