TMI Blog2019 (6) TMI 1462X X X X Extracts X X X X X X X X Extracts X X X X ..... .5% of such purchases. Accordingly, we direct the AO to estimate 12.5% profit on alleged bogus purchases. Validity of reopening of assessee - We find that although the assessee has challenged validity of reopening of assessment, we find that the AO has reopened the assessment on the basis of information received from DGIT(Inv.) which was further supported by report of M-Vat, Govt. of Maharashtra which suggest escapement of income within the meaning of section 147 of the Act. Therefore, there is no merit in the argument of the assessee is that the assessment has been reopened without their being any tangible material, accordingly, reject the ground taken by the assessee challenging the reopening of assessment. - ITA Nos. 3434 & 3435/Mum/2016 - - - Dated:- 28-6-2019 - Shri SAKTIJIT DEY, Judicial Member And Shri G. MANJUNATHA, Accountant Member For the Appellant : None For the Respondent : Shri V.K.Chaturvedi ORDER Per G. Manjunatha (Accountant Member) These two appeals filed by the assessee are directed against order of the Ld. CIT(A)-41, Mumbai, dated 01/04/2016 and they pertains to AYs 2009-10 and 2010-11. Since, facts are identical and issues ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,862 OF HAWALA PURCHASES 1. The learned CIT(A) has erred in law facts to confirm addition to the extent of ₹ 1,03,50,8627- on the ground of bogus purchase to confirm addition of ₹ 1,03,50,8627- being 25% of gross profit on purchases. 2. The learned CIT(A) has erred in law in facts failed to appreciate the fact that when sales have been dully accepted by CIT(A) along with quantitative production records there is no question of unaccounted purchases the learned CIT(A) has erred in law in facts to make addition when sales have been effected consequent to that purchases sales have been accepted as true correct also GP has been accepted. 3. The learned CIT(A) has erred in law in facts to appreciate that just because of non appearance of parties in response to summon U/S 133(6) does not amount that the appellant has bogus purchases specially when cross examination was not allowed of witness inspite of demanded by the appellant. 4. The learned CIT(A) has erred in law in facts to appreciate that addition has resulted in exorbitant G.P. which is impossible in this business also with past records and also subsequent assessment u/s 143(3) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ief facts of the case are that the assessee is partnership firm, which is engaged in the business of manufacturing of steel products, filed its return of income for the assessment year 20009-10 on 25/09/2009, declaring total income at ₹ 4, 83,170. The return was processed under section 143(1) of the Act (hereinafter the Act ). Subsequently, the case has been reopened under section 147 of the Act, for the reasons recorded, as per which income chargeable to tax had been escaped assessment within the meaning of section 147 of the Act, on account of claim of bogus purchases from suspicious/hawala dealers, as per the information received from DGIT(Inv.), therefore, a notice under section 148 of the Act, dated 03/12/2012 was served upon the assessee. In response to 148 notices, the assessee neither filed its objections nor filed return of income. Therefore, notice under section 142(1) dated 11/10/2013 was issued and duly served upon the assessee. In response to notices, the authorised representative of the assessee appeared from time to time and filed details as called for. During the course of assessment proceedings, the AO called upon the assessee to furnish details of purchases ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t what needs to be taxed only profit element embedded in those purchases, therefore, by following the decision of Hon ble Gujarat High Court in the case of CIT vs Simit P. Seth (2013) 356 ITR 451(Guj) scaled down additions made by the AO towards 25% of alleged bogus purchases and accordingly, sustained the additions to the extent of ₹ 1,03,50,862/- out of total additions made by the AO of ₹ 4,14,03,447/-. The relevant findings of the learn CIT(A) as under:- 5. I have considered the submissions of the appellant. I have also perused the findings of the A.O. in the assessment order. 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 party wise bogus purchases made by the assessee as per information from the office of the DGIT(Inv.) 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 AO also considered the objections raised by the appellant and rejected the same. In view of above, ground nos.l to 4 challenging the validity of notice u/s 148 are dismissed. 5.2 So far addition of ₹ 4,14,03, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h is required to be followed. In the decisions where additions have been totally deleted on the ground that manufacturing/sales are not possible without purchase, probably the fact that the sale may be out of suppressed stock of past period has not been considered. Further, it is not possible to find out evidence of refund of payments in cash to assessee is each case particularly when the supplier did not appear before the AO or the assessee failed to produce the said party before the AO for examination. Immediate cash withdrawals from the bank account may strengthen the case of Revenue but it is not a conclusive proof that the amount was refunded to the assessee. In a more sophisticated mechanism, the cash may not be withdrawn by the bogus supplier and still cash refund is possible. Further, evidentiary value of enquiries conducted by sales tax department and statements of suppliers recorded admitting accommodation entries should not be totally ignored. 5.6 In view of above, I find the second set of decisions more logical and - reasonable wherein certain percentage of purchase price has been disallowed. The disallowance is justified because the exact source of goods or exact a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ills. Natural inference is that either it was purchased from different source or the same were out of suppressed stock of past period because sales are not in dispute. Since the said source is not known, the extent of inflation of purchase cannot be ascertained. It will be 100% !f the sale is made out of own suppressed stock of past period or it will be the difference of billed amount and actual payment made to procure the goods. 5.10 G.P. ratio of the appellant for any year is in the range of 4-6%. Total purchase of ₹ 9.54 Crore has been debited out of which addition of ₹ 4,14,03,447/- u/s 69C on account of bogus purchase has been made. In the facts and circumstances of the case, 25% of purchase price is estimated to be reasonable disallowance for the reasons discussed above. In view of above, the addition/disallowance to the extent of 25% of purchase price of ₹ 4,14,03,4477- i.e. ₹ 1,Q3,50,862/- is sustained and balance addition of ₹ 3,10,52,585/- is deleted. The grounds 5-21 of appeal are partly allowed. 4. None, appeared for the assessee. We have heard the Ld. DR, perused the material available on record and gone through the orders of the aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accept the finding of the AO that purchases from above parties are non-genuine merely for the reason that parties were not responded 133(6) notices or the assessee could not produce them before the AO for examination. The assessee, at best could produce whatever he can file but non-appearance of parties or nonproduction of parties before the AO is not in the hands of the assessee, more particularly after a gap of long period. Further, the AO neither pointed out any discrepancy in the books of accounts or other evidence filed by the assessee nor made out a case of sales outside books of accounts. In absence of any incorrectness in books of account or other evidence filed by the assessee, merely for the reason of nonappearance of parties before the AO in response to 131/133(6) notices, the AO has drawn adverse inference to hold that purchases from above parties are non-genuine without carrying out further verification to ascertain true nature of transactions between the parties. Under these facts, it is difficult to accept the arguments of the Ld. AO that purchases from above parties are not genuine and the assessee has failed to prove the purchases to the satisfaction of the AO wit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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