Income Tax Appellate Tribunal - Mumbai
Dcit 15(2)(2), Mumbai vs Megasoft Information Systems P.Ltd, ... on 30 June, 2017
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ITAs 3445 & 3446/Mum/2015
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH "I", MUMBAI
Before Shri Joginder Singh (JUDICIAL MEMBER)
AND
Shri G Manjunatha (ACCOUNTANT MEMBER)
ITA No.3445/Mum/2015 - AY 2010-11
ITA No.3446/Mum/2015 - AY 2011-12
DCIT 15(2)(2), Mumbai vs M/S Megasoft Information Systems (P)
Ltd, 36/5, Bansali Bhavan, 10th Road,
JVPD Scheme, Vile Parle (W), Mumbai -
56
PAN : AABCM4900B
APPELLANT RESPONDENT
Appellant by Shri Saurabh Kumar
Respondent by None
Date of hearing 29 -06-2017
Date of pronouncement 06-2017
ORDER
Per G Manjunatha, AM :
These two appeals filed by the revenue are directed against the common order of the CIT(A)-24, Mumbai dated 18-03-2015 for the assessment years 2010-11 an 2011-12. Since facts are identical, for the sake of convenience, we heard both the appeals together and are disposed of by this common order.
2. The brief facts extracted from ITA No.3445/Mum/2015 for the assessment year 2010-11 are that the assessee company, engaged in the business of software development and consultants, filed its return of income 2 ITAs 3445 & 3446/Mum/2015 for the assessment year 2010-11 on 15-10-2010 declaring total income of Rs.1,63,92,382. The case was selected for scrutiny and statutory notices u/s 143(2) and 142(1) of the Act were issued alongwith a questionnaire calling for various details. In response to the notices, authorized representative of the assessee appeared from time to time and furnished the details, as called for. During the course of assessment proceedings, based on information received from Investigation Wing of Mumbai that the assessee has obtained bogus purchase bills from various parties, who were listed as hawala operators by the Commercial Department of Maharashtra, , the AO issued a show cause notice and asked the assessee to explain as to why the purchases made from those parties should not be treated as bogus and made additions as unexplained income of the assessee. In response to show cause notice, the assessee, vide letter dated 5.2.2013 submitted that it had indeed transacted with those alleged three parties and had purchased relevant material from those parties to be supplied to the banks, as per their work orders. The assessee further submitted that it has purchased the materials with proper sales invoices and the materials have been used in the work executed for the banks, as per their specifications. To this effect, assessee furnished copies of sales bill details and materials purchased, payment details, etc. The assessee company further denied to have received any bogus bills from those parties and argued that 3 ITAs 3445 & 3446/Mum/2015 those parties might have involved in hawala dealings, so as to escape from the VAT liability on the sales made by them. However, it does not mean that the assessee had produced bogus purchases bills and inflated the expenditure. The assessee furnished copies of sales bill details of materials purchased, payment details, etc to prove that the purchases are genuine.
3. The AO, after considering the explanation of the assessee observed that the sales-tax authorities of Mumbai had carried out an investigation in those cases where there were defaults of VAT and during the course of investigation it was found that there were certain parties, who were engaged in the business of issuing bogus bills as per the requirement of the customers without actual delivery of goods. Those parties have categorically accepted before the authorities that they were involved in providing accommodation entries without delivery of goods. Therefore, the AO opined that the purchases made from those parties are bogus in nature. The AO further observed that though assessee has furnished certain details like sales invoices, details of materials purchased and payment details, but failed to furnish further evidences to prove that the purchases are genuine in the form of delivery notes, weigh bridge slips, etc. The assessee also failed to produce the stock register showing quantity of goods purchased from those parties and also failed to produce the consumption register to show consumption of materials, if any, purchased 4 ITAs 3445 & 3446/Mum/2015 from those parties. There was no evidence of physical delivery of goods, whatsoever, in nature, was produced in support of its arguments. Accordingly, the total purchases made from the said parties have been considered as bogus purchases and made additions as unexplained income of the assessee.
4. Aggrieved by the assessment order, the assessee preferred appeal before the CIT(A). Before the CIT(A), the assessee reiterated its submissions made before the AO. The assessee further submitted that the AO was erred in making addition of 100% purchases, despite furnishing necessary evidences to prove that the purchases are genuine merely on the ground that those parties are listed by the Commercial Tax Department as hawala operators. The assessee further submitted that it had furnished all the details and also produced necessary books of account to prove that there is no inconsistency in the books of account. The AO without pointing out any discrepancy in the books of account or mismatching any stock details with financial books concluded that the assessee has not furnished any details to prove that the purchases are genuine. In support of its argument, its relied upon plethora of judgements including the decision of Hon'ble Gujarat High Court in the case of Vijay Proteins vs CIT (2015) (I) TMI 828 (Guj HC) and also CIT vs Smit P Sheth 56 ITR 451 (Guj).
5. The CIT(A), after considering the relevant submissions of the assessee 5 ITAs 3445 & 3446/Mum/2015 observed that the assessee was not in a position to prove the existence of the suppliers. The suppliers were engaged in providing bogus bills without actual delivery of goods. Moreover, the suppliers are not regular parties and they were found to have supplied material only during the year and there was no supply either in the year after or in the subsequent year thereto. All these facts clearly indicate that the transactions are bogus in nature. The CIT(A) further observed that without purchases of materials it was not possible for the assessee to either sell the items or complete the contract. The AO had never disputed or examined the aspect of sales. In the absence of any specific observation as to the correctness of sales declared by the assessee, the purchases declared by the assessee cannot be doubted merely based on information received from Sales-tax Department. The AO himself has mentioned in his order that the assessee might have purchased goods from grey market and recorded the sales to that extent; it would not have been possible for the assessee to produce the goods without actual utilization of raw materials and, therefore, the CIT(A) held that the assessee might have purchased goods by cash from the open market and subsequently obtained the bills from those hawala operators; hence, the entire purchases cannot be added as income of the assessee. The CIT(A), therefore, held that only the profit element embedded in such transactions could be added. The CIT(A) 6 ITAs 3445 & 3446/Mum/2015 further observed that the Hon'ble Gujarat High Court in the case of Vijay Proteins Ltd vs CIT (supra) held that the entire purchases cannot be added and what needs to be added is the profit element embedded in these purchases. The Courts have upheld the estimation of net profit ranging from 12.5% o 25% depending upon the nature of business. The Hon'ble High Court, in yet another case in CIT vs Smit P Sheth (supra) observed that no uniform yardstick could be applied for estimation of net profit. It depends upon nature of business carried out by the assessee. With these observations, the CIT(A) directed the AO to estimate net profit of 15% on total bogus purchases made from those parties. Aggrieved by the order of CIT(A), the revenue is in appeal before us.
6. None appeared for the assessee despite service of notice. However, we find that the matter could be disposed of even without the presence of the assessee. Therefore, we heard the Ld.DR and proceed to dispose of the matter qua the assessee.
7. The Ld. DR submitted that the Ld.CIT(A) erred in directing the AO to estimate profit at 15% on the total alleged bogus purchases without appreciating the fact that there was completely no proof of delivery of purchases of goods and the said sellers were found to be hawala operators / bogus billers. The DR referring to the decision of the Hon'ble Supreme Court in 7 ITAs 3445 & 3446/Mum/2015 the case of NK Proteins Ltd vs DCIT (2017) TOIL-23-SG-IT submitted that the Hon'ble Supreme Court upheld the addition of 100% bogus purchases. The DR further submitted that the Hon'ble Gujarat High Court in the case of NK Proteins Ltd vs DCIT (supra) has followed the decision of Hon'ble Supreme Court and upheld the additions made by the AO at 100% of bogus purchases. The AO has brought out clear facts to the effect that the assessee has failed to prove the purchases as genuine and, therefore, additions made by the AO should be upheld.
8. We have heard Ld.DR and perused the material available on record. The facts with regard to the non existence of the alleged bogus sellers are not disputed. The assessee has failed to produce those parties before the AO to prove that the parties are in existence and the purchases made from those parties are genuine in nature. It is also an undisputed fact that the Sales-tax Department of Maharashtra has conducted an investigation and listed those parties as hawala operators / bogus sellers involved in the activity of providing accommodation entries without actual delivery of goods. Though the assessee filed certain evidences in the form of sales bills and payment details to prove the purchases as genuine, but failed to file further evidences in the form of delivery notes, weigh bridge slips, etc. Therefore, prima facie, the assessee failed to discharge the onus cast upon him to prove the purchases as genuine. 8
ITAs 3445 & 3446/Mum/2015 At the same time, the AO has made additions to the bogus purchases merely on the basis of information received from Sales-tax Department of Maharashtra wherein they have listed the parties as hawala / bogus operators without conducting any independent enquiry as to the correctness of the books of account of the assessee. The AO has never doubted the sales declared by the assessee. The AO has not pointed out any incorrectness in the books of account of the assessee and also stock details furnished by the assessee.
9. We further observe that the AO has accepted the fact that the assessee might have purchased the goods from the open market by cash and obtained bills from these alleged hawala operators. Once the AO has accepted the fact that there is a possibility of purchases from one party and obtaining bills from another party and also the fact that there is no specific observations by the AO with regard to the incorrectness of financial books as well as stock book maintained by the assessee, addition cannot be made towards bogus purchases merely on the basis of information received from Sales-tax Department. We further observed that in these type of cases, various High Courts including Tribunals have estimated the net profit at 12.5% to 25% depending upon facts of each case and nature of business carried out by the assessees. The Hon'ble High Court of Gujarat in the case of Vijay Proteins Ltd 9 ITAs 3445 & 3446/Mum/2015 vs CIT (supra) observed that additions cannot be made of total bogus purchases and what needs to be taxed is only the profit element embedded in such bogus purchases. In yet another case, in M/s Smit P Sheth (supra), the Hon'ble High Court observed that no uniform yardstick could be adopted for estimation of net profit on bogus purchases. No doubt, once the assessee fails to prove the purchases as genuine, then the profit element embedded in such purchases has to be taxed. In this case, the assessee has relied upon certain judicial precedents wherein the Courts have directed the AO to estimate net profit at 12.5% to 25%. Therefore, considering the overall facts and circumstances of the case and also by following the decision of Hon'ble Gujarat High Court in the case of Vijay Proteins (supra), we direct the AO to estimate net profit at 20% on alleged bogus purchases.
10. Coming to the case laws relied upon by the Ld.DR, the Ld.DR relied upon the decision of the Hon'ble Supreme Court in the case of NK Proteins Ltd vs DCIT (supra) and submitted that once purchases from those concerns were treated as bogus, then addition should be made of the entire bogus purchases. We have considered the case law relied upon by the Ld.DR in the light of the facts of the present case. We find that the case before the Hon'ble Supreme Court was that in that case, there was search proceedings at the premises of the assessee and during the course of search, certain blank voucher books in 10 ITAs 3445 & 3446/Mum/2015 the name of the concerns and blank signed cheques were found. Under those circumstances, the Hon'ble Court observed that the purchases are bogus and hence addition should be made on total purchases from the said parties. In the present case, the assessee is basically a trader and has furnished certain evidences to prove the purchases from the alleged hawala operators are genuine. Therefore, with due respect, we are of the view that the case law relied upon by the Ld.DR is not applicable to the facts of the present case and accordingly not considered.
11. In this view of the matter, we are of the view that to meet the ends of justice, a net profit of 20% needs to be estimated on alleged bogus purchases from the said parties. Hence, we direct the AO to estimate net profit at 20% on alleged bogus purchases.
12. In the result, the appeal filed by the revenue is partly allowed. ITA No.3446/Mum/2015
13. The facts and the issues in the present appeal are similar to the facts in ITA No.3445/Mum/2015, therefore, for the detailed discussions in the preceding paragraphs in ITA No.3445/Mum/2015, we direct the AO to estimate net profit at 20% on alleged bogus purchases from the said parties.
14. As a result, appeal filed by the revenue in ITA No.3446/Mum/2015 is partly allowed.
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ITAs 3445 & 3446/Mum/2015
15. In the result, both the appeals filed by the revenue are partly allowed. Order pronounced in the open court on 30th June, 2017.
Sd/- sd/-
(Joginder Singh) (G Manjunatha)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai, Dt : 30th June, 2017
Copy to :
1. Appellant
2. Respondent
3. CIT(A)
4. CIT
5. DR
/True copy/ By order
Asstt. Registrar, ITAT, Mumbai