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TMI Blog2017 (12) TMI 1477X X X X Extracts X X X X X X X X Extracts X X X X ..... be decided on the basis of grounds and facts involved for A.Y. 2006-07. 2. The grounds of appeal raised by the assessee in A.Y. 2006-07 are as under: 1. On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals) erred in estimating profit @ 17.50% on alleged bogus purchases of ₹ 2107723/-. Provisions of the Act ought to have been properly construed and regard being had to facts of the case profit should not have been estimated @ 17.50% instead of profit declared by the appellant. Reasons assigned by him are wrong and insufficient to justify estimating profit @ 17.50% on such purchases. 2. (a) On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals) erred in rejecting claim of the appellant that proceeding initiated under section 147 of the Act by issuing notice under section 148 of the Act is bad in law and contrary to the provisions of the Act. Reasons recorded by him depict mere suspicion and no tangible material is available in possession of the Assessing Officer. ( b) The learned Assessing Officer failed to record in the reason that escapement of inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee had debited purchases from various parties whose TIN matched with the information kept in the public domain by the Sales Tax Department with regard to the hawala operators. The Assessing Officer issued show cause notice and after going thorugh the submissions and contentions of the assessee at length, concluded that the assessee had not purchased any goods from the party and, hence, in respect of peak amount of investment made out of unaccounted money by the assessee for purchase of materials was considered, which worked out to ₹ 21,07,723/- u/s. 69C of the Act. Penalty proceedings u/s. 271(1)(c) of the Act was initiated for concealing and furnishing inaccurate particulars of income. Aggrieved the assessee went in appeal before the CIT(A). 5. The CIT(A) so far as the validity of re-opening is concerned dismissed the ground of the assessee and took the view that the Assessing Officer has reason to believe for re-opening the assessment. So far as the addition on merit is concerned, the CIT(A) after discussing the decisions in the case of Sri Ganesh Rice Mills vs. CIT 294 ITR 316 (All), Samurai Software (P.) Ltd. vs. CIT 299 ITR 324 (Raj), Indian Woollen Carpet Factory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer must have a reason to believe that there is escapement of assessment during the impugned assessment year. It is not a case where the reason recorded by the Assessing Officer does not belong to the assessee or the assessee has not shown purchases in its books of account from the impugned parties, which has been treated to be bogus. In our opinion, information received by the Assessing Officer may be from any outside parties. It is not a case where the Assessing Officer has not applied his mind. Rather aforesaid view is duly supported by the decision of Hon ble Supreme Court in the case of ITO v. Purushottam Das Bangur Anr. (1997) 224 ITR 362 (SC) We, therefore, dismiss ground nos. 2 3 taken by the assessee. 6. Now coming to ground no.1, which relate to addition sustained in respect of alleged bogus purchases. The learned AR before us relied on the order of this Tribunal, dated 29.08.2017, in the case of ACIT vs. Steel Line (India) in ITA Nos. 1321 to 1323/Mum/2016 880 to882/Mum/2016, wherein this Tribunal directed the Assessing Officer to restrict the addition to the extent of 2% of such purchases. He further contended that the present case of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would boil down to finding out the element of profit embedded in bogus purchases which the appellant would have made from some unknown entities. Hence, respectfully following the decision of the Hon'ble Gujarat High Court in the case of Bholanath Polyfab Pvt. Ltd. (supra), it is concluded that the profit margin embedded in such amounts of purchases could only be disallowed and subjected to tax. 2.7.20 Having decided that the profit margin only to be subjected to tax, now we have to see what is the percentage to be adopted for taxing, especially when it varies from trade to trade. Hon'ble Gujarat High Court in the case of CIT vs. Simit Sheth (2013) 38 Taxmann.com 385 (Guj), was seized with a similar issue where the A.O. had found that some of the alleged suppliers of steel to the assessee had not supplied any goods but had only provided sale bills and hence, purchases from the said parties were held to be bogus. The A.O. in that case added the entire amount of purchases to gross profit of the assessee. Ld. CIT(A) having found that the assessee had indeed purchased though not from named parties but other parties from grey market, partially sus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here 33 parties were found to be bogus by the departmental authorities even though payments were made to the said parties by cross cheques and in fact the A.O. in that case had brought adequate material on record to prove that the cross cheques had not been given to parties from whom supplies were allegedly procured but these were encashed from a bank account in the jowame of another entity, possibly hawala dealer. Subsequently, the money deposited in that account was withdrawn in cash almost on the same day. The Tribunal however, held that if the purchases were made from open market' without insisting for genuine bills, the suppliers may be willing to sell the product at a much less rate as compared to a rate which they may charge in which the dealer has to give genuine sale invoice in respect of that sale. Keeping all such factors in mind, the Tribunal estimated an element of profit percentage of the overall purchase price accounted for in the books of accounts through fictitious invoices 2.7.16 In the case of Vijay Proteins(Supra), the Hon'ble ITAT was seized with a case of bogus suppliers of oil cakes where 33 parties were found to be bogus by the dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ering the facts of the assesses's case, has sustained the addition at 12.5%. While doing so, he has also relied upon the decision of the Tribunal in the case of M/s. Vijay Proteins Ltd. 55 TTJ (Ahd) 76. In the case of M/s. Vijay Proteins Ltd. the Tribunal has sustained the addition of 25% of the bogus purchases. However, considering the facts of the assessee's case the CIT (A) restricted the disallowance to 12.5% as against 25% made in the case of M/s. Vijay Proteins Ltd. From these facts it is evident that the CIT(A) has sustained the addition at 12.5% of the non-genuine purchases considering the facts of the assessee's case. We, therefore, do not find any justification to interfere with the order of the CIT (A) In this regard. The same is sustained. 2.17.17 Further, in the case of M/s. Sanket Steel Traders (ITA No. 2801/Ahd/ 2008 dated 20-05-2011 it was, inter-alia, stated as under: 3. At the time of hearing before us, it is submitted by the Learned Counsel that the addition sustained is excessive. In support of this contention he referred to the decision of the Tribunal in the case of ITO vs. Sun Steel 92 777 (Ahd) 1126 wherein the Tribunal h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king into the findings of the Hon'ble Courts on this issue, I am of the view that estimation of 17.5% of profit would meet the ends of justice. Therefore, I direct the AO to estimate profit of 17.5% on the total alleged bogus purchases from the seven/eight parties as the profit element embedded in such purchases. While estimating the GP on the bogus purchases, the percentage of GP already offered in the books of account on the relevant sales out of the purchases and is to be reduced from such estimated profit. Since the GP percentage is varying from year to year, the AO is directed to verify the correctness of the average GP percentage stated by the appellant in the submissions (which is around 7% as per the calculation for the previous three years) and to reduce the same from the estimated net profit of 17.5% on the purchases made from the seven/eight parties. As directed earlier, on verification, if there are no purchases made from M/s Vardhaman Trading co as claimed by the appellant and appears to be true, the same needs to be removed for arriving the GP on the bogus purchase parties. Accordingly, the ground of appeal is partly allowed. 2.7.18 The motive b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... % of such bogus purchases. The Tribunal has not given any reason why the Assessing Officer has been directed to estimate income @2% of such bogus purchases. Therefore, this decision does not have binding force. The facts involved in each case are entirely different. Had the Tribunal given the reasons as to why income was estimated @2% the decision made have a binding force not otherwise. 8. We have heard the rival submissions and carefully considered the same along with the orders of the tax authorities below. The only issue before us relates to the estimation of profit in respect of purchases which are regarded to be bogus purchases by the Assessing Officer even though the sales made by the assessee have not been disputed by the Revenue. Rather it is a fact that Revenue has accepted the sales made by the assessee. The Assessing Officer has disallowed all the alleged bogus purchases and made the addition in the income of the assessee u/s. 69C of the I T Act. It is not disputed that the parties, which are alleged to be bogus purchases are available in the public domain in the website of the Sales tax Department being the hawala operators. It is not a case that the assessee is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e directing the addition to be restricted to 2% of such bogus purchases has not given any reason but mentioned that they deemed it appropriate, considering the entirety of facts and circumstances of the case, to restrict the addition to the extent of 2% of such bogus purchases. The Tribunal while giving such directions under para 3 of its order, reproduced various orders dealing with the identical issue passed by the Gujarat High Court as well as Ahmedabad Bench of this Tribunal and which has been referred to by the CIT(A) as well as by the assessee before us during the course of hearing. In these cases, we noted that the Tribunal/High Court has not directed the Assessing Officer to restrict the addition to the extent o f2% but the addition was sustained ranging from 12.5% to 25%. We may also mention that the gross profit earned by the assessee or shown in its income tax return does not have any bearing so far as the addition is being made in respect of income earned by the assessee on the alleged bogus purchases. The logic for estimating the addition for alleged bogus purchases is that the assessee would have made purchases from the grey market and by making the purchases from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. The assessee also filed reconciliation of material consumed along with chart with ratio of material. The assessee also filed the working of the estimated cost for bidding purpose, certificate from his Banker/ lender s Bank, i.e STUP Consultant. Certificate from independent Engineer appointed by National High Way Authority (NHAI) i.e. Intercontinental Consultant and Technocrats Pvt Ltd. All the purchases were made through account payee Cheques. The assessing officer was not accepted by the contention and the evidences of assessee, on the grounds that the assessee claimed that the transporting charges were born by dealers. The assessing officer recorded that from the enquiries from the RTO office, it was revealed that the majority of vehicles allegedly used for transportation are owned by the assessee itself. If the assessee was using its own vehicle while it was claiming that transport charges born by the dealer. The assessing officer further concluded that no delivery challans were found during a search and seizure proceeding. Further the vehicles other than the vehicle owned by the assessee were not utilized for transportation of material or that some vehicles number provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd (KIL) is not listed in the website of Sales Tax Department Government of Maharashtra. The assessee also explained the typographical mistake in the Registration number of vehicles used in transportation of the Steel, details of which are available in the paper book filed in appeal for AY 2008-09. The perusal of the details of Registration number of vehicles reveals that the mistake in writing is very minor which may occur due to human error. The assessee furnished the certified copies of the Registration Certificate (RC) and photographs of the vehicles and the evidence how the Tipper was used for transportation. The assessee also furnished explanation of the discrepancies recorded by assessing officer. On the written submission of assessee, the ld. Commissioner (Appeals) sought the comments of assessing officer. The assessing officer filed his comment / remand report dated 25.10.2016. In the remand report the assessing officer disputed the contention of the assessee and relied on his findings. After considering the submission of the assessee and the material on record the ld. Commissioner (Appeals) concluded that there are good and sufficient reasons to hold that so far as proj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t- Dahisar and Kolhapur project at 5% of the impugned (disputed) purchases would meet the end of justice. Similar view was taken by Hon ble Gujarat High Court in CIT Vs Simit P Seth [2013(356 ITR 451)] and by Hon ble Bombay High Court in Hariram Bhambani ITA No 313 of 2013. The facts of the decision in N. K. Proteins (supra) relied by ld. DRfor the revenue are at variance. In the said case the assessee was trader.During the search action in that case blank signed cheques books and numbers of vouchers were found on the basis of which the transaction was treated bogus. However, in the present case the assessee has given sufficient evidences to substantiate its purchases. Moreover, no incriminating material was found during the search at the premises of the assessee. The addition of alleged bogus purchased are based on third party information. No yardstick formula can be applied while assessing the amount of revenue leakage. Moreover, the revenue has not disputed the consumption of steel. Thus, respectfully following the decision of Hon ble Gujarat High Court in CIT Vs Simit P Seth supra and by Hon ble Bombay High Court in Hariram Bhambani supra, the disallowance of cost of purchases ..... X X X X Extracts X X X X X X X X Extracts X X X X
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