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Income Tax Appellate Tribunal, MUMBAI BENCHES “SMC”, MUMBAI
Before: Shri Shamim Yahya
O R D E R This appeal by the assessee is directed against the order of CIT(A) dated 28.10.2016 and pertains to assessment year 2009-2010.
3. The grounds of appeal read as under:- (1) The Assessing Officer erred in adding 25% of alleged bogus purchases Rs.29,46,224/- (out of Rs.40,62,462) i.e. Rs.7,36,556/- and the Learned CIT (A) 38 erred in enhancing the addition at the rate of 25% of Total alleged Bogus purchases from Five parties amounting to Rs.40,62,462/- and making addition ofRs.10,15,615/-. Same be deleted. (2) The A.O has treated bogus purchases merely on the Basis of third party evidences i.e. nonpayment of MVAT by these parties in spite of the facts the appellant has fulfilled primary . Shri Alamgir Kasam Ali. onus of proving the genuineness of purchase of goods and sale of same items -goods. (3) The 25% of addition made on Accounts of five alleged Bogus suppliers amounting to Rs,40,62,462/- i.e. Rs.10.15.615/- be deleted. (4) The AO has made addition on account of bogus purchases from Five arties without verifying the fact that the purchases were genuine and payment was also made through account payee cheque and the Income Tax Department has not proved that appellant has received any cash back from such parties. The sales of the appellant are also accepted by the Income Tax Department. Once the sales are accepted, purchases ought to have been made as without purchases there cannot be any sales. (5) The AO has made addition without making any independent enquiry. He has also not rejected the books of account u/s 145(3). (6) The AO ought to have given opportunity to the appellant for cross examination of the five parties. The Income tax department is alleging purchases as bogus without providing any material or evidences on which AO has placed his reliance. Such evidences are used without knowledge of the assessee which is against the law of natural justice and the learned CIT(A)-38 also failed to appreciate the facts. (7) Interest charged u/s 234B Rs.4,72,968/- and interest u/s 234C be deleted.”
Brief facts of the case are that the assessee is a proprietor of M/s.Indian Steel Forging Co. engaged in the business of manufacturing of tube fitting flanges. An information was received in the case of the assessee from Sales Tax Department through O/o DGIT (Inv.), Mumbai that the . Shri Alamgir Kasam Ali. assessee has taken entries of bogus purchase through the havala parties which were not genuine.
3.1 Further on perusal of the assessment records vis-a-vis the information, AO observed that the appellant had obtained accommodation entries from following parties during the F.Y. 2008-09, relevant to assessment year 2009-2010:-
Name of Hawala Dealers Bogus purchases made by assessee ( in Rs. ) 1 Siddhivinayak Steel 6,33,186 2 Chanchal Tube Corporation 12,97,212 3 Asian Steel 9,57,873 4 Surat Tube Corporation 10,24,831 5 BPTTube Corporation 1,49,36O Total 40,62,462 3.2 In respect of above parties, the AO observed that information was received from Sales Tax Department that these are appearing in the list of suspicious dealers, who had issued false bills without delivery of goods. It was contended 1 the AO that enquiries were conducted in these cases by the Sales Tax Authoritii and it was reported that either these parties were not traceable or wherever the: were found, it was stated by them that no business was done by them and they were engaged only in providing bills.
. Shri Alamgir Kasam Ali. 3.3 In view of the above, the AO observed that there is inflation of expenditure resulting in escapement of income to the extent of Rs.40,62,462/- for A.Y.2009-10 in the case of the appellant and therefore on the basis of the information, the case for the A.Y. under consideration was reopened by the AO after recording the reasons for reopening and in response to notices u/s. 148 of the I.T. Act, the assessee has submitted the copy of return of income along with details of bank account.
3.4 However, in order to verify the genuineness of the purchases, the AO issued notice u/s 133(6) of the I.T. Act, to all the aforesaid parties on the addresses given by the assessee . The said notices were returned by the postal authority unserved with the remarks left, not known. The AO also issued show cause notice to the assessee to establish the identity of the said parties, but the appellant failed to discharge his onus and therefore after considering the contentious of the assessee, the AO did not accept the same in view of the following reasons:-
(i) The primary onus is on the assessee to establish the genuineness of the purchases claimed by it. The onus lies upon the assessee to prove all the expenses including purchases to the satisfaction of the AO, which was not discharged by the assessee as it failed to produce the parties from whom the purchases were made. Since the primary facts are in the knowledge of the assessee, it is his duty to provide the correct address or contact mode of alleged suppliers.
(ii) It was seen from the examination of records that except for the purchase bill claimed to be given by these suspicious parties, Bank
. Shri Alamgir Kasam Ali. statement, particulars of purchase and sale no other evidence or other document were available in support of the purchase claimed. The assessee has not submitted quantitative details. Mere filing bills in support of purchases and payment through account payee cheque cannot be conclusive in a case, where genuineness of transaction is in doubt. Payment by account payee cheque is not sacrosanct and is not sufficient to establish the genuineness of the purchases.
(iii) It is found that the assessee could not give satisfactory documentary evidence of transfer of goods from the premises of purchase-party to the premise of the assessee. There is no documentary evidence to suggest that the goods were transported to the premise of the assessee, such as goods receipt notes, goods inspection notes, godown receipt, loading and unloading expenses details, toll tax paid etc were not produced by the assessee.
(iv) Since the information available on Maharashtra Sales Tax Department's website leads to doubt regarding genuineness of the purchases, it is incumbent on the assessee to produce these parties along with their necessary documents to establish the genuineness of the transaction as these parties were not found at the given addresses. It is really surprising that none of these parties were found on the given addresses nor was it produced by the assessee before the undersigned to get the claim of purchases verified. Further, there is a specific finding of Maharashtra Sales Tax Department that these parties have issue fall bills without delivery of goods. Thus undisputed
. Shri Alamgir Kasam Ali. fact is that the purchases claimed to have been made from these parties remained unverified.
3.5 In view of the above facts and circumstances of the case, the AO observed that these purchases, are not genuine as the assessee has merely indulged in inflating expenses by introducing bogus purchases amounting to Rs.40,62,462. The AO held the assessee to be a beneficiary of the accommodation bills issued by the aforementioned parties, however held the sale to be genuine and purchases to have been made from grey market. Therefore, the AO estimated profit @25% on the above alleged transactions being manufacturer, over and above that declared by the assessee which was worked out at Rs.7,36,556 and was added by the AO to the total income of the assessee.
3.6 However, while working out the profit element involved on account of inflation of purchases, the AO took the quantum of the non- genuine purchases at Rs.29,46,224 as against Rs.40,62,462 mentioned supra.
Upon assessee’s appeal, the learned CIT(A) elaborately considered the issue. He concluded as under:-
“4.1.11 Thus in view of the above facts and circumstances of the case and the recent judgments quoted as above, it is observed that the likelihood of the purchase price being inflated cannot be ruled out and therefore in view of the above, the AO has not treated the entire purchases from the aforesaid parties to be bogus but held, to have been made from the parties other than those mentioned in the books of accounts and that being the position, not the entire purchase price but only the profit
. Shri Alamgir Kasam Ali. element embedded in such purchases has been taxed by the AO @ 25%. 4.1.12 Therefore the possible profit out of purchases made through non genuine party has been estimated by the AO which is commensurate with the recent judgment in the case of CIT vs. Sanjay Oil Cakes (2009) 316 ITR 274 of Honble Gujarat High Court wherein disallowance on account of bogus purchases in the case of manufacturers was sustained at 25% of the alleged bogus bogus purchases. 4.1.13 The AO has only added the profit element embedded in the aforesaid bogus purchases @ 25% which seems to be justified in view of the nature of the business of the appellant, comparative cases in this line of business and GP declared by the appellant himself in the past AYs and also in subsequent years as per the chart reproduced in the above paras. 4.1.14 However, during the course of appellate proceedings, it was observed that while working out the profit element embedded in the purchases made from the aforesaid dealers by treating, purchases as non-genuine, the AO has taken the quantum of such purchases at Rs.29,46,224/- as against the actual purchases of Rs.40,62,224/- claimed by the appellant. Therefore during the course of appellate proceedings, vide order sheet entry dated 20.10.2016, the AR of the appellant was asked to offer his comments /explanation as to why the profitability may not be worked out at the amount of Rs,40,62,462/- as there was going to be enhancement in the addition. 4.1.15 In response to the same, the appellant has submitted that the AO applied the ratios of M/s. Vijay Proteins Ltd. Vs Asst CIT (1996) 55 TTJ 76 or 58 ITD 428. The facts of Vijay Proteins case were peculiar and same are not applicable to the facts of the assessee as in the case of Vijay Proteins the assessee failed to produce alleged suppliers, brokers and transporters or any other evidence genuineness of impugned transactions of . Shri Alamgir Kasam Ali. purchase & therefore such purchases had to be treated as Bogus & accordingly 25% of purchase amount and entire fright was disallowed. , 4.1.16 The appellant contended that the addition cannot be made as there are territorial Income Tax Tribunal Judgements which are binding on the appellant authorities and has requested to delete the addition made by the AO at the rate of 25% of alleged Bogus purchases.
4.1.17 The contention of the appellant has been considered & not found to be acceptable in view of the fact that in case of Bogus purchases, it is vital to ascertain whether purchases were totally non-existent or were actually made from grey market without proper billing instead of the parties from whom it was claimed to be purchased. Once it is clear that purchases were actually made then only the profit embedded in it and not price of bogus purchases could be added in the income of the assessee.
4.1.18 In view of the facts and circumstances of the case and discussion herein above, the contentions and submissions of the assessee are not found to be acceptable and are therefore rejected and the G.P rate of 25% applied by the AO is sustained. However the quantum of bogus purchases taken by the AO at Rs 29,46,224/- is not found correct as the quantum of actual purchases from the aforesaid alleged dealers is at Rs 40,62,224/- as claimed by the appellant. Therefore the profitability is required to be worked out at an amount of Rs 40,62,462/- & not Rs 29,46,224/- worked out by the AO. Accordingly, the total addition on this account is worked .out at Rs. 10,15,615/- as against Rs.7,36,556/- worked out and added by the AO. Therefore, there is enhancement in the addition by Rs.2,79,060/- (Rs 10.15.615/.- minus Rs 7,36,556/-). The total additions of Rs.10,15,615/- stands confirmed.”
Against the above order, assessee is in appeal before the Tribunal.
. Shri Alamgir Kasam Ali.
I have heard both the Counsel and perused the records. I find that overwhelming evidences are there on record to show that the impugned purchases are bogus. The Assessing Officer has received information from Sales Tax Department that the impugned suppliers have supplied bogus bills without actual delivery of goods and that they are hawala traders. Thereafter, the Assessing Officer has also conducted enquiry himself by issuing notices to the parties. These notices were returned unserved. This aspect was informed to the assessee. No evidence regarding the quantitative details, evidences of actual transportation were submitted by the assessee. In these circumstances, these purchases were held to be bogus. The Assessing Officer only disallowed 25% of the bogus purchases.
6.1 Upon assessee’s appeal the learned CIT(A) has confirmed the addition and has made enhancement of Rs.2,79,060 as there was some calculation mistakes by the Assessing Officer. It is to be noted that assessee in this case is not engaged in trading. It is rather engaged in manufacturing. In such circumstances, the analogy sought to be introduced that when sales are not rejected, complete disallowance of bogus purchases cannot be done, is not applicable. This analogy may be applied for trading transaction but does not hold good for manufacturing organizations. In this regard, the learned Counsel of the assessee has placed reliance upon several case laws for the proposition that disallowance in this regard is not justified. However, I note that Hon’ble Gujarat High Court in the case of in IT Appeal No.240 of 2003 in the case of N.K.Industry v. DCIT in order dated 20.06.2016 wherein 100% of the bogus purchases has been held to be added in the hands of the assessee and Tribunal’s restriction of addition to 25% of the bogus
. Shri Alamgir Kasam Ali. purchases was set aside. The Special Leave Petition against this order has been dismissed by the Hon’ble Apex Court by order dated 16.01.2017. Thus disallowance for bogus purchase depends upon the facts of the case. In this case the assessee is not engaged in trading hence relief on the analogy that sales are not doubted cannot be granted. Case laws cited by assessee are not applicable. However, I find that in many cases, ITAT Mumbai Benches have held that 12.5% disallowance of the bogus purchases in such cases meets the ends of justice, following Hon’ble Gujarat High Court decision in case of Simit P.Seth. Accordingly, I modify the order of the learned CIT(A) and hold that 12.5% disallowance of bogus purchases should be done.
In the result, the appeal of the assessee stands partly allowed.