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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI ASHWANI TANEJA
सुनवाई की तारीख / : 20/04/2017 Date of Hearing घोषणा की तारीख / : 03/05/2017 Date of Order आदेश / O R D E R PER ASHWANI TANEJA, AM :
2 Roop Rachana These cross appeals have been filed against the order of the Ld. CIT(A)- 26, Mumbai passed against the order u/s 143(3) of the I.T. Act, 1961, dated 25/03/2013 for assessment year 2010-11. The revenue has filed the appeal on the following grounds . 1. “On the facts and in the circumstances of the case, the Ld. CIT(A) erred in restricting the addition at 12.5% of the total addition made by the Assessing Officer on account of bogus purchases of Rs.1,60,65,860/- ignoring the fact that quantative details were not produced by the assessee during the course of assessment proceedings.” 2. “On the facts and in the circumstances of the case, the Ld. CIT(A) erred in admitting additional evidence in violation of rules 46A without granting opportunity to the Assessing Officer to verify the same.”
3. The appellant prays that the order of the CIT(A) on the above grounds(s) be set aside and that of the Assessing Officer be restored.
4. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary.
The assessee has filed the appeal on following grounds:-
1. “The Income Tax Officer 15(2)(3) and Comm. Of Income Tax(Appeals) 26 erred in disallowing purchases of Rs.1,60,65,860/- allied as bogus purchases and estimated Gross Profit percentage @ 12.5% on such purchases without any basis amounting to Rs.20,08,232/-
2. The Appellant craves to Add. Amend or Substitute the Grounds of Appeals.”
3. The perusal of the grounds reveals that the common issue has been raised by both the parties. The Assessing Officer had disallowed the purchases aggregating to Rs.1,60,65,860/- in total on the ground that these were bogus. In appeal before Ld. CIT(A) assessee contested the disallowance vehemently and submitted various evidences to show that the transaction of the assessee 3 Roop Rachana was genuine. However, Ld. CIT(A) was not convinced with the submission to the assessee fully and therefore, he partly agreed with the assessee that though the disallowance should be made of the purchases but not in full. Therefore, after considering the facts of this case and various judgments, he restricted the disallowance to 12.5% of the amount of purchases disallowed by the Assessing Officer by making following observation:- “From the various Judgments of Supreme Court, various High Courts and different Benches of ITAT as above, it emerges that in a case where the supplier is not found at the address furnished, the disallowance of whole of such purchase can be made only if the facts in the case are similar to the facts in case of La Medica, Sri Ganesh Rice Mills, Vicky Foods (P.) Ltd, Indian Carpet Manufacturing Company, Khandelwai Trading Company, D.D. Kochhar and Sons, Kachwala Gems etc. In all these cases, in addition to various other evidences available in each such case, reliable quantitative details were not available and also the genuineness of payments for purchases was not shown rather the payment was not established and evidence produced in support of payments failed the tests of enquiry. In other cases, where the full quantitative details are not available or that such details are not fully reliable and consumption of material is shown but yield is too low and payments are also doubtful, as in case of Vijay Proteins Ltd., Bholanath Poly Fab Pvt. Ltd., Simit P. Sheth, Sanket Steel Traders, Sathyanarayan P. Rathi, etc., purchases maximum to the extent 25% as in Vijay Proteins case and upto 12.5% as in other cases has been held disallowable. However, in case of Sunsteel, addition of only about 2% has been sustained whereas in the case of Champalal Choudhary addition of 5% has been sustained. The estimated disallowance has been upheld to augment the possible suppression in GROSS PROFIT applying real income theory depending on the facts of the case. No basis of such estimation has been given in these decisions. Additions made u/s 69C in the case of Shubh Laxmi Exports and Sunsteel have been deleted. In other cases, where reliable quantitative details are available and payments are made by account payee chequeus, disallowance made 4 Roop Rachana on account of purchases, in cases like Nikunj Eximp Enterprises (P.) Ltd (High Court as well as ITAT), Babulal C. Borana, M.K. Brothers, Nangalia Fabrics Pvt. Ltd., Rajiv G. Kalathil, Sagar Bose, Rajesh P. Soni, Permanand, Diagnostic etc. has been deleted. However, all such cases are held to be a case of facts and no question of law is involved in such cases. On basis of the above decisions, the law that emerges is that reliable quantitative details and payments by account payee cheques are primary tests, on which the genuineness of purchases, where suppliers are not available, is required to be tested. Other evidence such as statements as to providing ’hawala’ recorded by Sales Tax Authorities or the denial by the suppliers even before the AO, absence of evidence in support of transportation/delivery of material etc. are neither that relevant nor over riding as emerging from cases like Nikunj Eximp Enterprises (P.) Ltd. (High Court as well as ITAT), M.K. Brothers, Nangalia Fabrics Pvt. Ltd., Rajiv G. Kalathil, Parmanand, Sagar Bose, Diagnostics etc. to decide the genuineness of the purchases. These evidence are mere indicators and not conclusive. Further the peak addition on the basis of unexplained/bogus credits has been held applicable only in case of Vijay Proteins and on peculiar facts of that case. In other cases, such peak credit issue was generally not considered at all. Rather peak credit addition made by the Assessing Officer in cases of Shubh Laxmi Exports and Sunsteel has been deleted. Therefore, peak theory cannot be applied in a case unless all the relevant facts are closely similar to those in Vijay Proteins case including strong and un-rebutted evidence that the payment made for suspicious purchases has been returned back to the assessee in cash. The GP rate inclusive of these purchases from bogus parties and corresponding sales is shown to be 4.35% whereas the GROSS PROFIT rate exlusive of these purchases from bogus parties would be 16.25%. The historical GP rates in various earlier years are varying from 3.9% to 4.3% which is normal. The subsequent years GP rates in different years are also similar. The benefit derived by the assessee by showing purchases from such bogus parties can therefore said to be the lowering of GROSS PROFIT that would have been earned by the assessee had such purchases and corresponding sales been removed from the accounts. Thus the effective lowering in the GROSS PROFIT achieved by the 5 Roop Rachana assessee is therefore the real additional income of the assessee by showing such purchases and only such additional income would therefore be taxable. Though it is not possible to determine the real benefits derived by making such purchases from bogus parties, however considering that purchase would not be made from bogus parties unless there is commensurate benefit, the Assessing Officer is directed to assess the additional income from these purchases @ 12.5% of such purchase.”
During the course of hearing before us, Ld. DR submitted that the purchases should be disallowed in full whereas Ld. Counsel of the assessee submitted that since claim of the assessee has been accepted therefore, purchases cannot be disallowed fully. Ld. CIT(A) has rightly restricted the disallowance to the profit element only, however rate of 12.5% is excessive which should be reduced.
We have gone through the facts and circumstances of the case and find that the findings recorded by Ld. CIT(A) is well-reasoned therefore, we uphold the findings of the Ld. CIT(A) to the extent that purchases cannot be disallowed fully in view of peculiar facts of this case and the judgments relied upon by the Ld. CIT(A). However, rate of 12.5% seems to be excessive in the facts recorded by the Assessing Officer and Ld. CIT(A) in their orders. Therefore, we direct the Assessing Officer to reduce it to 10%. Therefore, order of the Ld. CIT(A) is upheld subject to the modification that disallowance should be made at the rate of 10% as against the rate of 12.5% decided by the Ld. CIT(A). As a result, appeal of the revenue is dismissed and that of the assessee is partly allowed.
6 Roop Rachana Order was pronounced in the open court at the conclusion of hearing in the presence of representatives of both the parties.