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Income Tax Appellate Tribunal, “A” BENCH, PUNE
Before: SHRI R.S.SYAL & SHRI CHANDRA MOHAN GARG
आदेश / ORDER
PER CHANDRA MOHAN GARG JM:
This appeal filed by the assessee is directed against the order of the Ld. CIT(Appeals)-3, Pune dated 14.03.2017 for the assessment year 2011-12 as per the following grounds of appeal:
“1. The learned CIT(A) erred in confirming the validity of reopening u/s.148 and the consequential reasst. order passed u/s.143(3) r.w.s.147 without appreciating that the reopening u/s.148 was not justified in law and accordingly, the reasst. order ought to have been held as null and void.
2. The learned CIT(A) erred in confirming the disallowance of 25% of the purchases of Rs.1,51,69,487/- made by the assessee firm form M/s. Oriental Enterprises on the ground that the assessee had failed to establish with proper evidence the genuineness of the said purchases.
3. The learned CIT(A) failed to appreciate that the purchases made by the assessee firm from M/s. Oriental Enterprises were genuine and accordingly, no disallowance was warranted at all and the addition confirmed of Rs.37,92,372/- may kindly be deleted.
4. Without prejudice to the above grounds, the assessee submits that the disallowance confirmed @25% of the total purchases made from M/s. Oriental Enterprises is very high and the same may kindly be reduced substantially.
5. The appellant craves leave to add, alter, amend or delete any of the above grounds of appeal.”
When the appeal was called for hearing neither the assessee nor his Authorized Representative was appeared and nor any application for adjournment has been filed. On perusal of the relevant appeal record, we find it proper to decide the appeal after hearing the submissions of the Ld. CIT-DR and on the basis of materials available on record.
Ground No.1:-
3. In this ground, the assessee has challenged the order of the Ld. CIT(Appeals) wherein he confirmed the validity of reopening u/s.148 of the Income Tax Act, 1961 (in short „the Act‟) and consequential assessment order was passed u/s.143(3) r.w.s.147 of the Act without appreciating the very relevant fact that the reopening u/s.148 of the Act was not justified in law and accordingly, the reassessment order ought to have been held as null and void.
Drawing attention towards relevant operative part from Para 5 to 5.3 of the First Appellate order, the Ld. CIT-DR submitted that on forming prima- facie believe on the examination and verification of the assessment records, the Assessing Officer had found that the assessee had inflated expenses to the extent of purchases made worth Rs.1,51,69,487/- from M/s. Oriental Enterprises who was a hawala dealer. The Ld. CIT-DR also submitted that the Assessing Officer initiated reassessment proceedings and issued notice u/s.148 of the Act on receipt of information from Sales Tax Department, Maharashtra which had conducted inquiries in cases of several dealers located on across Maharashtra and had unearthed of a racket involving more than 1935 Hawala Dealers and more than 33,700 beneficiaries including the present assessee. The hawala dealers were found to involve in making bogus invoices to allow a trader to claim tax credit posing himself as „seller‟ existed only on paper and has issued fake bills to the concern and got commission in return. The beneficiary, in turn, got the input tax credit on the material which had never been purchased in reality. The assessee under consideration was one of the beneficiaries of these bogus/hawala transactions which claimed to have purchased goods worth Rs.1,51,69,487/- during the financial period.
The Ld. CIT-DR also submitted that information received from Sales Tax Department, Maharashtra constitutes new material which was not before the Assessing Officer during original assessment proceedings and the Assessing Officer had formed reason to believe that due to such bogus claim of inflated purchased expenses, the income chargeable to tax had escaped assessment to that extent of bogus purchases claimed by the assessee.
On careful perusal of the order of the First Appellate Authority at Para 5.3, we incline to hold that initiation of reassessment proceedings, u/s.148 of the Act and issued notice to the assessee was based on valid reason on the strength of new tangible material which was not before the Assessing Officer during the original assessment proceedings. Therefore, we are unable to see any ambiguity, perversity or invalidity in the action of the Assessing Officer in initiating reassessment proceedings, issuing notice u/s.148 of the Act and framing reassessment order u/s.143(3) r.w.s.147 of the Act. Therefore, we are of the opinion that the findings recorded by the First Appellate Authority is quite reasonable and justified and thus, the same does not call for any interference. Consequently, the findings of the Ld. CIT(Appeals) is upheld and Ground No.1 raised in appeal by the assesse is dismissed.
Ground Nos. 2, 3 & 4 :-
The assessee has also challenged the First Appellate Order wherein the Ld. CIT(Appeals) has confirmed the disallowance of 25% of total impugned bogus purchases made by the assessee from M/s. Oriental Enterprises.
On perusal of the Form 35 along with Form 36 and other materials available on record, we find that the main contention of the assessee on this issue is appreciating that the Ld. CIT(Appeals) was not correct in confirming the addition as he failed to appreciate that the purchases made by the assessee from M/s. Oriental Enterprises were genuine and accordingly, no disallowance was warranted at all and the addition confirmed to the tune of 25% of the total impugned purchased of Rs.37,92,372/- should be deleted. It was also submitted that disallowance confirmed at the rate of 25% of the total purchases made from M/s. Oriental Enterprises is very high and the same may kindly be reduced substantially.
Replying to the above, the Ld. CIT-DR drew attention towards relevant operative Paras i.e. 7.3 to 7.3.2 of the First Appellate order and submitted that after considering various decisions of the Hon‟ble Gujarat High Court, ITAT Ahmedabad and ITAT, Jaipur and keeping in view of the facts of the present case, the Ld. CIT(Appeals) directed the Assessing Officer to restrict the addition to the tune of 25% of alleged bogus purchases. He also submitted that the Department filed appeal challenging the part relief given to the assessee by the Ld. CIT(Appeals) which was dismissed on account of low tax effect. Thereafter, further reduction of disallowance would be not justified and reasonable and reduction in the disallowance would certainly amount to prejudice to the Department. Therefore, addition partly confirmed by the Ld. CIT(Appeals) may kindly be disallowed by dismissing the grounds of the assessee.
On careful consideration of the above submissions, we find that the Ld. CIT(Appeals) has disallowed 25% of the bogus purchases and the facts herein suggest that the assessee has consumed such bogus purchases. It is also observed that the assessee allegedly purchased goods through the Hawala dealers and thereafter, consumed for construction and sales. In such a situation, it cannot be said that the entire amount of hawala purchase bills requires addition. The Hon‟ble jurisdictional High Court in Pr.CIT Vs. Paramshakti Distributors Pvt. Ltd., vide its judgment dated 15.07.2019 in has sustained the addition @ 10% of the amount of purchases, being, the profit element involved therein. The relevant extracts of the Hon‟ble High Court‟s decision reads as follows:
“2. The first question pertains to restricting the addition of Rs.23.16 Lakhs to Rs.2,21,600/- by the Tribunal. The Assessing Officer had made the said addition on the ground that the assessee’s purchases were found to be bogus. The entire purchase amount was therefore, added to the assessee’s income. The Tribunal, however, restricted to the said sum of Rs.2,21,600/-. The Tribunal recorded that the Assessing Officer has not rejected either the purchases or the sales made out of the said purchases. The Tribunal therefore, was of the opinion that the addition should be restricted to 10% of the total purchases. The Revenue strongly disputes this proposition.
Without elaboration, what the Tribunal by the impugned Judgment held is that the Department had not rejected the instance of the purchases since the sales out of purchase of such raw material was accounted for and accepted. With above position, the Tribunal applied the principle of taxing the profit embedded in such purchases covered by the bogus bills, instead of disallowing the entire expenditure. We do not find any error in the view of the Tribunal. No question of law arises.”
In view of the decision of the Hon‟ble Jurisdictional High Court, we are of the considered view that it would be reasonable to sustain addition @ 10% of the amount of bogus purchases, being profit element involved therein.
That also in the recent decision of the Pune Bench of the Tribunal in the case of Ashoka Buildcon Limited Vs. ACIT, & ITA No.1135/PUN/2017 dated 04.10.2021 has placed reliance on the decision of the Hon‟ble Bombay High Court in the case of Pr.CIT Vs. Paramshakti Distributors Pvt. Ltd. (supra.) and sustained 10% of addition on the amount of bogus purchases in the facts and situation wherein such bogus purchases were consumed by the assessee. The relevant findings of the Tribunal reads as follows:
“11. We have heard both sides and gone through the relevant material available on record. It is observed that the assessee allegedly purchased raw materials through the Hawala purchase bills and thereafter consumed the same in the power project sites. In such a situation, it cannot be said that the entire amount of hawala purchase bills requires addition. The Hon’ble jurisdictional High Court in Pr.CIT Vs. Paramshakti Distributors Pvt. Ltd., vide its judgment dated 15.07.2019 in has sustained the addition @ 10% of the amount of purchases, being, the profit element involved therein. The relevant extracts of the Hon’ble High Court’s decision reads as follows: “2. The first question pertains to restricting the addition of Rs.23.16 Lakhs to Rs.2,21,600/- by the Tribunal. The Assessing Officer had made the said addition on the ground that the assessee’s purchases were found to be bogus. The entire purchase amount was therefore, added to the assessee’s income. The Tribunal, however, restricted to the said sum of Rs.2,21,600/-. The Tribunal recorded that the Assessing Officer has not rejected either the purchases or the sales made out of the said purchases. The Tribunal therefore, was of the opinion that the addition should be restricted to 10% of the total purchases. The Revenue strongly disputes this proposition.
3. Without elaboration, what the Tribunal by the impugned Judgment held is that the Department had not rejected the instance of the purchases since the sales out of purchase of such raw material was accounted for and accepted. With above position, the Tribunal applied the principle of taxing the profit embedded in such purchases covered by the bogus bills, instead of disallowing the entire expenditure. We do not find any error in the view of the Tribunal. No question of law arises.” In view of the decision of the Hon’ble Jurisdictional High Court, we are of the considered view that it would be reasonable to sustain addition @ 10% of the amount of bogus purchases, being profit element involved therein. Thus, grounds of appeal
raised by the assessee are partly allowed.
12. Since the Ld. CIT(A) as per reasoning given in his order has restricted the addition to 25%, which is higher than that approved in the above judicial precedent and therefore, in our considered opinion, there can be no grievance at the end of the Revenue.”
12. Therefore, in the facts and situation wherein bogus purchases were made and they were consumed, the Hon‟ble Jurisdictional High Court has held 10% addition of such bogus purchases to be reasonable, whereas, in this case, the Ld. CIT(Appeals) has made disallowance at 25% of such bogus purchases which is more than that held by the Hon‟ble Jurisdictional High Court (supra.). In such scenario, we are of the considered view that it would be reasonable to sustain addition @ 10% of the amount of bogus purchases, being profit element involved therein. We order accordingly. Thus, Ground Nos. 2, 3 & 4 raised in appeal by the assessee are partly allowed.
13. Ground No. 5 is general in nature and hence, no adjudication is required.
In the result, appeal of the assessee is partly allowed.
Order pronounced on 10th day of November, 2021.