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Income Tax Appellate Tribunal, “J” BENCH, MUMBAI
Before: SHRI R.C. SHARMA, AM & SHRI SANDEEP GOSAIN, JM
आदेश / O R D E R Per R.C. SHARMA, A. M.: These are the cross appeals filed by revenue and Assessee are directed against the Order by the Commissioner of Income Tax (Appeals)- 25, Mumbai (‘CIT(A)’ for short) dated 01.07.2014 for the assessment year (A.Y.) 2009-10. The assessee has taken following grounds in its appeal:- 1. “Learned CIT(Appeal) erred in partly confirming the additions made by the AO to the extent of Rs.43,52,417/- and erred in treating the same as unexplained expenditure.” However, the revenue is aggrieved for deleting the addition of Rs.4,98,89,200/- out of bogus purchases.
3. Rival contentions have been heard and record perused. Facts in brief are that the assessee filed return of income for A.Y. 2009-10 on 29.09.2009 declaring total income of Rs.5,90,910/-. The return was processed u/s 143(1). The case was re- opened on the basis of information received from investigation wing based on the investigation carried out by Sales Tax Authorities. The Sales Tax Authorities had identified bogus billers/accommodation entry providers and recorded their statements, and a list of such bogus billers and concerned beneficiaries having utilized their services had been prepared and forward to the Department. As the case of assessee appeared in the list as a beneficiary, the case of assessee was re- 3 (A.Y. 2009-10) M/s. Jai Hind Paper Mart opened by issue of Notice u/s 148 dated 28.03.2013. AO has made addition of peak credit at Rs.5,42,41,617/- on account of purchases from alleged parties. By the impugned order CIT(A) confirmed the addition of Rs.43,52,417/- after observing as follows: 4.6. 1 have perused the assessment order, remand report, submissions of appellant, and the facts and circumstance of the case. On careful examination of the same, I observe as under: (i) The addition has been made on the basis of information received from Investigation wing based on the investigation carried out by the Sales Tax Authorities. The notices issued u1s133(6) could not be served to the two parties. However, the appellant on its part has produced the ledger account, bills/tax invoices issued by said parties, and bank statements showing that the payments have been made through banking channel. There is no evidence on record to prove that any part of cash has flown back to the appellant. In above context, I find that in the case of CIT vs. Kashirarn Taxtiles Mills (P.) Ltd. [2007] 284 ITR 61(Guj.) relied upon by the appellant, it was held that there was no evidence to show that a part of the amount paid to suppliers had come back to the assessee and therefore also there was no case for any addition in respect of such purchases. Similarly, in the case of CIT vs. Nangalia Fabrics Pvt. Ltd., Tax Appeal No. 689 of 2010 (Guj. High Court) relied upon by the appellant, it was observed that the addition had been made only on the ground that the parties were not traceable, and it was found that assessee had made payment through crossed cheque and Assessing Officer did not find that payment made came back to assessee, hence additions was deleted relying upon the case of Kashiram Textiles Mills (P.) Ltd. I also find that in the case of CIT vs. M.K. Brothers 11987] 163 ITR 249 (Guj), the assessee made certain purchases from some parties and made payment through cheques, and the ITO found that parties were not available for cross examination, and hence the ITO held those transactions to be bogus and added back the purchases to income of the assessee. The Hon'ble Gujarat High Court held that the Tribunal was justified in deleting the addition on the ground that there was no evidence to show that vouchers given by those parties to assessee were bogus or I further find that in a recent decision pronounced by Hon'ble ITAT, Mumbai on 1st October, 2013, in the case of Parmit Textiles vs. ITO (ITA Nos. 4012 to 4015 and 4020 to 4021/Mum/2012 the Hon'ble ITAT, Mumbai observed that there was no material on record to say that the purchases made by the assessee was bogus except the general statement recorded by the Department in the case of Shri Rakesh Kumar Gupta, which was later on retracted. The Hon.ble ITAT held that in absence of any adverse material brought on record, the addition made in the case of assessee will be based on presumption only and it cannot be sustained in the eyes of law.
(ii) The appellant has submitted during assessment proceedings the combine stock statement of inward/outward. In the remand report, the AO has admitted that the assessee had submitted ledger account of the parties and a combined stock movement of inwards/ outwards, and that the sales were not suspected. The appellant has contended that the books of accounts as well as sales have not been doubted by the AO, and hence, the purchases are deemed to be genuine. If the purchases from the two parties are considered as bogus then the sales made to them out of the purchases ought to be deducted accordingly. I find the said contention of appellant not without merit, since the AO has not found any fault with the quantitative information of purchases and sales submitted by the appellant, and the A.O. cannot accept the one limb while ignore the other. I find that in the case of CIT vs. Nikunj Exirnp Enterprises (P.) Ltd. [2013] 216 Taxrnan 171 (Born.), the jurisdictional Hon'ble High COUl1 of Bombay held that where sales supported the purchases and payment was made through banks, merely because suppliers had not appeared before AO, the purchases could not be rejected as bogus.
(iii) The appellant has contended that the Sales Tax Department had disallowed the claim of input tax credit in hands of the purchaser, and the Hon'ble High Court of Bombay in the case of M/s Mahalaxrni Cotton Ginning Pressing Industries (51 VST 1) has directed the authorities to pursue recoveries against the defaulting selling dealers. The appellant has further contended that the' above parties had defaulted in not paying V AT into the government treasury which does not mean that the purchases from these parties were bogus, since the parties could have given false statement to save them from the action of the Sales Tax Department. I find that the AO cannot make any addition just on the basis of presumption.
Umacharan Shaw & Bros v. CIT (37 ITR 271) (SC) Dhakeshwari Cotton Mills v. CIT (26 ITR 775) (SC) SheoNarain DuliChand v. CIT (72 ITR 766)(All.) iv) Under the Income the Income Tax Act, 1961 what can be taxed is the real income. Even though the transaction is not verifiable, what is taxable is the income component, and not the entire transaction amount. It is quite possible that the appellant would have made purchases from open market without insisting for genuine bills, as the suppliers would be willing to sell those products at much lower rate as compared to rate at which they might charge in case the dealer has to give a genuine sale invoice. To cover up such purchases in the open market, the appellant might have taken the hawala sale bills from alleged parties. I further find that in many such cases, the additions are made based on the G.P.IN.P. ratio. In the present case of appellant, in fact the AO himself has not ruled out the possibility of the appellant having to buy these goods from the open market and requiring to make payments in cash to these parties, and in fact the addition has been made on this presumption by calculating the peak credit from the ledger account accounts of alleged parties. In such a situation, even assuming that the appellant might have purchased the goods by investing the unaccounted cash, still it is undisputed that the sale proceeds of the goods have been duly accounted for in the books and offered to tax. Hence, the addition of entire purchase amount cannot be made in the present case. Rather, the cause of justice would be met by making addition of a reasonable percentage of such purchases in order to fulfill the gap of any revenue leakage in aforesaid circumstances. In the case of CIT Vs Smith P Seth (356 ITR 451) (Guj) the Court held that not the entire purchase price but only the profit element embedded in such purchases should be added to the income of the assessee. The estimation of rate of profit may vary no uniform yardstick could be adopted. The Court did not interfere regarding the profit @12,5% estimated by the Hon'ble ITAT. The appellant also relied on the decisions of CIT(A)-35, Mumbai in the cases of Shri Vijay Bhogilal Shah [Appeal No.CIT(A)-35/ACIT-25(2)/ITA- 236/12-13]dated 16-01- 2014],in the case of Shri Nipun Ishwardas Thakkar,[Appeal No.CIT(A)-35/ACIT- 25(1)/ITA-81/13-14 dt.10-02-2014] and in the case of M/s. Prathmesh Realtors,[Appeal No.CIT(A)-35/ITO- 25(2)(2)/ITA-51/13-14 dt.14-02-2014] in similar and identical issues has adopted GP @ 15% of the alleged purchases made by the appellant. In the case of Kachwala Gems vs. Joint Commissioner of Income Tax 6 (A.Y. 2009-10) M/s. Jai Hind Paper Mart [2007] 288 ITR 10 (SC) it has been held as under :- “ It is well settled that in a best judgment assessment there is always a certain degree of guess work. No doubt the authorities concerned should make an honest and fair estimate of the income even in a best judgment assessment, and should not act arbitrarily. “In view of the above facts and circumstances of the case, I am of the view that in the present case, estimate of G.P. @ 15% earned on corresponding sales against alleged purchases of fill in the gap of any revenue leakage in aforesaid circumstances would meet justice. The disallowance of 15% of the alleged purchases (vide4.5) amounting to Rs.2,90,16,119/- is Rs.43,52,417/- only. Accordingly, I confirm the addition to the extent Rs.43,52,417/- of the alleged purchases and delete the balance addition of Rs.5,42,41,617/- -- Rs.43,52,417/- = Rs.4,98,89,200/-. Therefore, this ground of appeal is partly allowed.”
4. Against the above order of CIT(A), both assessee and revenue are in further appeal before us. We have considered rival contentions and found that CIT(A) has restricted the addition to the extent of 15% on net bogus purchases, on the plea that assessee has earned additional G.P. @15% on corresponding sales against alleged purchases.
5. We have considered rival contentions and gone through the orders of authorities below and found from record that during the year under consideration the assessee had shown total turnover of Rs.22.94 crores on which GP 3.64% was shown. The GP shown during the year was better than GP shown by assessee in AY 2008-09 at 3.11%. The CIT(A) has called for a remand report wherein the AO has observed that assessee has produced the ledger account, bills/tax invoices issued by said parties, and bank statements showing that the payments have been