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Income Tax Appellate Tribunal, MUMBAI BENCHES “D” MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI N.K. PRADHAN
ORDER
PER N.K. PRADHAN, AM
This is an appeal filed by the assessee. The relevant assessment year is 2009-10. The appeal is directed against the order of the Commissioner (Appeals) – 5, Mumbai and arises out of order u/s 143(3) r.w.s 147 of the Income Tax Act 1961(the ‘Act’).
The grounds of appeal filed by the assessee read as under:-
a. On the facts and in the circumstances of the case, the Learned Commissioner of Income Tax (Appeals) has erred in law in confirming the addition @ 12.50% Rs. 3,20,927/- on the purchases of Rs. 25,67,420/- without appreciating the actual facts of the case. The appellant prays that the addition of Rs. 3,20,927/- be deleted. b. On the facts and in the circumstances of the case, the Learned Commissioner of Income Tax (Appeals) has erred in law, by ignoring the fact that the amount of Rs. 25,67,420/- includes machinery purchased of Rs. 11,47,500/-.
The Learned Commissioner of Income Tax (Appeals) has ignored the facts that assessee has purchased machinery of Rs. 11,47,500/-, which is installed in factory and used by assessee in its business and amount is not debited to purchases but shown as fixed assets in balance sheet. Appellant prays that the addition of Rs. 143,438/- being 12.50% of Rs. 11,47,500/- confirmed by the Learned Commissioner of Income Tax be deleted.
In a nutshell, the facts are that the Assessing Officer(AO) noted that as per the information received from Sales Tax Department the assessee was involved in taking entries of bogus purchases from the following parties:
1 M/s. Nikhil Enterprises Rs. 2,75,625/- 2 M/s. Sambhav Sales Corp. Rs. 8,71,875/- 3 M/s. Payal Enterprises Rs. 2,22,750/- 4 M/s. M.R. Corporation Rs. 1,08,680/- 5 M/s. Sun Enterprises Rs. 2,11,640/- 6 M/s. Bhumi Enterprise Rs. 3,85,632/- 7 M/s. Liberty Traders Rs. 4,17,508/- 8 M/s. Meridian Sales Agency Rs. 1,85,085/- Total Rs. 26,78,795/-
The AO found that the TIN provided by the assessee in the above mentioned cases was exactly the same as appearing in the information available. In response to the notice u/s 142(1) along with questionnaire dated 04.12.2014 issued by the AO, the assessee filed submissions. The AO having examined the same found the following features: i. The assessee company has stated that the mentioned above parties are not available. The genuineness of said purchases cannot be verified as the assessee is unable to give present address of the said parties, and also unable to produce the said dealers/parties. ii. Transport receipt is not provided. iii. The assessee company has stated in its submission that the company is assembling small parts & making products, therefore to maintain quantity details is not possible. iv. The assessee company is not keeping day-to-day stock register for raw materials, finished goods, manufacturing a/c. It is also evident from the Tax Audit Report, the Auditor has mentioned as ‘as company has not (item-wide) maintained stock record, it is not possible to give quantitative details’. Hence it is not possible to identify, match & co-relate the corresponding consumption/sales of the items purchased from the said tainted dealers. 3.1 In view of the above, the AO made addition of Rs. 26,78,795/- as suppressed profit by way of bogus purchases.
The assessee preferred an appeal before the learned CIT(A). The learned CIT(A) reduced Rs. 1,11,375/- (evidence for which was produced before him stating the said purchases which had been written off in A.Y. 2010-11 and offered to tax) from Rs. 26,78,795/-. We find that the learned CIT(A) took into account an identical case where bogus purchases were involved and following the judgement of the Hon'ble Gujrat High Court in the case of CIT vs. Simit P. Seth 356 ITR 451 (Guj) directed the AO to estimate profit @12.5% on purchases of Rs. 25,67,420/- and make an addition of Rs. 3,20,927/-.
Before us, the learned counsel of the assessee submits that the alleged purchases of Rs. 26,78,795/- includes Rs. 11,47,500/- towards purchase of machinery. He filed details of purchases from the above eight suppliers. It is submitted by him that the parties concerned were proper traders in the markets, who have delivered the goods to the assessee. These parties were registered with Sales Tax Department. These parties may have avoided payment of VAT. It is submitted that during the course of assessment proceedings before the AO, the details of purchases made from these parties, corresponding sales, copy of security/goods inward register maintained at the factory, certificate from bank certifying the payments were submitted. The learned counsel of the assessee relies on the order of the Tribunal in DCIT vs. Shri Rajeev G. Kalathil (ITA No. 6727/Mum/2012) – ITAT ‘D’ Bench, Mumbai; Shri Ganpatraj A. Sanghavi vs. ACIT (ITA No. 2826/Mum/2013) – ITAT ‘G’ Bench, Mumbai; Ramesh Kumar & Co. vs. ACIT (ITA No. 2959/Mum/2014) – ITAT ‘D’ Bench Mumbai; ITO vs. Shri Deepak Popotlal Gala (ITA No. 5920/Mum/2013) – ITAT ‘D’ Bench, Mumbai; ACIT vs. Shri Ramila Pravin Shah (ITA No. 5246/Mum/2013) – ITAT ‘D’ Bench, Mumbai; ACIT vs. Tarla S. Shah (ITA No. 5295/Mum/2013) – ITAT ‘E’ Bench, Mumbai; Shri Hiralal Chunilal Jain vs. ITO (ITA No. 4547/Mum/2014) – ITAT ‘H’ Bench, Mumbai; M/s. Imperial Imp & Exp vs. ITO (ITA No. 5427/Mum/2015) – ITAT ‘I’ Bench, Mumbai; ITO vs. Shri Paresh Arvind Gandhi (ITA No. 5706/Mum/2013) – ITAT ‘C’ Bench, Mumbai; DCIT vs. Shiv Sankar R. Sharma (2016) 48 CCH 0143 Mum-Trib and Shri Govind Bhilu Rathod Vs. ITO (ITA No. 439/Mum/2016).
The learned DR supports the order passed by the learned CIT(A).
We have heard the rival submissions and perused the relevant material on record. The fact remains that (i) the assessee could not file before the AO the present address of the said dealers / parties , therefore the latter was not in a position to make any verification (ii) the assessee also failed to file before the AO the transport receipt and (iii) the assessee – company was not keeping day-to-day stock register for raw materials, finished goods, manufacturing account . The auditor has also certified that as the company has not maintained any stock record, it is not possible to give quantitative details.
7.1 The learned counsel of the assessee has placed reliance on the order of the ITAT as mentioned at para 5 here-in-above. However, we have the benefit of having the judgement of the Hon'ble Gujarat High Court in Simit P. Sheth (supra) on similar issues. In that case, the assessee was engaged in business of trading in steel on wholesale business. The AO having found that some alleged suppliers of steel to assessee had not supplied steel to assessee but had only provided sale bills, held that purchases made from said parties were bogus. He, accordingly, added entire amount of purchases to gross profit of the assessee. The Commissioner (Appeals), having found that assessee had indeed made purchases, though not from named parties but other parties from the grey market, sustained addition to the extent of 30% of purchase cost as probable profit of the assessee. The Tribunal, however, sustained addition to the extent of 12.5% of the disputed purchases as business profit of the assessee. The revenue then filed appeal against the order of the Tribunal before the High Court. We find that the Hon'ble High Court held that since purchases were not bogus but were made from parties other than those mentioned in the books of account, only profit element embedded in such purchases could be added to assessee’s income. The Hon'ble High Court relied on the similar view taken in the case of CIT vs. Vijay M. Mistry Construction Ltd. [2013] 355 ITR 498 (Guj) and CIT vs. Bholanath Poly Fab (P) Ltd. [2013] 355 ITR 290 (Guj). Finally, the Hon'ble High Court held that the order of the Tribunal needed no interference.
7.2 It will be just and proper for us to follow the decision of the Hon'ble Gujarat High Court on the above issue.
7.3 In view of the above, the order of the learned CIT(A) directing the AO to estimate 12.5% of the bogus purchases of Rs.25,67,420/- and tax only the profit embedded therein of Rs. 3,20,927/- is upheld.
In the result, the appeal is dismissed.
Order pronounced in the open court on 30.03.2017