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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Neon Laboratories Ltd. Dy. Commissioner of Income Tax, 140 Damji Shamji Indl Complex, (OSD) 8(1) Mahakali Caves, RD Andheri (E) Vs. Aayakar Bhavan, Mumbai-400 093 M.K. RD Churchgate, Mumbai-20 Appellant .. Respondent PAN No. AAACN1299D Assessee by .. Shri V.G. Ginde, AR Revenue by .. Shri Suman Kumar, DR Date of hearing .. 08-03-2017 Date of pronouncement .. 08-03-2017 O R D E R PER MAHAVIR SINGH, JM:
This appeal by the assessee is arising out of the order of CIT(A)-17, Mumbai, in appeal No. CIT(A)-17/96/13-14 dated 23-09-2014. The Assessment was framed by DCIT (OSD)Rg.-8(1), Mumbai for the A.Y. 2010-11 vide order dated 26-03-2013 u/s 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).
The only issue in this appeal of assessee is against the order of CIT(A) confirming the action of the AO in sustaining the addition made on account of disallowance of purchase made by assessee from M/s Jatin Trading Corporation amounting to Rs.6,09,177/-, by holding that the same were not genuine.
We have heard the rival contentions and gone through the facts and circumstances of the case. The AO during the assessment proceedings noticed that the assessee had made purchase of Rs.6,09,177/- from one party M/s Jatin Trading Corporation who is one of the bogus hawala entry provider as per the Sales Tax Department of Maharashtra Government. Accordingly, he enquire from the assessee and assessee in response to the same furnished details in respect to transactions carried out with M/s Jatin Trading Corporation during the FY 2009-10 relevant to the AY 2010-11, wherein the assessee had made purchase by virtue of 4 invoices amounting to Rs.6,09,177/- in total. The Neon Laboratories Ltd.; A.Y:10-11 assessee also furnished the bank statement reflecting the payment made to M/s Jatin Trading Corporation by account payee cheque and also produced inward register wherein the purchase from that party was booked. The AO issue summons under section 131 of the Act to Shri Ashwin J Seth, proprietor of M/s Jatin Trading Corporation but the same was not complied with. The assessee has not filed any transportation bill to prove that the goods were actually delivered to it through M/s Jatin Trading Corporation. Accordingly, the AO treated the entire purchases as bogus and added to the return income of the assessee. Aggrieved assessee preferred the appeal before CIT(A), who also confirmed the action of the AO. Aggrieved now, assessee is in appeal before Tribunal.
Now, before us, the learned Counsel for the assessee only made submissions that once the sales are not doubted, payments are made by cheque which is not prove otherwise, a complete stock register is produced before the AO, even though the purchases are treated to be bogus only profit rate can be applied. For this he relied on the CIT(A)’s orders for AYrs 2009-10 and 2011-12 i.e. the earlier years and future year, wherein the CIT(A) has restricted the disallowance of bogus purchase at 12.5% by observing as under : -
“11. In view of the above discussion it is seen that the assessee is unable to substantiate its purchases from the claim suppliers who had already established hawala dealers by the Sales Tax Department (Government of Maharashtra) and Investigation Wing of the Income Tax Department. The suppliers were neither produced during the assessment proceedings nor during appellate proceedings when opportunity was so provided. The consumption pattern was also not proved nor even the confirmation from the suppliers have been filed. However, as held in various case laws discussed above, the addition of entire purchases is not Justified. What' is impoflan.t to find out is the entire benefit derived by the assessee company by using such accommodation entries and actually using the goods from the grey market. in this Page 2 of 4
Neon Laboratories Ltd.; A.Y:10-11 case, the book value shown by the assessee company cannot be relied and deserves to be rejected and reasonable profit out of such purchases needs to be estimated. Therefore it is held that the assessee has inflated its expenses by taking bogus bills of purchases from the hawala dealers. Considering the facts and circumstances of case in totality, and relying upon the Judgment of Hon'ble Gujarat High Court in case of Simit P. Sheth 356 ITR 451, the disallowance is restricted to 12.5% of the Bogus Purchases of Rs.16,98,385/-.The AO directed the revise the disallowance accordingly.”
Similarly, the CIT(A) in AY 2011-12 also restricted the disallowance of bogus purchase at 12.5%. In view of this learned Counsel for the assessee only requested for taking a consistent view. On the other hand, the learned Sr. DR supported the orders of the lower authorities.
After hearing the rival contentions and going through the facts and circumstances of the case, we are of the view that once sales are not doubted even though the purchase may be bogus only profit rate can be applied. The Revenue in A Yrs 2009-10 and 2011-12 has accepted profit rate at the rate of 12.5% and hence, we directed the AO to apply profit rate of the bogus purchase at the rate of 12.5% and estimate the income accordingly. 7. In the result, the appeal of assessee is partly allowed. Order pronounced in the open court on 08-03-2017.