Income Tax Appellate Tribunal - Mumbai
Rishab Steel ( House), Mumbai vs Dcit 15(2), Mumbai on 22 December, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES "D", MUMBAI
Before Shri P K Bansal, Vice President &
Shri Ravish Sood, Judicial Member
ITA No.1326/Mum/2016 for A.Y. 2011-12
Asst. CIT 19(3) Rishab Steel House,
Mumbai 101/102 Rishab House,
Vs. 301 Duncan Road,
M A Road,
Mumbai 400 004.
PAN AACFR2807C
(Appellant) (Respondent)
ITA No.1206/Mum/2016 for A.Y. 2009-10
ITA No.1207/Mum/2016 for A.Y. 2010-11
ITA No.1208/Mum/2016 for A.Y. 2011-12
ITA No.1209/Mum/2016 for A.Y. 2006-07
Rishab Steel House, Dy CIT 15(2)
Mumbai 400 004. Mumbai
Vs.
PAN AACFR2807C
(Appellant) (Respondent)
For the Revenue : Shri Saurabh Deshpande
For the assessee : Shri N R Porwal
Date of Hearing :29.11.2017 Date of Pronouncement : .12.2017
ORDER
Per P K Bansal, Vice-President:
All these appeals filed - four by the assessee and one by the Revenue, arise out of the common order of the CIT(A) dated 04.12.2015. The grounds raised by the assessee in all the years are common except for the 2 Rishabh Steel House change in figures. Both the parties agreed that these appeals be decided on the basis of grounds and facts involved for A.Y. 2006-07.
2. The grounds of appeal raised by the assessee in A.Y. 2006-07 are as under:
1. On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals) erred in estimating profit @ 17.50% on alleged bogus purchases of Rs.
2107723/-. Provisions of the Act ought to have been properly construed and regard being had to facts 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 claim of the appellant that order made under section 143(3) rws 147 of the Act is illegal, bad-in-law, ultra virus, without allowing reasonable opportunity of the hearing, and without appreciating facts, submission and evidences in their proper perspective and without providing copies of material / evidences relied upon is liable to be annulled.
3Rishabh Steel House
4. The learned Assessing Officer erred in charging interest under section 234A. 234B. 234C and 234D of the Act
3. The Revenue is in appeal for A.Y. 2011-12 raising the following ground of appeal:
"1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in confirming addition @17.5% of total purchase held as bogus by the AO?
2. The appellant prays that the order of the Learned CIT(A) on the above ground be set aside and that of the AO be restored."
4. The brief facts for A.Y. 2006-07 are that the assessee is a partnership firm engaged in the business as dealer of ferrous and non ferrous metals. The return of income for the year under appeal was filed on 31-10-2006 declaring total income of ` 5,63,148/-. Assessment u/s. 143(3) of the Act was completed on 10.09.2008 determining the total income at ` 5,82,490/-. On the basis of information received from the DDIT (Inv.) that certain discrepancies in purchases from some entities were detected, the assessment was reopened by issuing notice u/s 148 of the Act after recording the reasons and the reopened assessment u/s 143(3) r.w.s 147 of the Act was completed by the Assessing Officer on 04.03.2014 determining the total income at ` 26,90,210/-. During the course of reassessment proceedings, to ascertain the genuineness of purchases, notices u/s 133(6) of the Act were issued to several parties by the Assessing Officer which were returned unserved by the postal authorities or there was no compliance. Further, Assessing Officer 4 Rishabh Steel House observed that the assessee had debited purchases from various parties whose TIN matched with the information kept in the public domain by the Sales Tax Department with regard to the hawala operators. The Assessing Officer issued show cause notice and after going thorugh the submissions and contentions of the assessee at length, concluded that the assessee had not purchased any goods from the party and, hence, in respect of peak amount of investment made out of unaccounted money by the assessee for purchase of materials was considered, which worked out to ` 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:
5Rishabh Steel House "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 element embedded in such purchases. While estimating the GP on the bogus purchases, the percentage of GP already offered in the books of account on the relevant sales out of the purchases is to be reduced from such estimated profit. AO is directed to verify the correctness of the average GP percentage stated by the appellant in the submissions (whch is around 4.5% as per the calculation) and to reduce the same from the estimated net profit of 17.5% on the purchases made from the party."
So far as the validity of the re-opening u/s. 147 is concerned, the learned AR did not put any arguments although he has raised ground nos. 2 & 3. We, noted after going through the order of the authorities below that the Assessing Officer has re-opened the assessment on the basis of the information received from the DGIT(Inv), Mumbai. The information received from DGIT(Inv), in our opinion, it is a tangible information. It is not a case where the DGIT (Inv) has directed the Assessing Officer to reopen the case and the Assessing Officer has reopened the case just on the basis of the information of the DGIT (Inv). Section 147 requires that the Assessing Officer must have a reason to believe that there is escapement of assessment during the impugned assessment year. It is not a case where the reason recorded by the Assessing Officer does not belong to the assessee or the assessee has 6 Rishabh Steel House not shown purchases in its books of account from the impugned parties, which has been treated to be bogus. In our opinion, information received by the Assessing Officer may be from any outside parties. It is not a case where the Assessing Officer has 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 2.7.14 The facts in the present case are similar to the facts in the above are similar to the facts in the above mentioned case. In the present case, mentioned case. In the present case, the Ld. AO has shown that the eight the Ld. AO has shown that the party parties in question were nonexistent. in question was non-existent. The The appellant has not been able to appellant has not been able to disprove the findings of the Ld. AO disprove the findings of the Ld. A.O. regarding the non-existence of the regarding the non-existence of the parties. Ld. AO has, after examining parties. Lo has, after examining the the evidences, found that the evidences, found that the appellant 7 Rishabh Steel House appellant did not purchased the did not purchase the goods from the goods from the said parties, at the said party, at the same time, he has same time he has not disturbed the not disturbed the sale of the goods sales of the goods and income and the income offered on such sale offered on such sale of goods. In this of goods. In this case, Ld. AO has not case, Ld. AO has not disputed the disputed the quantitative details and quantitative details and also day to also day to day stock register day stock register maintained. The maintained. The appellant being a appellant being a trader of goods, Ld. trader of goods, Ld. A.O. not having A.O. not having doubted the doubted the genuineness of sales, genuineness of sales, could not have could not have gone ahead and made gone ahead and made addition in addition in respect of peak balance respect of peak balance on such on such purchases. Thus, the issue purchases. Thus, the issue would boil would boil down to finding out the down to finding out the element of element of profit embedded in bogus profit embedded in bogus purchases purchases which the appellant would which the appellant would have made have made from some unknown from some unknown entities. Hence, entities. Hence, respectfully following respectfully following the decision of the decision of the Hon'ble Gujarat the Hon'ble Gujarat High Court in the High Court in the case of Bholanath case of Bholanath Polyfab Pvt. Ltd. Polyfab Pvt. Ltd. (supra), it is (supra), it is concluded that the profit concluded that the profit margin margin embedded in such amounts of embedded in such amounts of purchases could only be disallowed purchases could only be disallowed and subjected to tax. . and subjected to tax. 2.7.15 Having decided that the profit 2.7.20 Having decided that the profit margin only to be subjected to tax, now margin only to be subjected to tax, now we have to see what is the percentage we have to see what is the percentage to be adopted for taxing, especially to be adopted for taxing, especially when it varies from trade to trade. when it varies from trade to trade. Hon'ble Gujarat High Court in the case Hon'ble Gujarat High Court in the case of CIT vs. Simit Sheth (2013) 38 of CIT vs. Simit Sheth (2013) 38 Taxmann.com 385 (Guj), was seized Taxmann.com 385 (Guj), was seized with a similar issue where the A.O. had with a similar issue where the A.O. had found that some of the alleged found that some of the alleged suppliers of steel to the assessee had suppliers of steel to the assessee had not supplied any goods but had only not supplied any goods but had only provided sale bills and hence, provided sale bills and hence, purchases from the said parties were purchases from the said parties were held to be bogus. The A.O. in that case held to be bogus. The A.O. in that case added the entire amount of purchases added the entire amount of purchases to gross profit of the assessee. Ld. to gross profit of the assessee. Ld. CIT(A) having found that the the CIT(A) having found that the assessee assessee had indeed purchased had indeed purchased though not from though not from named parties but named parties but other parties from other parties from grey market, partially 8 Rishabh Steel House grey market, partially sustained the sustained the addition as probable addition as probable profit of the profit of the assessee. The Tribunal assessee. The Tribunal however, however, sustained the addition to the sustained the addition to the extent of extent of 12.5%. Taking into account 12.5%. Taking into account the above the above facts, the Hon'ble Gujarat facts, the Hon'ble Gujarat High Court High Court held that since the held that since the purchases were not purchases were not bogus, but were bogus, but were made from parties made from parties other than those other than those mentioned in books of mentioned in books of accounts, only accounts, only the profit element the profit element embedded in such embedded in such purchases could be purchases could be added to the added to the assesses's income and as assessee's income and as such no such no question of law arose in such question of law arose in such estimation. While arriving at the above estimation. While arriving at the above conclusion, the Hon'ble Court also conclusion, the Hon'ble Court also relied on the decision in the case of relied on the decision in the case of Vijay M. Mistry Construction Ltd. 355 Vijay M. Mistry Construction Ltd. 355 ITR 498 (Guj) and further approved the ITR 498 (Guj) and further approved the decision of Ahmedabad Bench, IT AT decision of Ahmedabad Bench, IT AT in the case of Vijay Proteins 58 ITD in the case of Vijay Proteins 58 ITD 428. 428. 2.7.16 In the case of Vijay 2.7.21 In the case of Vijay Proteins, Proteins(Supra), the Hon'ble ITAT the Hon'ble ITAT was seized with a was seized with a case of bogus case of bogus suppliers of oil cakes suppliers of oil cakes where 33 parties where 33 parties were found to be were found to be bogus by the bogus by the departmental authorities departmental authorities even though even though payments were made to payments were made to the said the said parties by cross cheques and parties by cross cheques and in fact in fact the A.O. in that case had the A.O. in that case had brought brought adequate material on record to adequate material on record to prove prove that the cross cheques had not that the cross cheques had not been been given to parties from whom given to parties from whom supplies supplies were allegedly procured but were allegedly procured but these were these were encashed from a bank encashed from a bank account in the account in the jowame of another name of another entity, possibly entity, possibly hawala dealer. hawala dealer. Subsequently, the Subsequently, the money deposited in money deposited in that account was that account was withdrawn in cash withdrawn in cash almost on the same almost on the same day. The Tribunal day. The Tribunal however, held that if however, held that if the purchases the purchases were made from open were made from open market' without market' without insisting for genuine insisting for genuine bills, the suppliers bills, the suppliers may be willing to sell may be willing to sell the product at a the product at a much less rate as much less rate as compared to a rate compared to a rate which they may which they may charge in which the charge in which the dealer has to give dealer has to give genuine sale invoice genuine sale invoice in respect of that 9 Rishabh Steel House in respect of that sale. Keeping all such sale. Keeping all such factors in mind, factors in mind, the Tribunal estimated the Tribunal estimated an element of an element of profit percentage of the profit percentage of the overall overall purchase price accounted for in purchase price accounted for in the the books of accounts through fictitious books of accounts through fictitious invoices. invoices. 2.17.17 Further, in the case of M/s.
2.7.22 Further, in the case of M/s. Sanket Steel Traders (ITA No. Sanket Steel Traders (ITA No. 2801/Ahd/ 2008 dated 20-05-2011 it 2801/Ahd/ 2008 dated 20-05- was, inter-alia, stated as under:
2011 it was, inter-alia, stated as under:
"3. At the time of hearing before us, it is "3. At the time of hearing before us, it is submitted by the Learned Counsel that submitted by the Learned Counsel that the addition sustained is excessive. In the addition sustained is excessive. In support of this contention he referred to support of this contention he referred to the decision of the Tribunal in the case the decision of the Tribunal in the case of ITO vs. Sun Steel 92 777 (Ahd) 1126 of ITO vs. Sun Steel 92 777 (Ahd) wherein the Tribunal has sustained the 1126 wherein the Tribunal has addition of Rs.50,000- on account of sustained the addition of Rs.50,000- on bogus purchases. However, we find account of bogus purchases. However, that the facts in the above case were we find that the facts in the above case different. In the above case, the were different. In the above case, the assessee has shown purchases of assesses has shown purchases of Rs.27,39,410/-, sale of Rs.28,17,207/~ Rs.27,39,410/-, sale of Rs.28,17,207/~ and Gross Profit at Rs. 94,740/-, The and Gross Profit at Rs. 94,740/-, The Assessing Officer made the addition of Assessing Officer made the addition of 27,39,407/- for bogus purchases. If the 27,39,407/- for bogus purchases. If the above sum is added to the Gross above sum is added to the Gross Profit, the Gross Profit works out of Profit, the Gross Profit works out of 2,83,41,247/-which was more than the 2,83,41,247/-which was more than the sale itself. The Tribunal held that it is sale itself. The Tribunal held that it is impossible that the Gross Profit is more impossible that the Gross Profit is more than the sale itself. The Tribunal also than the sale itself. The Tribunal also found that the assessee has found that the assessee has maintained the quantitative details in maintained the quantitative details in respect of materials purchased and respect of materials purchased and sold. Considering peculiar facts of that sold. Considering peculiar facts of that case, the Tribunal arrived at the case, the Tribunal arrived at the conclusion that it would be fair and conclusion that it would be fair and reasonable to estimate the addition at reasonable to estimate the addition at Rs.50,000/~ as against the addition of Rs.50,000/~ as against the addition of Rs.27,39,407/- made by the Assessing Rs.27,39,407/- made by the Assessing Officer. However, the Learned Officer. However, the Learned Commissioner of Income-tax (Appeals) Commissioner of Income-tax(Appeals) considering the facts of the considering the facts of the assessee's case, has sustained the assesses's case, has sustained the addition at 12.5%. While doing so, he 10 Rishabh Steel House addition at 12.5%. While doing so, he has also relied upon the decision of has also relied upon the decision of the Tribunal in the case of M/s. Vijay the Tribunal in the case of M/s. Vijay Proteins Ltd. 55 TTJ (Ahd) 76. In the Proteins Ltd. 55 TTJ (Ahd) 76. In the case of M/s. Vijay Proteins Ltd. the case of M/s. Vijay Proteins Ltd. the Tribunal has sustained the addition of Tribunal has sustained the addition of 25% of the bogus purchases.
25% of the bogus purchases. However, considering the facts of the However, considering the facts of the assessee's case the CIT (A) assessee's case the CIT (A) restricted the disallowance to 12.5% restricted the disallowance to 12.5% as against 25% made in the case of as against 25% made in the case of M/s. Vijay Proteins Ltd. From these M/s. Vijay Proteins Ltd. From these facts it is evident that the CIT(A) has facts it is evident that the CIT(A) has sustained the addition at 12.5% of the sustained the addition at 12.5% of the non-genuine purchases considering non-genuine purchases considering the facts of the assessee's case. We, the facts of the assessee's case. We, therefore, do not find any justification therefore, do not find any justification to interfere with the order of the CJT to interfere with the order of the CIT (A) In this regard. The same is (A) In this regard. The same is sustained,"
sustained."
2.7.18 The motive behind obtaining 2.7.23 The motive behind obtaining bogus bills thus, appears to be bogus bills thus, appears to be inflation of purchase price so as to inflation of purchase price so as to suppress true profits. Estimation suppress true profits. Estimation ranging from 12.5% to 25% has been ranging from 12.5% to 25% has been upheld by the Hon'ble Courts upheld by the Hon'ble Courts depending upon the nature of the depending upon the nature of the business. As held in the case of business. As held in the case of Simit P. Sheth (supra) no uniform Simit P. Sheth (supra) no uniform yardsticks could be applied to yardsticks could be applied to estimate the rate of profit and it estimate the rate of profit and it varies with the nature of business. varies with the nature of business. Taking all the facts into consideration Taking all the facts into consideration and since the' assessee is supplying and since the' assessee is supplying the material to reputed companies the material to reputed companies and offering reasonably good and offering reasonably good percentage of GP (@6.49%) and also percentage of GP (@6.49%) and also taking into the findings of the Hon'ble taking into the findings of the Hon'ble Courts on this issue, I am of the view Courts on this issue, I am of the view that estimation of 17.5% of profit that estimation of 17.5% of profit would meet the ends of justice. would meet the ends of justice. Therefore, I direct the AO to estimate Therefore, I direct the AO to estimate profit of 17.5% on the total alleged profit of 17.5% on the total alleged bogus purchases as the profit element bogus purchases from the seven/eight embedded in such purchases. While parties as the profit element embedded estimating the GP on the bogus 11 Rishabh Steel House in such purchases. While estimating purchases, the percentage of GP the GP on the bogus purchases, the already offered in the books of account percentage of GP already offered in on the relevant sales out of the the books of account on the relevant purchases and is to be reduced from sales out of the purchases and is to be such estimated profit. AO is directed to reduced from such estimated profit. verify the correctness of the average Since the GP percentage is varying GP percentage stated by the appellant from year to year, the AO is directed to in the submissions (which is around 7% verify the correctness of the average as per the calculation) and to reduce GP percentage stated by the appellant the same from the estimated net profit in the submissions (which is around of 17.5% on the purchases made from 7% as per the calculation for the the party.
previous three years) and to reduce the same from the estimated net profit 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.
When the Bench enquired how much was the Sales-tax chargeable on the item in which the assessee deals, it was informed by the learned AR that the sales tax is levied @4%.
7. The learned DR, on the other hand, vehemently contended that this Tribunal is consistently taken a view where there is no dispute about the quantitative details and maintenance of the day to day stock register, the profit be estimated @12.5% of such purchases. It was further contended that in all these decisions which have been referred by the CIT(A) by holding 12 Rishabh Steel House the estimation of the income @17.5% of the bogus purchases. Gujarat High Court has taken a view that income should be estimated @12.5% to 25%.
Referring to the decision of 'E' Bench of the this Tribunal in the case of Steel Line (India) (supra), it was submitted that although the Tribunal has referred to all these decisions in which income has been estimated @12.5% to 25%, but without giving any reason took a view that considering the entirety of the facts and circumstances of the case, we restrict the addition to 2% of such bogus purchases. The Tribunal has not given any reason why the Assessing Officer has been directed to estimate income @2% of such bogus purchases.
Therefore, this decision does not have binding force. The facts involved in each case are entirely different. Had the Tribunal given the reasons as to why income was estimated @2% the decision made have a binding force not otherwise.
8. We have heard the rival submissions and carefully considered the same along with the orders of the tax authorities below. The only issue before us relates to the estimation of profit in respect of purchases which are regarded to be bogus purchases by the Assessing Officer even though the sales made by the assessee have not been disputed by the Revenue. Rather it is a fact that Revenue has accepted the sales made by the assessee. The Assessing Officer 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 13 Rishabh Steel House 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), both assessee and revenue are in further appeal before us. We have considered rival contentions and carefully gone through the orders of the authorities below and also deliberated on the judicial pronouncements referred by lower authorities in their respective orders as well as cited by learned AR and DR during the course of hearing before us in the context of factual matrix of the case. From the record, we found that AO has made addition in respect of purchases found to be bogus as per the information from sales tax department. In the appellate proceedings, the CIT(A) recorded a finding to the fact that AO has not disputed the quantitative details and also day to day stock register maintained by the assessee. Assessee company being a trader of goods, AO not having doubted the genuineness of sales, could not have gone ahead and made addition in respect of peak balance on such purchases. Accordingly, CIT(A) concluded that issue boil down to find out the element of profit embedded in bogus purchases which the assessee would have made. When the 14 Rishabh Steel House corresponding sales have not been doubted and the quantitative details of purchases and sales vis-a-vis stock was available, we deem it appropriate considering the entirety of facts and circumstances of the case to restrict the addition to the extent of 2% of such bogus purchase. Accordingly, the order of both the lower authorities are modified and AO is directed to restrict the addition to the extent of 2% on such purchases."
From this order, we noted that the Tribunal while directing the addition to be restricted to 2% of such bogus purchases has not given any reason but mentioned that they deemed it appropriate, considering the entirety of facts and circumstances of the case, to restrict the addition to the extent of 2% of such bogus purchases. The Tribunal while giving such directions under para 3 of its order, reproduced various orders dealing with the identical issue passed by the Gujarat High Court as well as Ahmedabad Bench of this Tribunal and which has been referred to by the CIT(A) as well as by the assessee before us during the course of hearing. In these cases, we noted that the Tribunal/High Court has not directed the Assessing Officer to restrict the addition to the extent o f2% but the addition was sustained ranging from 12.5% to 25%. We may also mention that the gross profit earned by the assessee or 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 15 Rishabh Steel House 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 were genuine. The 'C' Bench of this Tribunal, as has been pointed out during the course of hearing, in the case of Modern Road Maker in ITA No. 4734/Mum/2016 vide order dated 24.10.2014, to which the Vice-
President was one of the party, directed the Assessing Officer to estimate the profit on such purchases @5% by observing as under:
"21. We have considered the rival submissions of the parties and have gone through the order of authorities below and the various decisions relied by the ld representatives of the parties. Ground No. 1relates to the confirming the addition of Rs.6,03,42,549/- on account of unexplained expenditure under section 69C of the Act (being 12.5% of Surat-Dahisar and Kolhapur Project i.e. Rs. 3,90,58,839/-, 100% of Mumbai- Pune Expressway i.e Rs. 2,01,85,145/- and Nagpur -Hyderabad Project i.e. Rs.10,98,565/-). We have seen that while farming the assessment the assessing officer observed that during the financial year related to the assessment under consideration the assessee has shown 16 Rishabh Steel House the purchases of Rs.33,37,54,424/- from Karma Industries Ltd (KIL). The assessing officer issued show cause dated 10.02.2012 to the assessee as to why the purchases from KIL and its associate should not be treated as bogus. The assessee filed its reply dated 18.02.2014. In reply the assessee contended that the material purchased during the relevant period had been consumed in different project executed by assessee namely Mumbai- Pune, Nagpur- Hyderabad, Kolhapur and Surat- Dahisar Project. The assessee also filed reconciliation of material consumed along with chart with ratio of material. The assessee also filed the working of the estimated cost for bidding purpose, certificate from his Banker/ lender's Bank, i.e STUP Consultant. Certificate from independent Engineer appointed by National High Way Authority (NHAI) i.e. Intercontinental Consultant and Technocrats Pvt Ltd. All the purchases were made through account payee Cheques. The assessing officer was not accepted by the contention and the evidences of assessee, on the grounds that the assessee claimed that the transporting charges were born by dealers. The assessing officer recorded that from the enquiries from the RTO office, it was revealed that the majority of vehicles allegedly used for transportation are owned by the assessee itself. If the assessee was using its own vehicle while it was claiming 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 infirmity in their report about the consumption of the material.No other verification of site or the projects were carried by the assessing officer. The estimated 17 Rishabh Steel House consumption of the material in the project being executed by assessee was not examined. Rather concluded that the estimated cost of such projects are always on higher side. We have seen the statement of MD of the assessee company, there is no such admission about the bogus transactions. Rather, in his statement categorically stated that the purchases are not verifiable in absence of record at that time. The statement was retracted vide letter dated 16.2.2011. The assessing officer relied on the statement of Rajesh Mehta. However, Rajesh Mehta in his statement disclosed that he never meet the MD of the assessee company. The transactions were made through Nitin and Sunil Mehta. The assessing officer not examined Nitin and Sunil Mehta. The assessing officer gave his finding the consumption of steel in the project was not proved beyond doubt and disallowed the entire purchases from KIL.
22. However, the ld Commissioner (Appeals) restricted the disallowance of cost of purchases of Steel for Surat-Dahisar and Kolhapur Project at 12.5% i.e at Rs. 3,90,58,839/-), 100% of Mumbai- Pune Expressway (i.e. Rs.2,01,85,145/-) and Nagpur- Hyderabad Project (i.e. for Rs.10,98,565/-). Before ld Commissioner (Appeals) the assessee filed written submission. In the written submission the assessee explained that the name of Karma Industries Ltd (KIL) is not listed in the website of Sales Tax Department Government of Maharashtra. The assessee also explained the typographical mistake in the Registration number of vehicles used in transportation of the Steel, details of which are available in the paper book filed in appeal for AY 2008-09. The perusal of the details of Registration number of vehicles reveals that the mistake in writing is very minor which may occur due to human error. The assessee furnished the certified copies of the Registration Certificate (RC) and photographs of the vehicles and the evidence how the Tipper was used for transportation. The assessee also furnished explanation of the discrepancies recorded by assessing officer. On the written submission of assessee, the ld. Commissioner (Appeals) sought the comments of assessing officer. The assessing officer filed his comment / remand report dated 25.10.2016. 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) 18 Rishabh Steel House 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. In our view, the disallowance of purchases of steel at12.5% is on higher side, when the ld. Commissioner (Appeals) has concluded that the purchases of steel for Surat- Dahisar and Kolhapur cannot be treated bogus. Further, when the ld. Commissioner (Appeals) also noted that the consumption certificate of Engineer is marginal and within reasonable limit the disallowance at 12.5% is on higher side. In our view even in case the transactions are not verifiable due to certain reasons, the disallowance must be made on reasonable side, keeping in view the facts of each cases. Under Income-tax the revenue is not entitled only the income/ profit component and not the entire transaction. We have noted that the ld CIT(A) has observed that such purchases are made to avoid 10% of the payments of Excise duty. The ld CIT(A) has not examined if , the purchases were shown to avoid the excise duty. The Assessee throughout the proceedings claimed that they have paid VAT at the rate of 4%, which is nowhere disputed by lower authority. If we consider the observation of ld CIT(A) that the purchaser and seller have shared excise duty by showing the sale and purchase of steel, even than the addition in excess of such share to the income is unreasonable. Thus, keeping in view the assessee has paid the VAT at the applicable rate on all the purchases. Hence, keeping in view of any possibility of the revenue leakage which is very thin in the present case, the disallowance of purchases of steel for Surat- Dahisar and Kolhapur project at 5% of the impugned (disputed) purchases would meet the end of justice. Similar view was taken by Hon'ble Gujarat High Court in CIT Vs Simit P Seth [2013(356 ITR
451)] and by Hon'ble Bombay High Court in Hariram Bhambani ITA No 313 of 2013. The facts of the decision in N. K. Proteins (supra) relied by ld. DRfor the revenue are at variance. In the said case the assessee was trader.During the search action in that case 19 Rishabh Steel House blank signed cheques books and numbers of vouchers were found on the basis of which the transaction was treated bogus. However, in the present case the assessee has given sufficient evidences to substantiate its purchases. Moreover, no incriminating material was found during the search at the premises of the assessee. The addition of alleged bogus purchased are based on third party information. No yardstick formula can be applied while assessing the amount of revenue leakage. Moreover, the revenue has not disputed the consumption of steel. Thus, respectfully following the decision of Hon'ble Gujarat High Court in CIT Vs Simit P Seth supra and by Hon'ble Bombay High Court in Hariram Bhambani supra, the disallowance of cost of purchases of steel is restricted to 5% of the impugned purchases only. The assessing officer is directed accordingly. In the result the ground no.1 of the appeal is partly allowed."
We noted in the aforesaid case, where the Tribunal has directed the Assessing Officer to estimate the profit @5% on the alleged bogus purchases has duly given the reasons for estimating the profit 2%% while we noted in the case of M/s. Steel Line (India) (supra), the Tribunal has not given any reason in its order as to why the profit should be estimated @2% of alleged bogus purchases. Since the Tribunal in the case of Steel Line India has not given any reason and has not looked into the aspect why the assessee will buy the material from the grey market, this decision in our opinion, will not be binding on us. Since in the case of M/s. Modern Road Maker Pvt. Ltd. the Tribunal has given the reasons, respectfully following the same, direct the Assessing Officer to estimate the profit @5%. Since in all the appeals filed by the assessee the issue involved is common, we therefore following the decision for A.Y. 2006-07 direct the Assessing Officer to estimate the profit @5%.
20Rishabh Steel House In the result, the appeals filed by the assessee as well as by the appeal filed by the Revenue are partly allowed.
Order pronounced in the open court on 22nd day of December, 2017.
Sd/- Sd/-
(Ravish Sood) (P K Bansal)
JUDICIAL MEMBER VICE-PRESIDENT
Mumbai; Dated: 22nd December, 2017
SA
Copy of the Order forwarded to :
1. The Appellant.
2. The Respondent.
3. The CIT(A),Mumbai
4. The CIT
5. DR, 'D' Bench, ITAT, Mumbai
BY ORDER,
#True Copy #
Assistant Registrar
Income Tax Appellate Tribunal, Mumbai