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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
A.Y: 2010-11 Asst. Commissioner of Income Tax, Naresh Kumar Singhania C-10 2nd Floor, Pratiyakshkar 136 Shivkripa Indl Estate LBS Vs. Bhavna, BKC Bandra(E) Marg Vikhroli (W) Mumbai-400050 Mumbai-400 083 Appellant .. Respondent Assessee by .. Keyvri Desai, AR Revenue by .. Shri Suman Kumar, DR Date of hearing .. 06-03-2017 Date of pronouncement .. 06-03-2017 O R D E R PER MAHAVIR SINGH, JM:
These two cross appeals, one by the assessee and one by the Revenue, are arising out of the order of CIT(A)-40, Mumbai, in appeal No. CIT(A)-40/ACIT 23(1)/13/2013-14 dated 30-12-2014. The Assessment was framed by ACIT Circle-23(1), Mumbai for the A.Y. 2010-11 vide order dated 04-03-2013 under section 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).
The only common issue in these cross appeals is as regards to the order of CIT(A) estimating profit at the rate of 15% of the bogus purchases. For this Revenue has raised following three Grounds: -
“1 . On the facts and in the circumstances of the case, the Ld. CIT(A) erred in deleting the addition of Rs. 59,35,832/- made u/s. 69C of the Income Tax Act, 1961. 2. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in not appreciating the fact that the & 1274/Mum/2015 Naresh Kumar Singhania; AY.10-11 assessee failed to avail opportunity to produce the parties for disproving the statement given by them to Sales Tax Authority.
3. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in restricting the addition made by the Assessing Officer overlooking the explicit finding of the investigation carried out by the Sales Tax Department and corroborated by the enquiries of the Assessing Officer.”
Assessee has raised following two grounds: -
“1.1 the ld. CIT(A) erred in confirming the addition of Rs. 8,90,375/- by estimating a profit of Rs.15% on the alleged bogus purchases.
1.2. While doing so the ld. CIT(A) failed to appreciate that the provision of section 69C had no applicability on the additions made by the ACIT and no addition could be made based on conjecture or surmise.”
Briefly stated facts are that the assessee is a proprietor of M/s Pharmachine Mfg. Co. engaged in the business of manufacturing of trading and export of tablet tooling machines, dies and other pharmaceutical spares. During the course of assessment proceedings, the AO received information from the investigating authorities of Sales Tax Department, Maharashtra Govt. that few of the parties have issued accommodation bills to the assessee. The AO narrated the following are the parties: - Sr No. Name of the party TIN Amount 1. Supreme Enterprises 27630362139V 40,434 2. Payal Enterprises 27870658730V 1,54,180 3. Bhumi Enterprises 27860587392V 1,39,880 4. Everfame Trading Co. Pvt. 27860331700V 2,73,038 Ltd 5. Kamal Traders 27740383370V 26,41,912 6. Bharat Enterprises 27690661157V 5,18,422 7. Sthapna Trade Impex Pvt. Ltd 27610598830V 1,62,675 Page 2 of 7 & 1274/Mum/2015 Naresh Kumar Singhania; AY.10-11 Sr No. Name of the party TIN Amount 8. Montreal Trading Company 27610331692V 5,58,225 9. Divya Enterprises 27410371378V 10,27,936 10. Superfine Trading Co. Pvt. 27200326631V 6,87,066 Ltd.
Topcare Trading Co. Pvt Ltd. 27090331687V 8,83,638 12. Parshva & Co 27710615362V 8,49,337 13. Samarth Enterprises 27560694451V 28,350 14. Darshan Sales Cor oration 27920382883V 6,40,791 15. Deep Enterprises 27750595164V 7,37,212 16. Pravesh Enterprises 27660153427V 3,16,784 17. Bhavani Tade Link 27520680505V 5,49,896 18. Somnath International 27470616755V 14,550 19. Savita International 27460654736V 5,32,480 20. Heta Sales Private Limited 27460651923V 5,74,537 21. Divya Enterprises 27410371378V 7,86,973 22. Kamal Traders 27740383370V 18,56,166 23. Meridian Trading Co. 27580726450V 10,51,717 24. Nidhi Sales Corporation 27690740697V 1,24,214 25. Tisha Enterprises 27950739002V 60,390 26. Darshan Sales Corporation 27920382883V 4,42,548 27. Kamal Traders 27740383370V 28,26,018 28. Matoshree Traders 27550733305V 1,51,966 29. Rohit Enterprises 27020680974V 81,559 30. Savita International 27460654736V 6,72,591 31. Divya Enterprise 27410371378V 18,86,752 32. Sunrise Enterprises 27370565400V 1,18,618 33. Deep Enterprises 27750595164V 1,94,062 34. Samarth Enterprises 27560694451V 81,559 Total 2,16,66,526
The assessee before AO contended that the 17 parties listed in his letter has no dealing with the assessee. The following are the 17 parties: -
Sr No. Name of the party TIN 1. Supreme Enterprises 27630362139V 2. Payal Enterprises 27870658730V 3. Bhumi Enterprises 27860587392V 4. Everfame Trading Co. P. Ltd 27860331700V 5. Bharat Enterprises 27690661157V 6. Sthapna Trade Impex P Ltd 27610598830V 7. Montreal Trading Company 27610331692V 8. Superfine Trading Co. Pvt. Ltd 27200326631V 9. Topcare Trading Co. Pvt. Ltd. 27090331687V 10. Parshva & Co. 27710615362V 11. Samarth Enterprises 27560694451V 12. Meridian Tradin1 Co. 27580726450V Page 3 of 7 & 1274/Mum/2015 Naresh Kumar Singhania; AY.10-11
Sr No. Name of the party TIN 13. Nidhi Sales Corporation 27690740697V 14. Tisha Enterprises 27950739002V 15. Matoshree Traders 27550733305V 16. Rohit Enterprises 27020680974V 17. Sunrise Enterprises 27370565400V 5. However, the AO noted that the assessee has obtained bogus purchase bills from the 34 parties listed above totaling to Rs. 2,16,66,526/-. The assessee agreed that he had made purchase from 17 parties, which itself suggest that the assessee has dealt with these parties. Therefore, the AO disallowed the entire bogus purchase of Rs. 2,16,66,526/- and added back to the return income of the assessee under section 69C of the Act. Aggrieved, assessee preferred the appeal before CIT(A).
Before CIT(A), the assessee filed the details of total purchase and stated that the total purchases are to the tune of Rs. 148.72 lakhs out of which purchase to the tune of Rs. 59.35 lakhs were included in the above list. It was argued that out of the list of 34 parties’ certain names are repeated and the AO has not done any independent investigation of facts. In nutshell, the assessee claimed that since the purchase shown the bogus from the parties included in the list was only Rs. 59,35,833/-, the entire addition of Rs.2,16,66,526/- cannot be made at all. The CIT(A) referred the matter back to the file of the AO for seeking remand report and AO in his remand report dated 16-09-2013 clarified that the list of 34 parties related to three years i.e. assessment year 2009-10, 10-11 and 2011-12. Regarding the year under consideration i.e. assessment year 2010-11. The following were the ten parties: - & 1274/Mum/2015 Naresh Kumar Singhania; AY.10-11
The assessee in rejoinder of the remand report filed details of purchase and also books of accounts of assessee from these parties which are as under: -
Finally, the CIT(A) noted that the assessee has not been able to establish fully that the purchase establishment amounting to Rs. 59.35 lakhs have been made from these above stated parties are genuine, whereas the AO has also not brought sufficient evidence on record to establish that the purchase to the tune of this amount is totally bogus. It was also noted by CIT(A) that even the sales are not doubted. Accordingly, CIT(A) treated only bogus purchase to the tune of Rs. 59.35 lakhs and estimated the profit rate at 15% of the alleged bogus purchases by observing in Para 5.7 of his order as under: -
5.7 The facts in the present case show that the appellant was not in a position to prove the existence of the suppliers. The suppliers were found to be engaged in providing bogus bills without actual delivery of goods. On careful analysis of the decisions of Hon'ble High Court of Gujarat and ITAT in the above mentioned cases. I am of the view that without purchase of material it may not be possible to complete the business cycle of the assessee. Since the Assessing Officer has not disputed or examine the sales, which are accepted as shown in the books, corresponding purchases have to be considered and cannot be disregarded in totality. The purchases themselves have not been established to be bogus but the & 1274/Mum/2015 Naresh Kumar Singhania; AY.10-11 purchase parties shown in the books are. Therefore, the entire purchases from stated ten parties cannot be treated as bogus and what needs to be taxed is the profit element embedded in such transactions. Estimations ranging from 12.5% to 25% have been upheld by the Hon'ble Gujarat High Court, depending on the nature of business. As held in the case of Simit P. $heth (supra), no uniform yardstick can be applied to estimate the rate of profit and it varies with the nature of business. Taking all facts into consideration, I am of the view that estimation of 15% as profit embedded in impugned purchases and adding the same to the total income returned, would meet the ends of justice. Therefore, I direct the AO to estimate profit of 15% in the alleged bogus purchases, which works out to Rs.8,90,375 (15% of Rs. 59,35,832/-) and restrict the addition to Rs. 8,90,375/- from Rs. 2,16,66526/- made in the assessment order. The appellant get the relief for the balance of Rs. 2,07,76,151/-. Grounds of appeal are partly allowed to the above extent.”
Aggrieved, now both Revenue as well as assessee preferred the appeal before Tribunal.
We have heard the rival contentions and gone through the facts and circumstances of the case. Before us, none of the parties have disputed that purchase to the tune of s. 59.35 lakhs is verifiable, which is from such parties only which are involved in providing accommodation bills as per the findings of Sales Tax Department. But we find that the estimation made by the CIT(A) at 15% is higher for the reason that he himself admitted the estimations ranging from 12.5% to 25% as upheld by Hon'ble Gujarat High Court in the case of CIT(A) v. Smith P Seth 365 ITR 451 (Guj) wherein Hon’ble High Court’s finding is that estimation of rate of profit may unnecessarily vary with the nature of business and no uniform yardsticks can be adopted. Hon'ble High Court has confirmed the profit rate of 12.5% of the bogus purchases as estimated by ITAT Page 6 of 7 & 1274/Mum/2015 Naresh Kumar Singhania; AY.10-11 being profit embedded in such transactions. Accordingly, we also are of the view that a reasonable estimate should be made and that will be profit at the rate of 12.5% instead of profit estimated by CIT(A) at 15%. We direct the AO to re- compute the income accordingly.
In the result, the appeal of Revenue is dismissed and assessee’s appeal is partly allowed. Order pronounced in the open court on 06-03-2017.