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TMI Blog2021 (1) TMI 1067X X X X Extracts X X X X X X X X Extracts X X X X ..... iled by the revenue and the assessee respectively, against the separate orders dated 22.01.2018 passed by the Ld. Commissioner of Income Tax (Appeals)-47, (for short CIT(A) Mumbai pertaining to the Assessment Years 2008-09, 2009-10, 2010-11, 2011-12, 2012-13, 2013-14 2014-15, whereby the Ld. CIT(A) has partly allowed the appeals filed by the assessee against the assessment orders passed u/s. 143(3) r.w.s. 147 of the Income Tax Act, 1961 (for short 'the Act'.) Since these appeals and cross objections pertain to the same assessee and the issues raised by the parties are identical, these were clubbed, heard together and are being disposed of by this common and consolidated order for the sake of convenience. 2. In these cases, the AO reopened the assessment order passed u/s. 143(3) of the Act, on the basis of information received from the DGIT (Inv.) Mumbai to the effect that during the previous year the assessee had obtained fake purchase bills from bogus parties who used to provide accommodation entries on commission basis. During the reassessment proceedings, the assessee failed to establish the genuineness of the transactions to the satisfaction of the AO. Accordingly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see. The Ld. DR further submitted that the findings of the Ld. CIT(A) are contrary to the ratio laid down by the Hon'ble Gujarat High Court in the case of N.K. Proteins and Pawanraj B. Bokadia. Therefore, the impugned orders are liable to be set aside. 6. On the other hand, the Ld. counsel for the assessee fairly admitted that the findings of the Ld. CIT(A) are based on the decision of the Mumbai Bench of the Tribunal in the case of M/s. Hotel Mayfair Pvt. Ltd., a Group concern of the appellant company, for the A.Y. 2011-12, wherein the addition of 17% of the total amount of bogus purchases made by the AO was sustained by the Tribunal in an appeal filed by the assessee against the order passed by the Ld. CIT u/s. 263 of the Act. However, the Ld. counsel further submitted that a reasonable percentage of profit may be sustained considering the fact and circumstances of the present cases. 7. The Ld. counsel further submitted that so far as the Cross Objections filed by the assessee is concerned, since the assessee intends to settle the dispute under Vivad se Vishwash Act, 2020, it does not want to press the same. Hence, the Ld. counsel submitted that the COs may be dismissed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia, the Director of the appellant company in order to have peace of mind and to avoid protracted litigation. On these facts, the AO has finally passed the assessment order on 28.03.2014, wherein an addition of ₹ 14,43,560/- has been made, being 17% of the alleged bogus purchases amounting to ₹ 84,91,525/-. The total income was assessed by the AO on an amount of ₹ 1,11,91,100/-, after taking into account the addition of ₹ 14,43,560/- made on account of bogus purchases. 11.3. However, in the case of M/s. Hotel Mayfair Pvt. Ltd. relevant to the A.Y. 2011-12, the CIT exercised the revisionary powers u/s. 263 of the Act, holding that the AO should have disallowed the entire bogus purchases, amounting to ₹ 84,91,525/- and the order of the AO was accordingly, set aside. The matter travelled to the ITAT, Mumbai and the Hon'ble ITAT has in ITA No. 1921/Mum/2015, vide it's order dated 01.07.2015 quashed the order of the CIT passed u/s. 263 of the Act. The relevant concluding pan of the Hon'ble ITAT being important is reproduced hereunder- 4. We have heard the rival submissions and perused the material before us. We find that the AO had ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment order was erroneous. He should not have set aside the order and directed the AO to conduct the inquiry. It is possible that had the AO made the inquiries as desired by the CIT, he would have collected higher revenue. But, that alone would not justify the invoking of the revisionary powers by the CIT. As the AO had applied his mind and passed the order after rejecting the book of accounts u/s. 145(3) of the Act, so, we are of the opinion that the order of the AO was not neither erroneous nor prejudicial to the interest of the Revenue. Respectfully, following the above judgment of the Hon'ble Delhi High Court, we decide the effective ground of appeal in favour of the assessee. As a result appeal of the assessee stands allowed. 11.4 It is noted from above that the Hon'ble ITAT, Mumbai has clearly held that the AO had applied his mind and passed the order after rejecting the book of accounts u/s. 145(3) of the Act, and hence, the order of the AO was neither erroneous nor prejudicial to the interest of the Revenue. In view of these circumstances, it is seen that as on date, the original assessment order of the AO in the case M/s. Hotel Mayfair Pvt. Ltd. for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with a view to avoid litigation and buy peace. 11.7 A note has also been taken of the following further facts emerging from the material placed on record, by the Appellant Company:- The appellant has filed before the AO, the ledger accounts of all parties, copies of invoices, details of Sales Tax TIN No., details of nature of items purchased, copy of Bank Statement etc. Further, all the payments have been made to the parties by a/c payee cheques. A perusal of the invoices reveals that the material purchased relates to repair and maintenance consumables like table clothes, Shampoos, soaps, hair oil, toothpaste etc, which is used in the day to day running of hotel business and such material is mainly procured from the unorganized sector. The alleged purchases has been held non-genuine on the basis of the information on the website www.mahavat.gov.in and no evidence/statement was furnished to the appellant of the alleged parties, which have been treated as accommodation entry providers by the Sales Tax Department. In this regard, no opportunity for cross-examination of such parties have been provided to the Appellant company. No specific defect has been poi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not appear before the AO is not sufficient to conclude that the purchases were bogus. 11.10 It is further relevant to mention here that the Hon'ble Supreme Court in the case of Kachwala Gems vs. JC'IT (2006) 288 ITR 10, (2006) 206 CTR 0585: (2007) 288 ITR 0010: (2007) 158 TAXMAN 0071 has held that the rejection of books of accounts u/s. 145 in a bogus purchase case and completion of assessment to the best judgment u/s. 144 of the Act was justified. The facts of this case are that the assessee was dealing in precious and semi-precious stones. The AO noticed certain defects in the books of accounts of the assessee, i.e. it had not maintained any quantitative details/stock register of the goods traded by it and there was no evidence/document or record to verify the basis of closing stock valuation shown by it and the G.P. rate declared by the assessee at 13.49% during the year did not match the results declared by the assessee itself in the previous assessment years. Therefore, the AO rejected the books of accounts of the assessee and resorted to best judgment assessment u/s. 144 of the Act. On appeal, the CIT (Appeals), though reduced the quantum of profit estimated by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the assessee did purchase the cloth and sell finished goods. in that view of the matter, as natural corollary, not the entire amount covered under such purchase, but the profit element embedded therein would be subject to tax. This was the view of this Court in the case of Sanjay Oilcake Industries v. CIT, 316 ITR 274 (Guj.). Such decision is also followed by this Court in a judgment dated 16.8.2011 in Tax Appeal No. 679 of 2010 in the case of CIT v. Kishor Amrutlal Patel. 11.14 Further, in the case of CIT v. Simit P. Sheth, 355 FIR 290 (GO), the Hon'ble Gujarat High Court has held that in the case of bogus purchases, it is vital to ascertain whether purchases were totally nonexistent or were actually made, but from grey market without proper billing, instead of from parties from whom it was claimed to be purchased. Once it is clear that purchases were actually made then only the profit embedded in it and not price of bogus purchases could be added in the income of assessee. The relevant portion of the judgment in this regard is reproduced hereunder:- 5. We are broadly in agreement with the reasoning adopted by the Commissioner (Appeals) with respect to the nature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w-material, in which the assessee was trading, were only made, but not from the disclosed sources. In other words, the case against the assessee was that the purchases were made in the grey market through cash payment and some entries were obtained from certain suppliers who had not sold such goods. 6. The present case, thus, being one of only purchase but not from disclosed sources, it would be only profit element embodied in such purchase which could be added in the income of the assessee and thus, rightly so done by the Commissioner (Appeals) and the Tribunal. 7. If this be our conclusion, only question arises whether such profit element should be estimated at the rate of 30 percent or 12 1/2 percent. Whenever such a question arises, some reasonable estimation is always permissible. Hardly any question of law on such aspect would arise. Merely, it is pointed out that the assessee was a trader and that the Tribunal retained 12 1/12 percent of the purchase towards its possible profit, we do not find any reason to entertain the appeal. In the result, Tax Appeal is dismissed. 11.16 In a recent judgment in the case of Pr. CIT Gandhinagar Vs. Jagdish H Patel, [2017] 84 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Rs. In Crores) 37.19 44.04 44.99 43.24 49.42 53.18 45.3 Gross Profit (Rs. In crores) 10.34 12.69 6.33 5.88 6.35 5.97 7.9 % of GP on Income 28 29 14 14 13 11 18.1 Net Profit (Rs. In crores) 6.37 7.76 3.75 3.96 3.62 3.56 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clared profit in the books of account. 6.20 As far as the unverifiable purchases, which have been capitalised are concerned, the amount of depreciation claimed during the year under consideration, on such capitalised assets needs to be disallowed. 6.21 During the course of the appellate proceedings, the Appellant has submitted the bifurcation of unverifiable purchases into capital and revenue account. The complete details of unverifiable purchases in this regard are tabulated below:- Sr. No. Assessment Year Unverifiable Purchases, as per A.O. (In Rs.) Correct figure, as per Books (In Rs.) Revenue Expenses (In Rs.) Capital Expenses (In Rs.) 1 2007-08 33,40,182 33,40,182 33,40,182 - 2 2008-09 139,79,631 139,79,631 117,58,267 22,21,364 3 2009-10 288,32,901 288,32,901 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 19,40,187 39,75,697 8 2014-15 14,18,735 22,63,828 36,82,563 9 2015-16 - 19,85,943 19,85,943 10 2016-17 - 17,43,571 17,43,571 11 2017-18 - 15,32,003 15,32,003 Total 198,34,575 143,06,692 341,41,267 6.23 Accordingly, an amount of ₹ 19,98,905/- being 17% of the bogus purchases claimed as revenue expenses and depreciation amounting ₹ 1,31,417/- in relation to the capitalized amount is upheld. The total disallowance on account of unverifiable purchases works out to ₹ 21,30,322/-, which is accordingly confirmed for the current year under consideration. Hence, Ground of Appeal No. 2 of the present appeal is partly allowed. 9. We notice that in the case of M/s. Hotel Mayfa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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