ITO 20(2)(4), MUMBAI vs. LIFETCHNIQUES, MUMBAI

O R D E R

PER AMARJIT SINGH, JM:

ITA No.306/M/2016 A.Y. 2011-12 “1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in granting relief of Rs.32,91,552/- by restricting the addition @10.91 (GP declared by the assessee) of total purchase from hawala parties without any actual purchase.

2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in ignoring the fact that the assesse failed to discharge its burden that alleged bogus parties involved were existent and genuine.

3. The brief facts of the case are that the assessee filed its return of income for the A.Y.2011-12 on 21.09.2011 declaring total income to the tune of Rs.10,88,655/-. The return of income was processed u/s.143(1) of the Income Tax Act, 1961 ( in short “the Act”). The case was reopened by issue of notice u/s.148 of the Act dated 25.02.2013 on the basis of information received from Sales Tax Department that the assessee had taken accommodation entries to the tune of Rs.43,67,390/-. Thereafter, the notice u/s.143(2) and 142(1) of the Act were issued and served upon he assessee. The assessee is a firm and engaged in the business of Trading and importing of ship chandlers and lifting items. During the year under consideration, the assessee has derived income from business. The letter was received from the Sales Tax Department regarding the bogus purchase A.Y. 2011-12 to the tune of Rs.43,67,390/- from the three different parties i.e.Sidhivinayak Steels, Newspark Trading Co. Pvt. Ltd. and Neptune Corporation. The details of which has been reproduced below for ready reference:- Sr. Name TIN PAN Amount No. (Rs.) 1 Sidhivinayak 27050389521V AGVPS7889Q 2,49,356 Steels 2 Newspark 27530399248V AACCM1443M 4,49,955 Trading Co. Pvt. Ltd. 3 Neptune 27870354344V ABHPM6418L 36,68,079 Corporation Total 43,67,390 Thereafter, the Assessing Officer by giving an opportunity of being heard to the assessee and finding no non-genuineness of the purchases added the peak amount of purchases or 25% of such purchase in view of the case of M/s. Vijay Proteins Ltd. (1996 58 ITD 428 Ahd) to the tune of Rs.37,68,034/- to the income of the assessee. Thereafter, the assessee filed an appeal before the CIT(A) who considered the 10.91% of the profit on the total alleged bogus purchase of Rs.43,67,390/- i.e. to the tune of ITA No.306/M/2016 A.Y. 2011-12 Rs.4,76,482/-. Feeling aggrieved, the revenue has filed the present appeal before us. ISSUE NO.1 TO 4:- 4. Under these issues in fact the revenue has challenged the deletion of the addition made by the Assessing Officer to the tune of Rs. 32,91,552/- on account of bogus purchases. The learned representative of the department has argued that the Assessing Officer has decided this issue correctly on the basis of the finding in the case of M/s Vijay Proteins Ltd. (Supra) and the peak purchases or 25% of the bogus purchases whichever is higher is liable to be added to the total income of the assessee u/s.69C of the Act. No doubt after the receipt of the letter from the Sales Tax Department an opportunity of being heard was given to the assessee but the genuineness of the case has not been proved by assessee, therefore, the Assessing Officer has added the peak transaction of the purchase of Rs.37,68,034/- into the income of the assessee u/s.69C of the Act in view of the above said law i.e. M/s. Vijay Proteins Ltd. (Supra). On appeal the CIT(A) has decided the matter of controversy on the basis of the decision of the Income Tax Appellate Tribunal in the case of ACIT Vs. Kishanlal Jewels (P) Ltd. (2012) 147 ITR 308 ITAT (Delhi) wherein the profit margin was directed to be taxed and in the case of Madhukant B. Gandhi Vs. ITO ITAT Mumbai B Bench dated 23.12.2010 wherein the similar view was taken. The finding of the CIT(A) is hereby reproduced below:- A.Y. 2011-12 “7.8 In the instant case, the appellant is not in a position to prove the existence of the suppliers. The payment schedule to the alleged suppliers whom the appellant admittedly does not know. This circumstantial evidence casts a strong doubt on the nature of the transaction. The appellant himself has admitted before me through written submissions that purchases have been made from parties other than those stated in the books of account. I am of the firm belief that the appellant had made cash purchases from other parties which were not recorded in the books. The appellant took only bills from these 3 parties as accommodation to explain the purchases. Therefore the entire purchase from these 3 parties cannot be added as bogus and what needs to be taxed is the profit element embedded in such transaction. I therefore hold that it would be fair to the appellant that the disallowance on the issue of bogus purchase be restricted to the GP recorded by the appellant in his books for the year which is 10.91%. Therefore, I direct the AO to estimate profit of 10.91% on the total alleged bogus purchase of Rs.43,67,390/- which works out to Rs.4,76,482/-. The amount of Rs.4,76,482/- is sustained out of the addition of Rs.37,68,034/- made by the A.O. The appellant gets a relief of the balance Rs.32,91,552. Grounds 1 & 2 are partly allowed.”