NIRAV HARSHAD SHETH,MUMBAI vs. ITO 32(3)(4), MUMBAI

O R D E R PER MAHAVIR SINGH, JM:

These three appeals one by the Revenue and two by the assessee are arising out of the different orders of CIT(A)-44, Mumbai, in appeal No. CIT(A)- /ITO.32(1)(5)/ITA-50/2013-14, CIT(A)-44/ITO 32(2)(4)/ITA.66/15-16 & CIT(A)-44/ITO 32(1)(5)/ITA.67/15-16 dated 30-03-2015 & 20-05-2016. The Assessments were framed by ITO ward 25(2)(1), ITO ward 32(2)(4) & ITO

ITA No. 3656/Mum/2015, 4878/Mum/2016 Mr. Nirav Harshad Sheth, Harshad V. Sheth HUF; AY:09-10 &10-11 Ward32(1)(5), Mumbai for the A.Ys. 2009-10 & 2010-11 vide order dated 07- 03-2013 ,27-02-2015 & 03-03-2015 u/s 143(3) read with section 147 of the Income Tax Act, 1961 (hereinafter ‘the Act’).

For assessee has raised following ground: - “On the facts and in the circumstances of the case and in law, the learned CIT (A) grossly erred in upholding the addition of Rs. 20,06,845/- (being 12.5 % of Rs. 1,60,54,761/) on account of unexplained expenditure without appreciating the fact that the purchases were made from various parties that were genuine and not bogus. The appellant prays that the said addition is unjustified and may please be deleted.”

ITA No. 3656/Mum/2015, 4878/Mum/2016 Mr. Nirav Harshad Sheth, Harshad V. Sheth HUF; AY:09-10 &10-11 assessee have made bogus purchases to the tune of Rs. 1,51,68,656/- in the case of Harshad V. Sheth and sum of Rs. 1,60,54,761/- in the case of Nirav H Sheth during the relevant FY 2008-09 relevant to AY 2009-10. The AO has recorded the bogus sales in the case of Harshad V. Sheth as under: - TIN Name to Party Amount (Rs.) 27760622173V Dhruv Sales Corporation 3,04,061 27030540755V Nageshwar Enterprises 1,35,002 27050534148V Aradhana Corporation 2,16,503 27960207776V Mihir Enterprises 4,38,566 27690556203V K K Enterprises 2,58,518 27490615192V Shubhlaxmi Sales Corp. 1,93,363 27540616280V Navdeep Trading Corporation 1,93,620 27280553858V DK Enterprises 2,20,875 27810355056V Grifton India Riddhi Enterprises 2,60,420 27490582406V Vidhi Metal Industries 78,14,152 27130593177V Navkar Traders 4,90,516 27450694269V Shakti Steel Corporation 68,377 27320620281V Rajratan Metal India 65,619 27290546432V Arbuda Steel 5,37,962 27600614113V Millinieum Forge (India) 8,82,053 27810631797V Bhagyalaxmi Steel Industries 13,63,905 27350571134V Kushal Steel Corporation 17,25,144 Total 1,51,68,656/- Similarly, the AO recorded the bogus purchases in the case of Nirav H Sheth as under: - “ TIN Name of the party Amount (In Rs.) 27030540755 Nageshwar Enterprises 1,39,250 27050534148 Aradhana Corporation 3,62,653 27130593177 Navakar Traders 6,53,955 27190651926 PM Trading Company 2,60,897 27280553858 DK Enterprises 1,97,562 27290266393 CK Enterprises 2,11,009 27290546432 Arbuda Steel 8,47,564 27320620281 Rajratan Metal India 13,33,008 27350571134 Kushal Steel Corporation 25,04,677 27490582406 Vidhi Metal Industries 47,19,282 27490615192 Shubhlaxmi Sales Corp 1,17,510 27540616280 Navdeep Trading Corp. 4,52,854 27560349325 Aashirwad Expo 83,920 27600614113 Millinieum Forge (India) 4,40,001 27690556203 KK Enterprises 2,72,006 Page 3 of 8

ITA No. 3656/Mum/2015, 4878/Mum/2016 Mr. Nirav Harshad Sheth, Harshad V. Sheth HUF; AY:09-10 &10-11 27710403514 Gautam Traders 76,782 27740523050 Suraj Steel India 82,491 4. According to AO, in both the cases as per specific information received by DGIT (Investigation) Mumbai, from the Sales Tax Department of Govt. of Maharashtra that the assessee had made purchase from the above mentioned parties as per the details given in the chart reproduced above from the assessment order. According to AO Sales Tax Department carried out detail enquiries in respect of the above parties and recorded statements, deposition, affidavits etc. of main person of the above concerns establishes that these concerns is providing bogus bills and actually are hawala dealers. It also establishes that no actual goods are delivered by these parties and issued only bogus bills for commission. Before AO assessee contended that these purchase transactions are genuine and VAT has already been paid by assessee on the above purchases. The learned Counsel for the assessee before AO contended that the assessee is dealing in trading of Iron and Steel and considering the nature of the business of the assessee and also the fact that the payments is made by accounts payee cheques and complete sale and purchase invoices available with the assesse and corresponding sale is made the entire purchases may be accepted as genuine. In view of these, the learned Counsel for the assessee contended before AO that the purchase should be treated as genuine. But the AO in both the cases treated the purchase as bogus and applying profit rate at the rate of 12% by following the decision of Hon’ble Gujarat High Court in the case of Simit P Sheth (2013) 356 ITR 451 (Guj). Aggrieved assessee preferred the appeal before CIT(A), who also confirmed the action of the AO and in both the cases the order of CIT(A) is identically worded and the relevant Para 3.5 of the appellant order in the case of Nirav H Sheth reads as under: - “3.5 It is seen from record that the A.O. has not mechanically disallowed the entire disputed purchases amounting to Rs.1,60,54,761/-. Further he has pointed out the apparent deficiencies in the books of the assessee and had invoked the provision of section 145(3). When the basic details like purchases remain unverifiable it is Page 4 of 8

ITA No. 3656/Mum/2015, 4878/Mum/2016 Mr. Nirav Harshad Sheth, Harshad V. Sheth HUF; AY:09-10 &10-11 open for the A.O. to reject the books of accounts of the assessee. Thus it is he'd that the A.O. was right in rejecting the books of the assessee. Further, as stated above the A.O. has himself estimated the profit rate which should have arisen because of the bogus purchase rather than disallowing the entire disputed purchases. The A.O. also fairly considered in para 9.6 of his order that there cannot be any sales without purchases. Therefore, the A.O. has mentioned that the assessee did make purchases but at a lower price so as to increase his overall profits. Since the A.O. has himself given substantial relief to the assessee by a speaking order I don't see any reason to interfere in the order of the A.O. The grounds of appeal No.1 is dismissed and accordingly addition of Rs.20,06, 845/- is confirmed.”

5. Aggrieved, against the confirmation of disallowance of bogus purchase by applying gross profit rate at 12.5% assessee is in second appeal before Tribunal in both the cases. We have heard the rival contentions and gone through the facts and circumstances of the case. Before us, the learned Counsel for the assessee submitted as copies of the ledger account of parties, copies of banks statements highlighting payments by account payee cheques, copy of invoices of purchases and corresponding sales against the purchase pertaining to the transactions entry with the aforesaid parties during the year. But the assessee could not submit the transport invoices of the goods and also could not prove the movement of the goods. The assessee is also not maintaining any stock register and in such circumstances we are of the view that the AO has reasonably estimated the profit rate at 12.5%. But now, before us the learned Counsel for the assessee, on query from the Bench stated that profit element is already disclosed which is embedded in the sales carried out by the assessee corresponding to the same purchases. One further query was put to the learned Counsel for the assessee, he stated that the profit margin in assessee’s case is around 3 to 5 % but he could not give profit ratio of the previous three years. As regards to the application of profit rate of 12.5%, we find no infirmity in the orders lower authorities however, we direct Page 5 of 8

ITA No. 3656/Mum/2015, 4878/Mum/2016 Mr. Nirav Harshad Sheth, Harshad V. Sheth HUF; AY:09-10 &10-11 the AO in both the appeals of the assessee that credit of already disclosed profit should be allowed to assessee in regard to these bogus purchases. The assessee has to provide profit rate of this year to the AO and accordingly, AO will allow credit for the disclosed profit and re-compute the income accordingly. The appeals of assessee are partly allowed for statistical purposes.

ITA No. 3656/Mum/2015, 4878/Mum/2016 Mr. Nirav Harshad Sheth, Harshad V. Sheth HUF; AY:09-10 &10-11 engaged in false billing for a fee/commission. The onus of proving the entire transactions to be genuine is definitely on the tax payer, when he is making the claim of purchase and especially in light of the doubt that has been raised by the enquiries conducted by the Sales Tax Department, the onus is even more on the tax payer to show that as far as he is concerned, he has discharged his tax related liabilities in an accurate manner. So therefore, while on one hand the AO may not had a clinching proof but the primary responsibility which is ensued on the tax payer has also not been discharged in terms of establishing the genuineness of the transaction. Merely filing copies of his own ledger accounts and bank accounts does in no way establish that the parties actually existed, but then considering that the books of accounts have not been disputed, sales have not been disputed and neither cheques have been shown to be received back as cash by the appellant, I am of the considered view that in the context of the situation where the AO has himself said that what is being doubted is not the quantity of purchases per Se, which has entered into the books of the appellant, but that the purchases were billed through bogus parties, then the cause of justice would be served by looking at the gross profit margins being declared by the appellant. I am guided by the ratio of decision of the Hon'ble Gujarat High Court in the case of CIT Vs Simit P. Sheth pronounced on 16.1.2013 in tax appeal No.553 1 of 2012 wherein the Hon'ble Court have held that when the total sale is accepted by the AO, then the entire purchases cannot be added to the income of the appellant. The Hon'ble Court have, therefore, held that fair profit ratio would be needed to be added back to the income of the assessee. Therefore, 8% of the purchases i.e. 8% of Rs.96,87,457/- which works out to of Rs.7,74,997/- is upheld for lack of credible evidence Page 7 of 8

ITA No. 3656/Mum/2015, 4878/Mum/2016 Mr. Nirav Harshad Sheth, Harshad V. Sheth HUF; AY:09-10 &10-11 being provided by the appellant to substantiate the purchases. The appellant gets relief of Rs.89, 12,460/-”