TaxTMI 
TaxTMI 
2019 (9) TMI 367
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....rcumstances of the case and in law, the learned Commissioner 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(Appe....
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....their arguments before the Bench in this appeal on merits laying down their propositions and contention to support their 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 ....
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....idences in support of purchases and payments being made through banking channel cannot be conclusive that these purchases are genuine. The AO also observed that 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....
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.... the additions could not be sustained. The Ld. CIT(A) after considering the submission of assessee restricted the addition to profits embedded in these purchases to the tune of 12.5% of this 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....
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....dverse comments in maintenance of books of account or stock register. 5.4 In view of the above, it is difficult to accept that the books of accounts of the assessee are defective or incomplete from which the correct profit 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. Th....
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....t have been made from bogus parties the purchases themselves were not bogus. The tribunal adverted to the facts and data on record and came to the conclusion that the entire quantity of opening stock, purchases and the quantity manufactured during 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 ....
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....imit P Sheth 356 ITR 451 (Guj) the Hon'ble Court has given a finding that estimation of rate of profit return must necessarily vary with the nature of business and no uniform yardstick could be adopted and finally confirmed the action of the ITAT in determining 12.5% of the bogus 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 t....
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....out the corresponding production/sales being held bogus, it cannot be a case of bogus purchases. In other words, in a case where the purchase is shown being bogus and it is not possible to complete the corresponding sale transaction without a genuine purchase of such material, the sale must also be bogus. However, if 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....
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....s making the payment by cheque and has supplied the addresses of the sellers then it cannot be presumed that supplier were bogus simply because the sellers were not found at the given address. There is a considerable time gap between the period of purchase transaction and period of scrutiny proceedings. The AO has not brought any 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. The....
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....09-10 to 2011-12 vide common order dated 27.11.2018, wherein both of us were part of the Division Bench who pronounced the order in the case of Mr. Harish K. Chandak . It was claimed that on the same factual matrix , the tribunal upheld the additions to the tune of 12.5% of alleged bogus purchases . The learned counsel for the assessee also 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 orig....
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....re returned un-served by postal authorities with remarks 'left' and 'not known'. However , as is observed from the orders of authorities below, the assessee duly produced bills, proof of payments to seven parties through banking channel and also evidences of quantitative reconciliation of these material purchased from these seven parties. The said quantitative reconciliation of stock 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 additi....
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....gh Court in the case of PCIT v. M/s Mohammad Haji Adam and Co. in ITA no. 1004 of 2016 & Ors. , vide judgment dated 11.02.2019. Reference is also drawn to decision of Hon'ble Bombay High Court in the case of Pooja Paper Trading Company Private Limited v. ITO reported in (2019)104 taxmann.com 95(Bom.). We have also observed that Mumbai Tribunal in the case of Harish K Chandak v. ITO 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 conclude....
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....see has raised the following grounds for assessment years 2009-10 and 2011-12:- "1. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in allowing the bogus purchases made by the assessee without appreciating the fact that the assessee failed to furnish documentary evidence to prove that purchase made were genuine. 2. On the facts and in the circumstances of the case, the Ld. CIT(A) failed to appreciate the provisions of sections 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 trad....
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....ned the very basis of purchase. Therefore purchases are not bogus but they are made from parties other than those who are mentioned in the books of account. This being the decision not the entire purchase price but only the profit element in such purchases can be added to the income of the assessee. We find that we are taking a consistent view that the disallowance to the extent of 12.5% of such bogus purchase will be justified in the facts of this case also. Therefore, we modify the order of the CIT(A) and direct the AO to restrict 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 s....