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Income Tax Appellate Tribunal, BENCH “E”,MUMBAI
Before: SHRI B.R. BASKARAN & SHRI PAWAN SINGH
Order Under Section 254(1) of Income Tax Act PER PAWAN SINGH, JM: 1. These two Cross Appeals u/s 253 of the Income-tax Act (‘the Act’) are directed against the order of Ld. Commissioner of Income-tax (Appeals) [for short ‘the CIT(A)] –33, Mumbai dated 29.05.2015 for Assessment Year (AY) 2009-10. Since, both the appeal are arising out of the same order thus both the appeal were heard together and are decided by common order to avoid the conflicting decision.
2 & 4526/M/2015 M/s. Kinjal Construction Co. & Chirag Construction Co. (JV), 2. Brief facts of the case are that the assessee filed return of income for relevant AY on 22.09.2003. The assessment was completed u/s 143(3) on 15.12.2011 assessing the total income of assessee at Rs. 44,57,300/-. Subsequently, the return of income was re-opened u/s 147 of the Act, on the basis that survey action u/s 133A conducted on 04.12.2010 by DG (Investigation), thereafter, information was received from DG (Invest) that the purchases shown to have been made by the assessee from the following parties; Sr No Name of parties Amount in Rs. 1 S. S. Enterprises 16,04,315/- 2 National Trading Company 13,49,004/- 3 Ajay Stone 7,80,913/- 4 Mahadeshpure Enterprises 10,36,230/- 5 Aryan Sales Corporation 9,25,000/- 6 Aayushi Enterprises 5,16,780/- Total Rs.62,11780/- All the above parties were bogus and the assessee shown to have made purchases without receipt of any delivery of goods. On the basis of this information, the assessment was re-opened u/s 147 after recording the reasons that income chargeable to tax has escaped assessment. Notice u/s 148 dated 13.03.2013 was issued to the assessee. In respect to the notice assessee submitted that the return already filed may be treated as return in response to the said notice. The Assessing Officer (AO) completed the re-assessment proceeding u/s 143(3) r.w.s. 147 of the Act on 26.03.2014 and made the disallowance of aggregate amount of purchases of Rs. 62,11,780/-. On appeal before the ld. CIT(A), the assessee challenged the validity of re-opening as well as the addition of aggregate amount. The ld. CIT(A) granted partial relief to the assessee and restricted the disallowance to 12.5% of the purchases made from such alleged bogus parities. Hence, the Revenue has filed the appeal against restricting the 12.5% of the purchases. Further, aggrieved the assessee also filed appeal for deleting the 12.5%. The assessee also raised the grounds of appeal against the validity of re-opening u/s 147 of the Act.
3 & 4526/M/2015 M/s. Kinjal Construction Co. & Chirag Construction Co. (JV), 3. We have heard the ld. Authorized Representative (AR) of the assessee and ld. Departmental Representative (DR) for the Revenue and perused the material available on record. The Ld. AR of the assessee at outset, made the statement that he is not pressing the ground no.1 raised by him with regard to re-opening of assessment u/s 147 of the Act. Considering the statement of ld. AR, Ground No.1 raised by assessee is dismissed as not pressed.
Ground No.2 raised by assessee and the ground of appeal
raised by Revenue (Ground No.1 to 6) which are interconnected. The ld. DR for the Revenue argued that in assessee’s own case for AY 2010-11the coordinate bench of Tribunal sustained the similar disallowance @12.5% of the similar bogus purchases. The copy of the Tribunal’s order in ITA No.4384&4527/M/2015 was filed on record. The Ld. AR of the assessee fairly admitted the decision of Tribunal for AY 2010-11. However, the ld. AR of the assessee argued that for the year under consideration, the Net Profit of the assessee was low and the same was increased to 3.54% the AY 2010-11.
5. We have considered the contention of the parties and gone through the order of authorities below and the decision of Co-ordinate Bench. The Co-ordinate Bench of Tribunal in assessee’s own case for AY 2010-11 in ITA No. 4384/Mum/2015 (on Revenue’s Appeal) made the following observations:
“9. We have heard both the parties and perused the orders of the Revenue Authorities as well as the relevant material placed before us. On hearing both the parties on this issue, we find the sales account is undisturbed in this case by the AO. Therefore, the jurisdictional High Court judgment in the case of CIT vs. Nikunj Eximp Enterprises Pvt Ltd reported in 2013-TIOL is applicable in this case. Further, we find, the CIT (A) relied on the judgment in the case of Simit P Sheth (supra). On perusal of the cited judgment of the Hon’ble Gujarat High Court in the case of Simit P Sheth (supra), we find, the held portion of the judgment is relevant in this regard. Considering the significance and for the sake of completeness of this order the same is extracted as under:- “We are broadly in agreement with the reasoning adopted by the Commissioner (Appeals) with respect to the nature of disputed purchases of steel. It may be that the three suppliers from whom the assessee claimed to have purchased the steel did not own up to such sales. However, vital question while considering whether the entire amount of purchases should be added back to the income of the assessee or only the profit element embedded therein was to ascertain whether the purchases themselves were completely bogus and non existent or that the purchases were actually made but not from the parties from whom it was claimed to have been made and instead may have been purchased from grey market without proper billing or documentation. In the present case, CIT believed that when as a trader in steel the assessee sold certain quantity of steel, he would have purchased the same quantity from some source. When the total sale is accepted by the Assessing Officer, he could not have questioned the very basis of the purchases. In essence therefore, the Commissioner (Appeals) believed assessee s 4 & 4526/M/2015 M/s. Kinjal Construction Co. & Chirag Construction Co. (JV), theory that the purchases were not bogus but were made from the parties other than those mentioned in the books of accounts. That being the position, not the entire purchase price but only profit element embedded in such purchases can be added to the income of the assessee. So much is clear by decision of this Court. In particular, Court has also taken a similar view in case of Commissioner of Income Tax-IV vs. Vijay M Mistry Construction Ltd. vide order dated 10.01.2011 passed in Tax Appeal No. 1090 of 2009 and in case of Commissioner of Income Tax-I vs. Bholanath Poly Fab Pvt. Ltd. vide order dated 23.10.2012 passed in Tax Appeal No. 63 of 2012. The view taken by the Tribunal in case of Vijay Proteins Pvt. Ltd. Vs. CIT reported in 58 ITD 428 came to be approved. If the entire purchases were wholly bogus and there was finding of fact on record that no purchase were made at all, counsel for the revenue would be justified in arguing that the entire amount of such bogus purchases should be added back to the income of the assessee. Such were the facts in case of ACIT (OSC) Ward 5(3) Nadiad Vs. Pawanraj B Bokadia (supra). This being the position, the only question that survives is what should be the fair profit rate out of the bogus purchases which should be added back to the income of the assessee. The Commissioner adopted ratio of 30% of such total sales. The Tribunal, however, scaled down to 12.5%. We may notice that in the immediately preceding year to the assessment year under consideration the assessee had declared gross profit @ 3.56% of the total turnover. If the yardstick of 30%, as adopted by the Commissioner, is accepted GP rate will be much higher. In essence, the Tribunal only estimated the possible profit out of purchases made through non-genuine parties. No question of law in such estimation would arise. The estimation of rate of profit return must necessarily vary with the nature of business and no uniform yardstick can be adopted.”
From the above, we find, the essential facts are comparable to that of the present case. They are: sales account is undisturbed, presumption of purchase of goods outside the books and also without bills, procuring the purchase bills from the hawala bill providers etc. Undoubtedly, the assessee is engaged in the construction activity and GP rate 12.5% is not uncommon. In the cited judgment, the addition @ 12.5% of the suspected purchases was confirmed by the Hon’ble High Court when the recorded profit of the assessee – Simit P Sheth (supra) is only @ 3.56%. Considering the above, we find, the CIT (A) is justified in adopting 12.5% of the suspected purchases for addition. Therefore, in our opinion, the order of the CIT (A) on this issue is fair and reasonable and it does not call for any interference. Thus, Ground no.2 raised by the assessee is dismissed.”
We find that in the year under consideration the NP ratio of assessee has increased to 3.54 as against 2.58 in AY 2007-08 (page 228 of P/B). The NP ratio was not disputed by ld DR for the revenue. The Hon’ble Bombay High Court in CIT Vs Hariram Bhambhani in of 2013 decided on 04.2.2015 held that revenue is entitled to bring the entire sales consideration to tax, but only the profit attributable on the total unrecorded sales consideration alone can be subject to income tax. Considering the above referred factual position and the decision of Co-ordinate Bench in assessee’s own case for AY 2010-11, we deem it appropriate to restrict the disallowance @ 10% of the impugned purchases. We order accordingly. In the result the appeal of the assessee is party allowed and the appeal of the revenue is dismissed.
5 & 4526/M/2015 M/s. Kinjal Construction Co. & Chirag Construction Co. (JV), 7. In the result, the appeal filed by assessee is partly allowed and the appeal of the Revenue is dismissed. Order pronounced in the open court on this 8th February, 2017. Sd/- Sd/- (B.R. BASKARAN) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated 08/02/2017 S.K.PS Copy of the Order forwarded to :