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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
Income Tax Officer, Pushpaben R. Shah Circle 32(2) A/12 Ashyana Sodawala Lane, R. No. 305D, 3rd Floor, C-13, Vs. Borivali (W) Pratyakshar Bhavna, BKC Mumbai-400 092 Bandra, Mumbai-51 Appellant .. Respondent PAN No. ASFPS6683J Revenue by .. Sanjay Kumar Agarwal, DR Assessee by .. Bhupendra Shah, AR Date of hearing .. 13-04-2017 Date of pronouncement .. 13-04-2017 O R D E R PER MAHAVIR SINGH, JM:
These two appeals by the Revenue are arising out of the different orders of CIT(A)-44, Mumbai, in appeal No. CIT(A)-44/ITO.32(2)(5)/ITA-24& 25/2014-15, both dated 15-05-2015. The Assessments were framed by ITO ward 25(2)(2), Mumbai for the A.Y. 2009-10 & 2010-11 vide orders dated 13-11-2014 under section 143(3) read with section 147 of the Income Tax Act, 1961 (hereinafter ‘the Act’).
2. The only common issue in these two appeals of Revenue is against the order of CIT(A) deleting the disallowance of bogus purchases made by AO by applying profit rate at 12.5% of the purchases of Rs.3,79,80,768/- and addition was made at Rs. 47,47,596/- in AY 2009-10 and a bogus purchase of Rs. 3,51,84,385/- disallowance at the rate of 12.5% at Rs. 43,98,048/- in AY 2010- 11. For this issue, Revenue has raised identical worded grounds in both the years and the orders of the lower authorities i.e. of the AO and CIT(A) are exactly identical on facts. Accordingly, we take the issue in AY 2009-10 and facts also & 4464 /Mum/2015 Pushpaben R. Shah; AYs. 09-10 & 10-11 and decide the issue. The Revenue has raised following grounds in AY 2009-10: -
1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting addition on account of bogus purchases of Rs.47,47,596/- i.e. @12.5% of the purchases of Rs.3,79,80,768/- without appreciating the fact that the assessee has not produced any cogent evidence to substantiate the fact that she had taken actual delivery of goods purchased from these parties."
On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in relying upon judgement in the case of CIT vs. Nikunj Eximp Enterprises Pvt. Ltd. without appreciating that the facts involved in the appellant's case are different from the facts of the above case law."
3. On the facts and in the circumstances of the case and n law, the Ld. CIT(A) erred in deleting the disallowance made by the AO overlooking the statement given by the parties and explicit finding of the investigation carried out by the Sales Tax Department and corroborated by the enquiries of the AO."”
Briefly stated facts are that the assessee is an individual and proprietor of M/s Asha Sand supplier engaged in the business of trading and supply of building material. The assessee in the profit and loss account has debited purchases on account of the sand supply at Rs. 4,01,53,300/-. The AO required the assessee to file the details of purchase including TIN No, name and address of the parties from whom purchases were made. The assessee filed the details. In the meanwhile, the AO received information from Sales Tax Department of Maharashtra that there are certain suspicious parties who are only providing accommodation entries without doing actual business. According to official & 4464 /Mum/2015 Pushpaben R. Shah; AYs. 09-10 & 10-11 website and the information supplied by the assessee the following 19 parties were found among the list of bogus parties from whom the assessee had made purchases: - “ Sl NO Name of Suppliers Amount 1. Aryen Sales Corporation 20,87,575 2. Balaji Traders 30,87,407 3. Blue Nile Enterprises 9,75,734 4. Dharmesh Trading 21,32,388 5. Jain Corporation 32,89,850 6. Krasna Enterprises 31,43,862 7. Mahavir Enterprises 28,93,484 8. Marcon Enterprises 7,87,784 9. Navdeep Trading Corn 25,84,046 10. Om Corporation 25,72,651 11. Om Enterprises 36,52,371 12. Raj Traders 17,75,014 13. Satyam Trading Co. 3,47,752 14. Shakti Trading Co. 9,02,614 15. Shubhlaxmi Sales Corp 5,83,769 16. Siddhivinayak 29,60,061 17. Universal Trading Co 3,49,992 18. Vaishali Enterprises 4,31,981 19. Yash Impex 34,22,833 3,79,80,768 ”
The AO relying on the investigation and statements and information obtained by Sales Tax Authorities from these parties held that the assessee’s purchases are bogus and accordingly considering the decision of Hon’ble Gujarat High Court in the case of CIT v. Smith P Seth (2013) 365 ITR 451(GJ) and Bholanath Poly Fab Pvt. Ltd. (2013) 355 ITR 290 applied profit rate at the rate of 12.5% of the bogus purchases at Rs.3,79,80,768 and made addition accordingly for an amount of Rs. 47,47,596/-. For this the AO gave following reasons: - “a. The assessee has failed to substantiate the claim' of purchases made from the parties against overwhelming evidence in the form of depositions, affidavits etc. filed by various parties before the Sales Tax Authorities, & 4464 /Mum/2015 Pushpaben R. Shah; AYs. 09-10 & 10-11 b. The contention that the payments are made by account payee cheque is not a fail-safe method of substantiating the assessee's claim as it is already accepted by the persons, whose statement, deposition or affidavit that cash is returned after deduction commission/brokerage once cheque is realized, c. The assessee could not produce any delivery challan, lorry receipt, the mode of transport of goods, evidence of payment of octroi if any, stock register etc. from the alleged suppliers in support of its claim that purchases are genuinely made from these parties. d. Perusal of this affidavits, depositions and statements of hawala operation are enough to show that the assessee did not purchase any goods. These entities are not carrying out any business. e. The Sales Tax Department made a finding and uploaded in its website the name of entities which are involved in giving bogus bills only after it 'carried out detailed enquiry & investigation. So the argument of assessee that the purchases made from above parties are genuine is not correct. f. The assessee's argument that if they have made sales then it is not possible without purchases is not tenable. Even without the information available in public domain on the Sales Tax site, the assessee was well aware that he was entering into colorable transactions with the alleged suppliers as. these alleged suppliers were indulging in doing bill business and actual goods were not purchased and goods were not delivered to anyone. & 4464 /Mum/2015 Pushpaben R. Shah; AYs. 09-10 & 10-11 g. The assessed could not produce the alleged parties in support of the claim that purchases were genuinely made from these parties. h. If all the evidences point to the fact that no actual goods were supplied by above eleven entities, then the argument of the assessee that it has purchased goods is not tenable.”
Aggrieved against the disallowance of bogus purchase of applying profit rate, assessee preferred the appeal before CIT(A), who after considering the submissions and the decision of Hon’ble Bombay High Court in the case of CIT vs. Nikunj Eximp Enterprises Pvt. Ltd (372 ITR 619) (Bom) deleted the disallowance by observing in Para 6 as under:-
“6. Decision
I have gone through the contentions of the appellant, findings of the AO and various submissions made. The main contention of the AO is that the names of these 19 sellers appear in the list of the suspicious dealers in the list published by Sales Tax Department, Mumbai. Assessing Officer has not served any notices u/s 133(6) of the Act nor has any further enquiry been made for the above matter. On the basis of the statement made by these parties before the Sales Tax Department led the AO to conclude that the purchases were bogus and were only accommodation entries. As part of the statement the appellant has brought forward the facts that he has furnished all the details of purchases and sales the invoice copies of these transactions, the bank statements and also that the accounts were duly "audited both under the Income Tax Act and under the VAT Act 2005 for the purpose of VAT Audit. & 4464 /Mum/2015 Pushpaben R. Shah; AYs. 09-10 & 10-11 The appellant has also referred to Hon'ble I.T.A.T. (Mumbai) 'D' Bench, in the case of Ramesh Kumar & Co. (ITA No 2959/Mumbai/2014) has deleted the addition made u/s 69 of the Act as non-genuine purchase worth of Rs. 4,98,80,892/-.
The appellant has also referred to Income Tax 'Appellate Tribunal, Mumbai- "D" bench in case of DCIT 25 (3) Vs Shri Rajeev G. Kalathil (ITA.6727/Mum/20121A.Y.2009- 10) has given direction to delete the total addition made by Learned Assessing Officer in relation to Hawala Purchase.
The appellant has also referred to Hon'ble jurisdiction& High Court In the case of M/s. Nikunj Eximp Enterprises Pvt. Ltd. and Babulal C. Borana , both referred to Supra to make his argument that the books of the appellant are not being rejected and the sales have not been doubted. The payments have been made by cheques and the AO has not found any reason to question the genuineness of those papers. All these evidences were available before the AO during the course of assessment but the AO has not found anything incriminating with any of these documents. After going through the above submissions and facts I find merit in the-arguments of the appellant that once the sales are being treated as genuine and the appellant has vouched for the purchase both through invoice and cheque payments then merely to hold the purchases as bogus on the basis of suspicious list does not lead to the conclusion that these purchases are bogus. The addition made in this regard is therefore deleted.”
Aggrieved, now Revenue is in second appeal before Tribunal. 5. Before us, the learned Counsel for the assessee stated that the assessee has genuinely made purchase of goods from various stockiest who has goods at the & 4464 /Mum/2015 Pushpaben R. Shah; AYs. 09-10 & 10-11 river creek. For this purchase the assessee has obtained bills and vouches, payments are made by account payee cheque and all the cheques are cleared as highlighted in the banking statements of the assessee. The learned Counsel for the assessee also stated that a complete detail of purchase and sales including invoice copies were produced before the AO as well as before CIT(A) and even now before Tribunal. In view of these facts the learned Counsel for the assessee stated that once entire documentation is there, no disallowance can be made even of profit rate on these bogus purchases. According to him, these are not bogus purchases rather genuine purchases and assessee has included the same in his stock register and no discrepancy was found by the AO in the same. The learned Counsel for the assessee also filed the details of purchase sales and gross profit for the last three assessment years which reads as under: -
On query from the Bench the learned Counsel for the assessee admitted that the factum that these 19 parties are in the list of Sales Tax Maharashtra Mumbai i.e. the suspicious party who are only providing accommodation entries without any actual transaction of sales and purchases. Once, this is the factum that these parties are merely issuing bills for sales and assessee making purchase from these parties, admittedly these are bogus purchases. But the only issue now is that once the sales are accepted made out of the same purchase only profit element can be added on account of savings of VAT, other taxes and purchases of material from grey market which is certainly at a lower rate. Once this is the position the assessee might have earned over and above the normal profits. The assessee’s normal profit rate is at 6.13% which the assessee has earned out of the sales made from these bogus purchases. But the assessee might have saved on other accounts for other taxes which purpose the AO has made addition of gross profit at the rate of 12.5%. Since the assessee has disclosed profit rate of 6.13% on the sales made out of these bogus purchases, the AO should not have & 4464 /Mum/2015 Pushpaben R. Shah; AYs. 09-10 & 10-11 estimated the profit rate at the rate of 12.5% and the credit for already disclosed profit rate should have been allowed to the assessee. Hence, we direct the AO to make disallowance by applying of gross profit rate at the rate of 12.5% and allowed credit for already disclosed profit rate. We direct the AO accordingly.
Similar are the facts in for the AY 2010-11, taking the consistent view we direct the AO accordingly in that year also.
In the result, both the appeals of Revenue are partly allowed. Order pronounced in the open court on 13-04-2017.