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2016 (12) TMI 879 - ITAT MUMBAI

2016 (12) TMI 879 - ITAT MUMBAI - TMI - Bogus purchases - addition u/s 69C - profit element in accommodation entries - Held that:- The conclusion of the ld. CIT(A) that the assessee has purchased material from some other dealers but quantitative reconciliation of the stock was duly done by the assessee of the sale and purchase and hence the profit element in this accommodation entries are to be added to the income cannot be faulted . The ld. CIT(A) restricted the addition by estimating GP ratio .....

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h, Judicial Member And Shri Ramit Kochar, Accountant Member Assessee by : Shri Prakash Jhunjhunwala Revenue by : Shri Vikash Kumar Agarwal ORDER Per Ramit Kochar, Accountant Member These are cross appeals filed by the assessee and the Revenue before the Income-tax Appellate Tribunal, Mumbai (Hereinafter called the Tribunal ). These cross appeals are heard together and are disposed of by this common order for the sake of convenience and brevity. These appeals are directed against the appellate or .....

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Appellate Tribunal, Mumbai (hereinafter called the Tribunal ) read as under:- l.0 On facts and circumstances of the case and in law, Ld. CIT(A) erred in estimating the undisclosed profit of ₹ 14,l8,097/- @ 12.50% on alleged bogus purchase of ₹ 1,13,44,778/-; 2.0 The Ld. CIT(A) before estimating the undisclosed profit @ 12.50% on disputed purchase ought to have appreciated the understated vital facts, being; a) The alleged in -genuine purchase are supported with purchase bills, deliv .....

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ted the appellant's books of accounts u/s 145(3) of the Act and having accepted the book results is unjustified in estimating the profit on alleged unproved purchase; 3.0 Without Prejudice, Ld. CIT(A) ought to have restricted the addition to the extent of 5% of alleged ingenuine purchase of ₹ 1,13,44,778/-. 3. The following grounds of appeal are raised by the Revenue in ITA No. 5207/Mum/2014 for the assessment year 2010-11 in the memo of appeal filed with Tribunal which reads as under: .....

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mitted before the Sales Tax Department that accommodation entries were provided to the assessee and also the field enquiries resulted in confirmation of bogus purchases. 3. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) was right in not appreciating the findings of the A.O. in the Assessment Order that the sellers were not available at the address shown in the purchase bills. " 4. The Brief facts of the case are that the assessee is an individual running .....

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t of Maharashtra , who as per Government of Maharashtra web-site are suspicious parties providing accommodation entries and are thus bogus bill giving entities without doing any business , as detailed hereunder: S No. Name of parties TIN Financial year Amount 1 Rohit Enterprises 27020680974V 2009-10 ₹ 8,84,584 2 Deep Enterprises 27750595164V -do- ₹ 18,09,710 3 Kwality Enterprises 27790284742V -do- ₹ 60,33,496 4 V3 Enterprises 27860613194V -do- ₹ 26,16,988 Total Rs.1,13,44 .....

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es were made through brokers who are now not co-operating with the assessee. The assessee requested that GP ratio be estimated at 46% on these purchases. The assessee also could not offer explanation regarding the source of the said expenditure as well that purchases are genuine. The AO observed that these parties denied to supplying goods as being accommodation entries, hence the AO observed that the human probability is that goods as mentioned in the paper transactions have been purchases by t .....

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be expended through an undisclosed source of income to carry out purchase from an undisclosed entity, vide assessment order dated 28-03-2013 passed by the AO u/s 143(3) of the Act. 5. Aggrieved by the assessment order dated 28.03.2013 passed by the A.O. u/s 143(3) of the Act, the assessee filed first appeal before the ld. CIT(A). 6. Before the ld. CIT(A), the assessee has made the following submissions:- Ground No.1 to 5 : Addition of Unexplained expenditure u/s.69C of ₹ 1,31,88,2271- is e .....

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umption and surmise. There is absolutely no evidence or material on record to justify that the appellant had incurred any unexplained expenditure to purchase the goods. The Ld. AO had not brought any evidence on record that the appellant had made the unexplained payments to any unidentified parties, in absence of which the provision of Sec 69C cannot be invoked. The appellant, during course of assessment, furnished various documentary evidences such as purchase and sale bills, confirmation of ac .....

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ppellant would have incurred unexplained purchase expenditure to source the sales; 1.2 The Ld. A.O is not justified in making a harsh presumption that the appellant would have procured the goods from some unidentified sources and incurred unexplained expenditure (purchases) against the sales accepted as genuine. In this context, the appellant submits that its purchases had been made only through brokers who supplied the goods at premise (on site) of the appellant and furnished the bills of such .....

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alleged ingenuine bills. The Ld. A.O had not denied the fact that the appellant had actually received the goods, through brokers, at its site office and such goods had been actually sold by the appellant at profit margin of over 85 % on purchase (45.49% on sales). The appellant does not have any source of unaccounted income, thus the possibility of unexplained payment would not arise. In any case, Ld. A.O did not bring any evidence on record to justify any sort of unexplained payments made to t .....

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so submits that the addition of entire purchase is unjustified as it would lead to a case of taxing the entire sales without allowing the deduction of the corresponding purchase. There cannot be a case of only sales without the purchases. In short, if there is a sale, then it is required to the presumed that there is a corresponding purchase against each such sale and moreover, in impugned case, there is a direct nexus of sales with the purchases. [38 Taxmann.com 385 (Guj), 355 ITR 290 (Guj), 26 .....

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se) which is most reasonable in trading activity of footwears. In respect of disputed purchase made from the 4 parties, the appellant disclosed the Gross profit @ 41.75 % on sales, stated as under :- Purchase from the 4 parties = ₹ 1,13,44,778/- Sales corresponding to above purchases = ₹ 1,93,83,886/- Closing stock from above purchase = ₹ 52,882/- Gross profit =Rs.80,91,990/-(41.75%) Without prejudice, the appellant makes a prayer to adopt the concept of real income and estimat .....

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;49% - 41.75% on ₹ 1,93,83,886/-) that reasonably would have been earned in such trading activity; 1.6 The appellant to substantiate, the genuineness of the disclosed purchase and corresponding sales, relied upon the understated documents as under:-' " a) Details of the four purchases parties along with their address and PAN; b) A tabular chart (quantitywise and valuewise) displaying Purchase vis-a-vis Sales displaying the bill numbers of suppliers/customers, quantity and amounts; .....

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u/s.69C of the Act. [29 DTR 267 (Pune), 10 SOT 319 (Hyd) (TM)J. 1.7 The appellant submits that no contrary evidence had been brought on record to justify that the appellant's purchases are ingenuine. The said 4 purchase parties irresponsibly gave a general statement, without stating name of the appellant, that it had issued only accommodation bills. Such general statement was recorded at back of the appellant and a copy of the statement was not provided to the appellant for confrontation and .....

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r) cannot be made in impugned year. Further, Ld. A.O. had already issued the notice u/s 148 of earlier year viz. A.Y. 2009-10 and had proposed to make the addition of the purchase of earlier year viz. A. Y- 2009-10, thus the addition of purchase made in earlier year whose closing balances are disclosed as opening balance in impugned year is unjustified. Further, there is absolutely no evidence on record that the opening balance of earlier year (purchase of last year) would have been paid in impu .....

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rib) Onus is the on the Revenue to prove the payment to invoke Sec.69C i) Himalaya Distributors vs. ITO 29 DTR 267 (Pune-ITAT) ii) M.P. Malliwal vs. JCIT 10 SOT 319 (Hyd-ITA T) (TM) iii) Rajmal Leknicnenc: vs. ACIT 791TD 84 (Pune-ITA T) Only profit embedded in the ingenuine purchase could be brought to tax. i) CIT vs. Simit P. Sheth 38 Taxmann.com 385 (Guj-HC) ii) CIT vs. Bholanath Poly Fab Pvt Ltd 355 ITR 290 (Guj-HC) iii) CIT vs. President Industries 258 ITR 654 (Guj-HC) iv) CIT vs. Balchand A .....

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suppressed income of ₹ 7,24,957/- being 45.49% on sales corresponding to alleged ingenuine purchase (45.49% minus 41.75 % on ₹ 1,93,83,886) for which the appellant shall ever remain grateful and oblige. The ld. CIT(A) after considering the submissions of the assessee came to the conclusion that quantitative details were maintained and the assessee being a trader of goods, the A.O. has not doubted the genuineness of sales, could not have gone ahead and made addition in respect of maxi .....

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s, hence, there was a suppression of GP ratio to the tune of 5%. The learned CIT(A) observed that the A.O. had held that the assessee must have purchased the goods from someone else and not from the four parties in whose names the bills were procured and hence, the only recourse left is to estimate the profit element embedded in the purchases made during the year of ₹ 1,13,44,778/- , rather than on ₹ 1,31,88,227/- (which included opening balance added by the A.O.), which were estimat .....

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e Revenue in its appeal is challenging deletion of addition made by the AO u/s 69C of the Act to the tune of ₹ 1,31,88,227/- which was restricted to profit element embedded in the purchases to the tune of 12.5% of ₹ 1,13,44,778/. The ld. Counsel for the assessee submitted that the following parties were included in the list of bogus parties by Sales Tax Department of Government of Maharashtra with whom the assessee had made purchases:- S No. Name of parties TIN Financial year Amount .....

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from these parties without actual supply of goods. The A.O. also issued notice u/s 133(6) of the Act asking to furnish certain documents of the above parties but the notices were returned back unserved. The assessee was also asked to produce the parties but the assessee failed to produce the parties. The A.O. has made addition u/s 69C of the Act on the peak credit outstanding in the books of accounts, whereby addition of ₹ 1,31,88,227/- was wrongly made , as against total purchases of S .....

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considered the rival contentions and also perused the material available on record. We have observed that the assessee is an individual running a proprietorship firm namely M/s The Shoe Box INC Retail Store of footwear, bags, belts, wallets and leather goods, boutique etc. having shops at different places , and office at Mumbai. Information was received by the AO from the Sales Tax Authorities, Government of Maharashtra that the assessee has made bogus purchases to the tune of ₹ 1.13 crore .....

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k relevant information/documents but the notices were returned un- served. The assessee was asked by the AO to produce these four parties but the assessee could not produce the parties from whom the purchases were made. The AO made additions u/s 69C of the Act of the peak credit outstanding to be payable to these four parties during the year to the tune of ₹ 1,31,88,227/- as against purchases of ₹ 1,13,44,778/- . The credit for purchases from these four parties of ₹ 1,13,44,778 .....

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