TaxTMI 
TaxTMI 
TaxTMI 
2017 (12) TMI 1477
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....ts 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 income was on account of failure on the part of the appellant to disclose fully and truly all material facts necessary for his assessment for said assessment year and therefore proceeding initiated under section 147 of the Act by issuing notice under section 148 of the Act is bad in law and liable to be annulled. 3. On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals) erred in rejecting cla....
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....r purchase of materials was considered, which worked out to Rs. 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 vs. ITAT 316 ITR 274 (Guj), ACIT vs. Tribhovandas Bhimji Zaveri 74 ITD 92 (Mum), Bholanath Polyfab Pvt. Ltd. 355 ITR 290 (Guj), Sanket Steel Traders vs. ITO in ITA No. 2801 & 2937 (Ahd) of 2008 dated 20.05.2011 and Vijay Proteins Ltd. vs. ACIT 58 ITD 428 (Ahd) directed the Assessing Officer to estimate the net profit @17.5% on purchases made from the parties which are alleged to be bogus by observing as under: "The motive behind obtaining bogus bills thus, appears to be inflation....
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.... 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 assessee is duly covered by the said decision of the Tribunal. He also submitted a comparative chart in the following manner: Steel Line (India) Rishab Steel (House) 13. After considering the above judicial pronouncements, the CIT(A) concluded as under: - 2.7.19 The facts in the present case are similar to the facts in the above mentioned case. In the present case, the Ld. AO has shown that the eight parties in question were nonexistent. The appellant has not been able to disprove the findings....
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....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 sustained the addition as probable profit of the assessee. The Tribunal however, sustained the addition to the extent of 12.5%. Taking into account the above facts, the Hon'ble Gujarat High Court held that since the purchases were not bogus, but were made from parties other than those mentioned in books of accounts, only the profit element embedded in such purchases could be added to the assesses's income and as such no question of law arose in such estimation. While arriving at the above conclusion, the Hon'ble Court also relied on the decision in the case of Vijay M. Mistry Construction Ltd. 355 ....
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....l 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 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 name 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 ma....
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....is 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 has sustained the addition of Rs. 50,000- on account of bogus purchases. However, we find that the facts in the above case were different. In the above case, the assessee has shown purchases of Rs. 27,39,410/-, sale of Rs. 28,17,207/~ and Gross Profit at Rs. 94,740/-, The Assessing Officer made the addition of 27,39,407/- for bogus purchases. If the above sum is added to the Gross Profit, the Gross Profit works out of 2,83,41,247/-which was more than the sale itself. The Tribunal held that it is impossible that the Gross Profit is more than the sale itself. The Tribunal also found that the assessee has maintained the quantitative details in respect of materials purchased and sold. Considering peculiar facts of that case, the Tribunal arrived at the conc....
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....ofit 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 behind obtaining bogus bills thus, appears to be inflation of purchase price so as to suppress true profits. Estimation ranging from 12.5% to 25% has been upheld by the Hon'ble Courts depending upon the nature of the business. As held in the case of Simit P. Sheth (supra) no uniform yardsticks could be applied to estimate the rate of profit and it varies with the nature of business. Taking all the facts into consideration and since the' assessee is supplying the material to reputed companies and offering reasonably good percentage of GP (@6.49%) and also taking 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 as the profit elem....
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.... 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 maintaining the stock record, rather it is a case where the assessee is duly reconciling the quantitative details in respect of the purchase and sales. Therefore, in our opinion, the fact remains that he assessee would have made the purchases but not from the alleged parties. It is a case where the purchases would have been made from the grey market and when the purchases are being made from the grey market naturally the assessee would have saved not only the sales tax but also would have got the purchases at a lower rate. No doubt, in the case of M/s. Steel Line (India), this Tribunal in ITA 1321, 1322, 1323/Mum/2016 vide order dated 29.08.2017 has restricted the addition to the extent of 2% of such purchases. We have gone through the said order of the Tribunal and noted that it has been held as under: "Against the above order of CIT(A....
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....r 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 grey market the assessee would have saved taxes may be in the form of excise duty and sales tax, which is being shared between the seller and the buyer. Not only this, in our view, the assessee would never buy the material from the grey market until and unless there is saving in the cost of material. The learned AR before us even though submitted a comparative chart in respect of various decisions, which were referred to by the CIT(A) while estimating income on such alleged bogus purchases @17.5%, we do not agree with the contention of the assessee because in our opinion, whatever the assessee claims deduction for a expenditure, onus is on the assessee to prove the genuineness of the expenditure. Before us no cogent material or evidence was produced or referred to which may prove that the purchases made by the assessee form the alleged parties w....
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....ming 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 by assessee belongs to the Government authorities and some to the private parties. The private parties have denied to have rendered any services to the assessee or to the dealer. One of the vehicles was tanker and one tipper. The assessee could not provide the slip of weight at the time of delivery. The assessing officer disallowed the entire purchases of Rs. 33,37,54,424/- from Karma Industries Ltd. The assessing officer rejected the documentary evidences furnished by the assessee. The assessing officer disbelieved the certificate of consumption issued by Engineer appointed by NHAI. The assessing officer has not brought any material on recorder to discard the evidences furnished by the assessee. The assessing officer examined two Engineers with regard to the certificate issued by them. The assessing officer has not given any adverse finding nor pointed out any infirmit....
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.... 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 project of Surat- Dahisar and Kolhapur are concerned, the purchase of steel cannot be treated as bogus. (para 6.3.8 of ld CIT(A) order) However, the ld Commissioner (Appeals) concluded that such purchases are made from the parties other than those mentioned in the books of accounts and the profit element embedded therein needs to be brought to tax. The ld. Commissioner (Appeals) further concluded that such purchases are made only to save 10% Excise duty and cess levied thereon at 2% and sustained the disallowance at 12.5% of the purchases shown for Surat- Dahisar and Kolhapur. The ld AR for the assessee while making his submission before argued that the assessee is engaged in execution of Infrastructure project and the rate ofVAT for steel applicable for such purchased is 4% and that the assessee has already paid the same on all purchases. This fact was not disputed by ld.DR for the revenue. ....