short Overview: There could be no sales without purchases, accordingly, entire purchases could not be held as bogus. Therefore, only extra element of profit involved in this modus operandi of purchases of goods from one party and obtaining bills from other had to be worked out. As assessee has already shown gross profit at 7.25% and taxing extra profit at the rate of 6% would meet the ends of justice in view of the fact that court has also upheld estimation of profit ranging between 5% to 20% depending on the nature of business and considering undue profit earned by assessees.

AO on the basis of information emanated from investigation wing, treated entire purchases claimed by the assessee as bogus and made addition under section 69C, however, without disputing corresponding sales.

IT is held that: There could be no sales without purchases, accordingly, entire purchases could not be held as bogus. Therefore, only extra element of profit involved in this modus operandi of purchases of goods from one party and obtaining bills from other had to be worked out. As assessee has already shown gross profit at 7.25% and taxing extra profit at the rate of 6% would meet the ends of justice in view of the fact that court has also upheld estimation of profit ranging between 5% to 20% depending on the nature of business and considering undue profit earned by assessees.

Decision: Partly in assessee’s favour.

IN THE ITAT, AHMEDABAD BENCH

RAJPAL YADAV, J.M. & WASEEM AHMED, A.M.

Sonal Parekh v. ITO

ITA Nos. 91, 92 and 93/Ahd/2017

9 December, 2019

Appellant by: Deepak R. Shah, A.R.

Respondent by: L.P. Jain, Sr.D.R.

ORDER

Rajpal Yadav, J.M.

Present three appeals are directed at the instance of the assessee against separate orders of the learned Commissioner (Appeals)-10, Ahmedabad dated 11-11-2016 for the assessment years 2008-09, 2009-10 and 2010-11. Issue agitated in all these appeals are common, therefore, we heard them together and deem it appropriate to dispose of all these appeals by this common order.

2. In the first ground of appeal, the assessee has challenged reopening of the assessment by issuance of notice under section 148 of the Income Tax Act, 1961. The reasons recorded by the assessing officer are verbatim same except variation in the quantum of escaped income. Therefore, for the facility of reference we take up reasons from the assessment year 2008-09, which reads as under:

“This office Is in receipt of Information from the Commissioner-I, Ahmedabad vide letter dt.11-4-2013 along with the letter dt. 8-4-2013 of the DGIT (Investigation), Ahmedabad relating to the Hawala Dealers and beneficiaries of the accommodation entries, received from Maharashtra State Sales Tax department

On verification of the data received ft Is found that the assessee has obtained entries of bogus purchases from the Hawala Dealers. During the financial year 2007-08 relevant to the assessment year 2008-09 assessee has obtained accommodation entries of bogus purchases amounting to Rs. 43,04,579 from various Hawala dealers and have inflated the purchases. Thereby, the assessee has reduced the profit to the extent of Rs. 43,04,579 for the year under consideration, which needs to be brought: to tax. :

In view of the above, I am of the opinion and have reason to believe that the income chargeable to tax has escaped assessment for the year under consideration due to failure of the assessee to disclose fully and truly all the relevant material facts in. the Return of Income. I am, therefore, satisfied that this is a fit case for re-opening the assessment under section 147 of the Income Tax Act,

Sd

Date:

(B.M.RATHOD)

Income Tax Officer

Ward- 3(2), Ahmedabad

3. The learned counsel for the assessee at the very outset submitted that this ground is being taken by the assessee by way of additional ground of appeal, because the assessee, Shri Anupkumar Jayantilal died in a road accident on 16-4-2016 at young age of 52 years. The learned Commissioner (Appeals) has decided the appeal on 11-11-2016, but there was none in the family to look after the tax matter, and submit complete details, and therefore, on account of sudden death of Shri Anup J. Parekh, the assessee failed to take appropriate legal advice and specifically pleaded that the assessing officer has erred in reopening of the assessment under section 147 of the Act.
4. After hearing both the sides, we find that it is a legal and jurisdictional ground. Therefore, we admit this ground in all three years, and proceed to decide them on merit.
5. The learned counsel for the assessee at the very outset contended that if the details submitted by the VAT Department of Mumbai are looked into, then it would reveal that transaction of Rs. 43,04,579 has been stated to be taken place in this assessment year, for which the assessee has obtained tax bills from hawala dealers. He took us through page no.3 of the paper book, and pointed out that in the information given by VAT department, they are pertaining to financial year 2008-09, meaning thereby, these are for assessment year 2009-10, and not for the assessment year 2008-09, therefore, according to him, the assessment cannot be reopened. Similarly, with regard to the assessment year 2009-10, he contended that since there is mismatch between information given by the VATvis-a-vis formation of believe in the assessment year 2009-10, the total transaction ought to be Rs. 43,04,579 whereas the assessing officer has harboured a belief that income has escaped to the extent of Rs. 59,09,015. Thus, according to him, there is no nexus between the information available with the assessing officer vis-a-vis formation of belief showing escapement of income for taxation.
6. The learned DR, on the other hand, produced original assessment record, and contended that there are lots of information compiled from dealer firm exhibiting the fact that benefit of bills from Hawala traders from Mumbai have been taken by the assessee. He drew our attention towards the letter of Chief Commissioner written to the Commissioner for taking cognizance of this fact for monitoring time barred assessment in connection with these transactions. Along with this letter, details in tabular form have been compiled; they were possessed with the department. When we confronted these details to the learned cousnel for the assessee, then, he submitted that as such the assessee did not press the ground for reopening of the assessment for all these three years, hence, the additional ground raised by the assessee is not admitted, as not pressed.
7. On merit first we take facts for the assessment year 2008-09. The assessee has filed his return of income on 30.9.2008 electronically declaring total income at Rs. 2,18,880. The learned Assessing officer has confronted the assessee as to show complete details of purchases. In response to the query of the assessing officer, it was contended by the assessee that complete details of bills, which are being alleged as taken through hawala dealer be supplied to him. Thereafter, according to the assessing officer, the assessee did not submit such details, and ultimately, the assessment was finalized. Before the learned Commissioner (Appeals), the assessee took a specific plea that details collected from the Sales-tax department are pertaining the assessment year 2009-10 and not 2008-09. This fact has specifically noticed by the learned Commissioner (Appeals) on page no.4, which reads as under:

“…….However, in the grounds of appeal, it is mentioned by the appellant, it is mentioned by the appellant that the Sales Tax Department has conveyed to the Income Tax Department as the figures and havala entries made by the appellant on Financial year basis whereas the learned ITO has taken/issued notice under section 148 on the basis of assessment year. The havala entries of Rs. 43,04,579 is for financial year. The havala entries of Rs. 43,04,579 is for financial year 2008-09 whereas the assessing officer has framed the assessment for assessment year 2008-2009. It should have been for assessment year 2009-10. However, the contention of the appellant cannot be accepted as the appellant has not filed any evidence whatsoever in support of its contention. In fact, the appellant has never responded to the notices issued by the Department and did not bother to attend or file submissions.”

8. A perusal of the above would indicate that the learned Commissioner (Appeals) had put the onus upon the assessee to rebut hawala entry of Rs. 43,04,579 which was not taken by him in the accounting year relevant to the asstt.Year 2008-09. The details submitted by the Sales-tax Department are placed on page no.3 of the paper book, which shows that these details are for the assessment year 2009-10 and not assessment year 2008-09. It is for the revenue to first prove the charge against the assessee, only thereafter the assessee will be required to explain his position about that matter. There is no negative onus upon the assessee to demonstrate that he has not taken hawala entries of Rs. 43,23,460 in the assessment year 2008-09. In other words, it is for the assessing officer first to demonstrate with help of some reliable evidence that entries of Rs. 43,04,579 were taken by the assessee. There is no such evidence possessed by the revenue. The details possessed by the revenue pertains to the assessment year 2008-09, and this is only an information collected by the Sales-tax Department during the search conducted on these hawala operators. There should be some corroborative evidence apart from these details alone. Therefore to our mind, this cannot be treated as bogus purchases of the assessee and be not added to the total income. We allow this ground of appeal of the assessment year 2008-09 and delete the addition.
9. As far as assessment year 2009-10 is concerned, assessee again reiterated his submissions. These are being noticed by the learned Commissioner (Appeals) and they read as under:

“However, in the grounds of appeal, it is mentioned by the appellant that the Sales Tax Department has conveyed to the Income Tax Department as the figures and hawala entries made by the .appellant on financial year basis whereas the learned HO has taken/issued notice under section 148 on the basis of Assessment Year. The havala entries of Rs. 59,09,015 is for financial year 2009-10 whereas the assessing officer has framed the assessment for assessment year 2009-10. It should have been for assessment year 2010-11. However, the contention of the appellant cannot be accepted as the appellant has not fled any evidence whatsoever in support of its contention. In fact, the appellant has never responded to the notices issued by the Department and did not bother to attend or file submissions. There is a deliberate attempt on the part of the appellant not to a-end the appeal proceeding which goes on to prove that there is no evidences whatsoever available with the appellant on the grounds of appeal filed with the undersigned. Merely stating something without adducing the proper evidences would not help the case of the appellant. Despite being given repeated opportunities, the appellant has failed to comply with any of the notices. Moreover, the appellant has not denied the havala entries made by the appellant. In fact, the appellant is absolutely silent about the nature of these entries and did not deny the same either in the statement of facts or grounds of appeal. This also proves that the appellant has indulged in havala entries and-has manipulated the accounts. Therefore, it is held that the appellant has no evidence whatsoever to prove its claim and therefore, the order passed by the assessing officer is sustained and the appeal is dismissed.”

10. With the assistance of the learned representatives, we have gone through the record carefully. On page no.3 of the paper book, there are details of Rs. 53,60,785. All these transactions have been tabulated. The only contention of the assessee is that since in the assessment year 2008-09 the sales-tax authorities have given the details and those details are pertaining to financial year 2008- 09, they have been quantified at Rs. 43,04,579, therefore, this should be the amount which ought to have been considered in the assessment year 2009-10. We are of the view that this is the only page of the alleged report. Since the period stated in this report for the financial year 2008-09, therefore, in the assessment year 2008-09, we treat this as pertaining to assessment year 2009-10. But apart from these details, there are other details, which have been quantified on page no.3 of the paper book for the assessment year 2010-11. The assessee has not produced a single document either before the assessing officer or before the Commissioner (Appeals). It has not submitted details in support of his purchases. Therefore, it is to be accepted that the Department was able to lay its hand on the material supplied by the Sales-tax department that bogus purchases to the extent of Rs. 59,09,050 were made by the assessee for the assessment year 2009-10. Similar identical facts are available for the assessment year 2010-11 wherein an addition of Rs. 26,15,013 has been made in that year.
11. The learned counsel for the assessee submitted that the assessee has made his sales to Vishal Mart, and all these sales are identifiable. These have been quantified. The supplier of the goods might not have supported their sales on account of certain sales-tax issues; but only element of profit involved in the alleged procurement of goods should be assessed in the hands of the assessee. He took us through pageno.4 of the paper book, wherein total purchases, sales and gross profit declared by him are being noticed. It reads as under:

SUMMARY OF GROSS PROFIT

Financial Year	Purchase	Sales	Gross Profit	%	Disallowance	%
2007-2008	8007434	9284294	897580	9.60	4304579	56.00
2008-2009	13015038	14037526	1022488	7.28	5909015	49.38
2009-2010	17178402	18498353	1319951	7.14	2615013	21.27
2010-2011	16200213	16978369	778156	4.58	0
2011-2012	21230275	22419028	1188753	5.30
2012-2013	33752972	35641997	1889025	5.30

12. He submitted that if these disallowances are confirmed, then profit will arise to 49.38% in the assessment year 2009-10, and 21.27% in the assessment year 2010-11, which is practically not achievable. In other years, the assessing officer has not made any addition. The profit reduced to 5.3%. The learned DR, on other hand submitted that the assessee has inflated his purchases, and therefore, total purchases should be disallowed.
13. On due consideration of the above facts and circumstances, we are of the view that in terms of quantity, the purchases and sales have not been disputed. Only thing disputed by the revenue is part purchases from the alleged total sales were treated as bogus. It can be examined with a simple example. That the assessee has purchased material from party “A” ; obtain bills from party “B”. Since he has not able to prove the purchases from “B”, therefore, the purchases have been treated as bogus. In fact, the material was received by the assessee. If that thing has not been happened, then sales would not have been achieved. Therefore, in these circumstances, only extra element of profit involved in thismodus operandi of purchases of goods from party “A” and obtaining bills from “B” is to be worked for treating the income of the assessee. The assessee has already shown gross profit at 7.25% and 7.14%. If extra profit at the rate of 6% is being estimated qua the alleged purchases of Rs. 59,09,015 and Rs. 26,15,013 in the assessment year 2009-10 and 2010-11, then ends of justice would meet. This 6% we have worked out on the basis of our past experience in dealing with such cases, wherein Hon’ble Gujarat High Court has also upheld estimation of profit ranging between 5% to 20% depending on the nature of business and considering undue profit earned by an assessee. In view of the above discussion, all the appeals of the assessee are partly allowed.
14. In the result, appeals of the assessee are partly allowed.