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TMI Blog2017 (11) TMI 1602X X X X Extracts X X X X X X X X Extracts X X X X ..... essee. - I.T.A. No. 6056 And 6057/Mum/2016 - - - Dated:- 28-11-2017 - SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER For The Assessee : Shri. Deepak Raje For The Revenue : Ms. Pooja Swaroop ORDER PER RAMIT KOCHAR, Accountant Member These two appeals, filed by the assessee, being ITA No. 6056 6057/Mum/2016 for assessment year s (AY) 2010-11 and 2011-12, are directed against common appellate order dated 14-07-2016 passed by learned Commissioner of Income Tax (Appeals)-2, Thane (hereinafter called the CIT(A) ), for assessment year 2010-11 and 2011-12, appellate proceedings had arisen before learned CIT(A) from separate assessment orders both dated 27-03-2015 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. Both the appeals raises identical grounds(only variation in amounts). First, we will take up assessee s appeal for AY 2010-11 being ITA no. 6056/Mum/2016. The grounds of appeal raised by the assessee in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called the tribunal ) in ITA no. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment done by the assessing officer and outright rejecting the books of accounts without proper justification, The said disallowance of ₹ 59,73,566/- is thus not justified and the same may be deleted. 8. The Appellant craves leave to add, alter, rescind or amend any of the above grounds of appeal. 3. The brief facts of the case are the assessee is partnership firm engaged in the business of manufacturing and export of drugs intermediates, speciality chemicals, API s and rare to find chemicals. The assessee filed return of income u/s 139(1) for A.Y. 2010-11 on 25.09.2010 declaring total income of ₹ 36,32,740/-. The information was received by Revenue from Maharashtra Sales Tax Department that large number of entities have provided entries for bogus purchases of which the assessee was one of the beneficiary . The AO observed that bogus sale bills were issued to the assessee by some entities without supplying any material, notices u/s. 148 of the Act was issued by the AO to the assessee on 19.07.2013 which was within four years from the end of the assessment year. It is also pertinent to mention that originally no scrutiny assessment was framed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of several dealers and beneficiaries and such investigations had unearthed a fraudulent racket involving many hawala dealers and beneficiaries whereby the fake bills were issued to the beneficiaries by hawala dealers without supplying any material, who got commission in return of the fake bills . The AO observed that these hawala operators have given affidavits before sales tax department stating that the purchase transactions were not genuine and material was not actually supplied by them. The assessee is one of beneficiaries of these fake/ bogus bills issued by hawala operators. These hawala dealers in their statement recorded before the sales tax department have admitted the fact that transactions are not genuine. The AO observed that the assessee has booked these purchases from hawala dealers as an expenses in its books of accounts, the onus is on the assessee to prove the genuineness and the correctness of these purchase transaction . The AO observed that purchases claimed by the assessee are not genuine . The assessee also could not prove the details of the vehicle expenses such has vehicle number, type of vehicle and transport receipts were not submitted by the assessee befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evant information from the appellant, in the light of decision of the Hon ble Delhi High Court in the Case of CIT v/s Jansampark Advertising And Marketing (P) Ltd, wherein, the Hon ble Court, inter-alia, held as under:- The AO here may have failed to discharge his obligation to conduct a proper inquiry to take the matter to logical conclusion. But CIT(Appeals), having noticed want of proper inquiry, could not have closed the chapter simply by allowing the appeal and deleting the additions made. It was also the obligation of the first appellate authority, as indeed of IT AT, to have ensured that effective inquiry was carried........... 6.2 Keeping in view the above above case laws and facts/submissions of the Ld. AR, the appellant was requested to establish the genuineness of these purchases, by affording a fresh opportunity of being heard, by furnishing the details information, as under: Please furnish current mailing address of the hawala parties, their confirmation of accounts their bank statements, produce for examination, proof for delivery of goods i.e. delivery challan, transport receipts, octroi receipts, loading, unloading expenses, stock register, etc, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NP NP Rate NP After addition of BP NP Rate Production of finished goods Raw material consumed %age of raw material to total production Name and address of parties to whom hawala purchases/goods were sold and GP/NP recorded. Name of item Amount Name of item sold Amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uments which could prove physical delivery of goods vis. a vis. corresponding consumption / sales thereof. On the other hand, in the case of regular purchases, on the same set of circumstances, the department had accepted such purchases without questioning their genuineness, as all relevant documents / records have duly been maintained by the appellant. e. If the practice of booking of bogus bills is legalized, by disallowing nominal percentage or estimating nominal rate of GP / P of a particular trade, then this may lead to provide an easy weapon in the hands of the manipulative assessee to suppress / manipulate their profit as and when so warranted. f. The practice of obtaining of fake bills to support the claim of bogus / unverified purchase being followed by the large number of assesses. This malpractice is in the operation for quite some time and is used brazenly to suppress the profits by obtaining bogus / paper purchase bill (without making actual purchase of goods) and thereby evading payment of legitimate taxes to Government Exchequer. There exists an unholy nexus between the bogus bill providers and businessmen engaged in the various trades. The effect o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh banking channels ( iii) By claiming that the purchases are reflected in the books of accounts, and sales not doubted. Considering the facts of the cases under consideration, it can safely be concluded that assessee had failed, in their efforts, in discharging the onus cast upon them. Merely filing name, address, PAN, bills, ledger accounts payments by cheque will not discharge them from the onus especially when the department had received specific material I information from the Sales-tax I V A T Department, wherein these suppliers, on oath had admitted the fact that they have merely provided entry / issued bills without physically delivering any goods. Case laws relied to support the stand of the department: In the case of CIT Vis GoIcha Properties (Pvt.) Ltd. 227 ITR 391 (Raj) it was held that the genuineness of transaction could be decided on the basis of primary facts on records. The department is not required to lead a clinching evidence to prove that purchases are bogus. The onus of proof at all relevant times rests upon the assessee. It is for the assessee to establish by evidence that a particular allowance is justified. The law doe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sued u/s. 133(6) - could not be issues I/served because of defective address. The assessee could not furnish current mailing addresses nor produce any party for examination. These ground is sufficient to reject the account u/s 145(3) of the Act, therefore, rejected. 5.4 There are number of decisions by the vanous courts, where 25% to 100% disallowance of bogus purchases, have been upheld, depends upon the fact of each case. Some of them are listed, here as under: 100% disallowance of bogus / unverifiable purchases was upheld, in following cases: ( i) CIT Vs La Medica (2001) 250 ITR 575 (Del) ( ii) Sri Ganesh Rice Mills Vs CIT (2007) 294 ITR 316 (All) ( iii) Khandelwal Trading Co. Vs ACIT (1996) 55 TT] (JP) 261 ( iv) Swetambar Steels Ltd. vs. ITa 707 / 1075 / 1262/ 1263 / JD (2002) I.TAT (Ahd) In the case of Swetambar Steels Ltd., The Hon ble ITAT has confirmed the disallowance of the bogus purchase in entirety stating that the purchase shown from the respective parties were found in-genuine. It is not a matter to be looked into whether the assessee has made purchases from different parties other than the alleged ones. It is also worth to men ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Jewellers Vs. ITa, ITA o. 552/JP/20 13, on account of bogus purchases, an addition of 25% of such purchases was confirmed by the Hon bIe ITAT, Jaipur Bench. 6.5. As regards, the case laws cited by the Ld. AR, it is noticed that the facts of the each case are not identical and also not similar to the facts of the case under appeal. The decisions in these cases, are based on the facts of each case, hence, cannot be applied to the facts of the case under appeal. The ratio of decisions in the cases of CIT Vs. Nangalia Fabrics Pvt. Ltd. Tax Appeal No 689 of 2010 Gujrat, Rajesh P. Soni Vs. ACIT, 100 TTJ, 982, YFC Projects (P) Ltd Vs DCIT (2010) 46 DTR 496 Sardul Singh Vs State of Bombay (AIR 1957 S.c. 747) etc, are not applicable in the case of the appellant, as during the course of assessment proceedings as well as appellate proceedings, the Ld. AR, time and again, was asked to explain I justify the genuineness of purchases made from hawala parties, by filing their current confirmation, current mailing addresses, their bank statements and produce hawala parties for examination etc., but failed to do so. In the absence of these details the department could not examine the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Income-tax Officer to hold that the payment was made exclusively and wholly for the purposes of the assessee s business. In this case, the Supreme Court observed as under :- Although there might be such an agreement in existence and the payments might have been made, it is still open to the Income-tax Officer to consider the relevant factors and determine for himself whether the commission said to have been paid is properly deductible. In this case absolutely no material! on record has been brought by the assessee to suggest that I commission agents had procured any orders for the assessee. The production for bills payments or having been made by account-payee cheques cannot by itself show that the commission agents had procured any order for the assessee. No correspondence............ In the above case, the Hon ble Supreme Court has made it very clear that by creating document making payment through banking channel to give colour, does not sacrosanct/ establishes the genuineness of the transaction. From the above discussion, it is seen that the various courts have upheld the disallowances of bogus purchases, ranging from 12.5% to 100%, based on the facts of e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... markets due to compelling circumstances, as the same were not available in the regular market, as has been held in the case of M/s. Kanchwala Gems Pvt. Ltd. vs. JCIT 288 ITR 10 (SC) 6.12. Keeping in view of the facts in entirely, as discussed above and appellants failure to furnish the firmed copy of ledger account, bank statements of the suppliers, item wise quantitative tally s etc. the books of the appellant are not tenable as per provisions of section 145(3) of the Act, therefore rejected. Considering the above facts and in view of the decision of the Hon. Delhi High Court in the case of Cl T Vs. Jansampark Advertising and Marketing (p) Ltd, it is also an obligation on the part of the first appellate authority to ensure that the effective enquiry is carried out, to arrive at logical conclusion. Therefore, to understand the impact of booking of hawala purchases on the profit of the year, the Ld AR was required to furnish the comparative details of GPINP and GPINP rates for hawala years, preceding two years and subsequent two years. In compliance, the appellant has submitted the details, as under:- 6.13 From the above chart, it is noticed that the gros ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me business, by same management, as against GP of 22.08% in A Y 2009-10,22.33% in A Yr 2010-11 and 26.43% in A Yr 2011-12. In the absence of any valid explanation, along with credible documents, the contention of the appellant is not tenable, therefore, the books of accounts are hereby rejected and GP declared in A Y 2013-14, i.e. 29.74% is estimated in the hawala years as well, in the light of decision of the Hon ble S.c. in the case of M/s Kanchwala Gem 288ITRIO. A Yr 2009-10 By booking alleged bogus purchases, as compared to the A. Y. 2012-13, the appellant has suppressed its profit by ₹ 44,76,629/- (5,84,44,245 x 7.66%). In compliance, the Ld. AR could not offer any valid reasons for fall in the GP rate. Considering the facts in entirety I the appellant being manufacturer and exporter of chemicals and relying on decisions in the case of M/s. Kanchwa!a Gems Pvt. Ltd. Vis JCIT 288 ITR 10 (SC), etc, as quoted above, in my considered opinion, as the suppressed GP of ₹ 44,76,629/- is more than the hawala purchases, therefore, the entire disallowance of ₹ 1,9301- made by the AO, is required to be upheld. All the grounds of appeal, are hereby dismissed. A Yr 2010-11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nufacturing and export of drug intermediates, speciality chemical, API s and rare to find chemicals. It was submitted that the case was reopened after getting information from the sale tax department that the assessee is allegedly beneficiary of bogus accommodation bills from hawala operators . It was further submitted by learned counsel for the assesses that all the documents were submitted before the AO including stock register, delivery challan, purchase invoices, bank statements from where payments were made were submitted . It was submitted by learned counsel for the assessee that the A.O has made additions to the tune of the 100% and also learned CIT(A) confirmed the additions to the tune of 100% . The learned counsel for the assessee relied upon the decision of the tribunal in ITA no 6055/Mum/2016 dated 26.04.2017 in assessee s own case, wherein the tribunal has restricted the addition to the tune of 12.5% of alleged bogus purchases. The assessee also placed reliance on tribunal decision in thee case of ACIT v. Steel Line India reported in (2017) 50 CCH 0306(Mum-trib) and also decision of the tribunal in the case of M/s Geolife Organics v. ACIT in ITA no. 3699/Mum/20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by Revenue from Maharashtra Sales Tax Department that large number of entities have provided entries for bogus purchases without supplying any material, of which the assessee was one of the beneficiary, which led to reopening of the assessment u/s 147 of the 1961 Act . Notices u/s. 148 of the Act was issued by the AO to the assessee on 19.07.2013 which was within four years from the end of the assessment year. It is also pertinent to mention that originally no scrutiny assessment was framed by the Revenue u/s 143(3) of the Act. The information was received by Revenue from Sales Tax Department, Maharashtra that the assessee is beneficiary of the bogus purchases made from the following four parties wherein only bogus bills were issued by these parties without supplying any material to the assessee: SI. No Name VAT .N0. Amount 1 Mls SAILEELA TRADING PVT LTD 27660591 188V 3498600 2 M/s NAVPAD EXPORTS PVT.LTD 27430616389V 381056 3. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 2011-12 with subsequent year i.e. AY 2012-13 as the said profits were highest rather than comparing profits for impugned assessment year with the preceding AY 2007-08 and 2008-09 . It is observed that the learned CIT(A) did cherry picking by selecting the year i.e. AY 2012-13 where there was highest Gross Profit(GP) ratio of 29.74%, while GP ratio of AY 2007-08 was 23.72%, AY 2008-09 was 19.97%, AY 2009-10 was 22.12%, AY 2010-11 was 22.33%, AY 2011-12 was 26.43%, AY 2012-13 was 29.74% and for AY 2013-14 was 25.94%, thus, choosing the year with the highest GP ratio for AY 2012-13 led to learned CIT(A) in upholding additions to the tune of 100% of bogus purchases as the differential of GP by applying the highest rate of GP ratio of AY 2012-13 vis-a-vis impugned year under consideration led to higher differential leading to confirmation of additions to the tune of 100% of bogus purchase by learned CIT(A), albeit the learned CIT(A) came to conclusion based on judicial precedents and factual matrix of the case that additions to the tune of 25% of bogus purchases are warranted in the case of the assessee. The assessee has claimed to have submitted consumption details to prove that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. In this appeal, assessee raised seven grounds in toto. The solitary and core issue raised in the appeal relates to the correctness of the addition on account of bogus purchases amounting to ₹ 1,930/-. AO and the CIT(A) made the entire bogus purchases of ₹ 1,930/- as addition u/s 69C of the Act. 3. During the proceedings before the Tribunal, Without going to the other aspects, Ld Counsel for the assessee submitted that restricting the disallowance to GP rate of 12.50% of ₹ 1930/- will meet the ends of justice. Ld AR also submitted that similar additions are made in subsequent years without restricting the addition to GP rate of 12.50%. 4. On hearing both parties, I am of the opinion that making the entire bogus purchases as addition u/s 69C is no longer sustainable in law considering the the Bombay High Court Judgment In the case of Nikunj Eximp Enterpries P Ltd (372 ITR 619) (Bom) and Gujarat High Court Judgment in the case of CIT vs. Simit P Sheth{2013} (356 ITR 451) (Guj) wherein restricting the addition to GP rate of 12.50% is approved. Accordingly I order and direct the A.O to restrict the disallowance to only 12.50% of the sum of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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