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Income Tax Appellate Tribunal, MUMBAI BENCH “G”, MUMBAI
Before: SHRI D. KARUNAKARA RAO & SHRI PAWAN SINGH
Assessee by Shri Vishwas V. Mahendale, : C.A. Revenue by : Ms Ramapriya Raghvan (Sr. DR) Date of hearing : 09.06.2016 Date of Order : 24.06.2016 O R D E R PER PAWAN SINGH, JM: 1. These six appeals out of which three appeals filed by assessee and three Cross appeals by Revenue are directed against the order of CIT(A)-25, Mumbai dated 07.08.2014 for Assessment Years (AYs) 2009-10 to 2011-12. Since the issue raised by assessee and Revenue in all appeals are connected, therefore, for the sake of convenience all appeals were clubbed, heard together and disposed of by consolidated order. The assessee raised the following Grounds in :
3 6925, 6212, 6926, 6213 & 6927 /Mum/2014 Yashpal B. Pichholiya 1. On the facts and circumstances of the case and in law, Hon. CIT-A-25, Mumbai has erred in not providing the opportunity of cross-examination of the parties whose statements are relied upon by the Assessing Officer while making the assessment.
On the facts and circumstances of the case and in law, Hon. CIT-A-25, Mumbai has erred in not looking into appellant's grievance against the agent who had actually sold the goods alleged to be bogus purchases.
3. On the facts and circumstances of the case and in law, Hon. CIT-A-25, Mumbai has erred 'in estimating the addition u/s 69C of the Act at Rs.16,56,410/- i.e. @12.50 % of Gross Purchases in spite of appellant providing adequate proof of actual receipt, sale and payments of the alleged bogus purchases.
On the facts and circumstances of the case and in law, Hon. CIT-A-25, Mumbai has erred in not considering appellant's contentions for re- calculating the Peak Level of Purchases at Rs.14,84,184/-.
5. Appellant craves leave to add, alter, amend or withdraw the Grounds of Appeal
2. The Revenue has raised the following substantial Ground in its Cross Appeals: "1 On the facts and in the circumstances of the case, the CIT(A) has erred in law as well as on fact by not sustaining -addition u/s 69C of Rs. 45,74;458/- on account of peak value of transaction made for the bogus purchases, after having accepted the finding in principle that the purchases were made from undisclosed/ unverifiable/ unidentifiable parties in the grey market by investing in cash and the purchases shown were only accommodation entries and not actual purchases.
2. On the facts and in the circumstances of the case, the CIT(A) erred in deviating from the findings made by the AO in the assessment order and holding the purchases in question as genuine, even though during the course of the assessment proceedings, even after providing ample opportunity of being heard, the assessee failed to prove genuineness of purchase as the onus lies on the assessee.
3. For the above mentioned reason and any other reasons that may be urged at the time of hearing, it is requested that the order of the CIT(A) be quashed and that of the A.O. be restored.
4. The Appellant craves leave to amend or alter any ground or add a new ground, which may be necessary.
The facts in all the appeals filed by assessee and cross appeals by Revenue are common, for appreciation of facts we shall discuss the facts relating to appeal of assessee in and Cross Appeal of Revenue for AY- 2009-10.
4. The brief facts of the case are that assessee filed the return of income for relevant AY on 26.09.2009. The assessment was completed on 30.11.2011 u/s 4 6925, 6212, 6926, 6213 & 6927 /Mum/2014 Yashpal B. Pichholiya 143(3) of the Act. The case of assessee was reopened on the basis of information received from Sale Tax Department through the DGIT, (Inv.), Mumbai that Investigation Wing of Sale Tax Department, Mumbai had identified bogus bills entry provides. As per information, the assessee had taken accommodation entries of bogus purchases from four such parties to the tune of Rs. 91,57,056/-. On this information, the reason for reopening assessment was recorded and notice u/s 148 was issued and served upon the assessee on 26.03.2013. On the service of notice u/s 148 the assessee attended the proceeding before AO and submitted various details called for. After considering the same, the AO concluded that the onus is on the assessee to prove the genuineness of the alleged purchases is shown to have been made. The total of purchase of material for the year under consideration was Rs.1,32,51,286/-.Out of the total purchase, Rs. 45,74,458/- was disallowed on the basis of peak u/s 69C of the Act. Aggrieved by the order of AO, the assessee filed an appeal before the CIT(A). CIT(A), while disposing the appeal of assessee restricted the disallowance @ 12.5% of the total purchases of Rs. 1,32,51,286/- and the addition worked out to Rs. 16,56,410/-. Thus the CIT(A) granted the relief of Rs. 29,18,048/-. Aggrieved by the order of CIT(A), the assessee filed the present appeal before the Tribunal questioning the estimated addition applying the flat rate of 12.5%. Further, the Revenue has filed the appeal against the deletion of Rs. 29,18,048/- and adopting the rate of 12.5% for estimating profits.
Before us, ld. AR of assessee argued that AO has merely relied upon the information from Sales Tax Department, instead of making any independent enquiry. The copy of statement had not been supplied to the assessee. All the purchases made by assessee were genuine and sales were recorded in the books of account of assessee. The payments were made through banking channels. The AO has not rejected the sales of assessee. The assessee was maintaining the quantitative details and Stock Register. Once the sales are accepted as genuine, the AO cannot reject the entire purchases and relied upon the case of 5 6925, 6212, 6926, 6213 & 6927 /Mum/2014 Yashpal B. Pichholiya (i) Nikunj Eximp Enterprises (P) Ltd.(2013) 35 taxmann.com 384 (Bombay High Court). (ii) Hiralal Chunnilal Jain vs. ITO-ITA No. 4547/Mum/2014 dt. 01.01.206. (iii) Maruti Impex vs. JCIT- ITA No. 3823/M/2014 dt. 09.03.2016. (iv) ACIT vs. Pratap U. Purohit–ITA No. 5296/M/2013 dt. 11.02.2016. (v) ACIT vs. Tristar Jewellery–ITA No.7593/M/2011 dt. 31.07.2015. (vi) ITO vs. Paresh Arvind Gandhi–ITA No. 5706/M/2013 dt. 13.05.2015. (vii) DCIT vs. Rajeev G. Kalathil-ITA No. 6727/M/2013 dt. 20.08.2014. (viii) Shri Ramesh Kumar & Co. vs. ACIT- ITA No. 2959/M/2014 dt. 28.11.2014. (ix) ACIT vs. Ramila Pravin Shah- ITA No.5246/M/2013 dt. 05.03.2015. (x) ACIT vs. Tarla R. Shah- ITA No. 5295/M/2013 dt. 02.02.2016. (xi) M/s Imperial Imp. & Exp.- ITA No. 5427/M/2015 dt. 18.03.2016.
Ld. DR for Revenue, Ms. Rampriya Raghvan, argued that the accommodation entry provider has admitted under oath in the statements recorded by the Sale Tax Department that they have not carried out actual trading activities and they have only issued bogus bills. The admission by the entry provider has ascertained the facts that the assessee is engaged in obtaining bogus purchased bills and accommodation entries during the financial year. The details provided by the assessee in this regard are counterfeit and is a colourable device. The AO issued questionnaire to the assessee for providing details of purchases, details of goods purchased from these parties, copies of bills, ledger accounts, documentary evidences like transportation bill, delivery channels to show that the goods were delivered, stock register, details of payments made by him toward the said purchase from these parties. The AO has not mechanically relied upon the statements supplied by the sale tax authorities but has proceeded to make independent enquiries in respect of bogus purchases. The AO, during assessment proceeding also pointed out to the wrong date of August loss of books of account wide notice dated 10th December 2013. The AO further noticed that the books of financial year 2007-08 were not lost, the opportunity was given to produce the books of account along with purchased bills delivery challan and freight invoices, but the same was not produced for verification. The bank accounts submitted by assessee did not reflect the payment to the said parties beyond doubt and no further documents were produced. Ld DR for revenue further argued that 6 6925, 6212, 6926, 6213 & 6927 /Mum/2014 Yashpal B. Pichholiya mere bank statement of assessee and confirmation letter from the bogus suppliers have been filed. No delivery challan or transportation receipt or octroi payment in respect of goods allegedly purchased has been produced by the assessee. Considering the fact that assessee is in the business of trading of ferrous and nonferrous metals, if the same had actually been purchased, it could not have been delivered without transportation. Proof of transportation has not been submitted before AO. Stock restore has not been produced by the assessee. Books of accounts have not been produced for financial year 2007 -08, 2008-0 9, 2010- 11 and 2011-12. They are claimed to have been lost in transit during 2 separate occasions date, Bandra station and during riots at Azad Maidan. Ld DR for revenue argued that contention made before lower authorities and the argument advanced before this court by AR for assessee does not inspire confidence and prayed that the order of AO be restored and order of CIT(A) may be reverse. And in alternative it was argued that entire bogus purchases be disallowed and if is not acceptable to this bench and estimated disallowance out of purchases is to be made in this case, then 12.5% of the gross purchases be considered for disallowance. Ld DR for revenue argued that the decisions cited by assessee are not applicable as they are factually different from the present case. The ratio of Nikunj Eximp Enterprises (P) Ltd is not applicable in the present case. She relied upon the decision of Kerala High Court in Sree Rajvel &Co Versus CIT 268 ITR 267(ker) 7. We have considered the rival contention of the parties and perused the material available on record. We have seen that to verify the genuineness of the purchase from those alleged parties; the AO issued the following questions asking the assessee to furnish details thereof. (i) Details of purchase made during the Financial Year (FY) 2008-09 from these parties. (ii) Details of goods purchased from these parties. (iii) Copies of bills raised by these parties. (iv) Ledger account. (v) Documentary evidence, such as transportation bill, delivery challan, etc to show that the goods were received by him. (vi) Stock Register to show that goods purchased by him from these parties are reflecting in the Stock Register.
7 6925, 6212, 6926, 6213 & 6927 /Mum/2014 Yashpal B. Pichholiya (vii) The details of payment made by him toward the said purchases from these parties, copy of bank statements to substantiate the payment made. The assessee furnished the following details: (i) Confirmation of the parties, confirming their ledger account in the books of assessee. (ii) Bank statements to show their payments.
But no details/documents for transportation bill, delivery challan to show that goods were received by him from those parties, stock register indicating material claimed from the parties in question and the evidence to show that the goods so purchased have been actually utilized by him. Thereafter, assessee submitted on 11.08.2011 that assessee lost his all books of account in transit for FY-2008-09 onwards to FY-2001-12 and he is unable to furnish further details. After considering the reply of show cause notice and the reply of the questionnaire, the assessee was issued show cause notice as to why the purchases from such parties should not be treated as bogus. The assessee further submitted its reply wherein it was contended that police complaint was made on 13.08.2012 and due to typographical error, it was mentioned as 11.08.2011 in earlier reply (about missing of documents). The assessee further contended that payments were made to the supplier through banking channel and the payments made to the supplier are identified and highlighted in the bank account submitted earlier. The purchases has been done through a broker and the assessee do not know the parties the books of FY-2007-08 were also lost on Bhandup Railway Station, Mumbai and complaint was filed on 05.07.2009. During re-opening assessment proceeding, fresh information was received from DGIT(Inv.), Mumbai that in FY-2008-09 M/s Manav Metal also made deposition that they issued only bogus bills and not actually treated in materials. About additional information, a show cause notice was again issued to the assessee to prove the genuineness of purchase of Rs. 40,94,230/-. In reply to the second show cause notice, assessee submitted the same reply and after considering the entire material available before AO, the AO concluded that the total purchases from the parties in question is Rs. 1,32,51,286/-. The AO concluded that during the year under consideration, 8 6925, 6212, 6926, 6213 & 6927 /Mum/2014 Yashpal B. Pichholiya material of Rs. 1,32,51,286/- were purchased from Grey Market. And after taking into consideration, transaction of cash purchases and adjusting the same against bogus bill and making cheque payments and subsequent receiving back in cash the same amount, the benefit of Principle of Telescoping was given to assessee. The peak of transactions in respect of five parties was worked out, which is as under: Sr.No. Name of the party Peak amount 1. Avison sales Pvt. Ltd. 2,65,200/- 2. Rajeshwari Trading Pvt. Ltd. 9,06,080/- 3. Nakoda Tubes Pvt. Ltd. 14,84,184/- 4. Navkar Metal Pvt. Ltd. 10,40,320/- 5. Manav Metal 8,78,674/- Total 45,74,458/- 9. Ld. CIT(A) while considering the contention of assessee concluded that there cannot be any sale without purchases and relied upon the case of CIT vs. Nikunj Eximp Enterprises (P) Ltd.(2013) 35 taxmann.com 384 (Bombay High Court). It was held in Nikunj Eximp Enterprises (P) Ltd that where sales supported the purchases and payment was made through Banks, merely because supplier has not appeared before AO, the purchases could not be rejected as bogus. Ld. CIT(A) further concluded that the addition has been made on the basis of information received from Sales Tax Department, the parties have not directly named the assessee, the parties have made general statement before Sales Tax Authority. No attempt was made by AO to enquire as to whether they actually sold goods to the assessee or not and to confront the assessee is adverse finding from such enquiry and of cross examination of these parties to the assessee. There is no evidence to prove that cash flown back to the assessee the AO has not ruled out the possibility that assessee must have made these purchases from Grey Market from some other parties by investing unaccounted cash. In such situation assuming that assessee would have purchase the goods by investing the unaccounted cash, still it is undisputed that sale proceed 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. Keeping in view the abovesaid circumstances and to full up the gap of Revenue leakage, CIT(A) considered for making addition of reasonable percentage of such bogus purchases. The total of the gross purchases for this year was Rs. 1,32,51,286/- out of which 12.5% was sustained (i.e. Rs. 16,56,410/-) and granted the relief of Rs. 29,18,048/-.
In case of Shri Hiralal Chunnilal Jain the Co-ordinate Bench of this Tribunal relying upon the decision of Hon’ble jurisdictional High Court in Nikunj Eximp Enterprises (P) Ltd. (supra), Kalathil, Tristar Jewellery held as under: “In the case of Nikunj Eximp(supra) the Hon'ble Bombay High Court has held if sales were not doubted by the AO and copies of bank statement showing entries of payment through account payee cheques to the suppliers, copies of invoices for purchases and a stock statement, i.e.stock reconciliation statement are filed purchased could not be rejected”
Further the Co-ordinate Bench of ITAT, Mumbai in case of Tarla R. Shah, relying upon the decision of Shri Ramesh Kumar & Co.(supra) vs. ACIT in and Rajeev G. Kalathin in ITA No. 6727/M/2013 held as under:
“5.1 Now the issue before us is whether the aforesaid case of the assesssee is covered in favour of the assessee by the various decisions cited by the ld. Counsel. In the case of (AY-2009-10) dated 20.08.2014 we find that the similar addition was made on the basis of information available on website of Sales Tax Department, Government of Maharashtra, which was deleted by the Tribunal. The relevant para 2.4 is extracted as below.
2.4. "We have heard the rival submissions and perused the material before us. We find that AO had made the addition as one of the supplier was declared a hawala dealer by the VAT Department. We agree that it was a good starting point for making further investigation and take it to logical end. But, he left the job at initial point itself. Suspicion of highest degree cannot take place of evidence. He could have called for the details of the bank accounts of the suppliers to find out as whether there was any immediate cash withdrawal from their account. We find that no such exercise was done. Transportation of good to the site is one of the deciding factor to be considered for resolving the issue. The FAA has given a finding of fact that part of the goods received by the assessee was forming part of closing stock. As far as the case of Western Extrusion Industries. www.taxguru.in ITA/6727/Mum/2012/RGK 4 (supra)is concerned, we find that in that matter cash was immediately withdrawn by the supplier and there was no evidence of movement of goods. But, in the case before us, there is nothing, in the order of the AO, about the cash traial. Secondly, proof of movement of goods is not in doubt. Therefore, considering the peculiar facts and circumstances of the case under appeal, we are of the opinion that the order of the FAA does not suffer from any legal infirmity and there are not sufficient evidence on file to endorse the view taken by the AO. So, confirming the order of the FAA, we decide ground no.1 against the AO."
Further in case of M/s Imperial Imp. & Exp. the Co-ordinate Bench of ITAT, Mumbai while dealing with the identical ground held as under: 6. We have carefully considered the rival submissions. The entire discussion in the assessment order reveals that purchases from four parties namely Dhruv sales Corporation - Rs.13,67,640/-; Subhlaxmi Sales Corp. - Rs.20,20,800/-; Dharshan Sales Corporation -Rs.9,64,656/-; and Paras (India)- Rs.33,98,400, totalling to Rs.77,51,496/- have been treated to be bogus based on the purported enquiries conducted by the Sales Tax Department of the Government of Maharashtra. Ostensibly, the Assessing Officer ought to have brought on record material which is relevant to the transactions of the assessee with the aforesaid four parties instead of making a general observation about the information received from the Sales Tax Department of the Government of Maharashtra. Quite clearly, the Assessing Officer as well as CIT(Appeals) have taken note of the fact that no sales could have been effected by the assessee without purchases. In the present case, assessee has explained that all its sales are by way of exports. The books of account maintained by the assessee show payment for effecting such purchases by account payee cheques and also the vouchers for sale and purchase of goods, etc. Notably, no independent enquiries have been conducted by the Assessing Officer. Under identical circumstances, our Co-ordinate Benches in the cases of Deepak Popatwala Gal (supra), Shri Rajeev G. Kalathil(supra)and Ramesh Kumar and Co.(supra) have held that the Assessing Officer was not justified in making additions merely on the basis of information obtained from the Sales Tax Department of the Government of Maharashtra without conducting any independent enquiries. Before the CIT(Appeals), one of the points raised by the assessee was with respect to an opportunity to cross examine the four (Assessment Year : 2009-10) parties, but we find that no such opportunity have been allowed. Considering the entirety of facts and circumstances of the case and the aforesaid precedents, which have been rendered under identical circumstances, in our view, the CIT(Appeals) erred in sustaining the addition to the extent of Rs.4,19,356/- instead of deleting the entire addition of Rs.9,68,937/- made by the Assessing Officer. We direct accordingly.”
In case of Pratap U. Purohit (supra), the Co-ordinate Bench of ITAT, Mumbai (which is authored by ld. AM) holding as under: “13. In summary, we are of the opinion, considering the orders of the Tribunal in many cases of additions involving the Sales Tax Department, the disclosure of black-listed suppliers and when the Assessing Officer failed to discharge the onus as discussed above, the additions made u/s 69C amounting to Rs. 12,01,91,407/- out of total addition of Rs. 13.03 Crs is required to be deleted. CIT(A) is directed to examine this issue and pass a speaking order on the issues relating to the aspects of GP and the other independent addition of Rs. 1,00,86,929/- after gathering relevant facts from the survey statements, if any. CIT (A) shall grant a reasonable opportunity of being heard to the assessee as per the set principles of natural justice. Accordingly, grounds raised by the Revenue are partly allowed for statistical purposes.”
In view of the above legal and factual discussion, the ratio determined in cases cited above, we find the ratio laid down is applicable to the fact of the present case. In Imperial Imp & Exp.(supra), the AO made addition/disallowance on the basis of profit margin in relation to non-genuine 11 6925, 6212, 6926, 6213 & 6927 /Mum/2014 Yashpal B. Pichholiya purchase, which was computed by applying the rate of 12.5% on the total amount of non-genuine purchases. In appeal before FAA, it was restricted to 5.4% of estimated profit on unexplained purchases. Therefore, considering the peculiar facts and circumstances of the case, we hold that there was no evidence to show that assessee has received cash from the supplier as argued by Ld. DR. The fact of the case relied by Ld. DR in Sree Rajvel & Co. vs. CIT (supra) is different from the fact of the present case. In Sree Rajvel & Co. the material was purchased from the sister concern which was carrying business in the same premises and the assessee failed to discharge onus to prove purchases. In the present case, the AO made the addition merely on the report of Sales Tax Department. Ld. CIT(A), on the basis of gross purchase from the alleged impugned supplier, restricted the addition to 12.5% of the impugned purchase. In tune with decision cited above we cannot confirm the addition of entire so-called bogus purchases from the suspected supplier as intimated by the Sales Tax Department of Maharashtra Government. In this case sales are accepted by revenue authorities without any variation from the sales reported in business account. This view gets the strength by the binding jurisdictional High Court in Nikunj Exim. Pvt. Ltd.(supra). Therefore, only way out left to the officers below to analyze the gross purchase rate for the purpose of making addition. Therefore, we are in agreement with the gross purchase rate addition confirmed by the CIT(A). Accordingly, raised relevant Grounds are dismissed or allowed as may be. Thus, the appeal of the assessee is disposed of accordingly. We, therefore, direct the AO to restrict the addition to 12.5% of the impugned gross purchases through suspected dealers. As we have confirmed the addition @ 12.5% of gross impugned purchases, resultantly, the Cross Appeal filed by Revenue is dismissed.
The identical Grounds are raised by assessee as well as by Revenue in their appeal/cross appeal. We have already confirmed the addition @ 12.5% of gross impugned purchases in the appeal of assessee for AY- 2009-10 vide ITA No. 6211/M/2014 and thus the ITA No. 6212/M/2014 & 6213/M/2014 are also dismissed. As we have confirmed the addition @ 12.5% of gross impugned purchases in assessee’s appeal, thus the Cross Appeal of Revenue vide ITA No. 6926/M/2014 & ITA No. 6927/M/2014 filed by the Revenue are for AY-2010-11 & AY- 2011-12 are also dismissed. 13. In the result, the appeal filed by assessee vide ITA No. 6211/M/2014, ITA No. 6212/M/2014 & 6213/M/2014 for AYs 2009-10 to 2011-12 are dismissed and appeal filed by Revenue vide ITA No. 6925/M/2014, ITA No. 6926/M/2014 & ITA No. 6927/M/2014 for AY-2010-11 & AY- 2011-12 are also dismissed. Order pronounced in the open court on this 24th June, 2016.