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Income Tax Appellate Tribunal, “I” BENCH, MUMBAI
Before: SHRI D. KARUNAKARA RAO & SHRI PAWAN SINGH
सुनवाई की तायीख / Date of Hearing : 07.12.2016 घोषणा की तायीख /Date of Pronouncement : 09.12.2016 आदेश / O R D E R
PER D. KARUNAKARA RAO, AM:
The captioned appeal is filed by the Revenue and the Cross Objection is filed by the assessee. Both these appeals are filed against the order of the CIT (A)-38, Mumbai dated 30.4.2013 for the assessment year 2010-2011. Since, the issues raised in both these appeals are inter-connected, therefore, for the sake of convenience, they are clubbed, heard combinedly and disposed off in this consolidated order. 2. Firstly, we shall take up the Revenue‟s appeal ITA No.2225/M/2015. In this appeal, Revenue raised the following grounds which read as under:- “1. On the facts and in the circumstances of the case and in law, the Ld CIT (A) has erred in directing to estimate the profit @ 12.5% on the total bogus purchases as against 100% taken by the AO.
2. On the facts and in the circumstances of the case and in law, the Ld CIT (A) has erred in not appreciating the fact that the facts of the case are not identical to the cases relied upon by the Ld CIT (A).
3. On the facts and in the circumstances of the case and in law, the Ld CIT (A) has erred in not considering that in spite of sufficient opportunity being provided by the AO during the course of assessment proceedings, the assessee neither produced the hawla parties nor furnished any documentary evidence to establish the genuineness of purchases made from the said hawala parties.” At the outset, Ld Counsel for the assessee briefly narrated the facts of the 3. case and mentioned that the only issue raised in this appeal relates to the relief granted by the CIT (A) to the assessee in respect of the bogus purchases, disallowed by the AO in the assessment. Briefly stated relevant facts of the case are that the assessee reported purchase of material worth Rs. 63,92,988/- from the parties, who are considered tainted by the Sales Tax Authorities and whose names are appearing in the website of the Maharashtra Sales Tax Department ie www.mahavat.gov.in. In the assessment, AO disallowed the same. Matter travelled to the first appellate proceedings.
4. During the proceedings before the first appellate authority, CIT (A) held that such addition is unsustainable in view of the jurisdictional High Court judgment in the case of CIT vs. Nikunj Eximp Enterprises Pvt Ltd (216 Taxman.com 171) (Bom.). Relying on the said judgment as well as the judgment of the Hon‟ble Gujarat High Court in the case of CIT vs. Bholath Polyfab Pvt Ltd [2013] 355 ITR 290 (Guj.) and another judgment of the same High Court in the case of CIT vs. Simit P. Seth (356 ITR 451) (Guj.), CIT (A) directed the AO to estimate the profits @ 12.5% of the alleged bogus purchases of net amount of Rs. 58,65,440/-. Thus, the CIT (A) confirmed the addition of Rs. 7,33,180/- on this account. Further, CIT (A) also considered the facts relating to the investigation u/s 133(6) of the Act in respect of the purchases from M/s. Shriti Enterprises amounting to Rs. 5,27,548/- and confirmed the same entirely. The contents of paras 13 and 14 of the CIT (A)‟s order are relevant in this regard. Aggrieved with the relief granted by the CIT (A) to the assessee, Revenue is in appeal before the Tribunal. Further, aggrieved by the confirming of the addition of Rs. 5,27,548/- (ie purchases from M/s. Shriti Enterprises) and GP addition of Rs. 7,33,180/- ie @ 12.5% on Rs. 58,65,440/-, the assessee is in appeal vide the C.O.No.192/M/2016.
During the proceedings before us, Ld DR for the Revenue relied on the order of the AO.
Per contra, Ld Counsel for the assessee submitted that the CIT (A) erroneously confirmed the entire purchases of Rs.5,27,548/- from M/s. Shriti Enterprises. He also submitted that the facts of the judgment in the case of Simit P. Seth (supra) are inapplicable therefore, adopting the percentage of 12.5% is unsustainable. However, when decisions of the ITAT, Mumbai Bench in various cases brought to our notice, both the parties left the issue to the Bench to decide the issue.
On hearing both the parties and on perusal of the orders of the Revenue Authorities as well as the relevant material placed before us, we find, the identical issues are decided by us in various cases including the case of Shri Pratap U Purohit vide (AY 2010-2011), dated 10.02.2016. For the sake of completeness of this order, relevant paras from the said order are extracted as under:- “10. We have heard both the parties on this issue of addition made u/s 69C of the Act. We have also examined the aforementioned orders of Tribunal. We find, the decision, made in those cases adjudicated by the Tribunal (supra), is also based on the data available on the webpage of the Sales Tax Department. At least some of the parties are found figuring in the list supplied by the AO and the CIT (A). The Tribunal decided the appeals in the above mentioned cases (supra), after analysing the contract works executed by the assessee for MCGM, accepted the fact that the contract works were executed and the quality was also accepted by concerned authorities of the MCGM. In those circumstances, the utilization of the raw material in correct proportion is beyond doubt. It is a logical conclusion that cement, steel, bricks etc purchases by the assessee should be real. The names of the suppliers may or may not be sacrosanct so long as assessee incurred expenditure on the said raw materials. It may be a case that the assessee made the payments by the cheque to the said 56 parties, who may be bill suppliers, cannot be the suppliers. But, so far as the assessee is concerned, payments are incurred on the raw materials purchases by the assessee as per the requirements of the contracts. In these circumstances, as held by the Tribunal in many other cases, the onus is on the Assessing Officer to demonstrate the raw materials were not purchased at all from the stated / any supplier or AO should demonstrate the contract works executed by the assessee are of inferior quality and the raw materials to the tune of Rs. 13.03 Crs was an inflated one. Unfortunately, AO failed to discharge the onus on the above issues. The AO mechanically compared the list of suppliers to the assessee with the list available on the website of the Sales Tax Department ie www.mahavat.gov.in (supra) and all the purchases from these parties were rejected as „bogus‟. In the process, the AO ignored the issues about the fact of completion of contracts without compromising the quality of the contract works. For the sake of completeness of this order, we extract the relevant para 8 from the Tribunal‟s order in the case of Ramesh Kumar & Co (supra) and the same reads as under: “8. We have carefully perused the orders of the lower authorities and the relevant documentary evidences brought before us. We find that the AO has made the addition as some of the suppliers of the assessee were declared Hawala dealers by the Sales Tax Department. This may be a good reason for making further investigation but the AO did not make any further investigation and merely completed the assessment on suspicion. Once the assessee has brought on record the details of payments by account payee cheque, it was incumbent on the AO to have verified the payment details from the bank of the assessee and also from the bank of the suppliers to verify whether there was any immediate cash withdrawal from the account. No such exercise has been done. The ld CIT (A) has also confirmed the addition made by the AO by going on the suspicion and the belief that that suppliers of the assessee are Hawala traders. We also find that no effort has been made to verify the work done by the assessee from the Municipal Corporation of Greater Mumbai. We agree with the submissions of the Ld Counsel that if there were no purchases, the assessee would have been in a position to complete the civil work.”
Further, regarding the GP maintained by the assessee, we find that the assessee declared GP rates of 10.56% (supra). AO has not examined the GP rate of the assessee over the years on similar contracts. Taking comparable cases, however, it is the claim of the assessee with the addition of Rs. 13.03 Crs, the GP rate has resulted to 21.38%, which is abnormally high on the fact of it in the contract works like the one executed by the assessee. Unfortunately, there is no reference to these aspects in the order of the AO and the CIT (A), despite the reference made by the assessee in his submissions (item 12 in page 10 of the CIT (A)‟s order is relevant in this regard). Therefore, CIT (A) may examine this issue afresh in the remand proceedings. He is free to call for relevant reports from the AO as per the procedure. CIT (A) is required to examine the sacrosanct nature of the GP of 10.56%.”
From the above, it is evident that the said judgement of the Hon‟ble Gujarat High Court in the case Simit P Sheth and another judgment in the case of Bholath Polyfab Pvt Ltd (supra) were considered in various decisions, including the one above, and upheld the decision of the CIT (A) in resorting to ad-hoc percentages, adopted by the CIT (A) in the instant case. Regarding the confirming of purchases from M/s. Shriti Enterprises, no separate arguments were made before us by the Ld Counsel for the assessee. In this regard, we have perused the said paras 13 and 14 of the CIT (A)‟s order and for the same of completeness, the same are extracted as under:- “13. The facts of the present case show that the appellant could not produce either confirmation or the parties from whom goods have been purchased by the AO. the suppliers in question were found to be engaged in providing bogus bills without actually dealing in goods. However, this is also a fact that the sales / contract work of the appellant has not been doubted by the AO. What is under dispute is the purchases from these ten parties from whom bills have ben taken and cheques have been issued to them. Purchases per se are not in dispute but the parties from whom purchases have shown to have been made are disputed and suspicious except purchase from the party M/s. Shriti Enterprises of Rs. 5,27,548/- as this party in its reply to the notice u/s 133(6) stated that they have not dealt with the appellant firm nor have received / paid any commission or made any arrangement with the said entity. Therefore, the purchases shown by the appellant from this party ie M/s. Shriti Enterprises cannot be allowed to the appellant. Hence, the addition made by the AO to the extent of Rs. 5,27,548/- is confirmed and upheld.
With regard to the other nine parties, the case of the AO is that the appellant took only bills from these nine parties to explain the purchases made from elsewhere. Merely because the suppliers did not appear before the AO or the confirmation letters were not furnished, one cannot conclude that the purchases were not made by the assessee. This view is supported by the decision of Nikunj Exim Enterprises vs. CIT 216 Taxman 171 (Bom.). This being so the entire purchases from these parties cannot be treated as bogus and added to income because what needs to be taxed is the profit element embedded in such transaction. (reliance is placed on the decision of CIT vs. Bholath Plyfab Pvt Ltd [2013] 355 ITR 290 (Guj.). Estimation of profit ranging from 12.5% to 15% has been upheld by the Hon‟ble Gujarat High Court in the case of CIT vs Simit P Sheth 356 ITR 451 (Guj.) depending upon the nature of business. Respectfully the decision of Simit P Sheth (supra) and considering the facts of the case, I am of the view that estimation of profit at 12.5% would meet the ends of justice. Therefore, I direct the AO to estimate profit of 12.5% on the total alleged bogus purchases of nine parties which works out to Rs. 7,33,180/- [12.5% of Rs. 58,65,440/- (Rs. 63,92,988 – Rs. 5,27,548/-)]. Thus, the total addition confirmed and sustained works out to Rs. 12,60,728/- (Rs. 5,27,548 + Rs. 7,33,180). The appellant therefore gets the relief of Rs. 51,32,260/- (Rs. 63,92,988 – Rs. 12,60,728/-). The ground raised is partly allowed.”
Considering the above, we are of the opinion, the CIT (A) has discussed the issue at length and decided the issue by relying on the binding judgements of the Hon‟ble Gujarat High Court (supra). Therefore, we are of the opinion, the decision taken by the CIT (A) is fair and reasonable and it does not call for any interference. Accordingly, grounds raised
by the Revenue in its appeal as well as the Cross Objections raised by the assessee are dismissed.
10. In the result, appeal of the Revenue and the Cross Objection raised by the assessee are dismissed. Order pronounced in the open court on 09th December, 2016.