TaxTMI 
TaxTMI 
2021 (1) TMI 1067
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.... 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, the AO made additions of the amounts of bogus purchases to the income of the assessee and passed assessment orders u/s. 143(3) r/w. section 147 of the Act. The assessee challenged the assessment orders before the CIT(A). The Ld. CIT(A) after hearing the assessee restricted the addition to 17% of the bogus purchases. Aggrieved by the action of the Ld. CIT(A), the revenue has filed the present appeals and the assessee has filed the cross objection. 3. The revenue has challenged the impugned orders passed by the Ld. CIT(A)....
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....y, 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 counsel submitted that the COs may be dismissed as withdrawn. 8. We have heard both the parties and perused the material on record including the cases relied upon by the revenue and the authorities below. We notice that the assessee challenge the assessment orders on legal ground as well as on merits. The Ld. CIT(A) dismissed the legal ground i.e., reopening of assessment orders passed u/s. 143(3) of the Act, however, partly allowed the ground raised on merits by restricting the addition to 17% of the total amount of bogus purchases determined by the ....
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.... 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 Rs. 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 made inquiries about the purchases made by the assessee in pursuance of the information received from the Sales tax department, that he had issued a detailed notice to the assessee in that regard, that he had also recorded the statement of the director of the company, that he made certain disallowance with regard to purchases. In these circumstances, we are of the opinion that it was not case of no inquiry. The AO had adopted a particular method to deal with the alleged purchases. If the CIT was of the op....
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.... 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 the A.Y. 2011-12 has attained finality, wherein a GP rate of 17% has been applied on the bogus purchases. 11.5 It is also seen that though the AO has heavily relied on the statement of Shri Karim Maredia for making a GP rate addition, but a perusal of his statement clearly reveals that he has not accepted the allegations of the Department regarding the parties being bogus and further, he has also stated that genuine business transactions have been carried out with the a....
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....ques. 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 pointed out in the books of accounts, except for the alleged bogus suppliers. The Hon'ble ITAT Mumbai in the case of M/s. Hotel Mayfair Pvt. Ltd. for the A.Y. 2011-12 has upheld the addition made by the A.O. based on 17% of the alleged bogus purchases. The overall GP Rate & NP Rate declared by the appellant company in the books of account is quite reasonable and fair in the hotel line business. 11.8 The issue of ....
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....nt 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 the AO, yet upheld most of his findings. On appeal to ITAT, the Tribunal granted further relief to the assessee. In these circumstances, the Hon'ble Supreme Court held as under:- "6. In our opinion, whether there were bogus purchases or not, is a finding of fact, and we cannot interfere with the same in this appeal. As regards the rejection of the books of account, cogent reasons have been given by the IT authori....
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....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 of disputed purchases of steel. It may be that the three suppliers from whom the assessee claimed to have purchased the steel did not own up to such sales. However, vital question while considering whether the entire amount of purchases should be added back to the income of the assessee or only the profit element embedded therein was to ascertain whether the purchases themselves were completely b....
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....closed 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 taxmann.com 259 (Gujarat) in similar facts and circumstances, the Hon'ble Gujarat High Court has upheld the application of 8% profit rate on bogus purchases, on the basis of the 7% G.P. rate declared in the books and looking into the facts of that case. The relevant observations of the Hon'ble Gujarat High Court are as under:- "6. Having heard lear....
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....8 % of NP on Income 17 18 8 9 7 7 11.0 11.19 The above tabular data clearly shows that the appellant is showing a very healthy average GP Rate of 18.1% and average NP Rate of 11.0 %. This is contradictory to the assertion of the AO that the appellant company has been debiting bogus purchases to reduce their profits. In fact, the GP & NP rates are substantially higher, when compared to the industry average for hotel business. 11.20 Further, in view of the judgment of the Hon'ble ITAT, Mumbai upholding the application of 17% profit rate for the A.Y. 2011-12 in the case of sister concern, it is held that an application of a profit rate of 17% is fair and reasonable in the facts of the present case. 11.21 Thus, out of the addition of Rs. 4,96,447/- made by the AO on account of non-genuine purchases, an amount of Rs. 84,396/- being 17% of alleged bogus purchases is confirmed and accordingly, the appellant gets a relief of Rs. 4,12,051/-. Thus, the Ground of Appeal No. 2, of the present appeal is partly allowed." 6.19 I have noted that the case o....
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....unt of unverifiable purchases debited in the P&L A/c calculated @ 17% & the disallowance on account of depreciation of the capitalized amount, for the various assessment years is tabulated below:- S. No. Assessment Year Disallowance @17% of Purchases debited to P&L A/c (In Rs.) Disallowance of Depreciation (In Rs.) Total Disallowance (In Rs.) 1 2007-08 5,67,831 5,67,831 2 2008-09 19,98,905 1,31,417 21,30,322 3 2009-10 39,78,033 5,83,313 45,61,346 4 2010-11 32,88,288 11,78,565 44,66,853 5 2011-12 49,48,523 13,64,459 63,12,982 6 2012-13 15,98,750 15,83,406 31,82,156 7 2013-14 20,35,510 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 Rs. 19,98,905/- being 17% of the bogus purchases claimed as revenue expenses and depreciation amounting Rs. 1,31,417/- in relation to the capitalized amount is ....