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Mr. Navin Shantilal Mehta Versus Income Tax Officer, Ward-32 (2) (4) , Mumbai

2018 (2) TMI 858 - ITAT MUMBAI

Addition made u/s 69C - bogus nature of purchases made from suppliers and the parties were not found existing at the given addresses - estimation of profit - FAA restricted the addition @ 12.5% of the bogus purchases - Held that:- In such type of cases, there is no option but to estimate the profit which depends upon the subjective approach of an individual and the material facts available on record. In the present appeals, before this Tribunal, as mentioned earlier, the assessee is in the busin .....

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isting at the given addresses. In such a situation, the First Appellate Authority has taken a reasonable, which requires no interference. - Contention of the Ld. counsel for the assessee, that GP of last ten year was not more than 4% is concerned, it depends upon the facts of the each case and probably in other years there may not be allegation of bogus purchases and each year is independent. No material was produced before this Tribunal contradicting the factual finding recorded in the impu .....

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der Singh, Judicial Member For The Assessee : Shri Piyush D. Parekh For The Revenue : Ms. N. Hemalatha-DR ORDER These two appeals are by the assessee against the impugned orders both dated 16/02/2017 of the Ld. First Appellate Authority, Mumbai. The first common ground raised by the assessee is with respect to addition made u/s 69C of the Income Tax Act, 1961 (hereinafter the Act) of ₹ 1,58,13,010/-, which was reduced to ₹ 18,52,587/- by the Ld. Commissioner of Income Tax (Appeal) an .....

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me Tax (Appeal), which can be further reduced. The addition retained u/s 68 of the Act was also challenged by the ld. counsel by contending that proper opportunity was not provided to the assessee. On the other hand, Ms. N. Hemlatha, Ld. DR, strongly defended the addition made by the Assessing Officer by contending that the First Appellate Authority has taken a lenient view, therefore, the addition made by the Ld. Assessing Officer may be sustained. It was contended that the Ld. Commissioner of .....

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e of ₹ 8,77,805/- on 30/09/2011. A survey action u/s 133A of the Act was conducted on 24/01/2013, wherein, it was found that the assessee claim to have made purchases from various parties out of which some are notified Hawala operators on the official website of Sales Tax Department of Maharashtra Government. The case of the assessee was reopened with the issuance of notice u/s 148 dated 12/03/2013. Reasons were recorded, which are available in the assessment orders. Notices u/s 143(2) and .....

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as debited purchases of ₹ 7,07,60,216.59/-. The assessee was asked to file the details of the parties from whom purchases were made. The Sales Tax Department also conducted independent enquiries in each of the Hawala Parties and it was found that these parties were engaged in providing accommodation entries only without actual delivery of goods. In order to ascertain the genuineness of the transactions, independent enquiries were carried out and notices u/s 133(6) were issued to the concer .....

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(from the parties identified as Hawala operators) were added to the income of the assessee as the onus was not discharged by the assessee. 2.2. On appeal before the First Appellate Authority, the factual matrix was considered and following various decisions including from Hon'ble jurisdictional High Court in the case of M/s Nikunj Eximp Enterprises 372 ITR 619 (Bom.), restricted the addition @ 12.5% of the bogus purchases, which comes to ₹ 18,52,568/- (Assessment Year 2010-11), which i .....

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Court in Sanjay Oilcakes Industries vs CIT (2009) 316 ITR 274 (Guj.) held as under:- 11. Having heard the learned advocates appearing for the respective parties, it is apparent that no interference is called for in the impugned order of the Tribunal dated April 29, 1994, read with the order dated September 29, 1994, made in miscellaneous application. In the principal order the Tribunal has recorded the following findings : 8.3. We have considered the rival submissions and perused the facts on r .....

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ch the cheques were credited but soon thereafter the amounts were withdrawn by bearer cheques. That fairly leads to the conclusion that these parties were perhaps creation of the assessee itself for the purpose of banking purchases into books of account because the purchases with bills were not feasible. Thus, the abovenoted parties become conduit pipes between the assessee-firm and the sellers of the raw materials. Under the circumstances, it was not impossible for the assessee to inflate the p .....

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d from the parties other than the persons who had issued bills for such goods. Though the purchases are shown to have been made by making payment thereof by account payee cheques, the cheques have been deposited in bank accounts ostensibly in the name of the apparent sellers, thereafter the entire amounts have been withdrawn by bearer cheques and there is no trace or identity of the person withdrawing the amount from the bank accounts. In the light of the aforesaid nature of evidence it is not p .....

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dislodge such finding. The issue is not whether the purchase price reflected in the books of account matches the purchase price stated to have been paid to other persons. The issue is whether the purchase price paid by the assessee is reflected as receipts by the recipients. The assessee has, by set of evidence available on record, made it possible for the recipients not being traceable for the purpose of inquiry as to whether the payments made by the assessee have been actually received by the .....

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e by making payments, through banking channel and thus the apparent sellers were not genuine or were acting as conduit between the assessee and the actual seller. In such a situation, the conclusion drawn by the Ld. Commissioner of Income Tax (Appeal) as well as by the Tribunal was affirmed. Hon'ble Apex Court in Kachwala Gems vs JCIT (2007) 158 taxman 71 observed that an element of guesswork is inevitable in cases, where estimation of income is warranted. 2.4. The Hon'ble Gujarat High C .....

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the assessee. Therefore, the purchases of the entire 1,02,514 metres of cloth were sold during the year under consideration. The Tribunal, therefore, accepted the assessee's contention that the finished goods were purchased by the assessee, may be not from the parties shown in the accounts, but from other sources. In that view of the matter, the Tribunal was of the opinion that not the entire amount, but the profit margin embedded in such amount would be subjected to tax. The Tribunal relied .....

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ee did purchase the cloth and sell the finished goods. In that view of the matter, as natural corollary, not the entire amount covered under such purchase, but the profit element embedded therein would be subject to tax. This was the view of this court in the case of Sanjay Oilcake Industries v. CIT [2009] 316 ITR 274 (Guj). Such decision is also followed by this court in a judgment dated August 16, 2011, in Tax Appeal No. 679 of 2010 in the case of CIT v. Kishor Amrutlal Patel. In the result, t .....

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urchases and, accordingly, by placing reliance on the decision of the Tribunal in the case of Vijay Proteins (supra) restricted the disallowance to 20 per cent. The Tribunal in the impugned order has followed its earlier order in the case of Vijay Proteins to the letter and enhanced the disallowance to 25 per cent. Thus, in both cases, the decision of the Commissioner (Appeals) as well as that of the Tribunal is based on estimate. This High Court in the case of Sanjay Oil Cake [2009] 316 ITR 274 .....

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nvolved in a best judgment assessment. 8. Examining the facts of the present case in the light of the aforesaid decisions, the decision of the Tribunal, being based on an estimate, does not give rise to any question of law so as to warrant interference. 9. In so far as the proposed questions (C), (D) and (E) are concerned, the same are similar to the proposed question (A) wherein the Tribunal has restricted the addition to 25 per cent. on similar facts. In the circumstances, for the reasons stat .....

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ation of expenses as detailed in paragraph 6.1 of the assessment order. After considering the evidence on record, the Assessing Officer disallowed the amount Rs. 7,88,590 on account of payment made to MMTC. 11. The assessee preferred an appeal before the Commissioner (Appeals), who upon appreciation of the evidence on record found that the Assessing Officer had not rejected the genuineness of the purchases made from MMTC while making the disallowance. His observations were based on inflation of .....

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of the fact that it was not the case of the Assessing Officer that the purchases had been directly effected from third parties and not directly from MMTC ; the difference could not be the net profit in the hands of MMTC ; and that while conducting the entire exercise MMTC would have to incur certain expenditure in transportation, in engaging personnel in the office and other operations and was accordingly of the view that there was no case of actual inflation of rates and deleted the addition. .....

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s, the conclusion arrived at by the Tribunal is based on concurrent findings of fact recorded by the Commissioner (Appeals) as well as the Tribunal. It is not the case of the Revenue that the Tribunal has taken into account any irrelevant material or that any relevant material has not been taken into consideration. In the absence of any material to the contrary being pointed out on behalf of the Revenue, the impugned order being based on concurrent findings of fact recorded by the Tribunal upon .....

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r after examining the evidence on record and considering the explanation given by the assessee, made addition of Rs. 44,54,426, Rs. 39,59,490 being the purchase price of the crane along with its spare parts and Rs. 4,94,936 being depreciation claimed by the assessee. The Commissioner (Appeals), upon appreciation of evidence on record, was of the view that the Assessing Officer has not appreciated the facts of the case properly and had made disallowance which was not permitted by the Incometax Ac .....

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f the material on record the Commissioner (Appeals) found that the Assessing Officer has simply brushed aside all the evidence on account of technical infirmities and that the evidence such as octroi receipt ; hypothecation of the crane to the bank; existence of the crane even till date with the assessee conclusively proved that the crane was purchased and it was in use even as on date with the assessee. The Commissioner (Appeals) accordingly found that there was no scope for any disallowance an .....

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ssioner (Appeals) was legally and factually correct in deleting the disallowance of cost of crane as well as depreciation thereon. 16. From the facts emerging from the record, it is apparent that the assessee had never claimed the cost of the crane in the return nor had it debited the expenses to the profit and loss account, and as such the question of disallowing the same and adding the same to the income would not arise. Moreover, in the absence of any evidence to indicate that the purchase wa .....

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nce of depreciation. 17. In the light of the aforesaid discussion, it is not possible to state that there is any legal infirmity in the impugned order made by the Tribunal so as to warrant interference. In the absence of any question of law, much less, a substantial question of law, the appeal is dismissed. 2.6. The Hon'ble jurisdictional High Court in the case of CIT vs Ashish International Ltd. (ITA No.4299/2009) order dated 22/02/2011, observed/held as under:- The question raised in this .....

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ted the correctness of the above statement and admittedly the assessee was not given any opportunity to cross examine the concerned Director of M/s. Thakkar Agro Industrial Chem Supplies P. Ltd. who had made the above statement. The appellate authority had sought remand report and even at that stage the genuineness of the statement has not been established by allowing cross examination of the person whose statement was relied upon by the revenue. In these circumstances, the decision of the Tribu .....

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us purchases not only on the basis of stock statement, i.e., reconciliation statement but also in view of the other facts. The Tribunal records that the books of account of the respondent-assessee have not been rejected. Similarly, the sales have not been doubted and it is an admitted position that substantial amount of sales have been made to the Government Department, i.e., Defence Research and Development Laboratory, Hyderabad. Further, there were confirmation letters filed by the suppliers, .....

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ely on the basis of suspicion because the sellers and the canvassing agents have not been produced before them. We find that the order of the Tribunal is well a reasoned order taking into account all the facts before concluding that the purchases of Rs. 1.33 crores was not bogus. No fault can be found with the order dated April 30, 2010, of the Tribunal. 2.8. The Hon'ble Gujarat High Court in CIT vs M.K. Brothers (163 ITR 249) held/observed as under:- Being aggrieved by the aforesaid order, .....

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gave bogus vouchers to the assessee. No doubt, there were certain doubtful features, but the evidence was not adequate to conclude that the purchases made by the assessee from the said parties were bogus. The Tribunal accordingly, did not sustain the addition retained by the Appellate Assistant Commissioner. Hence, at the instance of the Revenue, the aforesaid question has been referred to this court for opinion. On a perusal of the order of the Tribunal, it clearly appears that whether the sai .....

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ved that there are certain doubtful features, but the evidence is not adequate to conclude that the purchases made by the assessee from these parties were bogus. It may be stated that the assessee was given credit facilities for a short duration and the payments were given by cheques. When that is so, it cannot be said that the entries for the purchases of the goods made in the books of account were bogus entries. We, therefore, do not find that the conclusion arrived at by the Tribunal is again .....

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as argued that assessee had filed copies of bills of purchase from DKE and NBE, that both the suppliers were registered dealers and were carrying proper VAT and registration No.s, that ledger accounts of the parties in assessee's books showed bills accounted for, that payment was made by cheques, that a certificate from the banker giving details of cheque payment to the said parties was also furnished. Copies of the consignment, received from the Government approved transport contractors sho .....

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h bank certificate,t hat the suppliers was shown as default under the Maharashtra VAT Act could not be sufficient evidences to hold that the purchases were non-genuine, that the AO had not brought any independent and reliable evidences against the assessee to prove the non-genuineness of the purchases, that there was no evidence regarding cash received back from the suppliers. Finally, he deleted the addition made by the AO . 2.3.Before us, Departmental Representative argued that both the suppli .....

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y the assessee from the supplie was part of closing stock,that the transporter had admitted the transportation of goods to the site.He relied upon the case of Babula Borana (282 ITR251), Nikunj Eximp Enterprises (P) Ltd. (216Taxman171)delivered by the Hon ble Bombay High Court. 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 star .....

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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. (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. Thererfore, considering the peculiar facts and circumsta .....

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p. & Exp. vs Income Tax Officer ITA No.5427/Mum/2015, order dated 18/03/2016 supports the case of the assessee and the conclusion drawn in the impugned order. However, as relied by the Ld. DR, the Hon'ble Gujarat High Court in the case of N.K. Industries Ltd.,etc vs DCIT (supra) considering various decisions decided the issue in favour of the Revenue and the Hon'ble Apex Court dismissed the SLP vide order dated 16/01/2017 (SLP No.(c) 769 of 2017). I find that in that case, during sea .....

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AT (2002) 178 CTR 420 (Raj.), the Tribunal was held to be justified in deciding the case against the assessee. The Hon'ble Apex Court confirmed the decision of the High Court for adding the entire income on account of bogus purchases (SLP (C) No.s 769 of 2017, order dated 16/01/2017. 2.12. In such type of cases, broadly, the Ld. Commissioner of Income Tax (Appeal) as well as this Tribunal has followed the decisions from Hon'ble Gujarat High Court in the case of Simit P. Seth (2013) 356 I .....

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not found existing at the given addresses. 2.13. Admittedly, in such type of cases, there is no option but to estimate the profit which depends upon the subjective approach of an individual and the material facts available on record. In the present appeals, before this Tribunal, as mentioned earlier, the assessee is in the business of trading of Iron & Steel. The Ld. Assessing Officer received information from the Sales Tax Department that the assessee claimed to have made purchases from 15 .....

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f this order, I am of the view that the First Appellate Authority has taken a reasonable, which requires no interference. So far as, the contention of the Ld. counsel for the assessee, that GP of last ten year was not more than 4% is concerned, it depends upon the facts of the each case and probably in other years there may not be allegation of bogus purchases and each year is independent. No material was produced before this Tribunal contradicting the factual finding recorded in the impugned or .....

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. On the other hand, the ld. DR, empathetically contended that on examination of cash books, negative balance was found and no evidence was produced by the assessee to substantiate his claim. 3.1. As per the provisions of section 68 of the Act, the assessee is expected to offer an explanation with respect to the nature and source of cash credits to the satisfaction of the Assessing Officer. For ready reference section 68 of the Act is reproduced hereunder:- 68. Where any sum is found credited in .....

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cation money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless- (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory: Provided further that noth .....

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ts Exporting Company vs CIT 241 ITR 497 (Kerala.). The legislature had laid down that in the absence of satisfactory explanation, the unexplained cash credit may be charged u/s 68 of the Act. Our view is fortified by the ratio laid down in Hon ble Apex Court in P. Mohankala (2007)(291 ITR 278)(SC). A close reading of section 68 and 69 of the Act makes it clear that in the case of section 68, there should be credit entry in the books of account whereas in the case of 69 there may not be an entry .....

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inciple laid down in Ganpati Mudaliar (1964) 53 ITR 623/A. Govinda Rajulu Mudaliar (34 ITR 807)(SC) and also CIT vs Durga Prasad More (72 ITR 807)(SC) are the landmark decisions. The ratio laid down therein are that if the explanation of the assessee is unsatisfactory, the amount can be treated as income of the assessee. The ratio laid down in Daulat Ram Rawatmal 87 ITR 349 (SC) further throws light on the issue. In the case of a cash entry, it is necessary for the assessee to prove not only the .....

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l.), it was held that mere mention of file number of creditor will not suffice and each entry has to be explained separately by the assessee (CIT vs R.S. Rathaore) 212 ITR 390 (Raj.). The Hon ble Guwahati High Court in Nemi Chandra Kothari vs CIT (264 ITR 254)(Gau) held that transaction by cheques may not be always sacrosanct. In the present appeals, a survey operation was carried out at the premises of the assessee on 24/01/2013 and it was found that the assessee made cash deposits in the bank .....

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