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Income Tax Appellate Tribunal, MUMBAI BENCH “G”, MUMBAI
Date of hearing : 15-02-2017 Date of order : 27-02-2017 O R D E R Per Ashwani Taneja, AM:- This appeal has been filed by the assessee against the order of Commissioner of Income-tax (Appeals)-29, Mumbai [hereinafter called CIT(A)] dated 27-05-2016 passed against the assessment order u/s 143(3) r.w.s. 147 of the Act dated 16-02- 2015 for A.Y. 2009-10 on the following grounds:-
1. “Learned CIT(Appeal) erred in confirming the profit element to 12.5% and further, reducing the GP declared in the said assessment year and erred in treating the same as bogus purchase..
2. Learned CIT(Appeal) erred in ignoring the detailed evidences brought on record and ignoring the judicial precedents brought to his knowledge. 3. Learned assessing officer erred in rejecting the books of account on 2 ITA 4931/Mum/2016 surmises and conjecture basis and Learned CIT(Appeal) erred in confirming the same.” 2. In this case, it was noted by the AO that assessee had made purchases from following five parties, whose names have been identified by the Investigation Wing of sales-tax department as bogus suppliers / bogus dealers: S.No. Name of the party PAN FY Amount 1. Shiv Sagar Steel (India) AODPP0628N 2008-09 484,047 2. Jain Steel (India) ANXPP6892P 2008-09 332,413 3. Prime Steel Impex ALOPB9956K 2008-09 49,254 4. Asian Metal Inds AFMPV5880N 2008-09 1753,925 5. Deep Metal & Tube AFCPV3265P 2008-09 2040,536 TOTAL 40,60,175 Accordingly, re-assessment proceedings were initiated, during the course of which the AO asked the assessee to prove the genuineness of the aforesaid purchases and also to produce these persons for their examination by the AO. It has been mentioned in the assessment order that assessee neither filed confirmations nor produced these persons for examination. However, the assessee merely submitted that purchases were genuine since payment was made by cheque and also claimed that no sales can happen without corresponding purchases. But the AO was not satisfied with the response of the assessee; therefore he issued notices u/s 133(6) to these suppliers on the addresses given by the assessee. It is noted in the assessment order that all the notices returned un-served by the postal authorities with the remark that no such addresses were available. In view of these circumstances, the AO was not satisfied with the response of the assessee. He made following observations in the assessment order to show that impugned purchases were not genuine:- “4. The submission of the assessee has been considered at length and the claim of the assessee that these transactions of purchase from the above parties are genuine is not acceptable for the following reasons:
3 ITA 4931/Mum/2016 • The primary onus is casted on the assessee to establish the genuineness of purchases claimed by him. As per section 101, 102 and 106 of the Indian Evidence Act, the onus lies upon the assessee to prove all expenses, including purchases to the satisfaction of AO. In the instant case, the assessee is obliged to discharge this onus. Further, he failed to furnish confirmations from the alleged suppliers and also failed to produce these parties for examination. • Mere filing ledger account and payment made through account payee cheque cannot be a proof at all in a case where genuineness of transaction is itself is in doubt. There is a specific finding of Maharashtra Sales Tax Department that these parties have issued false bills, without delivery of goods and payment of sales tax. • On examination of the facts in totality and from the submissions of the assessee, it is to be inferred that assessee has not purchased the goods from the alleged suppliers. The assessee has purchased the goods from some undisclosed parties in cash and just obtained bogus bills in fictitious names and made the payment to give a color of genuine purchases. The assessee has been unable to give any convincing or cogent explanation as to how these goods happened to come in his possession. Logical conclusion which may be drawn in such a situation is that the assessee has recorded sales in the books of accounts which materials are purchased from the undisclosed parties without bills at comparatively lesser prices. To regularize the purchases from undisclosed parties, the assessee has taken accommodation bills from the above said parties. • The assessee by his mysterious and clandestine dealings, has not only evaded the excise duty and sale taxes, but also caused great loss to the Revenue. The first and foremost is that he has taken away the right of the Revenue for cross- verification of his bogus purchases and his book result. It is to be noted that it is the inalienable right of the Department to cross verify wherever there is reasonable doubt on the books or book result of the 4 ITA 4931/Mum/2016 assessee. The second, he has manipulated his purchases to the disadvantage of the Revenue as he pleases. He circumvented the provisions of 40A (3) and other sections of the Act to his advantage. Finally, assessee caused loss to Revenue by manipulating the purchases.”
Finally, the AO rejected the books of account invoking the provisions of section 145(3) of the Act and observed that even if it is accepted that corresponding sales have been made, even then, the entire amount of purchases cannot be allowed. Therefore, he made ad-hoc disallowance of Rs.8,38,875/- out of total bogus purchases of Rs.46,60,175/-. Being aggrieved, assessee filed appeal before Ld. CIT(A) and made detailed submissions to contest the addition made by the AO. The assessee made exhaustive submissions and reiterated the stand taken before the AO. It was submitted that primary evidences have been submitted and it has been shown that assessee had made corresponding sales against these purchases. It was also submitted that the disallowance made by the AO @18% of purchases was quite exorbitant. The assessee also filed some additional evidences before Ld. CIT(A) in the form of challans of sales-tax, electricity bills of few months and copies of leave and licence agreements of these parties. These documents were forwarded by Ld. CIT(A) to the AO for enquiry and comments. The AO sent his remand report to CIT(A)dated 29-02-2016 wherein it was stated that these suppliers were declared hawala traders by the VAT authorities and that mere cheque payment cannot be taken as genuine. It was contended by the AO in the remand report that despite the specific direction of the AO, the assessee did not produce these parties. It was also alleged by the AO in the remand report that assessee was not able to prove transportation of goods. However, Ld. CIT(A) held that since 5 ITA 4931/Mum/2016 assessee has been able to show that goods purchased has been sold, total purchase transaction cannot be held as bogus. However, since assessee has not been able to substantiate the transaction beyond doubt, purchases have to be allowed at correct amount only. Finally, Ld. CIT(A) estimated the gross profit on the alleged bogus purchase @12.5%.
During the course of hearing before us, Ld. Counsel of the assessee vehemently assailed the addition sustained by the Ld. CIT(A). It was submitted by him that in this case, the department was not able to prove that the impugned purchase transaction was bogus. The assessee had been able to prove that goods purchased have been sold also. He placed reliance upon the decision of Delhi Bench of the Tribunal in the case of ACIT vs Mahesh Kumar Shah dated 31-01-2017.
We have gone through the orders passed by the lower authorities and copy of decision of the Tribunal placed before us. It is noted that Ld. CIT(A) reduced the amount of disallowance from 18% to 12.5% by observing as under:- “3.3. The appellant does not seem to have understood the AO's statement when he said "the Sales-tax department's information is limited to TIN, RC cancellation orders and address of the concerned parties", The AO was referring to the information provided by the appellant and not the information which he received from the DGIT(Inv.). As could be seen from the record, the information obtained by the appellant from the sales tax department and furnished during the appellate proceedings only pertains to the TIN, VAT paid challans, leave and license agreements and electricity bills. No confirmation or evidence what so ever that the purchases made by the appellant are genuine comes out from this information. Therefore it is of no relevance to decide the case, The AO has issued notices u/s.133(6) to examine the alleged suppliers but all the notices returned unserved. Therefore, the onus gets shifted to the appellant to produce the parties which it had failed to discharge.
6 ITA 4931/Mum/2016 3.3.1. The appellant had made purchase and have sold the goods. The bank statements recording the payments made for the purchases have also been produced but, even today, the appellant is not in a position to produce the parties for verification. Therefore, the genuineness of the purchase transaction is not proved beyond doubt. 3.3.2. The Hon'ble ITAT, Ahmedabad 'C' Bench in the case of Vijay Proteins Ltd. vs. ACIT 58 lTD 0428 held that in similar circumstances, 25% of the purchase price accounted through fictitious invoices has to be disallowed. The Hon'ble High Court of Gujarat in the case of Sanjay Oil cakes v/s CIT 316 ITR 0274 dealt with similar case where some of the alleged suppliers who had issued bills to the assessee were not genuine as they were not traceable. The goods were received cram other parties. The likelihood of the purchase price being included could not be ruled out and therefore the Hon'ble High Court has upheld the decision of CIT(A) and the ITAT disallowing 25% of the payments made to such parties. The Hon'ble High Court of Gujarat in the case of CIT vs. Simit P. Sheth 356 ITR 0451 held that once the sale is accepted by the AO, the very basis of purchases could not be questioned. Not the entire purchase price could be disallowed but only the profit element embedded in such purchases could be added to the income of the assessee. The estimation varies with the nature of business and no uniform yardstick could be adopted. Given the facts and circumstances of the instant case, I find it reasonable to estimate the gross profit on the alleged bogus purchases at 12.5%. The appellant has already shown a GP of 2.17% On alleged bogus purchases of Rs.47,63,757/-. The AO is directed to reduce the GP of 2.17% from the estimated G.P. of 12.5%. This ground of appeal is partly allowed.”
6. We have carefully gone through the submissions made by both the sides and the peculiar facts and circumstances of the case. It is noted that undoubtedly, the assessee has been able to show that purchases made have been sold and sales have been accepted. But when the need arose for confirmation of the transaction, it is noted from the facts of this case that assessee was not able to confirm the transaction beyond doubt.
7 ITA 4931/Mum/2016 Therefore, even if it is proved that purchases have been made, but the correctness of the amount at which these purchases have been shown is not fully substantiated. The AO made the disallowance @18% whereas Ld. CIT(A) has reduced it to 12.5%. It has been contended by the Ld. Counsel before us that overall gross profit ratio in all past years has never exceeded 4.5%. Thus, taking into account all the facts and circumstances of the case, in our considered view, the rate of disallowance adopted by Ld.CIT(A) @12.5% should be reduced to 8%. The AO is directed to grant relief accordingly. We may clarify that this rate has been adopted after taking into account the peculiar facts and circumstances of this case and, therefore, should not be taken as a precedent in any other case as any yardstick. With these directions, appeal filed by the assessee is partly allowed.
In the result, appeal filed by the assessee is partly allowed. Order pronounced in the open court on this 27th day of February, 2017.