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Income Tax Appellate Tribunal, “H” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY, JM & SHRI MANOJ KUMAR AGGARWAL, AM
सुनवाई की िायीख / : 15/11/2016 Date of Hearing घोषणा की िायीख / : 18/11/2016 Date of Pronouncement आदेश / O R D E R Per Manoj Kumar Aggarwal (Accountant Member): 1. The aforesaid cross appeals for Assessment Year 2009-10 assails the order of the Commissioner of Income Tax (Appeals)-22 [CIT(A)], Mumbai dated 20/08/2014. First, 2 M/s. JK Surface Coatings Pvt. Ltd Assessment Year: 2009-10 we take up the assessee‟s appeal in ITA NO.6769/Mum/2014 wherein the assessee is primarily aggrieved by confirmation of addition with respect to bogus purchases.
Facts qua the dispute are that the assessee is a Private Limited Company engaged in the business of industrial anti/corrosive/protective coating applicators, who filed its return of income for impugned AY declaring total income of Rs.1,97,39,943/- which was processed u/s 143(1) of the Income Tax Act, 1961 [the Act]. The assessee‟s case was sought to be reopened by the Assessing Officer [AO] u/s 148 of the Act on the basis of information received from the Investigation Wing of the Income Tax Department that the assessee had obtained bogus purchase bills from 14 parties totaling Rs.2,47,15,690/- which were stated to be hawala operators. The assessee contended that he was engaged in extensive projects and in need of huge quantity of materials to speed up the work of the projects towards completion which made the assessee to make purchases from dealers who offered fine quality of material at rational rates along with early delivery of the goods and thus the assessee, in hasten, did not inquire much about the genuineness of the dealers and their background in respect of default with the sales tax / VAT department. AO rejected the same and concluded that assessee failed to prove actual delivery of goods with supporting evidences and justify consumption of material. Assessment was framed u/s 143(3) read with Section 147 of the Act determining total income at Rs.4,44,55,630/- after adding the entire amount of bogus purchases to the income of the assessee. Aggrieved, the assessee preferred appeal before the First Appellate Authority but got partial relief vide order dated 20/08/2014. The CIT(A) perused the ledger accounts of the alleged bogus suppliers for several years and the nature of projects undertaken by the assessee. He observed the pattern of purchases made from alleged bogus parties vis-à-vis time gap between payments made to them. Further, he noticed various discrepancies in delivery challans / invoices / stock register / transport vehicle number / material consumption pattern with respect to alleged bogus purchases. Further, he compared supply & payment pattern of regular supplier vis-à-vis alleged bogus supplier and ultimately concluded the impugned purchases to be bogus in nature. Going further, CIT(A) observed similar supply- payment pattern with respect to three additional parties and applying the same analogy, further enhanced the amount of bogus purchases to the following extent:- No. Name of the Party Amount of Purchases (Rs.)
3 M/s. JK Surface Coatings Pvt. Ltd Assessment Year: 2009-10 1. Ramex Trade Impex Pvt.Ltd. 69,90,308/- 2. Hermitage Trading Co. Pvt. Ltd. 53,76,208/- 3. Urvin General Trading Pvt. Ltd. 34,34,471/- Total 1,58,00,987/- CIT(A) further noted that AO did not made independent investigation to ascertain the true nature of purchases and existence of suppliers by issuing notices u/s 133(6) or Section 131. The work contract receipts were not doubted by AO and therefore, in the absence of purchases, it was not possible for assessee to carry out the contract work of this magnitude. Therefore, purchase of material in cash from open market could not be ruled out against which such bogus bills have been procured by the assessee. Further, the material consumption ratio did not show abnormal variation and found to be within a narrow range. Observing all these factors and relying upon various judicial pronouncements, the Ld. CIT(A) concluded that only profit element embedded in the bogus purchases was required to be added to the income of the assessee. Ultimately, he upheld disallowance to the extent of 15% of bogus purchases with respect to 17 parties amounting in all to Rs.3,70,82,206/-. Aggrieved, the assessee is in appeal before us and assailed high addition sustained by CIT(A). The Ld. Counsel for assessee [AR] fairly stated that addition, if any, is to be sustained then it should be restricted within the range of 5% to 7.5% of bogus purchases, which is general profit margin in such contracts. The revenue in cross appeal is aggrieved by the substantial relief provided by CIT(A) as against full addition made by AO . The Ld. DR contended that the assessee has failed to substantiate the purchases at all and all the purchases are mere accommodation entries which demand full disallowance.
We have heard the rival contentions and perused the material on record. The factual matrix is not in dispute. The only grievance is with respect to extent of adhoc disallowance to be sustained with respect to bogus purchases. The Tribunal, in all such cases, has invariably taken a stand that when GP/NP rates are comparable and sales figures are not disputed by the revenue then entire purchases do not deserve disallowance rather some adhoc disallowance ranging from 5% to 12.5% has been found to be a reasonable estimation of profit element embedded in the bogus purchases particularly when material consumption factor do not show abnormal deviations. We also observe that CIT(A) has enhanced the amount of bogus purchases with respect to three more parties aggregating to 4 M/s. JK Surface Coatings Pvt. Ltd Assessment Year: 2009-10 Rs.1,58,00,987/- without confronting the same to the assessee. The addition sustained by AO amounted to Rs.2,47,15,690/- and after adding enhancement of 3 parties made by CIT(A) as above aggregating Rs.1,58,00,987/-, the total amount of bogus purchases comes to Rs.4,05,16,677/- whereas the figures of bogus purchase has been taken as Rs.3,70,82,206/- in the CIT(A) order which leads to the difference of Rs.34,34,471/-. The same is represented by party at Serial No. 3 in the above table viz. „M/s Urvin General trading Co. Pvt. Ltd‟. We further note that party No. 2 & 3 in the above table also figures in the list of 14 dealers selected by the AO. Therefore, to sum up, we direct that assessee shall suffer disallowance with respect to bogus purchases to the extent of 10% of Rs.2,47,15,690/- as against full disallowance made by AO. The same comes to Rs.24,71,569/-. CIT(A) has enhanced bogus purchases with respect to three parties, two of which already figure in the list of AO. Therefore, no further additions shall be made against party at Serial No. 2&3 of the above table. Qua first party namely „M/s Ramex Trading Impex Pvt. Ltd.‟ for Rs.69,90,308/-, the matter is remitted back to the file of CIT(A) for fresh adjudication after providing suitable opportunity of being heard to the assessee. The assessee is directed to substantiate its claim before CIT(A) forthwith, failing which CIT(A) shall be at liberty to decided the issue on the basis of material available on record. The appeal of the assessee is thus partly allowed and that of revenue in ITA No.6848 is dismissed.
In nutshell, the appeal of the assessee is partly allowed. The appeal of the revenue is dismissed. Order pronounced in the open court on 18th November, 2016 Sd/- Sd/- (Saktijit Dey) (Manoj Kumar Aggarwal) न्मायमक सदस्म / Judicial Member रेखा सदस्म / Accountant Member भुंफई Mumbai; ददनांक Dated : 18.11.2016 Lakshmikanta Deka /Sr.PS 5 ITA No.6769/Mum/2 M/s. JK Surface Coatings Pvt. Ltd Assessment Year: 2009-10 आदेश की प्रनिलऱपप अग्रेपषि/Copy of the Order forwarded to : अऩीराथी / The Appellant 1. प्रत्मथी / The Respondent 2. आमकय आमुति(अऩीर) / The CIT(A) 3. आमकय आमुति / CIT – concerned 4. ववबागीम प्रयियनधध, आमकय अऩीरीम अधधकयण, भुंफई / DR, ITAT, Mumbai 5. गार्ड पाईर / Guard File 6. आदेशाि सार/ BY ORDER, उप/सहायक पुंजीकार (Dy./Asstt. Registrar) आयकर अपीऱीय अधिकरण, भुंफई / ITAT, Mumbai Sr. No. Details Date Initials Designation 1 Draft dictation sheets are attached 15.11.16 Sr.PS/PS 2 Draft dictated on 16.11.16 Sr.PS/PS 3 Draft Placed before author 16.11.16 Sr.PS/PS 4 Draft proposed & placed before - JM/AM the Second Member 5 Draft discussed/approved by JM/AM Second Member 6 Approved Draft comes to the 17.11.16 Sr.PS/PS Sr.PS/PS 7 Order pronouncement on 18.11.16 Sr.PS/PS 8 File sent to the Bench Clerk 18.11.16 Sr.PS/PS 9 Date on which the file goes to the Head clerk 10 Date on which file goes to the AR 11 Date of Dispatch of order