TMI Blog2019 (12) TMI 744X X X X Extracts X X X X X X X X Extracts X X X X ..... AO had no jurisdiction to frame the assessment against the assessee. Therefore, we do not find any force in the legal arguments raised by Ld. AR before us. We concur with the observations made by first appellate authority in the impugned order, in this regard. The submissions made by Ld. AR and case laws being relied upon, in this regard, would not come to the rescue of the assessee. The assessee was in possession of primary purchase documents. The payment to the suppliers was through banking channels and the assessee had furnished details of corresponding sales made against the impugned purchases. The sales turnover reflected by the assessee was not disturbed by the revenue. At the same time, the assessee failed to rebut the allegations levelled by revenue and could not produce even a single party to confirm the transactions particularly in the backdrop of the fact that these suppliers were major suppliers for the assessee and substantial purchases were sourced by assessee from these suppliers. Notices issued u/s 133(6) remained unresponded to in all the cases. Therefore, in such a situation, the addition, which could be made, was to account for profit element embedded in thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of convenience brevity. The assessee has filed additional grounds of appeals for AYs 2009-10 to 2012-13 which contest validity of reassessment proceedings. The same being merely legal grounds and do not require appreciation of new facts and hence, taken on record as per the ratio of decision of Hon ble Supreme Court rendered in National Thermal Power Co. Ltd. V/s CIT [229 ITR 383]. First, we take up cross-appeals for AY 2009-10. Cross-Appeals for AY 2009-10 2.1 The assessee s grounds of appeal as well as additional grounds of appeal would read as under: - 1. On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeal) erred in confirming addition of ₹ 7620833/- under Section 69C of the Act on account of unexplained purchases made during the year, calculated on the basis of peak credit. 2. On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeal) erred in not deleting observation made by Assessing Officer that payment received by purchase parties are returned to the applicant in cash after deducting small commission. 3. On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpugned purchases ignoring the fact that Hawala parities are non-existent at the given address and further they have given affidavits before the Sales Tax Authorities about their bogus activities of issuing purchase bills without supplying any goods. 2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) failed to see that the decision of the Hon ble High Court in the case of N.K.Proteins Ltd. V/s DCIT, holding that addition cannot be restricted to certain percentage when entire transaction is bogus, had become final with dismissal of assessee s SLP is squarely applicable. 2.2 Facts in brief are that the assessee being resident HUF stated to be engaged in the business of trading in ferrous / non-ferrous metals under proprietorship concern namely M/s Rikita Metals, was assessed for impugned AY u/s. 143(3) r.w.s. 147 on 26/02/2014 wherein income of the assessee was determined at ₹ 248.11 Lacs after sole addition of alleged bogus purchases u/s 69C for ₹ 246.79 Lacs as against returned income of ₹ 1.31 Lacs filed by the assessee on 25/09/2009 which was processed u/s.143(1). 2.3 Pursuant to receipt of cer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of belief that certain income escaped in the hands of the assessee. Reliance was also placed, inter-alia, on the decision of Hon ble Bombay High Court in Nikunj Eximp Enterprises Pvt. Ltd. V/s CIT [WP No.2860 of 2012] while rejecting the legal grounds raised by the assessee. 3.2 The assessee, on merits, submitted that it had furnished all supporting material such as copies of purchase invoice, bank statements reflecting payment made to the suppliers through banking channels, corresponding sales invoices and therefore, the additions were made in a summary manner merely by relying upon the information received from Sales Tax Department, Maharashtra and relying upon depositions made by the suspected sellers in their affidavits filed during the sales tax proceedings that they have not made any sales during the year under consideration. It was also pleaded that the copies of information / documents received from VAT department which were used against the assessee were neither provided to the assessee nor any opportunity of cross examining the said suppliers was ever provided to the assessee which was in violation of principle of natural justice. The said submissions were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 278] and also the decision of Hon ble Bombay High Court in Naresh K. Pahuja V/s ITAT [375 ITR 526], it was held that payments through banking channel, simpliciter, would not establish the genuineness of the transactions and the primary onus casted upon assessee to prove the genuineness of the transactions remained undischarged. The strength was also drawn from the decision of Hon'ble Supreme Court in CIT vs. Durgaprasad More (82 ITR 540) to arrive at a conclusion that the transactions could not be considered as genuine. 3.6 Coming to the merits of the case, it was noted that similar additions, on peak credit basis, were made by Ld. AO for AY 2010-11 which was approved by first appellate authority and therefore, facts being the same, the addition in impugned AY were to be made on the same basis. Finally, the additions were confirmed partially by observing as under: - 8.3.23 It observed that for AY 2010-11, the AO has made an addition by applying peak credit, and the appeal filed by the appellant against the addition made has been dismissed by the CIT (A). There is no change in the facts of the case vis-a-vis AY 2010- 11. The Hon'ble ITAT, Ahmedabad 'C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 77.92.001/- is less than the peak credit for AY 2011-12 at ₹ 1,44,32,287/-. 8.3.24 Further, the motive behind obtaining bogus bills is inflation of purchase price so as to suppress the profits. The profit from such transactions varies with nature of business and no uniform yardstick can be adopted for estimation of such profit. 8.3.25 The estimations of profit embedded in accommodation entries of bogus purchases transactions @ 12.5% out of purchase price accounted through bogus invoices have been upheld as the fair profit rate out of the bogus purchases by the Hon'ble Courts and Tribunals. 8.3.26 In the case of CIT v. Simit P Sheth (2013) 356 ITR 451 (Guj)(HC), the Hon'ble High Court has upheld disallowance @12.5% of such purchases. 8.3.27 The appellant company is a trader in goods i.e. dealers in ferrous and non ferrous metals and under identical facts, the Hon'ble ITAT, Bombay Tribunal (H) has upheld disallowance @12.5% of such purchases in the decision date 4th April, 2017 in the case of Ratnagiri Stainless Pvt. Ltd. vs. Income Tax Officer in ITA No. 4463/Mum/2016 as well as in Income Tax Officer 5 (3) (1) vs. M/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11-12 2012-13 were worked out by the assessee to be ₹ 76.20 Lacs, ₹ 144.32 Lacs ₹ 77.92 Lacs respectively, learned AO was directed to verify the same and restrict the addition to the extent of peak credit after allowing credit for addition made on the basis of peak credit in immediately preceding year. In other words, the addition for AY 2009-10 were sustained to the extent of ₹ 76.20 Lacs whereas addition for AY 2011-12 were sustained after allowing credit of ₹ 76.20 Lacs as sustained in AY 2009-10. No addition was sustained for AY 2012-13 in view of the fact that the peak credit for this year was less than peak credit for AY 2011-12. Additionally, learned CIT(A) proceeded to work out estimated addition @12.5% of alleged bogus purchases made by the assessee, to account for inflation of purchase price so as to suppress the profits. However, these estimations for AYs 2009-10 2011-12 were treated to have subsumed under peak credit addition since the peak credit was more than estimated addition @12.5%. However, for AY 2012-13, it appears that the learned CIT(A) has upheld addition to the extent of ₹ 10.76 Lacs, being 12.5% on alleged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in bunch of appeals titled as Pr.CIT Vs. M/s Mohommad Haji Adam Co. [ITA No.1004 others of 2016, dated 11/02/2019] for the submissions that estimation may be made at lower rates. 4.3 Per Contra, Ld. DR placed reliance on the decision of Hon ble Supreme Court rendered in Raymond Woollen Mills Ltd. v. ITO [236 ITR 34] to justify the invocation of reassessment proceedings. Reliance has also been placed on the decision of Hon ble Gujarat High Court rendered in N.K.Proteins Ltd. Vs. CIT [2016-TIOL-3165-HC-AHM-IT] to submit that full additions were justified. Our attention has also been drawn to the observations made by learned AO in his order. 5.1 We have carefully heard the rival submissions, perused relevant material on record and deliberated on all judicial announcements as cited before us. We have also applied our mind to the factual matrix as enumerated by us in the preceding paragraphs. 5.2 We find that during assessment proceedings, pursuant to receipt of certain information from DGIT (Investigation), the allegations were levelled by revenue against the assessee that the assessee procured bogus purchase bills from as many as 5 entities. Notices ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchase bills from these suppliers, who admitted to have entered into bogus transactions without supplying any material. This onus, in our opinion, remained undischarged and the conduct of the assessee would not inspire us to subscribe to the pleadings made by Ld. AR, in this regard. The Ld. AR has also submitted that Ld. AO had no jurisdiction to frame the assessment. However, the same are mere submissions without there being any material to support the same. Nothing has been demonstrated before us to establish that learned AO had no jurisdiction to frame the assessment against the assessee. Therefore, we do not find any force in the legal arguments raised by Ld. AR before us. We concur with the observations made by first appellate authority in the impugned order, in this regard. The submissions made by Ld. AR and case laws being relied upon, in this regard, would not come to the rescue of the assessee. In the result, Ground Nos. 3,4,6 7 of assessee s appeal stands dismissed. 5.5 So far as the merits of the case are concerned, we are of the considered opinion that there could be no sale without actual purchase of material keeping in view the fact that the assessee was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at High Court rendered in N.K. Industries Ltd. Vs Dy. C.I.T. in Tax Appeal No. 240 of 2003 and connected appeals decided on 20th June, 2016 observed as under: - 8. In the present case, as noted above, the assessee was a trader of fabrics. The A.O. found three entities who were indulging in bogus billing activities. A.O. found that the purchases made by the assessee from these entities were bogus. This being a finding of fact, we have proceeded on such basis. Despite this, the question arises whether the Revenue is correct in contending that the entire purchase amount should be added by way of assessee's additional income or the assessee is correct in contending that such logic cannot be applied. The finding of the CIT(A) and the Tribunal would suggest that the department had not disputed the assessee's sales. There was no discrepancy between the purchases shown by the assessee and the sales declared. That being the position, the Tribunal was correct in coming to the conclusion that the purchases cannot be rejected without disturbing the sales in case of a trader. The Tribunal, therefore, correctly restricted the additions limited to the extent of bringing the G.P. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellate authority, in this regard, as made in the impugned order. This plea stands rejected. 5.8 ITA No. 2994/Mum/2018 stands partly allowed whereas ITA No. 3223/Mum/2018 stands dismissed. Cross-Appeals for AY 2011-12 6.1 Facts are pari-materia the same in this year. The grounds raised are identical in all respect except for change in figures and minor variations. The assessee has been saddled with addition of alleged bogus purchases amounting to ₹ 731.94 Lacs, on similar lines, in an assessment framed u/s 143(3) r.w.s 147 on 26/02/2014. The impugned order is common order. Facts and Circumstances being identical, our observation, conclusion as well as adjudication as for AY 2009-10 shall mutatis-mutandis apply to this year also. The legal grounds raised by the assessee stands dismissed. The quantum additions stand restricted to 2% of alleged bogus purchases of ₹ 7,31,94,371/-. The same comes to ₹ 14,63,887/-. The balance additions stand deleted. The assessee s appeal stands partly allowed. The revenue s appeal stands dismissed. 6.2 In this year, the assessee has raised one more additional ground to submit that the additi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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