Income Tax Appellate Tribunal - Mumbai
Etesh Prakash Jain (Huf), Bhiwandi vs Ito Ward 1(1), Kalyan, Kalyan on 10 November, 2017
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ITA Nos. 5046, 5047, 5358, 5359/Mum/2016 AY: 2010-11 & 2011-12
Shri Etesh Prakash Jain Vs. ITO Ward 1(1)
IN THE INCOME TAX APPELLATE TRIBUNAL "G" BENCH, MUMBAI
BEFORE SHRI RAJENDRA, AM AND SHRI RAVISH SOOD, JM
ITA Nos. 5046 & 5047/Mum/2016
(निर्धारण वषा / Assessment Years: 2010-11 & 2011-12)
Shri Etesh Prakash Jain (HUF) Income tax Officer,
M/s Shree Darshan Pipes बिधम/ Ward No. 1(1) 1st Floor,
331/5, Surya Darshan Mohan Plaza, Wayale
Vs.
Building, Kasar Ali, Gokul Nagar Nagar, Kalyan West.
Bhiwandi-421 302
स्थायी लेखा सं ./ जीआइआर सं ./ PAN No. AAAHE1478G
(अऩीराथी /Assessee) : (प्रत्मथी / Revenue)
ITA Nos. 5358 & 5359/Mum/2016
(निर्धारण वषा / Assessment Years: 2010-11 & 2011-12)
Income tax Officer, Shri Etesh Prakash Jain (HUF)
Ward No. 1(1), 1st Floor, बिधम/ M/s Shree Darshan Pipes
Mohan Plaza, Wayale 331/5, Surya Darshan Building,
Vs.
Nagar Kalyan West. Kasar Ali, Gokul Nagar
Bhiwandi-421 302
स्थायी लेखा सं ./ जीआइआर सं ./ PAN No. AAAHE1478G
(अऩीराथी /Revenue) : (प्रत्मथी / Assessee)
अऩीराथी की ओय से / Revenue by : Shri Ram Tiwari, D.R
प्रत्मथी की ओय से/Assessee by : Shri Mahesh O. Rajora, A.R
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ITA Nos. 5046, 5047, 5358, 5359/Mum/2016 AY: 2010-11 & 2011-12
Shri Etesh Prakash Jain Vs. ITO Ward 1(1)
सुनवाई की तायीख / : 06.11.2017
Date of Hearing
घोषणा की तायीख / : 10.11.2017
Date of Pronouncement
आदे श / O R D E R
PER RAVISH SOOD, JUDICIAL MEMBER:
The present set of cross appeals filed by the assessee and the revenue for AYs: 2010-11 and 2011-12 are directed against the consolidate order of the CIT(A), dated 17.06.2016, which in itself arises from the respective assessment orders passed under Sec. 143(3) r.w.s 147 of the Income tax Act, 1961 (for short 'Act'), each dated 13.03.2015. That as common issues are involved in the aforementioned cross appeals, therefore, the same are being taken up together and are being disposed of by way of a consolidate order. We shall first take up the cross appeals for AY: 2010-11. The assessee assailing the order of the CIT(A) had raised before us the following grounds of appeal:
"1. The Commissioner of Income Tax (Appeals) -2, Thane [hereinafter referred to as CIT(A)] erred in confirming the action of A.O in reopening of the assessment by invoking the provisions of section 147 read with section 148 of the Income Tax Act, 1961.
The Appellant submits that the notice issued u/s 148 and reopening of assessment u/s 147 is bad in law, illegal. ultra-virus and contray to the provision of the I.T. Act and same shall be quashed.
2. The CIT(A) erred in conf irming the addition to the extent of Rs.17,31,510/- considering the same as suppressed Gross Profit, on raw material purchased from ten parties treated as non genuine/bogus purchases by the AO.
The Appellant submits that it has actually purchased the raw materials from respective parties, payment for purchases were made through proper banking channels, the raw material were processed at it manufacturing units and finished goods has Page |3 ITA Nos. 5046, 5047, 5358, 5359/Mum/2016 AY: 2010-11 & 2011-12 Shri Etesh Prakash Jain Vs. ITO Ward 1(1) actually been sold to independent third party bu y ers and sales have been duly accounted for computing taxable income; hence under the facts and circumstances of the case of the appellant raw material purchased from these parties cannot be treated as non genuine/bogus purchases.
3. On the f acts and circumstances of the case of the a ppellant and in law, the CIT(A) erred in rejecting the books of accounts of the appellant u/s 145(3) of the I. T. Act.
The appellant submits that the action of CIT(A) in rejecting the books of accounts is illegal and contrary to the provisions of the Act and on the facts and circumstances of the case of the appellant provisions of Section 145(3) cannot be resorted to by the CIT(A) and same should be struck down.
Your appellant craves leave to add, to alter or to amend the aforesaid ground of appeal."
2. That the revenue on the other hand challenging the order of the CIT(A) had raised before us the following grounds of appeal:-
"1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in relying on the decision of Supreme Court in the case of Kanchwala Gems Vs. JCIT 288 ITR 10(SC) and Hon'ble High Court's decision in the case of Vijay Protein, Sanjay Oil Cake Industries, etc.
2. On the f acts and in the circumstanc es of the case, and in law, the Hon'ble CIT(A) erred in not following the order of ITAT, Pune in ITA No. 1411-1415 dated 20.02.2015 in the case of M/s. Kolte Patil Developers Ltd. wherein 100% addition of bogus purchases was confirmed
3. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in giving relief to the assessee to the extent of suppressed G.P. out of total bogus purchases even though-
(i) The assessee could not produce primary evidences like Octroi Receipts, Delivery Challan etc. evidence to prove the genuineness of the purchases before the AO and before CIT(A).
(ii) The affidavits filed by the entry providers before Sales Tax Authorities cannot be ignored having evidentiary value.
4. The order of the CIT(A) may be vacated and that of the Assessing Officer may be restored.
5. The appellant craves leave to add, amend, alter or delete any ground of appeal."
Page |4 ITA Nos. 5046, 5047, 5358, 5359/Mum/2016 AY: 2010-11 & 2011-12 Shri Etesh Prakash Jain Vs. ITO Ward 1(1)
3. Briefly stated, the facts of the case are that the assessee who is engaged in the business of manufacturing and trading of H.D.P.E Pipes and Fittings had e-filed its return of income on 29.09.2010 for AY: 2010-11, declaring total income of Rs.5,66,719/-. The return of income filed by the assessee was processed as such under Sec. 143(1) of the 'Act'. Information was received by the A.O from the Sales Tax Department, Maharashtra, therein disclosing the names and addresses of certain concerns which had provided entries for bogus bills to a large number of tax payers across the state. That it was gathered by the A.O that the name of the assessee also appeared in the list of the persons who had obtained bogus purchase bills from the aforesaid accommodation entry providers. That as per the information received by the A.O, the assessee had obtained bogus purchase bills ,as under:
Sr. Name of the entry Maharashtra A.Y. Amount in the No. provider VAT No. bills taken by the assessee
1. Dhiren Mercantile Pvt. 27450680107V 2010-11 2196691 Ltd.
2. Sachi Mercantile Pvt. 27770610285V 2010-11 410410 Ltd.
3. Goodluck Impex India 27440677542V 2010-11 400452
4. Sunrise Enterprises 27370565400V 2010-11 1252357
5. K.V. Trading Co. 27240652044V 2010-11 887738
6. Surchi Multitrade Pvt. 27200610259V 2010-11 386296 Ltd.
7. Saradgi Syndicate 27140326567V 2010-11 1693083
8. Sidhivinayak Steels 27050389521V 2010-11 451746
9. Tashil Trading Pvt. 2010-11 1856648 Ltd. 27020044072V
10. Shalaka International 27980662404V 2010-11 404804 Page |5 ITA Nos. 5046, 5047, 5358, 5359/Mum/2016 AY: 2010-11 & 2011-12 Shri Etesh Prakash Jain Vs. ITO Ward 1(1) Total 99,43,225 That on the basis of the aforesaid information the A.O reopened the case of the assessee under Sec. 147 of the 'Act'. The assessee in compliance to the notice served upon it under Sec. 148, therein vide its letter dated 23.02.2015 submitted that its original return of income filed on 29.09.2010 may be treated as the return filed in compliance to the notice issued under Sec. 148. The aforesaid request of the assessee was acted upon and Notices under Sec. 143(2)/142(1) were thereafter issued to the assessee.
4. The A.O during the course of the assessment proceedings called for information under Sec. 133(6) from the aforementioned parties, viz.
(i). Dhiren Mercantile Pvt. Ltd; (ii). Sachi Mercantile Pvt. Ltd; (iii). Goodluck Impex India; (iv).Sunrise Enterprises ; (v). K.V. Trading Co;
(vi).Surachi Multitrade Pvt. Ltd; (vii). Saradgi Syndicate; (viii).
Sidhivinayak Steels; (ix).Takshil Trading Pvt. Ltd; and (iii). Shalaka International. The A.O called upon the aforementioned parties to furnish the extracts of the account of the assessee as was so appearing in their books of account for the period 01.04.2009 to 31.03.2010. However, all of the aforesaid letters were returned unserved by the postal authorities. The inspector of income-tax who was deputed by the A.O to effect service of the aforesaid notices on the aforementioned parties, therein reported that neither of the parties were available at the respective addresses. The A.O in the backdrop of the aforesaid facts held a conviction that the assessee had not made any genuine purchases from the aforementioned parties. The A.O called upon the assessee to produce the aforementioned parties along with supporting documentary evidence. However, the assessee failed to effect compliance to the directions of the A.O. and failed to produce Page |6 ITA Nos. 5046, 5047, 5358, 5359/Mum/2016 AY: 2010-11 & 2011-12 Shri Etesh Prakash Jain Vs. ITO Ward 1(1) the parties for examination before the A.O. That in the backdrop of the aforesaid facts, the A.O concluded that the assessee who remained under a heavy onus to establish the genuineness and veracity of the purchase transactions aggregating to Rs.99,43,225/- which were claimed to have been made from the aforesaid parties, had however failed to substantiate the same on the basis of irrefutable documentary evidence. The A.O on the basis of his aforesaid observations added the aggregate value of purchases of Rs.99,43,225/- in the hands of the assessee and assessed its income at Rs.1,05,09,944/-.
5. Aggrieved, the assessee carried the matter in appeal before the CIT(A). The CIT(A) after deliberating on the facts of the case, therein observed that the A.O had gathered information in the form of affidavits and the statements of the aforementioned parties recorded by the Sales Tax Department, wherein the said respective parties had duly admitted that they were only providing accommodation entries and had not supplied any goods. The CIT(A) observed that the assessee despite specific directions by the A.O, not only failed to place on record the confirmations of the respective parties, but even failed to furnish the current mailing addresses of the said respective parties. It was further observed by the CIT(A) that all the notices issued by the A.O under Sec. 133(6) to the aforementioned parties were returned back unserved by the postal authorities. The CIT(A) observed that the A.O in the backdrop of the aforesaid facts had deputed his inspector to serve the notices under Sec. 133(6) on the aforementioned parties, however, the enquiries made by the inspector revealed that neither of the said parties existed at the given address. The CIT(A) observed that though the A.O brought the aforesaid facts to the notice of the assessee and directed him to produce the parties for examination in Page |7 ITA Nos. 5046, 5047, 5358, 5359/Mum/2016 AY: 2010-11 & 2011-12 Shri Etesh Prakash Jain Vs. ITO Ward 1(1) person, however, the assessee failed to comply with the said directions of the A.O. The CIT(A) took cognizance of the fact that the assessee except for stressing on the fact that the purchase consideration was paid to the aforementioned parties vide account payee cheques, however, utterly failed to substantiate the genuineness and veracity of the purchase transactions on the basis of irrefutable documentary evidence.
6. The CIT(A) during the course of the appellate proceedings directed the assessee to place on record the monthly item wise quantitative/qualitative details, supported by the complete details of the opening stock, purchases and sales of the goods which were claimed to have been purchased from the aforementioned hawala parties. However, the assessee failed to place on record the requisite details, for the reason that the same were not maintained in the required manner. The CIT(A) observed that the A.O being of the view that the books of accounts of the assessee did not inspire any confidence, had thus justifiably rejected the same as per the provisions to Sec. 145(3) of the 'Act'. The CIT(A) keeping in view the aforesaid facts, which clearly established that the assessee had failed to substantiate the genuineness and veracity of purchase transactions under consideration, therefore, rejected the contention of the assessee that it had made genuine purchases from the aforementioned parties, by observing as under:
"a. The appellant's claim that the payments to the hawala parties have been made through banking channels, is not tenable as hawala par tie s have duly admitte d in their statement /affidavit that after deducting their due commission i.e. approximately 1%, they have refunded back the balance cash to the buyers.
b. It is the duty of the appellant to justify the genuineness of purchases, by furnishing necessary supporting documents, bank statement, confirmation, delivery challan, transport receipt etc. and Page |8 ITA Nos. 5046, 5047, 5358, 5359/Mum/2016 AY: 2010-11 & 2011-12 Shri Etesh Prakash Jain Vs. ITO Ward 1(1) produce the parties for examination. Even during the course of appellate proceedings, the appellant, number of times, was asked to f ile above details and produce parties for examination, but failed to do so. No transport/octroi receipts were filed to justify genuineness of purchases.
c. As regards the appellants claim that there cannot be an y sales without there being corresponding purchases, is also not tenable as the appellant could not reconcile the quantity wise details of purchases from these hawala parties vis, a vis. sales thereof. The Ld AR was also not able to reconcile the stock.
d. The perusal of hawala bills reveals that these are plain bills without any marking or signature of either of receipt clerk or of cashier, who has issued the payment. In the case of regul ar bills /par tie s , th e pay ments have been made on regular bas is , immediately after purchases, whereas in the case of hawala parties, the purchases have been shown on various dates but the payments have not been made in the manner pattern, as paid to the regular suppliers.
e. The appellant could not p roduce proper verif iable documents which could prove physical delivery of goods vs. a vis. corresponding consumption / sales thereof. On the other hand, in the case of regular purchases, on the same set of circumstances, the department had accepted such purchases without questioning their genuineness, as all relevant documents / records have duly been maintained by the appellant.
f. If , the prac tice of b ooking of bog us bills is leg alized, by d is allo wing no min al percentage or estimating nominal rate of GP / NP of a particular trade, then this may lead to provide an easy weapon in the hands of the manipulative assessee to suppress/manipulate their profit, as and when so warranted.
g. The practice of obtaining of f ake bills to support the claim of bogus/unverif ied purchase being followed by the large number of assesses. This malpractice is in the operation for quite some time and is used brazenly to suppress the profits by obtaining bogus / paper purchase bills (without making actual purchase of goods) and thereby evading payment of legitimate taxes to Government Exchequer. There exists an unholy nexus between the bogus bill providers and businessmen engaged in the various trades. The effect of this malpractice is not only of very serious nature but also multi dimensional. On one side, it disheartens the honest tax payers who do not resort to such malpractice and pay their legitimate taxes honestly. On the Resultantly, the leakage of the revenue turns out to a natural casualty. Any lenient approach in the matter will not serve the cause of justice Page |9 ITA Nos. 5046, 5047, 5358, 5359/Mum/2016 AY: 2010-11 & 2011-12 Shri Etesh Prakash Jain Vs. ITO Ward 1(1) and guilty will neither deter nor mend their unethical spurious and objectionable ways in future as well.
h. onus on the assessee to prove the claim of expenses:
The assessee has debited the purchases in Trading Account (including the bogus/unverif ied purchases) and claimed the deduction f or expenses. Since the expenditure has ap p e llan t' s kno wl edg e, th e " primary onus" lies on the as se ssee to prov e th at the purchases claimed by him are g enuine and wholly & exclusively f or the purpose of business. For this purpose. the assessee has to lead the evidence to show that the expenditure has actually been incurred by it and the same is f or genuine business needs. Here, if the assessee claims that purchase s are made f rom the alleged bogu s par ty then it is the responsibility of the as s e s s e e to e s ta b l is h th a t ( a) p ar ty is in e x is te n c e ( b ) p ar ty is c a p a b l e of s u p p ly o f g o o d s an d ( c ) p ar ty h a s a c tu a l l y s u p p l ie d t h e g o o d s ( d ) g o o d s so r e c e iv e d h ad ac tu a l l y b e e n u s e d f o r b u s in e s s an d d e c l ar e d as p a r t of th e s a le f o r th e y e a r . If the assessee is asked to produce the parties for verif ication, then it is the dut y of the assessee to so to establish the genuineness of the claim of the expense.
In these cases, the assessee has tried to claim that the y have discharged their onus by doing the following:
(i) By submitting the name, address. PAN
(ii) By claiming that payments were through banking channels
(iii) By claiming that the purchases are reflected in the hooks of accounts.
Considering the f acts of the cases under consideration, it can safely be concluded that assessee had failed in their efforts in discharging the onus cast upon them. Merel y filing name, address, PAN & pa y me n ts by che q ue wil l no t d isc harg e him f rom the onus especiall y whe n th e departmen t had received specif ic mater ial / inf ormatio n f ro m the Sales -tax/V AT Departmen t wherein these suppliers, on oath had admitted the fact that they have merely provided entry/ issued bills without physically delivering any goods."
7. The CIT(A) after deliberating on the contentions raised by the assessee before him in the backdrop of the facts of the case, therein held a strong conviction that the assessee by failing to furnish with the A.O the confirmations, current mailing addresses and bank statements of the aforesaid respective parties, as well as by failing to produce then for examination before the A.O., had thus failed to P a g e | 10 ITA Nos. 5046, 5047, 5358, 5359/Mum/2016 AY: 2010-11 & 2011-12 Shri Etesh Prakash Jain Vs. ITO Ward 1(1) explain/justify the genuineness of the purchases which were claimed to have been made from them. The CIT(A) held a conviction that under the aforesaid circumstances it was not possible for the A.O to have examined the correctness, reasonableness and genuineness of the purchase transactions under consideration. The CIT(A) was also not inspired by the contention of the assessee that the genuineness of the purchase transactions could be gathered from the fact that payments to the aforementioned supplier parties had been made vide account payee cheques. The CIT(A) was of the view that making of payments vide account payee cheques to the aforementioned parties would not conclusively prove the genuineness and veracity of the purchase transactions under consideration. That as regards the contention that the department had failed to allow cross examination of the aforementioned parties to the assessee, it was observed by the CIT(A) that as neither of the parties were available at their original addresses, and their current addresses were not made available by the assessee to the A.O, therefore, the question of cross examination of the said parties did not arise at all. The CIT(A) further observed that various courts had upheld the disallowances in respect of bogus purchases to the extent of 12.5% to 100%, keeping in view the facts involved in the said respective cases. The CIT(A) after deliberating on the hawala business which was being carried on in a systematic manner in the market, therein concluded that such scandalous activities should not be legalized by restricting the disallowance of bogus purchase to a certain percentage, until and unless it was proved that the assessee had made purchases of the goods from the open/grey market under certain compelling circumstances. The CIT(A) after deliberating on the facts of the case, therein observed that the dispute in the case of the assessee was only in respect of the purchases made in context of its manufacturing activity. The CIT(A) called for and deliberated on the P a g e | 11 ITA Nos. 5046, 5047, 5358, 5359/Mum/2016 AY: 2010-11 & 2011-12 Shri Etesh Prakash Jain Vs. ITO Ward 1(1) year wise gross profit and net profit ratios of the assessee for the AYs 2007-08 to 2014-15. The CIT(A) observed that the purchases of Rs.99,43,225/- and Rs.66,79,476/- made by the assessee in AY 2010- 11 and 2011-12 from the aforementioned parties constituted 98.5% and 46.90% of the total purchases of raw material of Rs.1,00,89,971/- and Rs.1,42,39,733/-, respectively, made by the assessee during the said respective years as regards its manufacturing activities. The CIT(A) observed that the assessee had during the course of the assessment proceedings furnished the details along with quantitative analysis of the purchases with the A.O. The CIT(A) further deliberated on the contention of the assessee that it would not have been possible for it to had carried out manufacturing sales of Rs.1,34,56,371/- and Rs.1,46,73,041/- in AY: 2010-11 and 2011-12, respectively, on the basis of the remaining purchase of raw material of Rs.1,46,746/- and Rs.79,93,565/- pertaining to AY: 2010-11 and 2011-12, respectively. The CIT(A) found favour with the contentions of the assessee and observed that it would not have been possible for the assessee to have harvested a turnover of Rs.1,34,56,311/- and Rs.1,46,73,041/- from the manufactured goods, on the basis of the purchases of raw material of Rs.1,46,746/- and Rs.79,93,565/- in AY: 2010-11 and 2011-12, respectively, as remained available with it, in case the purchases of goods claimed by the assessee to have been made from the aforementioned parties was excluded. Thus, the CIT(A) concluded that the assessee had made the purchases of the goods under consideration, though not from the aforementioned hawala parties, but from the unidentified parties operating in the open/grey market. The CIT(A) on the basis of his aforesaid conviction, therein observed that the G.P. rate of the years under consideration, viz. AY: 2010-11 and 2011-12 had gone down to 4.64% and 4.95%, as against the G.P rate of 9.11% declared by the assessee in AY: 2007-08. The CIT(A) P a g e | 12 ITA Nos. 5046, 5047, 5358, 5359/Mum/2016 AY: 2010-11 & 2011-12 Shri Etesh Prakash Jain Vs. ITO Ward 1(1) adopting the G.P rate for A.Y. 2007-08 as a yard stick, therein concluded that the assessee by inflating its purchases had suppressed its profit, viz. by 4.47% [9.11% (minus) 4.64%] i.e. Rs.17,31,510/- in A.Y 2010-11 and 4.16% [9.11% (minus) 4.95%] i.e. Rs.20,47,872/- in A.Y.2011-12, respectively. The CIT(A) pitting the calculation of the suppressed profit by him as against the consequential disallowance that otherwise would have been arrived at by computing the same @ 12.5% of the aggregate value of the bogus purchases, therein observed that that the addition on the basis of the working of the suppressed G.P rate was found to be on the higher side. The CIT(A) on the basis of his aforesaid observations sustained the disallowance in the hands of the assessee to the extent of Rs.17,31,510/- and Rs.20,47,872/-, as against the addition of Rs.99,43,225/- and Rs.66,79,476/- that was made by the A.O in A.Ys: 2010-11 and 2011-12, respectively.
8. That both the assessee and the revenue being aggrieved with the order of the CIT(A) had carried the matter in appeal before us. That at the very outset of the hearing of the appeal it was submitted by the ld. Authorized Representative (for short 'A.R') for the assessee that the issue was squarely covered by the order passed by the Tribunal in the assessee's own case for AY: 2009-10. The ld. A.R placed on record the copy of the consolidate order of the Tribunal, marked as ITO Vs. Etesh P. Jain HUF (ITA No. 3353/Mum/2016), and Etesh P. Jain HUF Vs. ITO (ITA No. 3021/Mum/2016, both dated 24.10.2016, for AY: 2009-10. It was submitted by the ld. A.R that the Tribunal while disposing of the aforesaid cross appeals which involved similar facts had restricted the addition to 10% of the aggregate value of the bogus purchase. The ld. A.R submitted that the estimation of the profit element @10% of the aggregate value of the bogus purchases in all fairness may further be reduced by the profit which on the sale of P a g e | 13 ITA Nos. 5046, 5047, 5358, 5359/Mum/2016 AY: 2010-11 & 2011-12 Shri Etesh Prakash Jain Vs. ITO Ward 1(1) the said goods had already been booked in the books of account of the assessee. Per contra, the ld. Departmental Representative (for short D.R) relied on the judgment of the Hon'ble Supreme Court in the case of N.K. Proteins Ltd. Vs. DCIT (Special Leave Petition) (CCNO) (S) 769/ Mum/2017, dated 16.01.2017. The ld. D.R submitted that in the backdrop of the aforesaid judgment of the Hon'ble Supreme Court, the entire bogus purchase was liable to be added in the hands of the assessee. The ld. D.R submitted that the A.O had rightly made the addition of the entire value of the purchases claimed by the assessee to have been made from the aforementioned hawala parties, which however had wrongly been restricted by the CIT(A) to the extent of the suppressed gross profit rate.
9. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record. We are of the considered view that in the backdrop of the facts involved in the present case, it stands conclusively proved that the assessee despite being afforded sufficient opportunity by the A.O had failed to substantiate the genuineness and veracity of the purchase transactions. We find that the facts of the case clearly reveals that the assessee had not made any genuine purchases from the aforementioned parties. We find that independent of the facts on the basis of which serious doubts had emerged as regards the genuineness of the purchase transactions, viz. the Affidavits and Statements of the aforementioned parties with the Sales Tax Department, the assessee even otherwise had failed to place on record any documentary evidence which could go to irrefutably substantiate the genuineness and veracity of the purchases which were claimed to have been made from the aforementioned parties. We find that the notices sent by the A.O to the aforementioned parties u/s P a g e | 14 ITA Nos. 5046, 5047, 5358, 5359/Mum/2016 AY: 2010-11 & 2011-12 Shri Etesh Prakash Jain Vs. ITO Ward 1(1) 133(6) were returned unserved by the postal authorities, and all the attempts on the part of the A.O to carry out service of the notices on the aforementioned parties not only failed, but rather it emerged that neither the aforementioned parties were existing at the respective addresses. We find that no documentary evidence was placed on record by the assessee to substantiate the authenticity of the purchase transactions. We thus, in the backdrop of the aforesaid facts are of the considered view that the assessee had not carried out any genuine purchases from the aforementioned parties. However, we are persuaded to be in agreement with the view taken by the CIT(A) that it would not have been possible for the assessee to had carried out the substantial manufacturing sales without purchasing the requisite materials. We are of the considered view that the assessee had purchased the goods under consideration, though not from the aforementioned parties, but from unidentified parties operating in the open/grey market. We are of the view that in the backdrop of the aforesaid facts, the addition in the hands of the assessee was liable to be restricted only to the extent of the profit element involved in making of such purchases from the open/grey market. We find that a similar issue had came before a coordinate bench of the Tribunal in the cross appeals of the assessee and the revenue ITO Vs. Etesh P. Jain HUF (ITA No. 3353/Mum/2016), and Etesh P. Jain HUF Vs. ITO (ITA No. 3021/Mum/2016, both dated 24.10.2016, for AY: 2009-10 ,wherein the tribunal had observed as under:-
"We have considered rival contentions and carefully gone through the orders of the authorities below and found from record that A.O has reopened assessment on the basis of information from sales tax department regarding bogus purchases. After reopening the assessment A.O added entire amount of such purchases in the total income of the assessee. We have observed that assessee failed to furnish confirmed coy of ledger account and current mailing address of the hawala parties. Accordingly, books of accounts were rejected u/s 145(3) by following the decision of Hon'ble Delhi High Court in the case of Jansampark advertising And Marketing (P) Ltd. After considering the fact that the material so purchased have actually been used by the assessee in P a g e | 15 ITA Nos. 5046, 5047, 5358, 5359/Mum/2016 AY: 2010-11 & 2011-12 Shri Etesh Prakash Jain Vs. ITO Ward 1(1) manufacturing activity and also the fact that assessee has furnished quantitative analysis of consumption as per tax audit report, the CIT(A) has restricted addition to the extent of 12.5%. Keeping in view the findings recorded by CIT(A) vis-a-vis G.P. rate disclosed by assessee during the year under consideration in its manufacturing activity, we modify the orders of the lower authorities and direct for upholding addition by applying profit rate of 10%. We direct accordingly."
10. We have deliberated on the aforesaid observations of the coordinate bench of the Tribunal and are persuaded to be in agreement with a view taken by it. We thus, in the backdrop of our aforesaid observations, being of the view that same facts are involved in the present case, therefore, restrict the addition in the hands of the assessee to the extent of 10% of the aggregate value of the purchases claimed to have been by the assessee made by the assessee from the aforementioned hawala dealers. We are of the considered view that the contention of the assessee that a further reduction of the profit element that had already been booked in its books of account in respect of the sales of the goods under consideration may be made, is found to be devoid of any force and thus does not merit acceptance. That as regards the reliance placed by the ld. D.R. on the judgement of the Hon'ble Supreme Court in the case of N.K. Proteins Ltd. Vs. DCIT (Special Leave Petition) (CC NO) (S) 769/ Mum/2017, dated 16.01.2017, we are of the considered view that the facts involved in the said case are distinguishable as against the facts involved in the case of the assessee before us. We find that in the case of N.K Proteins Ltd. (supra) search proceedings were conducted on the assessee, in the course of which certain signed blank cheques and vouchers of the parties from whom the assessee claimed to have been making purchases were found. It was thus in the backdrop of the aforesaid factual matrix, that the revenue held that the cash deposited in the bank accounts of the said respective supplier parties was the undisclosed income of the assessee, P a g e | 16 ITA Nos. 5046, 5047, 5358, 5359/Mum/2016 AY: 2010-11 & 2011-12 Shri Etesh Prakash Jain Vs. ITO Ward 1(1) and the purchases made there from, as bogus. We are of the considered view that the facts involved in the case of the present assessee are absolutely distinguishable as a gainst the peculiar and irrebutable facts as had emerged in the case of N.K Proteins Ltd. (supra).
11. We thus in the backdrop of our aforesaid observations dismiss both the appeals of the assessee and the revenue for AY: 2010-11.
ITA No. 5047/Mum/2016 (Assesses appeal) ITA No. 5359/Mum/2016 (Revenues appeal)AY: 2011-12
12. The assessee had assailed the order of the CIT(A) for AY: 2011-12 by raising before us the following grounds of appeal:-
"1. The Commissioner of Income Tax (Appeals) - 2, Thane [hereinafter referred to as CIT(A)] erred in confirming the action of A.O in re-opening of the assessment by invoking the provisions of section 147 read with section 148 of the Income Tax Act, 1961.
The Appellant submits that the notice issued u/s 148 and reopening of assessment u/s 147 is bad in law, illegal, ultra- virus and contrary to the provision of the I.T. Act and same shall be quashed.
2. The CIT(A) erred in confirming the addition to the ex tent of Rs.20,47,872/- considering the same as suppressed Grass Profit, on raw material purchased from ten parties treated as non genuine/bogus purchases by the AO.
The Appellant submits that it has actually purchased the raw materials from respective parties, payment for purchases were made through proper banking channels, the raw material were processed at it manufacturing units and finished goods has actually been sold to independent third party buyers and sales have been duly accounted for computing taxable income; hence under the facts and circumstances of the case of the Appellant raw material purchased from these parties cannot be treated as non genuine/bogus purchases.
3. On the facts and circumstances of the case of the Appellant and in law, the CIT(A) erred in rejecting the books of accounts of the Appellant u/s 145(3) of the I.T. Act.
P a g e | 17 ITA Nos. 5046, 5047, 5358, 5359/Mum/2016 AY: 2010-11 & 2011-12 Shri Etesh Prakash Jain Vs. ITO Ward 1(1) The appellant submits that the action of CIT(A) in rejecting the books of accounts is illegal and contrary to the provisions of the Act and on the facts and circumstances of the case of the appellant provisions of Section 145(3) cannot be resorted to by the CIT(A) and same should be struck down.
Your appellant craves leave to add, to alter or to amend the aforesaid ground of appeal.
13. That on the other hand the revenue had challenged the order of the CIT(A) by raising the following grounds of appeal:-
"1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in relying on the decision of Supreme Court in the case of Kanchwala Gems Vs. JCIT 288 ITR 10(SC) and Hon'ble High Court's decision in the case of Vijay Protein, Sanjay Oil Cake Industries, etc.
2. On the f acts and in the circumstances of the case, and in law, the Hon'ble CIT(A) erred in not following the order of ITAT, Pune in ITA No. 1411-1415 dated 20.02.2015 in the case of M/s. Kolte Patil Developers Ltd. wherein 100% addition of bogus purchases was confirmed.
3. On the facts and in the circumstances of the case, the L d. CIT(A) has erred in giving relief to the assessee to the extent of suppressed G.P. out of total bogus purchases even though-
(i) The assessee could not produce primary evidences like Octroi Receipts, Delivery Challan etc. evidence to prove the genuineness of the purchases before the A.O and before CIT(A).
(ii) The affidavits filed by the entry providers before Sales Tax Authorities cannot be ignored having evidentiary value.
4. The order of the CIT(A) may be vacated and that of the Assessing Officer may be restored.
5. The appellant craves leave to add, amend, alter or delete any ground of appeal."
14. Briefly stated, the facts of the case that the assessee had e-filed its return of income for A.Y. 2011-12 on 28.09.2011, declaring total income of Rs.6,97,981/-. The A.O on the basis of information received from the Sales Tax Department, Maharashtra that the assessee had taken following bogus purchase bills:-
Sr. No. Name of the entry Maharashtra VAT A.Y. Amount in the P a g e | 18 ITA Nos. 5046, 5047, 5358, 5359/Mum/2016 AY: 2010-11 & 2011-12 Shri Etesh Prakash Jain Vs. ITO Ward 1(1) provider No. bills taken by the assessee
1. NISHA ENTERPRISE 27940256772V 2011-12 2114682
2. POLARIS SALES 27410680420V 2011-12 1338332 AGENCY PRIVATE LIMITED
3. KAMALANAYAN 27470782431V 2011-12 1919722 EXIM PRIVATE LIMITED
4. ASHTAVINAYAK 27580638762V 2011-12 1306740 SALES AGENCY TOTAL 6679476 ,therein made an addition of Rs.66,79,476/- in the hands of the assessee, and assessed its income at Rs.73,77,457/-.
15. Aggrieved, the assessee carried the matter in appeal before the CIT(A) who partly allowed the appeal and restricted the addition in the hands of the assessee to the extent of the suppressed gross profit of Rs.20,47,872/- pertaining to the bogus purchases.
16. That both the assessee and the revenue had further carried the matter in appeal before us. We find that that as the facts and the issue involved in the present appeals are same as were involved in the cross appeals filed by the assessee and the revenue for A.Y 2010-11, marked as ITA No. 5046/Mum/2016 and 5358/Mum/2016, respectively, therefore, the order passed by us while disposing of the aforesaid appeals shall apply mutatis mutandis for disposing of the present cross appeals of the assessee and the revenue for A.Y 2011- 12, viz. marked as ITA No. 5047/Mum/2016 and ITA No. 5359/Mum/2016, respectively.
P a g e | 19 ITA Nos. 5046, 5047, 5358, 5359/Mum/2016 AY: 2010-11 & 2011-12 Shri Etesh Prakash Jain Vs. ITO Ward 1(1)
17. That both the appeals of the assessee and the revenue for A.Y. 2011-12 are dismissed.
18. That all the appeals of the assessee and the revenue for A.Y. 2010-11 and A.Y. 2011-12, marked as ITA No. 5046/Mum/2016, ITA No.5047/Mum/2016,ITA No. 5358/Mum/2016 and 5359/Mum/2016 are dismissed in terms of our aforesaid observations.
Order pronounced in the open court on 10.11.2017
Sd/- Sd/-
(RAJENDRA) (RAVISH SOOD)
ACCOUNTANT MEMBER JUDICIAL MEMBER
भुुंफई Mumbai; ददनाुंक 10.11.2017
Ps. Rohit Kumar
आदे श की प्रनिलऱपि अग्रेपषि/Copy of the Order forwarded to :
1. अऩीराथी / The Appellant
2. प्रत्मथी / The Respondent.
3. आमकय आमुक्त(अऩीर) / The CIT(A)-
4. आमकय आमक् ु त / CIT
5. ववबागीम प्रतततनधध, आमकय अऩीरीम अधधकयण, भुुंफई / DR, ITAT, Mumbai
6. गार्ड पाईर / Guard file.
सत्मावऩत प्रतत //True Copy// आदे शधिुसधर/ BY ORDER, उि/सहधयक िंजीकधर (Dy./Asstt. Registrar) आयकर अिीऱीय अधर्करण, भुुंफई / ITAT, Mumbai P a g e | 20 ITA Nos. 5046, 5047, 5358, 5359/Mum/2016 AY: 2010-11 & 2011-12 Shri Etesh Prakash Jain Vs. ITO Ward 1(1)