TMI Blog2018 (4) TMI 625X X X X Extracts X X X X X X X X Extracts X X X X ..... UJARAT HIGH COURT] we hold that a disallowance of 12.5% of the bogus purchase would meet the end of justice. Accordingly, we modify the order's of authorities below and direct that the disallowance in this case should be restricted to 12.5% of the bogus purchase. - Decided partly in favour of assessee. - I.T.A. Nos. 4086 to 4088/Mum/2016 - - - Dated:- 3-4-2018 - Shri Shamim Yahya, AM And Shri Amarjit Singh, JM Appellant by : Shri A. K. Sharma Ms. Taneshka Sharma Respondent by : Shri V. Vidhyadhar ORDER Per Shamim Yahya, A. M. These are appeals by the assessee directed against the respective orders of the ld. Commissioner of Income Tax (Appeals) for the concerned assessment years. Since the issues are common and connected and the appeals were heard together, these have been disposed of by this common order for the sake of convenience. 2. The common issue raised in these appeals relate to the validity of the reopening as well as merits of confirmation of addition of 25% on account of bogus purchase as under: A.Y. 2009-10 A.Y. 2010-11 A.Y. 2011-12 Rs.2,05,87,299/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent wherein all of them had admitted that they were not doing any genuine business but were indulged in providing accommodation entries to people who needed their services. The Assessing Officer has treated the expenditure incurred on such purchases as unexplained. The Assessing Officer rejected the assessee's reliance OR the judgment of the Gujarat High Court in the case of CIT Vs Simit P. Shah on the grounds that the purchases itself were not doubted. The Assessing Officer held the view that the assessee had purchased the goods at cheaper cost to avoid payment of sale tax, excise duty etc. To avoid disallowance u/s 40A(3) of the IT Act, the assessee had obtained the bills from hawala operators. Based on above, the Assessing Officer completed the assessment and treated the aggregate purchases of ₹ 8,23,49,198/- from 5 parties as unexplained expenditure u/s 69C of the Income Tax Act against which the assessee is in appeal with this office. 5. Before the ld. Commissioner of Income Tax (Appeals), the assessee s submissions were noted as under: a) The AR of the appellant has challenged the validity of the issuance of notice / u/s 148 and the assessment made u/s 147. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidering the above submissions, as regards the reopening, the ld. Commissioner of Income Tax (Appeals) confirmed the same by observing as under: 5.1 So far the validity of re-opening is concerned, it is found that the reasons for reopening was provided by the AO wherein receipt of information from DGIT(Inv.), Mumbai regarding involvement of the assessee in bogus purchases has been mentioned. Therefore, it is found that the notice under section 148 was issued on the basis of fresh information and tangible materials. The reasons were also provided to the assessee. It is also found that objections against re-opening was not filed by the assessee before the AO. Therefore while re-opening the case and thereafter, the procedure as per law was followed by the AO. In view of above, ground no.1 challenging the validity of assessment order is dismissed. 7. On the issue of merits of addition, the ld. Commissioner of Income Tax (Appeals) principally upheld the treatment of purchase as bogus by observing as under: 5.2 So far addition of ₹ 8,23,49,198/- u/s 69C is concerned, it is found that the notices issued to ail the 5 parties returned unserved. The assessee failed to produ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in case laws from the ITAT on the issue of merits. He also referred to few judgments from the following case laws from the Hon'ble jurisdictional High Court: 1. CIT vs. M/s. Golani Brothers (in ITA No. 17 of 2015 and others dated 29.08.2017) 2. CIT vs. M/s. Ashish International (in ITA No. 4299 of 2009 dated 22.02.2011) 12. The ld. Departmental Representative, on the other hand, relied upon the orders of the authorities below. He vehemently reiterated that the purchases are bogus inasmuch as no evidence of delivery has been furnished. He submitted that even today the assessee has not presented the delivery challans. In this regard, the ld. Departmental Representative further referred to the following case laws: 1. Hon ble Gujarat High Court decision in the case of N K Industries vs. Dy CIT in Income Tax Appeal No. 240 of 2003, vide order dated 20.06.2016. SLP against this decision was dismissed by the Hon ble Supreme Court vide order dated 16.01.2017. 2. Hon ble Rajasthan High Court in the case of CIT Jaipur vs Shruti Gems in ITA No. 658 of 2009 13. We have carefully considered the submissions. As regards the reopening of the assessee, on a careful con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be proved to the guilt. In this regard, we refer to the decision of the Hon'ble Apex Court in the case of CIT(A) Vs. Rajesh Jhaveri Stock Brokers P. Ltd, 291 ITR 500:- Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to lax if he has reason to believe that income for any assessment year has escaped assessment. The word reason in the phrase reason to believe would mean cause or justification. If the AO has cause or justification to know or suppose (hat income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the AO should have finally ascertained the fact by legal statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Supreme Court in Central Provinces Managnese Ore Co, ltd. v. ITO(1991) 191 ITR 662, for initiation of action under section 147(a) (as the provision stood at the relevant time) fulfillment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bills during the concerned assessment year from different parties. Based upon this information assessment was reopened. The credibility of information relating to reopening has been confirmed by the learned CIT(A) and by ITAT as above. Furthermore it is noted that in such factual scenario Assessing Officer has made the necessary enquiry. The issue of notice to all the parties have returned unserved. Assessee has not been able to provide any confirmation from any of the party. Assessee has also not been able to produce any of the parties. The necessary evidence for transportation of goods have not been provided by the assessee. In this factual scenario it is amply that assessee has obtained bogus purchase bills. Mere preparation of documents for purchases cannot controvert overwhelming evidence that the provider of these bills are bogus and non-existent and there is no cogent evidence of transportation of goods. The sales tax Department in its enquiry have found the parties to be providing bogus accommodation entries. The assessing officer also issued notices to these parties at the addresses provided by the assessee. All these notices have returned unserved. Assessee has not been a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Income Tax (2009) 316 ITR 274 (Guj) and N.K. Industries Ltd. Vs. Dy. C.I.T., Tax Appeal No.240/2003 decided on 20.06.2016, the parties are bound by the principle of law pronounced in the aforesaid three judgments. 21. However, we note that this is not an appeal by the Revenue. Upon careful consideration we find that sales in these cases are not doubted. When sales are not doubted, 100% disallowance for bogus purchase is not sustainable as per the decision of the Hon ble jurisdictional High Court in the case of Nikunj Eximp Enterprises (in writ petition no 2860, order dt. 18.6.2014). However, the facts of that case were different inasmuch as sales were to the Government department. However the facts and circumstances of the present case indicate that assessee has engaged into dealings in the grey market. Dealings in the grey market give the assessee various savings at the expense of the Exchequer. Hence, on the overall consideration of facts and circumstances and following the decision of Hon ble Gujarat High Court in the case of CIT vs Simit P. Sheth [2013] 356 ITR 451 (Guj.) we hold that a disallowance of 12.5% of the bogus purchase would meet the end of justice. Accordingl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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