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Income Tax Appellate Tribunal, “E ” BENCH, MUMBAI
Before: SHRI RAJENDRA & SHRI C.N. PRASAD
आदेश / O R D E R
2 Shri Takhtmal Bhuralal Pichholiya
PER C.N. PRASAD, JM:
These appeals are filed by the Revenue and the Cross objections are filed by the assessee against the order of the Ld. CIT(A)-25, Mumbai dated 14.4.2014 pertaining to assessment years 2009-10 to 2011-12. In all these appeals, the issue is common and therefore they were heard together and disposed of by this common order for the sake of convenience.
The only issue in the appeals of the Revenue is that the Ld. CIT(A) erred in deleting the addition made on account of purchases made from suspicious dealers which are allegedly involved in issuing bills and purchases made from the parties in dispute are not genuine.
Brief facts are that the assessee is an individual and proprietor of M/s. Metal Agencies and conducting the business of trading of ferrous and non-ferrous metals. The assessments of the assessee for these three assessment years i.e. 2009-10 to 2011-12 are re-opened 147 of the Act on the basis of information received from investigation wing who in turn got the information from Sales tax authorities that some dealers are not depositing sales tax and they are providing accommodation entries for bogus purchases. Based on these information and enquiries, the Assessing Officer reopened the assessment of the assessee and treated the purchases made by the assessee for these three assessment years as bogus purchases and accordingly completed the assessments u/s. 143(3) r.w.s. 147 of the Act by making additions of Rs. 23,17,742/- Rs. 2,43,87,391/- and Rs.
3 Shri Takhtmal Bhuralal Pichholiya 4,29,07,380/- for the Assessment Years 2009-10, 2010-11 & 2011-12 respectively.
Aggrieved by the assessments, the assessee preferred appeals before the Ld. CIT(A) and the Ld. CIT(A) accepted that the assessee has purchased the goods and sold the same and the transactions are genuine, the purchases are not bogus. There is one to one co- relation to the purchase and sales therefore purchases are genuine. However, the Ld. CIT(A) has granted relief of 95% and confirmed the 5% of purchases holding that purchases can be in grey market against which order both revenue as well as the assessee filed appeals/cross objections before us.
The Ld. Departmental Representative vehemently supported the orders of the Assessing Officer in treating the purchases made from various parties as bogus purchases for the reason that assessee did not produce the dealers before the Assessing Officer, name of the supplier figured in the list of suspicious dealers in the website of sales tax department etc. Therefore, the Assessing Officer is of the view that the transactions are not genuine, the bogus purchases are rightly brought to tax by the Assessing Officer.
The Ld. Counsel for the assessee vehemently supports the orders of the Ld. CIT(A) in holding that the purchases made by the assessee are genuine. He submits that the Ld. CIT(A) having held that there is one to one match of purchases and sales, quantitative details of stocks are tallied, even 5% which was sustained by the Ld. CIT(A) is not proper and Ld. CIT(A) should have allowed the entire
4 Shri Takhtmal Bhuralal Pichholiya purchases as genuine. He further submits that when the sales are accepted as genuine, the corresponding purchases cannot be bogus just because the parties were not produced before the Assessing Officer. He places reliance on the decision of the Jurisdictional High Court in the case of CIT Vs Nikunj Eximp Enterprises (P) Ltd 216 Taxman 171(Bom). The Ld. Counsel for the assessee further submits that the Assessing Officer made addition on the basis of list of suspicious dealers appearing on the website www.mahavat.gov.in of Sales tax Department wherein the dealers were termed as suspicious dealers. The Ld. Counsel for the assessee submits that website has termed such dealers as only suspicious dealers and not confirmed as hawala dealers. Therefore, the list merely highlights a possibility which is tentative in nature. Therefore, the Ld. Counsel for the assessee submits that on mere suspicion and without making any enquiry addition was made which is not sustainable in law. He further submits that however strong suspicious may be, that suspicion cannot be an evidence for making the addition. Reliance was placed on the decision of the Co-ordinate Bench in the case of DCIT Vs Rajeev G. Kalathil in dated 20.8.2014, wherein it was held that suspicion of highest degree cannot take place of evidence. He also places reliance on the decision of the Hon’ble Supreme Court in the case of K.P. Varghese Vs ITO (131 ITR 579) for the preposition that additions cannot be made merely on assumptions or presumptions or surmises or conjectures. He further submits that observation of a third party cannot be basis for addition without there being an independent enquiry and satisfaction by the Assessing Officer. He strongly places reliance on 5 Shri Takhtmal Bhuralal Pichholiya the order of the Ld. CIT(A) in holding that the purchases made by the assessee are genuine.
We have heard the rival contentions and perused the orders of the authorities below. On a reading from the assessment order, we find that the Assessing Officer treated certain purchases from various parties as bogus purchases for the reason that assessee has not produced the dealers, suppliers did not exist etc., and therefore the genuineness of purchases are not proved. The Assessing Officer concluded that the assessee must have purchased these goods from the gray market by investing unaccounted cash which is not recorded in the books of account. Therefore, the entire purchase made from open market was treated as unexplained expenditure u/s. 69C of the Act for all three assessment years. Ld. CIT(A) considering the submissions of the assessee and the findings of the Assessing Officer in the assessment order restricted the addition to 5% of the alleged purchases and deleted 95% of the purchases made treating them as genuine purchases. It is not in doubt that the assessee has made purchases and also made sales and they are duly accounted for in the books of account and offered to tax therefore entire purchase made cannot be treated as unexplained expenditure. While coming to such conclusion, the Ld. CIT(A) observed and held as follows:
5.3 I have perused the assessment order, 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 parties have not 6 Shri Takhtmal Bhuralal Pichholiya directly named the appellant, and it appears that the parties must have made a general statement before the sales tax authorities. No attempt seems to have made by the A.O. to enquire with the parties as to whether they had actually sold goods to the appellant or not, and thereafter to confront the appellant with any adverse finding from such enquiry, and also to provide opportunity of cross examination of these parties to the appellant. 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 on his part has produced the purchase invoices, daily stock register, ledger copies etc., and the payments have been made through banking channel. Though the AO has alleged that the payments to these parties were made after substantial lapse of time, however there is no evidence to prove that the cash has flown back to the appellant. In the case of CIT vs. M.K. Brothers [1987] 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 to cross examine and that payments were shown to have been made after substantial lapse of time after date of purchase, 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 e addition on the ground that there was no evidence to show that vouchers given by those parties to assessee were bogus or that any part of those payment came back to assessee.
(iii) The appellant is a trader and the goods purchased were used in sales, and not in consumption as a manufacturer. It is pertinent to note that unlike manufacturer of goods, a trader is able to establish one to one co-relation between the goods
7 Shri Takhtmal Bhuralal Pichholiya purchased and sold. The AO has not found any such fault in the present case. The purchases made are followed by sales. The AO has agreed that "the assessee has shown the quantitative details and sale has been effected against the alleged purchases". There cannot be any sale without purchases. Once sale is accepted, there is no reason to 'doubt the purchases'. The A.O. cannot accept the one limb.and ignore the other. In the case of CIT vs. Nikunj Eximp Enterprises (P.) Ltd. [2013] 216 Taxman 171 (Bom.), the jurisdictional Hon'ble High Court 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.
(iv) Under Income Tax Act, i 961 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. I find that in many such cases, the additions are made based on the GP/NP ratio. In the present case of appellant, in fact the AO himself has not ruled out the possibility that the assessee must have purchased these goods from the grey market by investing unaccounted cash which is not recorded in the books of accounts. However, there seems no objective statement in the assessment order to suggest that the appellant would have benefitted by purchase in grey market at lower rates. I further find that in many such cases, the additions are made ased on the G.P.I N.P. ratio. In the present case of appellant, in fact the AO himself has not ruled out the possibility of the appellant purchasing equivalent goods from grey market by investing unaccounted cash. In such a situation, even assuming that the appellant would have purchased the goods by investing the unaccounted cash, still it is undisputed that the sale proceeds of said 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 present circumstances, I find it appropriate to confirm addition to the extent of 5% of the alleged purchases i.e. 5% of Rs.23,17,742/- = Rs.l,15,887/- .
8 Shri Takhtmal Bhuralal Pichholiya
5.4 I find that the AO cannot make any addition just on the basis of presumption. Suspicion, however strong cannot take place of proof. This principle is reflected in the following Judicial pronouncements:
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)(AIl.) The appearance of a purchase party on the website of Sales Tax Department may raise a question mark; however the allowance of purchase expenses has to be necessarily decided taking into view the totality of the circumstances of appellant’s claim. Hence, I am of the opinion that the opinion that it would be justified to restrict the addition made to Rs. 1,15,887/- and accordingly delete the balance addition of Rs. 23,17,742/- 1,15,887/- = Rs. 22,01,855/-. Therefore, the ground No. 1 of appeal is partly allowed.”
On going through the order of the Ld. CIT(A), we do not find any valid reason to interfere with the observations and to hold that the purchases made are bogus for the reason that none of the findings of the Ld. CIT(A) have been rebutted by the Revenue. In the circumstances, we sustain the order of the Ld. CIT(A) for Assessment Year 2009-10 to 2011-12.
In the cross objections, the assessee has challenged the order of the Ld. CIT(A) in sustaining 5% of purchases.
9.1. In our view, there is no basis for sustaining the addition of 5% of purchases u/s. 69C since the purchases have been held to be genuine and there is no scope for sustaining the same partly. Thus, the cross objections filed by the assessee are allowed.
9 Shri Takhtmal Bhuralal Pichholiya
In the result, the appeals filed by the Revenue are dismissed and the cross objections filed by the assessee are allowed.
Order pronounced in the open court on 27th July, 2016.