Income Tax Appellate Tribunal - Panji
Ito 5(3)(2), Mumbai vs Sheth Ferromet P.Ltd, Mumbai on 30 August, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL " B" BENCH, MUMBAI
BEFORE SRI MAHAVIR SINGH, JM AND SRI RAJESH KUMAR, AM
ITA No. 2088/Mum/2015
(A.Y:2010-11)
ITA No. 2089/Mum/2015
(A.Y:2011 -12)
Income Tax Officer - 5(2)(2) M/s Sheth Ferromet Pvt.
Room No. 26, Aayakar Ltd.
t h
Bhavan, 5 Floor, R. No. 110, 2 n d Floor,
Vs.
Mumbai-400 020 1 s t Khetwadi Lane,
Mumbai-400 004
P AN No. AAMCS9069G
Appellant .. Respondent
Revenue by .. Shri Suman Kumar,DR
Assessee by .. None
Date of hearing .. 21-08-2017
Date of pronouncement .. 30-08-2017
ORDER
PER MAHAVIR SINGH, JM:
These appeals by the Revenue are arising out of the same order of CIT(A)-10, Mumbai, in appeal Nos. CIT(A)-10/ITO-5(30(2)/572 & 573/2013-14 dated 23-01-2005. The Assessments were framed by ITO Ward 5(3)(2), Mumbai for the A.Ys. 2010-11 & 2011-12 vide orders dated 08-01-2014 under section 147 read with section 143(3) of the Income Tax Act, 1961(hereinafter 'the Act').
2. The only common issue in these appeals of Revenue, arising out of the orders of CIT(A) directing the AO to restrict the addition made by AO being estimating profit percentage at the rate of 49.29% for AY 2010-11 & 32.09% for AY 2011-12 on bogus purchases. For this assessee has raised identically worded grounds in both the years except the quantum. The facts and circumstances are exactly identical in both the years and 2 ITA No. 2088 & 2089/ Mum/2015 M/s Sheth Ferromet Pvt. Ltd. AYs:10-11, 11-12 hence, we will take the facts from AY 2010-11 and will decide the issue. The grounds raised in AY 2010-11 reads as under: -
"Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in restricting the addition made on account of disallowance of bogus purchase to the peak credit purchases."
3. Briefly stated facts are that the assessee engaged in the business of trading in Ferrous & Ferrous Metals. The AO received information from DGIT (Investigation), who in turn received information from Sales Tax Department, Mumbai that the assessee has made purchases from hawala parties, as listed in hawala dealers by the Maharashtra Sales Tax Department who are providing bogus bills of purchase amounting to Rs. 7,90,87,273/- for AY 2010-11 and Rs. 3,77,91,216/- for AY 2011-12 (on additional addition of bogus purchases of Rs.1,46,24,714/- of M/s Samarth Enterprises) as admitted by these hawala dealers in their deposition before the authorities. The same reads as under: -
AY 2010-11 "Sl Name of party Amount No.
1. ACE International 47,63,383
2. Deep Enterprises 1,94,55,308
3. Krish Corporation 1,21,00,597
4. Manav Impex 73,78,934
5. Mazda Stee Traders Pvt. Ltd. 8,90, 466
6. Naman Enterprises 80,20,655
7. Raj Traders 72,28,354
8. Real Traders 58,62,576
9. Shakti Trading 51,50,121
10. Shree Ganesh Steel 74,64,143
11. Tamas Steel & Alloys Pvt. Ltd. 7,72,736 Total 7,90,87,273 3 ITA No. 2088 & 2089/ Mum/2015 M/s Sheth Ferromet Pvt. Ltd. AYs:10-11, 11-12 AY 2011-12 "Sl Name of party Amount No.
1. Deep Enterprises 1,11,11,767
12. Donear Trading 25,57,336
13. Linux Sales Agency Pvt. Ltd 38,80,587
14. Shristi Mercantile Ltd. 56,16,812 Total 2,31,66,502
4. The AO issued noticed under section 133(6) to the parties which returned back with the remark as "left" and assessee failed to produce these parties. During the course of assessment proceedings and during appellate proceedings, the assessee submitted all the documentary evidences such as inward register, stock register, payment received against such sales, receipt of material purchases, account payee cheque. According to the AO, the assessee failed to establish the genuineness of the purchase and accordingly, he made addition of unproved purchase at Rs. 7,90,87,273/- for AY 2010-11 and Rs. 3,77,91,216/- for AY 2011-12 (including additional addition of bogus purchases of Rs.1,46,24,714/- of M/s Samarth Enterprises) to the return income of the assessee. Aggrieved, assessee preferred the appeal before CIT(A), who restricted the disallowance at 49.29% of Rs.7,90,87,273/- at Rs. 3,89,86,683/- for AY 2010-11 & 32.09% of Rs. 3,77,91,216 at Rs. for AY 2011-12 of the bogus purchases by observing in para 5.3 as under: -
"5.3 Ground No.3 to 6 are regarding the addition on account of bogus purchases from eleven parties which has been proved a hawala entry provider by the enquiries of the Sales Tax Authorities and the Income Tax Department. It is noted that the appellant during the assessment proceedings could not provide any documentary evidence of actual 4 ITA No. 2088 & 2089/ Mum/2015 M/s Sheth Ferromet Pvt. Ltd. AYs:10-11, 11-12 delivery of material allegedly purchased from these parties. During the appeal proceedings also the appellant could not file any documentary evidence at all which could show that it has actually purchased any material from the aforesaid parties nor it could produce any such party for verification of its contention. Under these circumstances, prime facie such purchases does not appear genuine.
Though the appellant has tried to take shelter of various case laws, but the peculiar facts and circumstances of the case are distinguishable from the facts of the relied upon cases. It is worth noting that in the case of Sumati Dayal (214 ITR 801) the Hon'ble Apex Court has also held that one has to consider all surrounding circumstances for accepting the genuineness of a transaction. Further, in the case of P Mohankala 291 ITR 278, also, after considering the entirety of surrounding circumstances the Hon'ble Supreme Court has not accepted the genuineness of cash credits even though the same were received through banking channels.
In the instant case, it is an undisputed fact that detailed inquiries by Sales Tax Department revealed that none of the 11 parties in question, from whom the appellant has claimed purchases worth Rs.7,90,87,273/- appears in position to actually supply the material to the assessee as they do not have any infrastructure and capacity and only exist on paper. Under these circumstances, it is quite clear that neither there is any evidence which could prove the capacity of these parties for supplying huge material to the assessee nor the assessee has 5 ITA No. 2088 & 2089/ Mum/2015 M/s Sheth Ferromet Pvt. Ltd. AYs:10-11, 11-12 filed any convincing documentary evidence of actual receipt of material from these parties, as there has been no mention of mode of delivery (transport) on the bills of the parties in question, whereas in respect of genuine purchases, the concerned parties mention the details of mode of transport. When the A.O has clinching evidence to show that there has not been any actual purchases from such parties, under these circumstances, the assessee is required to prove otherwise. Neither at the time of assessment stage nor in the appeal proceedings, the appellant could produce any of the parties nor any evidence in support of actual purchase as put forward by the appellant. 'However, I do agree with the contention of the appellant to the extent that there has to be some purchases against the sales disclosed by the assessee, but in the instant case, it is quite clear that such purchases has not come from these parties, thereby meaning that such purchases have been made by the appellant from grey market. Since the appellant has not been able to explain the source of such purchases, therefore these purchases from grey market are liable to be treated as unexplained expenditure in terms of provisions of section 69C of I.T. Act. Therefore, as regards the quantum of addition, I consider it more reasonable to restrict the addition to the peak of such credit purchases, because during. the enquiries of the department, the hawala racketeers have also admitted that on receipt of cheque payments against such bogus purchases, they used to withdraw cash and returned it to the party after deducting their commission Under these circumstances it is the natural presumption that the 6 ITA No. 2088 & 2089/ Mum/2015 M/s Sheth Ferromet Pvt. Ltd. AYs:10-11, 11-12 subsequent purchases after the peak, might have come from the cash available from earlier transactions. As per the details filed by the appellant such peak credit comes at Rs.3,89,86,683/- therefore, subject to the verification of peak by the AO, while giving effect to this order, the addition is restricted to Rs.3,89,86,683/-. This ground is accordingly partly allowed."
5. We have considered the issue and gone through the facts and circumstances of the case. We find that the CIT(A) has rightly restricted the addition by applying profit rate and peak addition. The learned Sr. DR could not controvert the findings of the CIT(A) before us and could not argue against the order of CIT(A). Accordingly, both the appeals of Revenue are dismissed.
6. In the result, both the appeals of Revenue are dismissed.
Order pronounced in the open court on 30-08-2017.
Sd/- Sd/-
(RAJESH KUMAR) (MAHAVIR SINGH)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated: 30-08-2017
Sudip Sarkar /Sr.PS
Copy of the Order forwarded to:
1. The Appellant
2. The Respondent.
3. The CIT (A), Mumbai.
4. CIT
5. DR, ITAT, Mumbai
6. Guard file. //True Copy//
BY ORDER,
Assistant Registrar
ITAT, MUMBAI