TMI Blog2018 (4) TMI 1281X X X X Extracts X X X X X X X X Extracts X X X X ..... ,CIT-DR ORDER PER RAMIT KOCHAR, Accountant Member These three appeals, filed by the assessee, being ITA No. 5681 to 5683/Mum/2016 for assessment years 2011-12, 2010-11 and 2012-13 respectively, are directed against common appellate order dated 14.06.2016 passed by learned Commissioner of Income Tax (Appeals)-30, Mumbai (hereinafter called the CIT(A) ), for the aforesaid three assessment years, the appellate proceedings had arisen before learned CIT(A) from three different assessment orders passed by learned Assessing Officer (hereinafter called the AO ) u/s 143(3) r.w.s. 153A of the Income-tax Act, 1961 (hereinafter called the Act ) all dated 20-3-2014 for the aforesaid three assessment years. 2. First we shall take up appeal for the assessment year 2010-11 in ITA no. 5682/Mum/2016. The grounds of appeal raised by the assessee in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called the tribunal ) for AY 2010-11, reads as under:- 1. The Learned CIT (A)-30 erred in confirming additions of ₹ 39,000/- made by the Assessing Officer being Revenue expenditure on the grounds that the appellant appeared as bene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Aarti Enterprises 27710671331V 90,284 Total 3,30,392 Notices u/s. 133(6) were issued to these parties by the AO which returned un-served. Inspector was deputed by the AO who gave report on 03.02.2014 wherein Inspector reported that no such concerns were existing at the given addresses. The assessee was asked to prove the genuineness of the purchases and the assessee submitted they had opened a new showroom in Aurangabad and materials were purchases from these parties for furnishing of the said showroom. The assessee could not produce these parties for verification before the AO. The AO observed that out of total expenses of ₹ 3,30,392/-, an amount of ₹ 2,91,392/- was of capital in nature which was capitalized by the assessee in its books of accounts, while the rest of amount of ₹ 39,000/- was claimed as an revenue expenditure. Thus, the AO disallowed depreciation to the tune of 10% on capital expenditure of ₹ 2,91,392/- leading to disallowance of depreciation to the tune of ₹ 29,139/- and further disallowance of revenue expendit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee relied upon the following decisions to support its contentions:- 1. Asst Commissioner of Income Tax 25(2) Vs Shri Ramila Pravin Shah. (I.T.A No. 5246/Mum/2013 2. Tristar Jewellery Exports Pvt Ltd Vs The Deputy Commissioner of Income Tax 8(3) ITA No. 8292/Mum/2011 3. Rajeev G Kalathil Vs The Deputy Commissioner of Income Tax (ITA No.6727/Mum/2012). 4. Commissioner of Income Tax Vs Nangalia Fabrics Pvt Ltd (Tax Appeal No.689 of 2010). The learned CIT-A rejected the contentions of the assessee and held as under:- Decision: 5. Carefully considered the rival submissions, perused the material on record and duly considered the factual matrix of the case as well as the applicable legal position, while arriving the following decision. 6. Ground No. 1 is general in nature. Hence, the ground needs no adjudication. Ground No. 2 and 3 of the grounds of appeal deal with the addition of ₹ 39,000/- which amount is added fully, being the nature of revenue expenditure on the purchase which could not be substantiated and ₹ 29,139/- being 10% depreciation on capital nature of expenditure, on the balance amount of purchases appeared in the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r verified by the Sales Tax Department at the time of registration. Appellant relied on four decisions of Hon'ble ITAT, Mumbai Benches which were mentioned in-the written submissions in Para-4 above where the Tribunal given relief with regard to the bogus purchase issue, and requested to delete the addition made on this count. 6.2 Perused the addition made by the AO and the grounds raised by the appellant against the addition made. During the course of assessment proceedings, Ld. AO issued notices u/s. 133(6) to ail the three parties from whom the appellant had purportedly made purchases. However, the said notices were returned unserved. Appellant submitted before the AO, the nature of transactions incurred with alleged bogus parties. It was seen by the AO that out of total expenses of ₹ 3,30,392/- the expenses of capital in nature were of ₹ 2,91,392/- and the rest of the expenses amounting to ₹ 39,000/- were of nature of revenue Hence AO disallowed the depreciation of ₹ 29,139/- @ 10% on capital expenditure and entire revenue expenditure of ₹ 39,000/- was disallowed and added to the total income of the appellant. The appellant was accorded s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ars being engaged in jewellery and gold items having operations spread across India. The assessee has many showroom and during the year Aurangabad showroom was furnished. It was submitted that the total capital expenditure for furnishing of the Aurangabad showroom was around to ₹ 2.76 crore out of which only ₹ 2,91,392/- was disallowed on the ground that assessee has made purchases from the three parties who are listed in the list of the alleged bogus dealers prepared by the Maharashtra VAT Department who are issuing bogus bills without supplying any material physically, which information was passed over to the Income Tax Department by Maharashtra VAT department. It was submitted that since capital expenditure of ₹ 2,91,392/- towards furnishing of Aurangabad Showroom was incurred, the same was capitalised by the assessee and depreciation to the tune of ₹ 29,139/- was claimed @ 10% which stood disallowed by the AO. It was submitted that further an amount of ₹ 39,000/- were disallowed being revenue expenditure on the same ground that the material was purchased from these alleged bogus dealers. It was submitted that these were genuine expenses and should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee also drew our attention to the order dated 31.01.2017 of the ITAT, Mumbai Benches in ITA no. 5194/Mum/2014 for AY 2010-11 in the case of ACIT vs. Shri Mahesh K shah and also decision of the Hon ble Bombay High Court in the case of Nikunj Eximp Enterprises Private Limited ( 372 ITR 619)(Bom) to contend that no disallowance is warranted. Thus, in nutshell, the assessee prayed that no addition be made in the hands of the assessee and the additions so made by the AO and confirmed by learned DR be deleted. On the other hand, Ld. CIT-DR submitted that all the intergradient for upholding the additions are present in this case. The learned CIT DR cited that incriminating information was received by Revenue from Sales Tax Department that these three parties who allegedly supplied material to the assessee were engaged in providing accommodation entries by issuing bogus bills without physically supplying any material and based upon that information DGIT(inv) had made inquiries. Notices u/s. 133(6) were issued by the AO to these three alleged hawala dealers, which notices returned unserved. Inspector was deputed by the AO for make field enquiries who gave an adverse report that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Enterprises 27270619872V 29,973 3. Aarti Enterprises 27710671331V 90,284 Total 3,30,392 Notices u/s. 133(6) were issued to these parties by the AO which returned un-served. Inspector was deputed by the AO who gave report on 03.02.2014 wherein Inspector reported that no such concerns were existing at the given addresses. The assessee was asked to prove the genuineness of the purchases and the assessee submitted they had opened a new showroom in Aurangabad and materials were purchases from these parties for furnishing of the said showroom. The assessee could not produce these parties for verification before the AO. The AO observed that out of total expenses of ₹ 3,30,392/-, an amount of ₹ 2,91,392/- was of capital in nature which was capitalized by the assessee in its books of accounts stated to be incurred towards furnishing of Aurangabad showroom, while the rest of amount of ₹ 39,000/- was claimed as an revenue expenditure. Thus, the AO disallowed d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppearing in the books of the assessee. Under these peculiar facts and circumstances of the case and keeping in view scale of the operations of the assessee as reflected in turnover of ₹ 276.64 crores declared to the Revenue and smallness of the amount of the alleged bogus purchases to the tune of ₹ 3,30,392/- read in the light of explanations offered by the assessee and evaluated on touchstone of preponderance of probabilities, we are of the considered view that the profit embedded in the purchases need to be added to the income of the assessee which we estimate @ 12.5% of the alleged bogus purchases as fair and reasonable amount as there is every possibility that the assessee obtained material from grey market to save on costs etc while the invoices were obtained from these three parties because it remained uncontroverted by Revenue that material was used by the assessee as well on the other hand fact also remained that enquiry could not be completed by the authorities below as notices u/s 133(6) returned unserved, inspector gave adverse report after verification and also assessee could not produce these parties before the AO, but, however, the entire alleged bogus pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sufficient to discharge onus. Probability means likelihood of anything to be true. Probability refers to appearance of truth or likelihood of being realised which any statement or event bears in light of the present evidence (Murray's English Dictionary). Evidence can be oral and cannot be discarded on this ground. Assessment order and the appellate orders fall foul and have disregarded the preponderance of probability test. Thus, as per our detailed reasoning above, we direct the AO to disallow 12.5% of the alleged bogus purchases and accordingly depreciation shall be re-worked by the AO after such disallowance. The claim of the assessee for revenue expenditure shall also be accordingly reduced to the tune of additions sustained by us to the tune of 12.5% of the alleged bogus purchases. We order accordingly. 7. Thus, in the result appeal of the assessee in ITA no. 5682/Mum/2016 for AY 2010-11 is partly allowed as indicated above. 8. The facts in the remaining two appeals viz. ITA No. 5681/Mum/2016 and 5683/Mum/2016 for AY 2011-12 and 2012-13 respectively are similar and hence our decision in ITA 5682/M/2016 for assessment year 2010-11 shall apply mutatis mutandis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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