TMI Blog2021 (5) TMI 299X X X X Extracts X X X X X X X X Extracts X X X X ..... on to the extent of ₹ 2,17,682/-. No illegality and infirmity found, therefore, we are of the view that the CIT(A) has decided the matter of controversy judiciously and correctly which is not liable to be interfere with at this appellate stage. Accordingly, this issue is decided in favour of the assessee against the revenue. - I.T.A. No.538/Mum/2019 - - - Dated:- 7-4-2021 - Shri M. Balaganesh, AM And Shri Amarjit Singh, JM For the Assessee : Shri Mayur Kisnadwal For the Revenue : Shri Sanjay Sethi (Sr. AR) ORDER PER AMARJIT SINGH, JM: The revenue has filed the present appeal against the order dated 05.11.2018 passed by the Commissioner of Income Tax (Appeals) -52 Mumbai [hereinafter referred to as the CIT(A) ] relevant to the A.Y.2010-11. 2. The revenue has raised the following grounds: - 1. On the facts and circumstances of the case and in law, the Id CIT(A) has erred in restricting the addition to the extent of 12.5% of the bogus purchases of ₹ 52,68,07,513 booked by the assessee related to purchase from M/s Ragini Trading and investments Put. Ltd. after setting off the GP shown by the assessee. 2 On the facts and circumst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6,15,670/-. Feeling aggrieved, the assessee filed an appeal before the CIT(Appeals) who restricted the addition to the extent of 12.5% and also deleted the addition raised u/s 14A r.w. Rule 8D. Feeling aggrieved, the Revenue has filed the present appeal before us. ISSUE No. 1 4. Under this issue the assessee has challenged the restriction to the addition to the extent of 12.5% of the bogus purchase in sum of ₹ 52,68,07,513/-. Before going further, we deem it necessary to advert the finding of the CIT(A) on record.: - 5.2 I have considered the submissions and contentions of the assessee as also the order of the AO. The assessee contends that no addition in respect of purchases from M/s Ragini Trading investment P. Ltd. (RTIPL) should be made since the said party has confirmed the transactions and is regularly assessed to Income tax as well as Sales Tax. However, it is an undisputed fact that M/s RTIPL was found to have carried out purchases from certain hawala/bogus suppliers identified by the Sales Tax Department. Further, in course of the survey action on 23.112012 in the case of M/s. RTIPL, it was revealed that this concern is being used for the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receipt of orders from the clients, the material is procured from the market from the suppliers. It was also stated that the delivery is monitored by him, however, the payment to the transporter is done directly by the client. The relevant portion of the said statement on oath is reproduced as under :- Q.4 Please explain the modus operandi of getting orders, payment for material, dispatch and delivery, and documentation required and recorded at each stage. Ans. We received orders via phone or mail from our clients. We then procure the material from the market from various parties. We arrange for the material to be supplied from the vendor to the client and monitor the delivery of material. We receive the order from the client verbally (over the phone or mail.). We then place an order with the vendor verbally. The vendor arranges for the material and delivers the material to the client, which we monitor. After the delivery of material, we receive the invoice from the vendor. In turn, we generate an invoice for the client. The normal credit period is 90 days to 120 days. The transporter only raises the LR with me. The payment for the transportation is done by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2013) has held that only the profit attributable to the unaccounted sales can be brought to tax. The relevant portion of the order of the Hon'ble jurisdictional High Court is reproduced as under: 5. Being aggrieved, Respondent-Assessee filed an appeal before the CIT(A). In its order, the CIT(A) recorded that during the course of survey, no unaccounted invoices were impounded. Although, there was unaccounted sale bills which were not recorded in the books of account on the date of survey, no document was impounded. However, later in its return filed with the Revenue, it declared turn over at ₹ 3.27 crores, showing a net profit of ₹ 36.76 lakhs. The CIT(A) relied upon its decision to hold that the Assessing Officer cannot add the amount of ₹ 35 lakhs only on the statement made without considering the surrounding circumstances and evidence to uphold the addition. In the circumstances, the CIT(A) held that in the facts of the case, that only 4% being the profit earned on sales of ₹ 35 lakhs can be added to net profit of the applicant. Therefore, only ₹ 1.40 lakhs was the profit on unaccounted sales which could be added. Thus, the balance addi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be taxed, 'no interference is called for in the order of the Tribunal. While coming to the above conclusion, the Hon'ble Gujarat High Court also relied on the decision in the case of Sanjay Oil Cake hid. 316 ITR 274 (Guj). 5.9 From the aforesaid discussion, it is clear that in view of the business model followed by the assessee wherein there is one to one co-relation between the purchases and the sales and also considering the Legal position on the issues as discussed, it is only the profit embedded in the transaction which can be brought to tax and not the entire purchases from MIs, Ragini Trading Investment P. Ltd. (RTIPL). 5.10 it is well known that unaccounted material may be available in the market at much lower price as compared to the purchases made from genuine dealers on the strength of genuine bills. The real suppliers may be willing to. sell those products at a much lower rate in view of manifold reasons. There may be savings on account of excise duty, sales-tax or other taxes which may be leviable in respect of manufacture and sale of such goods. The real suppliers may derive substantial savings on account non-payment of government taxes which will ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eived from the Sales Tax Authorities about purchases from alleged hawala/bogus suppliers. After due consideration of all the relevant facts, the Hon'ble ITAT confirmed the addition of profits arising from the alleged hawala/bogus purchases by adopting a rate of 12.5%. It was further held by the Hon'ble ITAT that the AO should give credit for the book GP shown by the assessee in respect of the alleged hawala/bogus purchases against the said rate of 12.5%. The relevant portion of the order of the Hon'ble ITAT is reproduced as under: The authorities below in the instant case did not make any industry comparisons to arrive at fair, honest and rational estimation of GP ratio, rather applied GP ratio of 12.5% on alleged bogus purchases which estimation was in addition to the normal GP ratio declared by the assessee in return of income filed with Revenue. The Revenue made aforesaid additions relying on the presumption that the material was in fact purchased from grey market at a lower rate and to cover deficiencies on record, the invoices were procured from these entry operators to reduce the profit. It was also considered that there will be savings on account of ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tage for computing the unaccounted profits from the purchases from the suspicious suppliers should factor the savings of taxes etc. due to the unaccounted sales and the GP already shown in the regular books. The ratio of the decision of the Gujarat High Court in the case of Simit P Sheth (supra) cannot be squarely applied since the sales tax rate prevalent in Gujarat was 10% as against only 4% applicable in Maharashtra for the relevant period. However, the facts of the case of the assessee are quite similar to that of Ratnagiri Steels (supra) since the sales tax rate of 4% of Maharashtra itself is applicable. In the case of Ratnagiri Steels(supra), the Hon'ble ITAT directed the AO to allow set off of the book GP against the rate of 12.5% for computing the additional profits from the purchases from the alleged hawala/bogus suppliers. Therefore, as was done by the Hon'ble ITAT, Mumbai in the case of Ratnagiri Steel (supra), it will be appropriate if the rate of 12.5% is applied and against this set off of the GROSS PROFIT shown in the regular books is allowed. Accordingly, the AO is directed to compute the additional profit in respect of the purchases from the suspicious ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l disallowance of ₹ 6,67.931/- comprised of disallowance u/f. 8D(2)(i) of Ps 1,37,491/-, u/r. 8D(2)(ii) of Ps 2,84,294/- and u/r. 8D(2)(iii) of Ps 2,46,1461-. After allowing set off of ₹ 2,17,682/- voluntarily disallowed by the assessee, the AO made a further addition of Ps 4,50,249/- u/s 14A in the hands of the assessee. 6.3 In the appellate proceedings, the assessee has submitted that the disallowance made by the AO u/r. 8D(2)(i) of Ps 1,37,491/- is not correct since the said expenditure relates to cheque book issue charges, cheque deposit charges, etc which have been incurred in normal course of the business and has no direct nexus to the exempt income/investments. It was further submitted that the disallowance made by the AO u/r. 8D(2)(ii) of ₹ 2,84,294/- is not correct since the Ld. CIT(A) in the appeal filed against the original assessment u/s 143(3) has held that the entire interest expenditure has been incurred for the purpose of the business of the assessee. It was also submitted that the disallowance made by the AO u/r. 8D(2)(iii) of ₹ 2,46,1461- is not correct since the AO has not recorded any satisfaction for rejecting the suo moto disa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ). The AO is therefore, directed to delete the disallowance made of ₹ 2,84,294/- out of interest expenditure u/r. 8D(2)(ii). It is also observed from the said order of the Ld. CIT(A) that the disallowance made by the AO u/r 8D(2)(iii) in the original assessment u/s 143(3) of ₹ 1,90,150/- has been upheld. The AO is therefore directed to restrict the disallowance u/r 8D(2)(iii) of ₹ 2,46,146/- to ₹ 1,90,150/-. Thus the total disallowance u/s 14A is determined at ₹ 2,17,682/- which has already been voluntarily offered by the assessee. Accordingly, this ground of appeal of the assessee is allowed. 7. The assessee has voluntarily disallowed the expenses to earn the exempt income in sum of ₹ 2,17,682/- u/s 14A of the Act. In this year, the assessee has no exempt income. The AO assessed the expenses to earn the exempt income in sum of ₹ 6,67,931/-. On appraisal of the above mentioned finding, we find that the CIT(A) has considered this fact that the assessee has no exempt income, therefore, the disallowance u/s 14A r.w. Rule 8D (2)(i) was restricted to the extent of 27,172/- which was on account of DMAT charges and remaining was deleted being ..... X X X X Extracts X X X X X X X X Extracts X X X X
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