TMI Blog2019 (9) TMI 367X X X X Extracts X X X X X X X X Extracts X X X X ..... profits @12.5% of the alleged bogus purchases being profits embedded in these purchases, as additional income to be brought to tax in the hands of the assessee, as some guess work is required in estimating profits embedded in these alleged bogus purchases but the said guess work has to be reasonable , fair and honest guess work . There is not perversity in estimation made by learned CIT(A) nor it is unconscionable estimation and we are not inclined to interfere with appellate order passed by learned CIT(A), more-so the assessee has duly reconciled quantitative stocks reflected by these alleged purchases with sales made. The sales are not doubted by Revenue. The ratio of decision in the case of Kachwala Gems v. JCIT [ 2006 (12) TMI 83 - SUPREME COURT ] supports our decision. Revenue fails in its appeal. - I.T.A. No.3941/Mum/2017 - - - Dated:- 5-8-2019 - SHRI C.N. PRASAD, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER Revenue by: Shri. Vivek Anand Ojha (DR) Assessee by: Apurva R. Shah (AR) ORDER PER RAMIT KOCHAR, ACCOUNTANT MEMBER: This appeal, filed by Revenue, being ITA No. 3941/Mum/2017, is directed against appellate order dated 15.03.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and in law, the learned Commissioner of Income-tax(Appeals) has erred in not appreciating that purchases were made from some other parties which were not recorded in the books of accounts and only accommodation bills were obtained from Hawala parties and there by attracting provisions of section 40A(3). 8. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in not appreciating the fact that applicability of provisions of 40A(3) attracts 100 % bogus purchases to be held as profit. 9. The appellant prays that the order of the CIT(A) on the grounds be set aside and that of assessing officer be restored. 10. The appellant craves leave to amend or to alter any ground or add a new ground, which may be necessary. 3. This appeal filed by Revenue was earlier dismissed by tribunal vide orders dated 03.08.2018 owing to low tax effect as Revenue appeal was held by tribunal to be covered by CBDT circular no. 03/2018 dated 11.07.2018. Later, Revenue came up with Miscellaneous Application( M.A. ) citing that this appeal was not covered by the aforesaid CBDT circular as exception to the said CBDT Circular is applicable , wherein the information was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustries 27190660365V 2,23,142 7. Bhagyalaxml Steel Industries 27810631797V 7,69,307 Total 51,56,867 4.2 Based on the above tangible incriminating information, the AO reopened the concluded assessment by invoking provisions of Section 147 of 1961 Act, after recording reasons for reopening of the concluded assessment . Notice u/s. 148 was issued by the AO to the assessee on 25.02.2015 which was duly served on the assessee on 07.03.2015. Thus it can be seen that notice u/s. 148 was issued by AO within four years from the end of the assessment year and also originally no assessment was framed by the AO u/s. 143(3) of the Act and return of income was only processed originally u/s 143(1) of the 1961 Act. In order to verify genuineness of these purchases, the AO issued notices u/s. 133(6) of the 1961 Act to these aforesaid seven parties at the addresses furnished by the assessee. However, the said notices were returned un-served by the postal authorities with remarks left and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the 1961 Act. The AO made additions to the income of the assessee to the tune of ₹ 51,56,867/- by invoking provisions of Section 69C of the 1961 Act being 100% of the alleged bogus purchases, vide assessment order dated 31.12.2015 passed by the AO u/s 143(3) read with Section 147 of the 1961 Act. 5. Aggrieved by an assessment framed by the AO u/s 143(3) read with Section 147 of the 1961 Act, the assessee filed first appeal with learned CIT(A). The assessee submitted before learned CIT(A) that it has duly submitted copies of purchase bills , ledger account copies of supplier, copies of bank statement and statement showing details of disposal of purchases alongwith copies of Sales Bills for corresponding supplies to Railways and documentary evidences regarding transportation. The assessee submitted that all payments were made for purchases through account payee cheques. The assessee submitted that materials were purchased from these parties which was later sold and payments were made to these parties through account payee cheques. The assessee submitted that the AO merely relied upon the findings given by Sales Tax Department. The assessee submitted that the AO relied up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchases or else where from he could have effected the sales. In this regard it is submitted by the Ld, A.R. that he had submitted the details of purchase, invoice bills along with the detail of the bank transaction before the assessing officer. Further the appellant had also explained that the payments have been made by account payee cheques. AO has rejected the books of accounts u/s.145(3) of the Act. There was neither any change in the method of accounting as compared to earlier year nor any change in any accounting policy. The books of accounts are audited under section 44AB of the I.T. Act, 1961. The entire tax audit report is already submitted before AO during assessment proceedings. There were no adverse remark by Tax Auditor. 5.3 It is clear that when the Assessing Officer does not accept the assessee's method of accounting then he has to resort to the provision of sec. 145(3) for computation of income. The Karnataka High Court in the case of Karnataka State Forest Industries Corpn. Ltd. Vs. CIT (1993) 201 ITR 674 has held that the assessing officer's power under section are not arbitrary and he must exercise his discretion and judgment judicially. A clear fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was carried in appeal before the Hon'ble Tribunal which concurred with the finding of the revenue authorities below that such purchase was made from bogus parties. After adverting to the facts and data placed before it, the Hon'ble Tribunal noted that the entire cloth of 1,02,514 metres was sold during the year and therefore, accepted the assessee's contention that finished goods purchased by the appellant may not be from the parties shown in the accounts but from other parties. In view of this the Hon'ble ITAT was of the view that only profit margin embedded in such purchases would be subjected to tax. The Hon'ble Tribunal relied on its earlier decision in the case of M/s.Saket Steel Traders v. ITO (ITA No. 2801/Ahd/2008 dated 20.05.2008) and also made reference to the decision in the case of Vijaya Protein v. CIT 58 ITD 428 (Ahd.). On appeal by the department the Hon'ble HC of Gujarat, dismissed he appeal. The head note is as under: Income from undisclosed sources - Assessment - Assessee trading in finished fabrics -Whether purchases themselves bogus -Whether parties from whom such purchases were made bogus-questions of fact - Tribunal finding assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es - Tribunal's order in accordance with law - Income Tax Act, 1961. Whether an estimate should be at a particular sum or at a different sum can never be a question of law. For the assessment years 1984-85 and 1985-86 the Assessing Officer made additions to the income of the assessee on account of inflated purchase price of oilcakes. The Commissioner (Appeals) held that 25 per cent of the value of the purchase price was not genuine and the addition made by the Assessing Officer was accordingly restricted to 25 percent of the amount paid to the parties from whom the assessing officer had disallowed the entire purchases. On cross appeals by the assessee and the revenue the Tribunal confirmed the order of the Commissioner (Appeals.) The assessee sought modification of the order on the ground that the tribunal had failed to consider various pieces of evidence enumerated by it in the application. The Tribunal rejected the application holding that there was no apparent error or record which would permit the Tribunal to undertake review of its own order. On a reference to the High Court : Held that the finding of the Assessing Officer had been accepted by the Commissioner (A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated such purchase as bogus purchases and added the entire amount of ₹ 41,04,903/- to the gross profit of the assessee. He also rejected the books of account and estimated the assessee's business profit at ₹ 5 lakhs. The Commissioner (Appeals) held that the asessee had made purchases from other parties in the open market. Therefore he retained 30 percent of the purchases cost at the probable profit of the assessee, He reduced the additions from Rs,41,04,903/- to ₹ 12,31,471!- and deleted the balance of R.28,73,432/-. While doing so he deleted the addition of Rs, 5 lakhs as made by the assessing Officer on the ground that the addition on account of bogus purchase had already been made. The Tribunal was of the opinion that twelve and half percent of the disputed purchases should be retained in the hands of the assessee as business profits. On appeal to the High Court: Held dismissing the appeal that the Commissioner (Appeals) believed that the purchases were not bogus but were made from the parties other than those mentioned in the books of account. That being the position, not the entire purchase price but only the profit element embedded in such purchases ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cators and not decisive factors, to draw a conclusion regarding genuineness of purchases. 5.9 The suppliers were found to be engaged in providing bogus bill without actual dealing of goods. The appellant made payments for these purchases by account payee cheques duly cleared through normal banking channel; and are duly reflected in the appellant's bank statements. Before the AO, the appellant produced documentary evidence like copies of invoices and ledger accounts of the vendors in the appellant's books of account recording these purchases to substantiate the genuineness of these purchases. Since the sales receipts was not doubted or disputed by the AO and he has accepted the sales receipts of the appellant as it is, therefore, the AO cannot deny that purchases were not made by the appellant and the material was not used for its contract work. What is under dispute is the purchases from the parties from whom bills have been taken and cheques have been issued to them. Purchases are not in dispute but the parties from whom purchase are shown to have been made are disputed and suspicious. 5.10 The A.O. had made the addition as some of the suppliers were declared haw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit of 12.5% on the total purchases in question which works out to ₹ 6,44,608/- (12.5% of ₹ 51,56,867/-). The appellant therefore gets relief of ₹ 45,12,259/-f₹ 51,56,867/- minus ₹ 6,44,608/-). The grounds raised are partly allowed. 6. The Revenue is aggrieved by the appellate order passed by learned CIT(A) in upholding additions to the income of the assessee to the tune of 12.5% of the alleged bogus purchases instead of additions to the tune of 100% of alleged bogus purchases as were made by the AO , and Revenue has come in appeal before the tribunal , while on the other hand the assessee has accepted the appellate order passed by learned CIT(A) upholding additions to the tune of 12.5% of the alleged bogus purchases. The Ld. DR submitted before the Bench that the AO has made additions to the tune of 100% of the alleged bogus purchases , wherein the Ld. CIT(A) has restricted the said additions to the tune of 12.5% of the alleged bogus purchases. He relied upon the decision of Hon ble Supreme Court in the case of N.K Proteins Limited v. DCIT in Special Leave to Appeal(C) CC No(s) 769 of 2017 vide orders dated 16-01-2017, reported in 2017-TIOL-23 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iny assessment was framed by Revenue against the assessee u/s 143(3) read with Section 143(2) of the 1961 Act. The AO received information that assessee is engaged into practice of inflating its purchases by taking accommodation entries through hawala parties. These parties are appearing in the list of suspicious dealers prepared by Maharashtra VAT department , wherein it is alleged that these parties had issued accommodation bills without actual delivery of goods. The AO received this tangible incriminating information from Sales Tax Department of Maharashtra Government through DGIT (Inv.), Mumbai vide letter bearing no. Corr. Field/DGIT (Inv)/2013-14 dated 20.01.2014 that these parties are indulging in providing accommodation entries wherein bogus purchases bills are obtained by the assessee without supplying of material and the assessee is beneficiary of these alleged bogus purchases. The said information is also reported on Maharashtra Sales Tax web-site , the details of such alleged bogus purchases as were made by the assessee for year under consideration, are as under: SI. NO. Name of the party VAT No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding bogus accommodation entries and have admitted their indulgence as Hawala dealers. The assessee made purchases from these parties and the purchases are appearing in books of accounts of the assessee. The onus is on the assessee to prove genuineness of these purchases. The assessee could not produce these parties before the authorities below . The AO rejected books of accounts of the assessee u/s 145 and made additions to the tune of 100% of alleged bogus purchases. Based upon entire factual matrix of the case and relying on judicial precedents , the Ld. CIT(A) restricted the addition to 12.5% of the alleged bogus purchase being profits embedded in these purchases. The Ld. DR on the other hand is insisting on confirming additions to the tune of 100% of alleged bogus purchases by relying on decision of Hon ble Supreme Court in the case of N.K Proteins(supra) . We have observed that in case of N K Proteins(Supra) , the facts were distinguishable as the tax payer on being searched by revenue u/s 132 of the 1961 Act in that case was found to be holding blank signed cheque books , blank bills etc of accommodation entry providers. But in the instant case the assessee has duly reconcil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... :- 8. We have considered contentions of the Ld. DR and perused the material on record. We have observed that the assessee is engaged in the business of Rubber products, chemicals and compounds. The AO received information from Maharashtra Sales Tax Department as well from DGIT(Inv.), Mumbai that the assessee had made purchases from certain parties who are hawala dealers engaged in providing accommodation entries wherein bogus purchases bills were issued by these dealers without supplying any material. The Maharashtra Sales Tax Department made enquiries wherein it was concluded that these parties are hawala dealers engaged in issuing bogus invoices without supplying any material. The assessee is one of the beneficiaries of the bogus accommodation entries from these hawala dealers. The assessee has claimed to have made purchases from following parties who were listed as hawala dealers by Maharashtra Sales Tax department:- S.No. Name of the Party TIN PAN Particulars of Transactions A. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment years 2009-10 and 2011-12:- 1. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in allowing the bogus purchases made by the assessee without appreciating the fact that the assessee failed to furnish documentary evidence to prove that purchase made were genuine. 2. On the facts and in the circumstances of the case, the Ld. CIT(A) failed to appreciate the provisions of sections of section 69C of the Act which categorically states that where the assessee offers no explanation about the source of such expenditure or part thereof. For A.Y. 2010-11 assessee has raised one more ground which reads as under: - 3. On the facts and in the circumstances of the case, the Ld. CIT(A) failed to appreciate the provisions of Section 145 where there is a gross deviation in maintenance of accounts of the assessee and the same is not in conformity with the prescribed norms the assessee has failed to maintain and produce the books. 3. The brief facts of the case are that the assessee is an individual and is the proprietor of M/s. Giriraj Enterprises, engaged in the business of trading in Rubber Rubber chemicals. The assessee made purchases f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are divergent views of various High Courts on what amount of GP should be applied in such bogus purchases. We find that in the case of Smith and Sheth the Hon'ble Gujarat High Court has held that a trader sold some goods and he would purchase the same from other sources. When the total sale is accepted by the AO he could not have questioned the very basis of purchase. Therefore purchases are not bogus but they are made from parties other than those who are mentioned in the books of account. This being the decision not the entire purchase price but only the profit element in such purchases can be added to the income of the assessee. We find that we are taking a consistent view that the disallowance to the extent of 12.5% of such bogus purchase will be justified in the facts of this case also. Therefore, we modify the order of the CIT(A) and direct the AO to restrict the disallowance the extent of 12.5% of such bogus purchases. We have observed that the assessee has duly reconciled quantitative purchases with sales and the assessee is engaged in the trading activities. The assessee could not prove movement of material nor verification from these parties could be conducted. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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