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TMI Blog2017 (9) TMI 651X X X X Extracts X X X X X X X X Extracts X X X X ..... clined to interfere with the appellate order of learned CIT(A) which we confirm/affirm. Revenue fails in this appeal. We order accordingly. - I.T.A. No. 928/Mum/2017 - - - Dated:- 29-8-2017 - SHRI C.N. PRASAD, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER For The Revenue : Shri V. Jenardhanan For The Assessee : Shri Kiran Mehta ORDER PER RAMIT KOCHAR, Accountant Member This appeal, filed by the Revenue, being ITA No. 928/Mum/2017, is directed against the appellate order dated 30.11.2016 passed by the learned Commissioner of Income Tax (Appeals)- 16, Mumbai (hereinafter called the CIT(A) ), for assessment year 2009-10, appellate proceedings before learned CIT(A) had arisen from the assessment order dated 26th March, 2015 passed by learned Assessing Officer (hereinafter called the AO ) u/s 143(3) r.w.s. 147 of the Income-tax Act, 1961 (hereinafter called the Act ). 2. The grounds of appeal raised by the Revenue in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called the tribunal ) read as under:- Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is erred i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TOTAL 47,17,888 Information was also received by the AO from the office of DGIT(Inv.), Mumbai with respect to bogus/accommodation entries provided by the aforesaid parties. The assessment was reopened by the AO u/s 147 and notice u/s.148 of the Act was issued by the AO to the assessee company on 3rd March, 2014 which was duly served on the assessee, the said reopening was within four years from the end of assessment year. The assessee vide letter dated 02-09- 2014( submitted/filed before AO on 22-01-2015) stated that return of income filed on 23-11-2010 be treated as return of income in response to notice u/s 148.The reasons recorded for reopening of the assessment was provided to the assessee by the AO during reassessment proceedings , which are as under: Subsequently, it has come to the knowledge that the assessee was involved in bogus purchase/ hawala transactions during the F.Y. 2008-09 relevant to A.Y. 2009-10. The assessee was involved in bogus purchases transaction amounting to ₹ 47,17,888/- during the Financial year 2008-09 relevant to the assessment year 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the assessee inter alia calling for details of income expenditure, sale purchases and other balance sheet items. The assessee, with respect to aforesaid alleged purchases from Hawala parties, was requested to furnish following details: ( i) Copy of purchase order, original stamped tax invoice, delivery challans, lorry receipts, gate pass, receipt note, transportation details; ( ii) Description of material purchased; ( iii) Daily Stock Register; ( iv) Quantitative disposal of these purchases showing corresponding sale/yield of finished product; , ( v) Cheque encashment certificate from Bank/Copies of account payee cheques with recipient banks stamp. ( vi) Tax audit report (with all attachments) for A.Y. 2008-09 A.Y. 2010-11; ( vii) Comparison of following accounting ratio for last three assessment years; Gross Profit ratio, Net Profit/Turnover, Stock-in-trade/Turnover, Material consumed/finished goods produced ratio. ( viii) Details of set off of VAT claimed in respect of aforesaid purchase. Notices u/s.133(6) of the Act dated 15th January, 2015 were issued by the AO to the aforesaid four parties allegedly inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not contained the details of place of dispatch of the material. The AO also noticed some other discrepancies w.r.t. these purchases and stocks including non submission of process chart and details of consumption/utilization /yield of these material for production of finished goods. The assessee submitted the comparative gross profit and net profit ratio for A.Y. 2008-09 to A.Y. 2012-13, which is reproduced below:- STATEMENT OF COMPARATIVE G.P. N.P. Asst. Year SALES COGS MANUF.EXP INC/DEC GROSS GP % NP% STOCK PROFIT A.Y. 08-09 66,971,752 39,030,013 9,634,377 74,157 18,381,519 27% 3% A.Y. 09-10 115,367,929 79,204,441 13,099,889 3,507,617 26,571,216 23% 1% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stock records as per tax audit report , GP ratio has fallen from 27% to 23%, NP ratio has fallen from 3% to 1% and the assessee could not controvert the statements made by these parties before MVAT authorities and also could not produce the parties before the AO, and accordingly the A.O. made the addition of ₹ 47,17,888/- as the purchases were found to be not genuine, vide assessment order dated 26-03-2015 passed by the AO u/s 143(3) r.w.s. 147 of the 1961 Act. 4. Aggrieved by the assessment order dated 26-3-2015 passed by the A.O. u/s 143(3) r.w.s. 147 of the 1961 Act, the assessee carried the matter in appeal before the ld. CIT(A). 5. Before the ld. CIT(A) , the assessee submitted that the assessee is in the business of manufacturing solid cement concrete blocks of various shapes and thickness and raw material were purchased from these four alleged hawala dealers namely sand , metal and stone powder , which is required for manufacturing the products manufactured by the assessee. The assessee submitted that GP ratio cannot be compared with preceding year as this year the turnover increased which included outsourced turnover wherein some of the work was outsourced which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bills from these parties appears to be inflation of purchase prices so as to suppress true profits. The ld. CIT(A) observed that the suppressed profit embedded in purchases which the assessee would have made from these bogus dealers need to be brought to tax. The ld. CIT(A) after considering the facts of the case, estimated the suppressed profit to the extent of 12.5% of the purchases made from these bogus parties, vide appellate order dated 30-11-2016. 6. Aggrieved by the appellate order dated 30-11-2016 passed by the ld. CIT(A), the Revenue is in appeal before the Tribunal. 7.The ld. D.R. submitted that this is Revenue s appeal. The A.O. has made 100% disallowance of the purchases made from bogus parties while the ld. CIT(A) reduced the same to 12.5% of alleged bogus purchases on account of suppressed profits due to these inflated purchases. Further, the ld. D.R. relied on the assessment order of the A.O. and prayed that the assessment order passed by learned AO be confirmed and the appellate order of learned CIT(A) be set aside. 8. The ld. counsel for the assessee, at the outset, submitted that the assessee has accepted the appellate order passed by the ld. CIT(A) wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AAIHP5622D 14,000 13,04,2006 Great International 27680504653V 1,940,537 23.12.2005 TOTAL 47,17,888 The said hawala dealers were engaged in issue of bogus bills without any supply of material as per their statements/affidavits filed by these bogus dealers before MVAT authorities. The assessee s case was reopened by the A.O. u/s 147 and notices u/s 148 of the Act was issued on 3rd March, 2014 , which was duly served upon the assessee , and the said reopening u/s 147 was within four years from the end of the assessment year. The reasons recorded were duly furnished to the assessee by the AO. During the course of assessment proceedings and appellate proceedings, the assessee explained the consumption/utilization of the raw materials so purchased from these alleged bogus dealers for production of finished goods. The assessee had produced the purchase bills and other relevant documents . It was also explained that the assessee had made the payments though ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO. The A.O. made 100% disallowance of these alleged bogus purchases on the ground that these are bogus purchases wherein no material was supplied by these parties and these bogus bills were obtained merely to reduce profits, which disallowance has been restricted to 12.5% of the alleged bogus purchases by the ld. CIT(A) on the grounds that utilization/material consumption stood proved, sales are not doubted but the assessee could not discharge its burden of producing the parties in the midst of statements/affidavits by these alleged hawala dealers that they have only issued bogus bills without supplying any material physically which led CIT(A) to conclude that the assessee has obtained material from some other parties and bills were obtained from these parties at inflated prices to suppress profits. We have observed that the assessee has duly explained the consumption/utilization of material and the assessee is also maintaining excise record and is subject to excise scrutiny/audit. There was minor difference in the stock reconciliation submitted by the assessee before the AO which the assessee rectified before CIT(A) and explained the same due to clerical error/cut and paste erro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dealing in same items, but doing export business declared GP rate of 43.8 per cent (even without considering the value of export incentives) in assessment year 1997-98.' 5. Thereafter, the books of account of the assessee were rejected by the Assessing Officer and he resorted to best judgment assessment under section 144 of the Income-tax Act. The Assessing Officer in the assessment order mentioned some comparable cases and was of the view that the case of the assessee is more or less having similar facts as that of M/s. Gem Plaza where the Gross Profit has been taken as 35.48 per cent. The Assessing Officer estimated the Gross Profit of the assessee as 40 per cent. 6. The Assessing Officer further held that the assessee has shown bogus purchases in order to reduce the Gross Profits. 7. In appeal, the Commissioner of Income-tax (Appeals) upheld most of the findings of the Assessing Officer, but reduced the Gross Profit from 40 per cent to 35 per cent. 8. In further appeal, the Tribunal had given further relief to the assessee and reduced the Gross Profit rate to 30 per cent. 9. The counsel for the assessee has submitted before us that the income- t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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