CIT(A) is not justified in enhancing the assessment by disallowing 100% of the bogus purchases, Only addition could be of profit element therein

IN THE INCOME TAX APPELLATE TRIBUNAL
“F” BENCH, MUMBAI

BEFORE SHRI SAKTIJIT DEY, JM AND
SHRI MANOJ KUMAR AGGARWAL, AM
आयप[1] ं./ I .T.A. No.4650/Mum/2018
(

  / Assessment Year: 2009-10)
V.R.Enterprises
204, Gupta Bhavan
Ahmedabad Street
Masjid (East), Mumbai – 400 009
बनाम/
Vs.
ITO-17(3)(5)
R.No.137, Aaykar Bhavan
M.K.Road
Mumbai – 400 021
PAN/GIR No. AAGFV-3063-N
/Appellant) :

Respondent
Assessee by : Shri Rahul Hakani – Ld. AR
Department by : Chaudhary Arun Kumar Singh-Ld.DR
Date of Hearing
: 16/05/2019
Date of Pronouncement
: 16/05/2019
आदेश / O R D E R

 

Per Manoj Kumar Aggarwal (Accountant Member):-

1. Aforesaid appeal by assessee for Assessment Year [in short referred
   to as ‘AY’] 2009-10 contest the order of Ld. Commissioner of Income-Tax (Appeals)-28, Mumbai, [in short referred to as ‘CIT(A)’], Appeal No. CIT(A)- 28/IT-488/ITO-17(3)(5)/2015-16 dated 29/06/2018 qua enhancement of certain additions on account of alleged bogus purchases. Although, the additional grounds have been filed, however, the same has not been pressed during hearing before us and therefore, not considered while adjudicating the appeal.

2.1 Facts in brief are that the assessee being resident firm stated to be
engaged in trading of iron & steel was assessed u/s 143(3) r.w.s.147 for
impugned AY on 23/03/2015 wherein the assessee was saddled with
addition of Rs.10.41 Lacs on account of alleged bogus purchases The
original return of income filed by the assessee was processed u/s 143(1).

2.2 The reassessment proceedings got triggered pursuant to receipt of
certain information from Sales Tax Department, Maharashtra wherein it
transpired that the assessee stood beneficiary of accommodation purchase bills aggregating to Rs.83.35 Lacs from 2 suspicious entities, the details of which have already been extracted in para 4.1 of the quantum assessment order. Accordingly, the case was reopened u/s 147 by issuance of notice u/s 148 on 27/03/2014 which was followed by statutory notices u/s 143(2) & 142(1) wherein the assessee was directed to substantiate the aforesaid purchases.

2.3 Although the assessee defended the purchases made by him,
however, the same were not accepted by Ld. AO for various reasons as
summarized in para 4.5 of the quantum assessment order. One of the
reasons was that the assessee did not make available the details of
transportation of the material purported to have been purchased from the
aforesaid hawala dealers and could not provide any transportation receipts, delivery challans etc. In the affidavits filed before Sales Tax Authorities, the stated dealer admitted to have indulged in providing accommodation entries without carrying out any actual business activities. The assessee could notproduce any of the supplier to confirm the transactions.

2.4 The factual matrix led the Ld. AO to believe that the said purchases
were non-genuine and accordingly, the additions against these purchases were estimated @12.5% which resulted into an addition of Rs.10,41,892/- in the hands of the assessee.

3. Aggrieved, the assessee preferred appeal against the same before
   Ld. CIT(A). The Ld. first appellate authority, after considering assessee’s
   submissions and material on record came to a conclusion that the
   circumstances called for full additions as against 12.5% estimated by Ld.
   AO. Accordingly, enhancement notice was issued to the assessee on
   01/06/2018 wherein the assessee was show-caused as to why the whole
   amount of bogus purchases may not be added to the income of the
   assessee. The assessee refuted the same by submitting that purchase bills were produced, corresponding sales were made and the payments to the suppliers was through banking channels. The attention was drawn to the fact that VAT was paid twice. However, not convinced, the additions were enhanced to 100% in the background of several judicial pronouncements, which have already been enumerated in the impugned order and not repeated here for the sake of brevity. Aggrieved, the assessee is in further appeal before us.
   4. The Ld. Authorized Representative for Assessee [AR], Shri Rahul
   Hakani, vehemently contested the enhancement made by Ld. first appellate authority whereas Ld. DR supported the stand in impugned order by placing reliance on the decision of Hon’ble Gujarat High Court rendered in N.K.Proteins Ltd. Vs. CIT [2016-TIOL-3165-HC-AHM-IT].5. We have carefully heard the rival submissions and perused relevant
   material on record and deliberated on judicial announcements cited before us. We find that assessee was in possession of primary purchase
   documents and the payments to the suppliers was through banking
   channels. The assessee had established corresponding sales before Ld.
   AO. The books of accounts were audited wherein quantitative details of
   stock was provided. We are of the considered opinion that there could be no sale without actual purchase of material keeping in view the fact that the assessee was engaged in trading activities. At the same time, the assessee failed to produce even a single supplier to confirm the purchase transactions. The delivery of material could not be substantiated. Therefore, in such a situation, the addition, which could be made, was to account for profit element embedded in these purchase transactions to factorize for profit earned by assessee against possible purchase of material in the grey market and undue benefit of VAT against such bogus purchases. The Ld. AO, in our opinion, had clinched the issue in the right perspective and was fair enough to estimate the additions @12.5%. Therefore, concurring with the stand of Ld. AO, we restore the order of Ld. AO. Accordingly, the enhancement of Rs.72.93 Lacs as made by Ld. first appellate authority stands deleted.

   6. Our aforesaid view is in line with the recent decision of Hon’ble
   Bombay High Court rendered in bunch of appeals titled as Pr.CIT Vs. M/sMohommad Haji Adam & Co. [ITA No.1004 & others of 2016, dated
   11/02/2019] wherein Hon’ble Court distinguishing the cited case law of
   Hon’ble Gujarat High Court rendered in N.K. Industries Ltd. Vs Dy. C.I.T.
   in Tax Appeal No. 240 of 2003 and connected appeals decided on 20th
   June, 2016 observed as under: –
   8. In the present case, as noted above, the assessee was a trader of fabrics. The A.O. found three entities who were indulging in bogus billing activities. A.O. found that the purchases made by the assessee from these entities were bogus. This being a finding of fact, we have proceeded on such basis. Despite this, the question arises whether the
   Revenue is correct in contending that the entire purchase amount should be added by way of assessee’s additional income or the assessee is correct in contending that such logic cannot be applied. The finding of the CIT(A) and the Tribunal would suggest that the department had not disputed the assessee’s sales. There was no discrepancy between the purchases shown by the assessee and the sales declared. That being the position, the Tribunal was correct in coming to the conclusion that the purchases cannot be rejected without disturbing the sales in case of a trader. The Tribunal, therefore, correctly restricted the additions limited to the extent of bringing the G.P. rate on purchases at the same rate of other genuine purchases. The decision of the Gujarat High Court in the case of N.K. Industries Ltd. (supra) cannot be applied without
   reference to the facts. In fact in paragraph 8 of the same Judgment the Court held and observed as under-
   “ So far as the question regarding addition of Rs.3,70,78,125/- as gross profit on sales of Rs.37.08 Crores made by the Assessing Officer despite the fact that the said sales had admittedly been recorded in the regular books during Financial Year 1997-98 is concerned, we are of the view that the assessee cannot be punished since sale price is accepted by the revenue. Therefore, even if 6 % gross profit is taken into account, the corresponding cost price is required to be deducted and tax cannot be levied on the same price. We have to reduce the selling price accordingly as a result of which profit comes to 5.66%. Therefore, considering 5.66% of Rs.3,70,78,125/- which comes to Rs.20,98,621.88 we think it fit to direct the revenue to add Rs.20,98,621.88 as gross profit and make necessary deductions accordingly. Accordingly, the
   said question is answered partially in favor of the assessee and partially in favor of the revenue.”

9 In these circumstances, no question of law, therefore, arises. All Income Tax Appeals are dismissed, accordingly. No order as to costs.

7. Resultantly, the appeal stands allowed in terms of our above order.
Order pronounced in the open court on16/05/2019.
Sd/- Sd/-
(Saktijit Dey) (Manoj Kumar Aggarwal)