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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Asst. Commissioner of Income Tax, Tirupati Earth Neeprima JV Circle 16(3) 462 Sindhi GAli Corner, Path Matru Mandir 2nd Floor, Rm No. Bapurao Marg Vs. 206, Tardeo RD, Mumbai-400 004 Mumbai-400 007 PAN No. AAFFT3677F Appellant .. Respondent Revenue by .. Shri Naveen Gupta, DR Assessee by .. Shri Jeetendra Singh, AR Date of hearing .. 01-05-2017 Date of pronouncement .. 01-05-2017 O R D E R PER MAHAVIR SINGH, JM:
These three appeals by the Revenue are arising out of the common order of CIT(A)-27, Mumbai, in appeal No. CIT(A)-27/AC16(3)/79, 495 & 496/2013- 14 dated 16-06-2014. The Assessments were framed by ACIT Circle-16(3), Mumbai for the A.Ys. 2009-10, 2010-11 & 2011-12 vide orders dated 27-02- 2014 u/s 143(3) read with section 147 of the Income Tax Act, 1961 (hereinafter ‘the Act’).
The only common issue in three appeals of Revenue is as regards to the order of CIT(A) restricting the addition made by AO on account of bogus purchases at Rs. 6,22,297/- at the rate of 12.5% of the bogus purchases added by AO at Rs. 49,78,373/- in AY 2009-10, at Rs. 11,86,274/- @ 12.5% of the bogus purchases added by the AO at Rs. 94,90,188/- in AY 2010-11 and added Rs.4,60,177/- @ 12.5% of the bogus purchases added by AO at Rs. 36,81,412/- in AY 2011-12. For these three years Revenue has raised identical worded , 5443 & 5444/Mum/2014 Tirupati Earth Neeprima JV; AYs. 09-10,10-11& 11-12 grounds and the issue is also exactly identical i.e. bogus purchases made by assessee from entry providers / hawala operators.
Briefly stated facts are that the assessee is a partnership firm engaged in the business of civil contractor which carries out repairs, construction, drainage pipeline and other works allotted by Bombay Municipal Corporation (BMC). According to Revenue, the assessee has made the following bogus purchases for three year i.e. in AYs 2009-10, 2010-11 and 2011-12 as under: - “2009-10 Sr. No Name of Parties Amount Involved (Rs.) 1. Deep Enterprises 5,52,562 2. Paras Sales Corporation 5,73,631 3. Payal Enterprises 1,98,969 4. Siddhivinayak Trading Company 3,47,818 5. Dhruv Sales Corporation 4,33,118 6. Renuka Sales 1,33,719 7. KRC Trading Co. Pvt. Ltd 1,851,566 8. Sheetal Trading Co. 3,56,840 9. Deepali Enterprises 2,77,418 10. Rekha Trading Co. 2,52,732 Total 49,78,373 2010-11 , 5443 & 5444/Mum/2014 Tirupati Earth Neeprima JV; AYs. 09-10,10-11& 11-12 2011-12 Sr. No Name of Parties Amount Involved (Rs.) 1. Ankit Enterprises 2,32,564 2. Ambika Sales corporation 1,221,567 3. Paras Enterprises 2,96,798 4. Gold Star Trading Co. 1,93,0483 Total 36,81,412
According to AO, the above purchases in three years, the assessee has made from the hawala parties who are only issuing bogus sale bill without delivery of goods. This information was as per the office of Director of General Income Tax Investigation, Mumbai, wherein they further received information from Sales Tax Department Govt. of Maharashtra regarding cases relating to bogus purchases / hawala transactions from the hawala parties. Further, according to above parties mentioned in the charts of the respective assessment years are engaged in providing accommodation entries. Accordingly, the AO disallowed the entire bogus purchases in all the three years and added to the returned income of the assessee for the respective AYs. Aggrieved, assessee preferred the appeal before CIT(A). The CIT(A) after considering the submissions of the assessee restricted the addition at the rate of 12.5% of the bogus purchases in all the three years by observing in Para 2.4.29 to 2.4.33 reads as under: - “2.4.29 However, in this case, the appellant being a user of goods, Ld. A.O. not having doubted the genuineness of contract receipt from BMC, he could not have gone ahead and made addition in respect of entire purchases especially when he himself recorded a finding that the appellant did not make the purchases from these parties but without stating as to how the BMC work could be done without the goods. In effect, the appellants purchase per-se have not been doubted but genuineness Page 3 of 6 , 5443 & 5444/Mum/2014 Tirupati Earth Neeprima JV; AYs. 09-10,10-11& 11-12 of the suppliers has been negated. Thus, the issue would boil down to finding out the element of profit embedded in such purchases which the appellant would have made from some unknown entities. In this regard, it is apt to refer to decision of Gujarat High Court in the case of Bholanath Poly Fab Pvt. Ltd. 355 ITR 290 (Guj) where the Hon’ble Court was battling with the finding of Hon'ble ITAT that purchases were made from bogus parties since notice issued by the A.O. to these parties were allegedly received 'returned/unserved' and the assessee was unable to produce any confirmation from these parties. The Tribunal had held that though purchases were made from bogus parties, nevertheless, the purchases themselves were not bogus as the entire quantity of opening stock, purchases and sales were tallying and hence, only the profit margin embedded in such amount would be subjected to tax. The Hon’ble Gujarat High Court taking cognizance of the fact held that whether purchases themselves were bogus or whether parties from whom such purchases were made were bogus, is essentially a question of fact and the Tribunal having examined the evidence on record and concluded that the assessee did produce cloth and sell finished goods, the entire amount covered under such purchase would not be subjected to tax and only the profit element embedded therein was to be taxed. While coming to the above conclusion, the Hon'ble High Court also relied on the decision in the case of Sanjay Oil Cake Ind. 316 ITR 274 (Gui).
-------------------------------------------------------------------- 2.4.32 As narrated earlier, the Ld. A.O. in this case has himself held that the purchases themselves were not bogus though the parties from whom the purchases were Page 4 of 6 , 5443 & 5444/Mum/2014 Tirupati Earth Neeprima JV; AYs. 09-10,10-11& 11-12 made by the appellant were found to be bogus and that is the reason for which these parties were not produced during the assessment proceedings. The motive behind obtaining bogus bills thus, appears to be inflation of purchase price so as to suppress true profits. I also find that the appellant has himself admitted that it had made a G.P. of 6.81% on the sale of goods in A.Y. 2009-10, 5.74% in A.Y. 2010-11 and 13.89 % in AY 2011-12.
2.4.33 In order to estimate as to what could be the GP which the appellant has suppressed which was embedded in the alleged purchases, it is thus noted that the appellant's GP for A.Y. 2009-10 was 6.81% which fell to 5.74% for A.Y. 2010-11 and dramatically rose to 13.81% for AY. 2011-12, thus, betraying any clear picture about the actual GP. Such large variation also points to the fact that the appellant has manipulated its accounts though Ld. AO has not doubted the contract receipts from BMC with which the appellant is engaged. Hence, in the facts and circumstances of the case and in view of CIT vs Simit P. Sheth (supra), I hold that the profit element embedded and suppressed in the alleged purchases were to the extent of 12.5%. Hence, addition to the extent of 12.5% is upheld and balance is deleted. Accordingly, these grounds of appeal are partly allowed.”
Aggrieved, now Revenue is in appeal before us.
We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the assessee partnership firm is engaged in the business of civil contractor carrying out work of repairs, construction, drainage pipeline and other works allotted by Municipal Corporation of Greater Mumbai. The assessee has maintained books of account which are audited u/s 44AB of the Act. The assessee has, admittedly, made bogus purchases from the above stated parties but has made payment by account payee cheques and Page 5 of 6 , 5443 & 5444/Mum/2014 Tirupati Earth Neeprima JV; AYs. 09-10,10-11& 11-12 obtained tax invoices. Assessee has maintained inventory of stock and also consumed the material purchase in executing contract work. It means that the assessee has obtained bogus bills from the above stated hawala entry operators who provides only bills and not actual goods. Actually, the assessee admitted that he has made purchases from grey market from where he has avoided payment of VAT and also at lower rate than the market price. Once, the stock tally is there and no defect is pointed out only option left with the Revenue authorities is to apply profit rate and CIT(A) has rightly applied profit rate at the rate of 12.5% of the bogus purchases. We find no infirmity in the order of CIT(A) and hence the same is confirmed.
In the result, all the appeals of Revenue are dismissed. Order pronounced in the open court on 01-05-2017.