TaxTMI 
TaxTMI 
2019 (9) TMI 367
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....issioner of Income-tax(Appeals) has erred in deleting the addition of Rs. 45,12,259/- on account of bogus purchases. 2. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-tax(Appeals) has erred in not considering that the addition was made on the basis of information received from the DIT(lnv.) and Sales Tax Department, Maharashtra with regard to bogus purchases made by the assessee from dealers without supply of actual goods. 3. On the facts and in the circumstances of the case and in law the learned Commissioner of Income-tax(Appeals) has erred in not considering that the hawala dealers have admitted before the Sales Tax Authorities that they have not sold any material to anybody. 4. On the facts and circumstances of the case and in law the learned Commissioner of Income-tax(Appeals) has erred in not considering that the assessee could not prove the delivery of material received from the Havala Parties and also failed to produce the stock register. 5. On the facts and circumstances of the case and in law, the learned Commissioner of Income-tax(Appeals) has erred in estimating the profit at 12.5% on the total alleged bogus purc....
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....eir stand. 4. The brief facts of the case are that the assessee is a firm and is engaged in the business of manufacturing & supplying goods as per requirements of different railway workshop wherein it supplies engineering goods, consumables, hardware etc.. The AO received information that the assessee is engaged into practice of inflating its purchases by taking accommodation entries through hawala parties. These parties are appearing in the list of suspicious dealers, who had issued accommodation bills without delivery of goods as per information received by AO from Sales Tax Department of Maharashtra Government through DGIT (Inv.), Mumbai vide letter bearing no. Corr. Field/DGIT (Inv)/2013-14 dated 20.01.2014 and also this information is found reported on Maharashtra Sales Tax web-site , the details of such alleged bogus purchases are as under:- SI. NO. Name of the party VAT No. Transaction amount (In Rs.) 1 Alok Trading Co.. 27440561142V 1,17,524 2. Anlket Industries 27960621869V 8,09,923 3. Mico Steels 27930713987V 8,75,477 4. R.K. Matel 27340354975V 10,77,652 5. Ujwal Enterprises 27940626827V 12,83,842 6. Bohra Metal Industri....
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....t Maharashtra VAT department has concluded after enquiries that these parties were issuing false bills without supplying material physically. These parties have accepted cheques against false bills and cash was returned after deducting their commissions. The assessee could not produce these parties before the AO and notices issued u/s 133(6) also returned un-served. The assessee could not produce stock register showing movement of goods purchased and consumed. Thus, it was concluded by the AO that colourable devices were used by the assessee to defraud Revenue. Several case laws were relied upon by the AO which are cited in its assessment order to decide the issue against the asssessee, wherein 100% of the alleged bogus purchases from these seven parties stood added to the income of the assessee. The AO concluded that the books of accounts of the assessee do not reveal true and correct financial status of the assessee. The books of accounts were rejected by AO by invoking provisions of Section 145 of the 1961 Act. The AO made additions to the income of the assessee to the tune of Rs. 51,56,867/- by invoking provisions of Section 69C of the 1961 Act being 100% of the alleged bogus p....
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....alleged bogus purchases vide appellate order dated 15.03.2017, by holding as under:- "5. I have considered the facts, oral contentions and written submissions of the appellant as against the observations/findings of the AO in assessment order. The submissions and contentions of the appellant are being discussed and decided as under:- 5.1 All the grounds raised are related to additions of Rs. 51,56,867/-. For the sake of convenience, all the grounds are disposed together. 5.2 In this case information was received from Sales tax Authorities, Mumbai that the appellant has obtained bogus bills from aforesaid parties without any supply of goods from them. The A.O. asked the appellant to produce the sufficient evidence and establish the genuineness of transactions said parties before him. However, the appellant failed to do so. The sales shown by the appellant are not doubted or proved non genuine by the AO. The logical corollary of this is that the appellant must have made purchases or else where from he could have effected the sales. In this regard it is submitted by the Ld, A.R. that he had submitted the details of purchase, invoice bills along with the detail of the bank transa....
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....rofit cannot be computed. The auditor has not given any adverse comment in maintenance of books of accounts or stock register. The Assessing officer has also not specified for reasons of rejecting the books of accounts. Hence, the rejection of books of account cannot be sustained. 5.5 During the appellate proceedings, the appellant has vehemently argued that the appellant had submitted sufficient documents and details of bank account, wherein these payments made to these parties through normal banking channel have been reflected were submitted during the assessment proceedings. Identical issue came up before the Hon'ble High Court of Gujarat in the case of Commissioner of Income v. Bholanath Poly Fab. P. Ltd. Reported in 355 ITR 290 (Guj.). In this case, the assessee was engaged in the business of trading in finished fabrics. The AO disallowed purchase amounting to Rs. 40,69,546/- as bogus/unexplained. The CIT(A) confirmed the action of the AO. The issue was carried in appeal before the Hon'ble Tribunal which concurred with the finding of the revenue authorities below that such purchase was made from bogus parties. After adverting to the facts and data placed before it, t....
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.... the year 2005-06 were sold by the assessee. Therefore the purchases of the entire l,02,514 mtres of cloth were sold during the year 2005-06. The Tribunal therefore accepted the assessee's contention that the finished goods were purchased by the assessee though not from the parties shown in the accounts but from other sources. The Tribunal was of the opinion that not the entire amount but the profit margin embedded in such amount would be subject to tax. 5.6 In the case of M/s.Sanjay Oilcake Industries v. Commissioner of Income tax reported in 316 ITR 274 (Guj) The Hon'ble Court had upheld the action of the CIT(A) and ITAT in determining estimated addition of 25% of the purchases in cases involving bogus purchases. The head note is as under:- "Assessment income from undisclosed sources - Additions on account of inflated purchase price - Estimate- Not a question of law - No material produce by assessee to disprove inflated purchases - Tribunal's order in accordance with law - Income Tax Act, 1961. Whether an estimate should be at a particular sum or at a different sum can never be a question of law. For the assessment years 1984-85 and 1985-86 the Assessing Offic....
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....us purchases as the profit embedded in such transaction. The head note is as under: Income from undisclosed sources - Assessee trading in steel- Finding that purchase recorded by it were not bogus but from other parties not recorded in books - Estimation of profit element embedded in purchases Tribunal justified in estimation on the basis of facts Income tax Act 1961. The assessee was engaged in the business of trading in steel on wholesale basis. During the course of the reassessment proceedings for the year 2006-07, the Assessing Officer noticed that some of the supplies of steel to the assessee had made their statements on oath to the effect that they had not supplied the steel to the assessee but had only provided sale bills. In turn they were receiving a small commission. The Assessing Officer concluded that the total purchase of Rs. 41,04,903/- cumulatively made from the three parties were bogus. He thus treated such purchase as bogus purchases and added the entire amount of Rs. 41,04,903/- to the gross profit of the assessee. He also rejected the books of account and estimated the assessee's business profit at Rs. 5 lakhs. The Commissioner (Appeals) held that the a....
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....f it is possible to complete the sales or the production as shown, even without the material involved in the suspicious purchases, it needs to be shown whether the sale transaction was effected or production was done even without using such material or whether such materials were also used. Unless it is shown that such materials were not used in corresponding sales or the production as shown, purchases cannot be held bogus and it will be a case of purchase from bogus parties. However if the material has been used in the sales, or as the case may be in production, it cannot be a case of bogus purchases. Rather it will be a case of purchase from bogus parties. Statements of hawala providers recorded by Sales Tax Authorities; affidavits filed by such suppliers before Sales Tax Authorities; absence of evidence in support of transportation/delivery of material etc., have been held less relevant as mere indicators and not decisive factors, to draw a conclusion regarding genuineness of purchases. 5.9 The suppliers were found to be engaged in providing bogus bill without actual dealing of goods. The appellant made payments for these purchases by account payee cheques duly cleared through....
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.... material on record to show that there is suppression of sales. It is basic rule of accountancy as well as of taxation laws that profit from business cannot be ascertained without deducting cost of purchase from sales. Estimation of profit ranging from 12.5% to 15% has been upheld by the Hon'ble Gujarat High Court in the case of CIT vs. Simit P. Sheth 356 ITR 451 (Guj.) depending upon the nature of business. 5.9 Considering the totality of the facts before me, as well as the judicial opinion available, I am inclined to agree with the appellant's stand that the addition is excessive. The A.O. has disallowed the amount of Rs. 51,56,867/- on account of bogus purchases. The total purchase debited to the trading account from these parties are Rs. 51,56,867/-. I am of the view that estimation of profit at 12.5% would meet the ends of justice. Therefore, I direct the AO to estimate profit of 12.5% on the total purchases in question which works out to Rs. 6,44,608/- (12.5% of Rs. 51,56,867/-). The appellant therefore gets relief of Rs. 45,12,259/-fRs. 51,56,867/- minus Rs. 6,44,608/-). The grounds raised are partly allowed." 6. The Revenue is aggrieved by the appellate order pas....
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....so relied upon the decision of Hon'ble Bombay High Court in the case of The PCIT-17, Mumbai v. Mohommad Hazi Adam & Company in ITA no. 1004 of 2016 & Ors. , vide common judgment dated 11.02.2019 and prayers were made to uphold the appellate order passed by Ld. CIT(A), while on the other hand learned DR has prayed for sustaining assessment order passed by the AO. 7. We have considered rival contentions and perused the material on record including cited case laws. We have observed that assessee is a firm and is engaged in the business of manufacturing & supplying goods as per requirements of different railway workshop wherein it supplies engineering goods, consumables, hardware etc.. We have observed that the assessee filed its return of income on 08.09.2010 which was originally processed by Revenue u/s. 143(1) of the Act. It is observed that originally no scrutiny assessment was framed by Revenue against the assessee u/s 143(3) read with Section 143(2) of the 1961 Act. The AO received information that assessee is engaged into practice of inflating its purchases by taking accommodation entries through hawala parties. These parties are appearing in the list of suspicious dealers prep....
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....tock was also filed before the Bench. At the same time it is an admitted position between rival parties that incriminating information was received by AO from Maharashtra VAT authorities that these parties are engaged in providing bogus accommodation entries and have admitted their indulgence as Hawala dealers. The assessee made purchases from these parties and the purchases are appearing in books of accounts of the assessee. The onus is on the assessee to prove genuineness of these purchases. The assessee could not produce these parties before the authorities below . The AO rejected books of accounts of the assessee u/s 145 and made additions to the tune of 100% of alleged bogus purchases. Based upon entire factual matrix of the case and relying on judicial precedents , the Ld. CIT(A) restricted the addition to 12.5% of the alleged bogus purchase being profits embedded in these purchases. The Ld. DR on the other hand is insisting on confirming additions to the tune of 100% of alleged bogus purchases by relying on decision of Hon'ble Supreme Court in the case of N.K Proteins(supra) . We have observed that in case of N K Proteins(Supra) , the facts were distinguishable as the tax pa....
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....TO in ITA no. 3471 to 3473/Mum/2015( to which both of us were part of DB who pronounced this order), vide order dated 27.11.2018 has upheld the additions to the tune of 12.5% of the alleged bogus purchases, by holding as under:- "8. We have considered contentions of the Ld. DR and perused the material on record. We have observed that the assessee is engaged in the business of Rubber products, chemicals and compounds. The AO received information from Maharashtra Sales Tax Department as well from DGIT(Inv.), Mumbai that the assessee had made purchases from certain parties who are hawala dealers engaged in providing accommodation entries wherein bogus purchases bills were issued by these dealers without supplying any material. The Maharashtra Sales Tax Department made enquiries wherein it was concluded that these parties are hawala dealers engaged in issuing bogus invoices without supplying any material. The assessee is one of the beneficiaries of the bogus accommodation entries from these hawala dealers. The assessee has claimed to have made purchases from following parties who were listed as hawala dealers by Maharashtra Sales Tax department:- S.No. Name of the Party TIN PA....
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....tions of section 69C of the Act which categorically states that where the assessee offers no explanation about the source of such expenditure or part thereof." For A.Y. 2010-11 assessee has raised one more ground which reads as under: - "3. On the facts and in the circumstances of the case, the Ld. CIT(A) failed to appreciate the provisions of Section 145 where there is a gross deviation in maintenance of accounts of the assessee and the same is not in conformity with the prescribed norms the assessee has failed to maintain and produce the books." 3. The brief facts of the case are that the assessee is an individual and is the proprietor of M/s. Giriraj Enterprises, engaged in the business of trading in Rubber & Rubber chemicals. The assessee made purchases from the following parties who were found to be hawala parties by the Sales Tax Department of the Government of Maharashtra: - S.No. Name of the Party Amount 1 M/s. Balaji Traders 1,89,32,986/ 2 M/s. Mahaveer Enterprises 1,54,90,497/- 3 M/s. Neeta Sales Corporation 54,69,269/- 4 M/s. Krsna Enterprises 1,89,16,208/- 5 M/s. Jain Corporation 20,61,330/- Total 6,08,70,272/- The....
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.... the disallowance the extent of 12.5% of such bogus purchases." We have observed that the assessee has duly reconciled quantitative purchases with sales and the assessee is engaged in the trading activities. The assessee could not prove movement of material nor verification from these parties could be conducted. These parties are undisputedly listed as hawala dealers by Maharashtra Sales Tax department and on enquiries conducted by Maharashtra Sales Tax department, it was proved that these parties are hawala dealers issuing bogus accommodation bills without supplying any material. The assessee is beneficiary of these accommodation entries. The sales are however not doubted by Revenue and the assessee being trader has reconciled quantitative sale and purchase of goods dealt within by the assessee. Under these circumstances, only profit element embedded in such bogus purchases need to be brought to tax as income of the assessee which definitely involved guess work. The ratio of decision of Hon'ble Supreme Court in the case of Kachwala Gems v.JCIT reported in (2007) 288 ITR 10(SC) is applicable. We do not find any reason to deviate from well reasoned order passed by tribunal in Reve....