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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 order of learned CIT(A) dated 01.12.2016 and pertains to assessment year 2009-2010.
Grounds of appeal
read as under:-
1. The Ld. Commissioner of Income Tax (Appeals) - 30, Mumbai thereinafter referred to as the "Ld. CIT(A)"] erred in passing the order dated 01.12.2016 confirming the assessment order dated 20.03.2015 passed under section 144r.w.s. 147 of the Income Tax Act, 1961 [hereinafter referred to as "the Act"] without appreciating the facts and circumstances of the case. The Appellant strongly objects to the addition made in the assessment order.
2. Treating the purchases as bogus / non-genuine unjustified -Rs.36.32.266/- (i) The Ld. CIT(A) erred in upholding the action of the Ld. A.O in making addition of Rs.36,32,266/- being purchases made from M/s. Romes Metal & Tubes Pvt. Ltd, M/s. Reliable Metal (India), M/s. Krishana Steel Industires and M/s. Nerolac Metal . M/s.Kanchan Ferromet. (India) treating the same as bogus / non-genuine without appreciating the facts and circumstances of the case. Hence, the addition of Rs.36,32,266/- is unjustified and the same may be deleted. (ii) The Ld. CIT(A) failed to appreciate that materials purchased from the above said parties are duly accounted in the books of accounts and the same are supported by proper documentary evidences. Hence, the addition of Rs.36,32,266/- by treating the purchases as bogus / non-genuine is unjustified and the same may be deleted. (iii) Without prejudice to the above the Ld. CIT(A) erred in upholding the action of the Ld. A.O. in making addition of Rs.36,32,266/- on the basis of certain statements given by some parties under section 14 of the Maharashtra Value Added Tax Act without providing the Appellant an opportunity of cross examining them relying on whose statement anadverse inference has been drawn against the Appellant. Hence, the addition of Rs.36,32,266/- is unjustified and the same may be deleted.
The Ld. CIT(A) erred in levying interest under section 234B and 234C of the Act without appreciating the fact that Appellant denies his liability to the same.
4. The Appellant craves leave to add, alter, rescind or amend any of the above grounds of appeal
.”
3. Brief facts of the case are as under:- 3.1 The assessee is a firm engaged in the business of trading in 'ferrous and non-ferrous metals'. The assessee filed its return of income for the assessment year 2009-10, declaring total income of Rs.2,65,651/-. The return was processed u/s. 143(1) of the Act. Subsequently information was received from the DGIT(Inv.), Mumbai, that there was a scam unearthed by Sales Tax Department regarding issue of hawala bills and accommodation entries by several parties in Mumbai, availed by several assessee's to inflate
. M/s.Kanchan Ferromet. their purchases or expenses and thereby reducing their tax liabilities. As per the information, the appellant also indulged in bogus purchases with four parties, to the tune of Rs.36,32,266/-. On the basis of the information, the assessment was reopened, by issuing notice u/s 148 of the Act on 19-02- 2014. Assessment u/s 143(3) r.w.s 147 of the Act was passed on 20-03- 2014, assessing the total income at Rs. 38,97,920/-.
3.2 During the course of reopened assessment proceedings, to ascertain the genuineness of purchases, AO called for the purchase details from the appellant by issuing notices u/s 142(1) and 143(2) of the Act on different dates. The assessee was given opportunities for establishing the genuineness of these parties and the purchases made from them with adequate supporting evidences along with their books of accounts. The assessee failed to avail the opportunities and to produce the vital documents like purchase and sales invoices and matching corresponding purchases and sales, delivery challans, port receipts etc. Finally AR filed a letter on 13-03- 2015, in Tapal, stating that due to fire accident in the premises all the documents have been burnt/ misplaced. It is also stated that the parties could not be contacted and produced for cross examination. AO did not accepted the contentions for the reason that despite giving several opportunities the AR could not furnish any details and the names of the non- genuine dealers from whom the appellant made purchases are appearing in the list published in the Sales Tax website. Assessee could not establish genuineness of purchases made and could not furnish copies of the bills, bank statements and ledger accounts. In view of the same, AO concluded that the parties from whom purchases made were non genuine transactions
. M/s.Kanchan Ferromet. to suppress the profits and to reduce the tax liability and added the amount of total purchases of Rs.36,32,266/-, to the total income of the appellant Penalty proceedings u/s 271(l)(c) of the Act were also initiated separately.
Upon assessee’s appeal, learned CIT(A) confirmed the Assessing Officer’s action. Against the above order, assessee is in appeal before ITAT.
I have heard both the Counsel and perused the records.
The learned Counsel of the assessee pleaded that addition in this case be restricted to 12.5% of the bogus purchases as held by the Hon’ble Gujarat High Court in the case of CIT v. Simit P.Sheth [(2013) 38 Taxmann 385 (Guj.)].
Per contra, learned Departmental Representative referred to the decision of the Hon’ble Gujarat High Court decision in the case of N.K.Industries v. DCIT vide order dated 26.06.2016 wherein addition on account of bogus purchases were restricted to 25% by the ITAT. The Hon’ble High Court has upheld the addition of entire bogus purchases on the reasoning that such restriction of bogus claim goes against the principles of sections 68 and 69C of the Income-tax Act, 1961. SLP against the decision was dismissed by Hon’ble Apex Court vide order dated 16.01.2017.
Upon careful consideration, I find that the Revenue has not disputed the sales. It is settled law that when the sales are not disputed, the entire purchases to make the sales cannot be disallowed. It is true that assessee has not at all been able to prove that the purchases from the parties booked on the accounts are genuine. No book and records have been shown.
. M/s.Kanchan Ferromet. However, in the absence of any finding that sales are also bogus, the purchases to make the corresponding sales cannot be held to be completely bogus. This points out to the practice that assessee had made purchases from grey market. Operating in the grey market leads to various savings on account of non-payment of various taxes by use of unaccounted money to the assessee. On a similar situation, Hon’ble Gujarat High Court in the case of Simit P.Sheth (supra) has upheld the disallowance of 12.5% of the bogus purchases. Since the proposition that when sales are not disputed, entire purchases cannot be held to be bogus is supported by Hon’ble jurisdictional High Court decision in Nikunj Exim Enterprises, in my considered opinion, the interest of justice will be served if the addition in this case is restricted to 12.5% of the bogus purchases.
It is to be borne in mind that the decision of Hon’ble jurisdictional High Court in the case of Nikunj Exim Enterprises where no addition out of the bogus purchases was confirmed, is not fully applicable on the facts of the present case. In the facts of Nikunj Exim Enterprises, the substantial sales were made to government agencies, books were not rejected and stock reconciliation was given. In the present case learned Counsel of the assessee has himself agreed for 12.5% disallowance out of the bogus purchases. It is further noted that dismissal of SLP by a non-speaking order does not merge the decision of Hon’ble Gujarat High Court in the case of N.K.Industries with that of Hon’ble Apex Court.