Appeal Details
Counselvise Citation
[2017] 126 COUNSELVISE.COM (IT) 7800 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 year(s) 9 month(s) 14 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
22-12-2017
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
Not Allotted
Assessment Year
2009-2010
Appeal Filed On
08-03-2016
Judgement Text
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) MUMBAI VS. RISHAB STEEL HOUSE, 101/102 RISHAB HOUSE, 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, MUMBAI 400 004. PAN AACFR2807C VS. DY CIT 15(2) MUMBAI (APPELLANT) (RESPONDENT) FOR THE REVENUE : SHRI SAURABH DESHPANDE FOR THE ASSESSEE : SHRI N R PORWAL DATE OF HEARING : 29. 11 .2017 DATE OF PRONOUNCEMENT : . 1 2 .2017 O R D E R 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 0 4.12.2015. THE GROUNDS RAISED BY THE ASSESSEE IN ALL THE YEARS ARE COMMON EXCEPT FOR THE RISHABH STEEL HOUSE 2 CHANGE IN FIGURES. BOTH THE PARTIES AGREED THAT TH ESE APPEALS BE DECIDED ON THE BASIS OF GROUNDS AND FACTS INVOLVED FOR A.Y. 20 06-07. 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 CA SE AND IN LAW THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN ESTIMATING PROFIT @ 17.50% ON ALLEGED BOGUS PURCHAS ES 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 AN D INSUFFICIENT TO JUSTIFY ESTIMATING PROFIT @ 17.50% ON SUCH PURCH ASES. 2. (A) ON THE FACTS AND IN THE CIRCUMSTANCE S OF THE CASE AND IN LAW THE LEARNED COMMISSIONER OF INCOME TAX (APPE ALS) ERRED IN REJECTING CLAIM OF THE APPELLANT THAT PROCEEDING IN ITIATED UNDER SECTION 147 OF THE ACT BY ISSUING NOTICE UNDER SECT ION 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 TANGIB LE 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 T HE PART OF THE APPELLANT TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT FOR SAID ASSESSMENT YEAR AND THEREFO RE PROCEEDING INITIATED UNDER SECTION 147 OF THE ACT BY ISSUING N OTICE 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) ER RED IN REJECTING CLAIM OF THE APPELLANT THAT ORDER MADE UN DER SECTION 143(3) RWS 147 OF THE ACT IS ILLEGAL, BAD-IN-LAW, U LTRA VIRUS, WITHOUT ALLOWING REASONABLE OPPORTUNITY OF THE HEARING, AND WITHOUT APPRECIATING FACTS, SUBMISSION AND EVIDENCES IN THE IR PROPER PERSPECTIVE AND WITHOUT PROVIDING COPIES OF MATERIA L / EVIDENCES RELIED UPON IS LIABLE TO BE ANNULLED. RISHABH STEEL HOUSE 3 4. THE LEARNED ASSESSING OFFICER ERRED IN CHA RGING INTEREST UNDER SECTION 234A. 234B. 234C AND 234D OF THE ACT 3. THE REVENUE IS IN APPEAL FOR A.Y. 2011-12 RAISI NG THE FOLLOWING GROUND OF APPEAL: 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN CONFIRMING ADD ITION @17.5% OF TOTAL PURCHASE HELD AS BOGUS BY THE AO? 2. THE APPELLANT PRAYS THAT THE ORDER OF THE LEARNE D CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE AO BE RES TORED. 4. THE BRIEF FACTS FOR A.Y. 2006-07 ARE THAT THE AS SESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS AS DEALER OF FERROUS A ND NON FERROUS METALS. THE RETURN OF INCOME FOR THE YEAR UNDER APPEAL WAS FILE D 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 INCOM E 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 PRO CEEDINGS, 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. FURT HER, ASSESSING OFFICER RISHABH STEEL HOUSE 4 OBSERVED THAT THE ASSESSEE HAD DEBITED PURCHASES FR OM VARIOUS PARTIES WHOSE TIN MATCHED WITH THE INFORMATION KEPT IN THE PUBLIC DOMAIN BY THE SALES TAX DEPARTMENT WITH REGARD TO THE HAWALA OPER ATORS. THE ASSESSING OFFICER ISSUED SHOW CAUSE NOTICE AND AFTER GOING TH ORUGH THE SUBMISSIONS AND CONTENTIONS OF THE ASSESSEE AT LENGTH, CONCLUDE D 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 T HE ASSESSING OFFICER HAS REASON TO BELIEVE FOR RE-OPENING THE ASSESSMENT. S O 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), SAMURA I SOFTWARE (P.) LTD. VS. CIT 299 ITR 324 (RAJ), INDIAN WOOLLEN CARPET FACTOR Y VS. ITAT 316 ITR 274 (GUJ), ACIT VS. TRIBHOVANDAS BHIMJI ZAVERI 74 ITD 9 2 (MUM), BHOLANATH POLYFAB PVT. LTD. 355 ITR 290 (GUJ), SANKET STEEL T RADERS VS. ITO IN ITA NO. 2801 & 2937 (AHD) OF 2008 DATED 20.05.2011 AND VIJA Y 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: RISHABH STEEL HOUSE 5 THE MOTIVE BEHIND OBTAINING BOGUS BILLS THUS, APPEA RS TO BE INFLATION OF PURCHASE PRICE SO AS TO SUPPRESS TRUE PROFITS. ESTIMATION RANGING FROM 12.5% TO 25% HAS BEEN UPHELD BY THE HO N'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 T HE ASSESSEE IS SUPPLYING THE MATERIAL TO REPUTED COMPANIES AND OFF ERING 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 E NDS OF JUSTICE. THEREFORE, I DIRECT THE AO TO ESTIMATE PROFIT OF 17 .5% ON THE TOTAL ALLEGED BOGUS PURCHASES AS THE PROFIT ELEMENT EMBED DED IN SUCH PURCHASES. WHILE ESTIMATING THE GP ON THE BOGUS PUR CHASES, THE PERCENTAGE OF GP ALREADY OFFERED IN THE BOOKS OF AC COUNT ON THE RELEVANT SALES OUT OF THE PURCHASES IS TO BE REDUCE D FROM SUCH ESTIMATED PROFIT. AO IS DIRECTED TO VERIFY THE CORR ECTNESS OF THE AVERAGE GP PERCENTAGE STATED BY THE APPELLANT IN TH E 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 I S CONCERNED, THE LEARNED AR DID NOT PUT ANY ARGUMENTS ALTHOUGH HE HAS RAISED GR OUND NOS. 2 & 3. WE, NOTED AFTER GOING THROUGH THE ORDER OF THE AUTHORIT IES BELOW THAT THE ASSESSING OFFICER HAS RE-OPENED THE ASSESSMENT ON THE BASIS O F THE INFORMATION RECEIVED FROM THE DGIT(INV), MUMBAI. THE INFORMATI ON RECEIVED FROM DGIT(INV), IN OUR OPINION, IT IS A TANGIBLE INFORMA TION. IT IS NOT A CASE WHERE THE DGIT (INV) HAS DIRECTED THE ASSESSING OFFICER T O 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 A SSESSING OFFICER MUST HAVE A REASON TO BELIEVE THAT THERE IS ESCAPEMENT OF ASS ESSMENT DURING THE IMPUGNED ASSESSMENT YEAR. IT IS NOT A CASE WHERE T HE REASON RECORDED BY THE ASSESSING OFFICER DOES NOT BELONG TO THE ASSESS EE OR THE ASSESSEE HAS RISHABH STEEL HOUSE 6 NOT SHOWN PURCHASES IN ITS BOOKS OF ACCOUNT FROM TH E IMPUGNED PARTIES, WHICH HAS BEEN TREATED TO BE BOGUS. IN OUR OPINION , INFORMATION RECEIVED BY THE ASSESSING OFFICER MAY BE FROM ANY OUTSIDE PARTI ES. IT IS NOT A CASE WHERE THE ASSESSING OFFICER HAS NOT APPLIED HIS MIND. RA THER AFORESAID VIEW IS DULY SUPPORTED BY THE DECISION OF HONBLE 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 ADDIT ION 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 CA SE OF ACIT VS. STEEL LINE (INDIA) IN ITA NOS. 1321 TO 1323/MUM/2016 & 880 TO8 82/MUM/2016, WHEREIN THIS TRIBUNAL DIRECTED THE ASSESSING OFFICE R TO RESTRICT THE ADDITION TO THE EXTENT OF 2% OF SUCH PURCHASES. HE FURTHER CON TENDED THAT THE PRESENT CASE OF THE ASSESSEE IS DULY COVERED BY THE SAID DE CISION OF THE TRIBUNAL. HE ALSO SUBMITTED A COMPARATIVE CHART IN THE FOLLOWING MANNER: STEEL LINE (INDIA) RISHAB STEEL (HOU SE) 13. AFTER CONSIDERING THE ABOVE JUDICIAL PRONOUNCEMENTS, THE CIT(A) CONCLUDED AS UNDER: - 2.7.19 THE FACTS IN THE PRESENT CASE ARE SIMILAR TO THE FACTS IN THE ABOVE MENTIONED CASE. IN THE PRESENT CASE, THE LD. AO HAS SHOWN THAT THE EIGHT PARTIES IN QUESTION WERE NONEXISTENT. THE APPELLANT HAS NOT BEEN ABLE TO DISPROVE THE FINDINGS OF THE LD. AO REGARDING THE NON-EXISTENCE OF THE PARTIES. LD. AO HAS, AFTER EXAMINING THE EVIDENCES, FOUND THAT THE 2.7.14 THE FACTS IN THE PRESENT CASE ARE SIMILAR TO THE FACTS IN THE ABOVE MENTIONED CASE. IN THE PRESENT CASE, THE LD. AO HAS SHOWN THAT THE PARTY IN QUESTION WAS NON-EXISTENT. THE APPELLANT HAS NOT BEEN ABLE TO DISPROVE THE FINDINGS OF THE LD. A.O. REGARDING THE NON-EXISTENCE OF THE PARTIES. LO HAS, AFTER EXAMINING THE EVIDENCES, FOUND THAT THE APPELLANT RISHABH STEEL HOUSE 7 APPELLANT DID NOT PURCHASED THE GOODS FROM THE SAID PARTIES, AT THE SAME TIME HE HAS NOT DISTURBED THE SALES OF THE GOODS AND INCOME OFFERED ON SUCH SALE OF GOODS. IN THIS CASE, LD. AO HAS NOT DISPUTED THE QUANTITATIVE DETAILS AND ALSO DAY TO DAY STOCK REGISTER MAINTAINED. THE APPELLANT BEING A TRADER OF GOODS, LD. A.O. NOT HAVING DOUBTED THE GENUINENESS OF SALES, COULD NOT HAVE GONE AHEAD AND MADE ADDITION IN RESPECT OF PEAK BALANCE ON SUCH PURCHASES. THUS, THE ISSUE WOULD BOIL DOWN TO FINDING OUT THE ELEMENT OF PROFIT EMBEDDED IN BOGUS PURCHASES WHICH THE APPELLANT WOULD HAVE MADE FROM SOME UNKNOWN ENTITIES. HENCE, RESPECTFULLY FOLLOWING THE DECISION OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF BHOLANATH POLYFAB PVT. LTD. (SUPRA), IT IS CONCLUDED THAT THE PROFIT MARGIN EMBEDDED IN SUCH AMOUNTS OF PURCHASES COULD ONLY BE DISALLOWED AND SUBJECTED TO TAX. . 2.7.20 HAVING DECIDED THAT THE PROFIT MARGIN ONLY TO BE SUBJECTED TO TAX, NOW WE HAVE TO SEE WHAT IS THE PERCENTAGE TO BE ADOPTED FOR TAXING, ESPECIALLY WHEN IT VARIES FROM TRADE TO TRADE. HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. SIMIT SHETH (2013) 38 TAXMANN.COM 385 (GUJ), WAS SEIZED WITH A SIMILAR ISSUE WHERE THE A.O. HAD FOUND THAT SOME OF THE ALLEGED SUPPLIERS OF STEEL TO THE ASSESSEE HAD NOT SUPPLIED ANY GOODS BUT HAD ONLY PROVIDED SALE BILLS AND HENCE, PURCHASES FROM THE SAID PARTIES WERE HELD TO BE BOGUS. THE A.O. IN THAT CASE ADDED THE ENTIRE AMOUNT OF PURCHASES TO GROSS PROFIT OF THE ASSESSEE. LD. CIT(A) HAVING FOUND THAT THE ASSESSEE HAD INDEED PURCHASED THOUGH NOT FROM NAMED PARTIES BUT OTHER PARTIES FROM DID NOT PURCHASE THE GOODS FROM THE SAID PARTY, AT THE SAME TIME, HE HAS NOT DISTURBED THE SALE OF THE GOODS AND THE INCOME OFFERED ON SUCH SALE OF GOODS. IN THIS CASE, LD. AO HAS NOT DISPUTED THE QUANTITATIVE DETAILS AND ALSO DAY TO DAY STOCK REGISTER MAINTAINED. THE APPELLANT BEING A TRADER OF GOODS, LD. A.O. NOT HAVING DOUBTED THE GENUINENESS OF SALES, COULD NOT HAVE GONE AHEAD AND MADE ADDITION IN RESPECT OF PEAK BALANCE ON SUCH PURCHASES. THUS, THE ISSUE WOULD BOIL DOWN TO FINDING OUT THE ELEMENT OF PROFIT EMBEDDED IN BOGUS PURCHASES WHICH THE APPELLANT WOULD HAVE MADE FROM SOME UNKNOWN ENTITIES. HENCE, RESPECTFULLY FOLLOWING THE DECISION OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF BHOLANATH POLYFAB PVT. LTD. (SUPRA), IT IS CONCLUDED THAT THE PROFIT MARGIN EMBEDDED IN SUCH AMOUNTS OF PURCHASES COULD ONLY BE DISALLOWED AND SUBJECTED TO TAX. 2.7.15 HAVING DECIDED THAT THE PROFIT MARGIN ONLY TO BE SUBJECTED TO TAX, NOW WE HAVE TO SEE WHAT IS THE PERCENTAGE TO BE ADOPTED FOR TAXING, ESPECIALLY WHEN IT VARIES FROM TRADE TO TRADE. HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. SIMIT SHETH (2013) 38 TAXMANN.COM 385 (GUJ), WAS SEIZED WITH A SIMILAR ISSUE WHERE THE A.O. HAD FOUND THAT SOME OF THE ALLEGED SUPPLIERS OF STEEL TO THE ASSESSEE HAD NOT SUPPLIED ANY GOODS BUT HAD ONLY PROVIDED SALE BILLS AND HENCE, PURCHASES FROM THE SAID PARTIES WERE HELD TO BE BOGUS. THE A.O. IN THAT CASE ADDED THE ENTIRE AMOUNT OF PURCHASES TO GROSS PROFIT OF THE ASSESSEE. LD. CIT(A) HAVING FOUND THAT THE THE ASSESSEE HAD INDEED PURCHASED THOUGH NOT FROM NAMED PARTIES BUT OTHER PARTIES FROM GREY MARKET, PARTIALLY RISHABH STEEL HOUSE 8 GREY MARKET, PARTIALLY SUSTAINED THE ADDITION AS PROBABLE PROFIT OF THE ASSESSEE. THE TRIBUNAL HOWEVER, SUSTAINED THE ADDITION TO THE EXTENT OF 12.5%. TAKING INTO ACCOUNT THE ABOVE FACTS, THE HON'BLE GUJARAT HIGH COURT HELD THAT SINCE THE PURCHASES WERE NOT BOGUS, BUT WERE MADE FROM PARTIES OTHER THAN THOSE MENTIONED IN BOOKS OF ACCOUNTS, ONLY THE PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES COULD BE ADDED TO THE ASSESSES'S INCOME AND AS SUCH NO QUESTION OF LAW AROSE IN SUCH ESTIMATION. WHILE ARRIVING AT THE ABOVE CONCLUSION, THE HON'BLE COURT ALSO RELIED ON THE DECISION IN THE CASE OF VIJAY M. MISTRY CONSTRUCTION LTD. 355 ITR 498 (GUJ) AND FURTHER APPROVED THE DECISION OF AHMEDABAD BENCH, IT AT IN THE CASE OF VIJAY PROTEINS 58 ITD 428. 2.7.21 IN THE CASE OF VIJAY PROTEINS, THE HON'BLE ITAT WAS SEIZED WITH A CASE OF BOGUS SUPPLIERS OF OIL CAKES WHERE 33 PARTIES WERE FOUND TO BE BOGUS BY THE DEPARTMENTAL AUTHORITIES EVEN THOUGH PAYMENTS WERE MADE TO THE SAID PARTIES BY CROSS CHEQUES AND IN FACT THE A.O. IN THAT CASE HAD BROUGHT ADEQUATE MATERIAL ON RECORD TO PROVE THAT THE CROSS CHEQUES HAD NOT BEEN GIVEN TO PARTIES FROM WHOM SUPPLIES WERE ALLEGEDLY PROCURED BUT THESE WERE ENCASHED FROM A BANK ACCOUNT IN THE JOWAME OF ANOTHER ENTITY, POSSIBLY HAWALA DEALER. SUBSEQUENTLY, THE MONEY DEPOSITED IN THAT ACCOUNT WAS WITHDRAWN IN CASH ALMOST ON THE SAME DAY. THE TRIBUNAL HOWEVER, HELD THAT IF THE PURCHASES WERE MADE FROM OPEN MARKET' WITHOUT INSISTING FOR GENUINE BILLS, THE SUPPLIERS MAY BE WILLING TO SELL THE PRODUCT AT A MUCH LESS RATE AS COMPARED TO A RATE WHICH THEY MAY CHARGE IN WHICH THE DEALER HAS TO GIVE GENUINE SALE INVOICE SUSTAINED THE ADDITION AS PROBABLE PROFIT OF THE ASSESSEE. THE TRIBUNAL HOWEVER, SUSTAINED THE ADDITION TO THE EXTENT OF 12.5%. TAKING INTO ACCOUNT THE ABOVE FACTS, THE HON'BLE GUJARAT HIGH COURT HELD THAT SINCE THE PURCHASES WERE NOT BOGUS, BUT WERE MADE FROM PARTIES OTHER THAN THOSE MENTIONED IN BOOKS OF ACCOUNTS, ONLY THE PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES COULD BE ADDED TO THE ASSESSEE'S INCOME AND AS SUCH NO QUESTION OF LAW AROSE IN SUCH ESTIMATION. WHILE ARRIVING AT THE ABOVE CONCLUSION, THE HON'BLE COURT ALSO RELIED ON THE DECISION IN THE CASE OF VIJAY M. MISTRY CONSTRUCTION LTD. 355 ITR 498 (GUJ) AND FURTHER APPROVED THE DECISION OF AHMEDABAD BENCH, IT AT IN THE CASE OF VIJAY PROTEINS 58 ITD 428. 2.7.16 IN THE CASE OF VIJAY PROTEINS(SUPRA), THE HON'BLE ITAT WAS SEIZED WITH A CASE OF BOGUS SUPPLIERS OF OIL CAKES WHERE 33 PARTIES WERE FOUND TO BE BOGUS BY THE DEPARTMENTAL AUTHORITIES EVEN THOUGH PAYMENTS WERE MADE TO THE SAID PARTIES BY CROSS CHEQUES AND IN FACT THE A.O. IN THAT CASE HAD BROUGHT ADEQUATE MATERIAL ON RECORD TO PROVE THAT THE CROSS CHEQUES HAD NOT BEEN GIVEN TO PARTIES FROM WHOM SUPPLIES WERE ALLEGEDLY PROCURED BUT THESE WERE ENCASHED FROM A BANK ACCOUNT IN THE NAME OF ANOTHER ENTITY, POSSIBLY HAWALA DEALER. SUBSEQUENTLY, THE MONEY DEPOSITED IN THAT ACCOUNT WAS WITHDRAWN IN CASH ALMOST ON THE SAME DAY. THE TRIBUNAL HOWEVER, HELD THAT IF THE PURCHASES WERE MADE FROM OPEN MARKET' WITHOUT INSISTING FOR GENUINE BILLS, THE SUPPLIERS MAY BE WILLING TO SELL THE PRODUCT AT A MUCH LESS RATE AS COMPARED TO A RATE WHICH THEY MAY CHARGE IN WHICH THE DEALER HAS TO GIVE GENUINE SALE INVOICE IN RESPECT OF THAT RISHABH STEEL HOUSE 9 IN RESPECT OF THAT SALE. KEEPING ALL SUCH FACTORS IN MIND, THE TRIBUNAL ESTIMATED AN ELEMENT OF PROFIT PERCENTAGE OF THE OVERALL PURCHASE PRICE ACCOUNTED FOR IN THE BOOKS OF ACCOUNTS THROUGH FICTITIOUS INVOICES. 2.7.22 FURTHER, IN THE CASE OF M/S. SANKET STEEL TRADERS (ITA NO. 2801/AHD/ 2008 DATED 20-05- 2011 IT WAS, INTER-ALIA, STATED AS UNDER: '3. AT THE TIME OF HEARING BEFORE US, IT IS SUBMITTED BY THE LEARNED COUNSEL THAT THE ADDITION SUSTAINED IS EXCESSIVE. IN SUPPORT OF THIS CONTENTION HE REFERRED TO THE DECISION OF THE TRIBUNAL IN THE CASE OF ITO VS. SUN STEEL 92 777 (AHD) 1126 WHEREIN THE TRIBUNAL HAS SUSTAINED THE ADDITION OF RS.50,000- ON ACCOUNT OF BOGUS PURCHASES. HOWEVER, WE FIND THAT THE FACTS IN THE ABOVE CASE WERE DIFFERENT. IN THE ABOVE CASE, THE ASSESSES HAS SHOWN PURCHASES OF RS.27,39,410/-, SALE OF RS.28,17,207/~ AND GROSS PROFIT AT RS. 94,740/-, THE ASSESSING OFFICER MADE THE ADDITION OF 27,39,407/- FOR BOGUS PURCHASES. IF THE ABOVE SUM IS ADDED TO THE GROSS PROFIT, THE GROSS PROFIT WORKS OUT OF 2,83,41,247/-WHICH WAS MORE THAN THE SALE ITSELF. THE TRIBUNAL HELD THAT IT IS IMPOSSIBLE THAT THE GROSS PROFIT IS MORE THAN THE SALE ITSELF. THE TRIBUNAL ALSO FOUND THAT THE ASSESSEE HAS MAINTAINED THE QUANTITATIVE DETAILS IN RESPECT OF MATERIALS PURCHASED AND SOLD. CONSIDERING PECULIAR FACTS OF THAT CASE, THE TRIBUNAL ARRIVED AT THE CONCLUSION THAT IT WOULD BE FAIR AND REASONABLE TO ESTIMATE THE ADDITION AT RS.50,000/~ AS AGAINST THE ADDITION OF RS.27,39,407/- MADE BY THE ASSESSING OFFICER. HOWEVER, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) CONSIDERING THE FACTS OF THE ASSESSES'S CASE, HAS SUSTAINED THE SALE. KEEPING ALL SUCH FACTORS IN MIND, THE TRIBUNAL ESTIMATED AN ELEMENT OF PROFIT PERCENTAGE OF THE OVERALL PURCHASE PRICE ACCOUNTED FOR IN THE BOOKS OF ACCOUNTS THROUGH FICTITIOUS INVOICES. 2.17.17 FURTHER, IN THE CASE OF M/S. SANKET STEEL TRADERS (ITA NO. 2801/AHD/ 2008 DATED 20-05-2011 IT WAS, INTER-ALIA, STATED AS UNDER: '3. AT THE TIME OF HEARING BEFORE US, IT IS SUBMITTED BY THE LEARNED COUNSEL THAT THE ADDITION SUSTAINED IS EXCESSIVE. IN SUPPORT OF THIS CONTENTION HE REFERRED TO THE DECISION OF THE TRIBUNAL IN THE CASE OF ITO VS. SUN STEEL 92 777 (AHD) 1126 WHEREIN THE TRIBUNAL HAS SUSTAINED THE ADDITION OF RS.50,000- ON ACCOUNT OF BOGUS PURCHASES. HOWEVER, WE FIND THAT THE FACTS IN THE ABOVE CASE WERE DIFFERENT. IN THE ABOVE CASE, THE ASSESSEE HAS SHOWN PURCHASES OF RS.27,39,410/-, SALE OF RS.28,17,207/~ AND GROSS PROFIT AT RS. 94,740/-, THE ASSESSING OFFICER MADE THE ADDITION OF 27,39,407/- FOR BOGUS PURCHASES. IF THE ABOVE SUM IS ADDED TO THE GROSS PROFIT, THE GROSS PROFIT WORKS OUT OF 2,83,41,247/-WHICH WAS MORE THAN THE SALE ITSELF. THE TRIBUNAL HELD THAT IT IS IMPOSSIBLE THAT THE GROSS PROFIT IS MORE THAN THE SALE ITSELF. THE TRIBUNAL ALSO FOUND THAT THE ASSESSEE HAS MAINTAINED THE QUANTITATIVE DETAILS IN RESPECT OF MATERIALS PURCHASED AND SOLD. CONSIDERING PECULIAR FACTS OF THAT CASE, THE TRIBUNAL ARRIVED AT THE CONCLUSION THAT IT WOULD BE FAIR AND REASONABLE TO ESTIMATE THE ADDITION AT RS.50,000/~ AS AGAINST THE ADDITION OF RS.27,39,407/- MADE BY THE ASSESSING OFFICER. HOWEVER, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) CONSIDERING THE FACTS OF THE ASSESSEE'S CASE, HAS SUSTAINED THE ADDITION AT 12.5%. WHILE DOING SO, HE RISHABH STEEL HOUSE 10 ADDITION AT 12.5%. WHILE DOING SO, HE HAS ALSO RELIED UPON THE DECISION OF THE TRIBUNAL IN THE CASE OF M/S. VIJAY PROTEINS LTD. 55 TTJ (AHD) 76. IN THE CASE OF M/S. VIJAY PROTEINS LTD. THE TRIBUNAL HAS SUSTAINED THE ADDITION OF 25% OF THE BOGUS PURCHASES. HOWEVER, CONSIDERING THE FACTS OF THE ASSESSEE'S CASE THE CIT (A) RESTRICTED THE DISALLOWANCE TO 12.5% AS AGAINST 25% MADE IN THE CASE OF M/S. VIJAY PROTEINS LTD. FROM THESE FACTS IT IS EVIDENT THAT THE CIT(A) HAS SUSTAINED THE ADDITION AT 12.5% OF THE NON-GENUINE PURCHASES CONSIDERING THE FACTS OF THE ASSESSEE'S CASE. WE, THEREFORE, DO NOT FIND ANY JUSTIFICATION TO INTERFERE WITH THE ORDER OF THE CIT (A) IN THIS REGARD. THE SAME IS SUSTAINED.' 2.7.23 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 FROM THE SEVEN/EIGHT PARTIES AS THE PROFIT ELEMENT EMBEDDED HAS ALSO RELIED UPON THE DECISION OF THE TRIBUNAL IN THE CASE OF M/S. VIJAY PROTEINS LTD. 55 TTJ (AHD) 76. IN THE CASE OF M/S. VIJAY PROTEINS LTD. THE TRIBUNAL HAS SUSTAINED THE ADDITION OF 25% OF THE BOGUS PURCHASES. HOWEVER, CONSIDERING THE FACTS OF THE ASSESSEE'S CASE THE CIT (A) RESTRICTED THE DISALLOWANCE TO 12.5% AS AGAINST 25% MADE IN THE CASE OF M/S. VIJAY PROTEINS LTD. FROM THESE FACTS IT IS EVIDENT THAT THE CIT(A) HAS SUSTAINED THE ADDITION AT 12.5% OF THE NON-GENUINE PURCHASES CONSIDERING THE FACTS OF THE ASSESSEE'S CASE. WE, THEREFORE, DO NOT FIND ANY JUSTIFICATION TO INTERFERE WITH THE ORDER OF THE CJT (A) IN THIS REGARD. THE SAME IS SUSTAINED,' 2.7.18 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 RISHABH STEEL HOUSE 11 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 AND IS TO BE REDUCED FROM SUCH ESTIMATED PROFIT. SINCE THE GP PERCENTAGE IS VARYING FROM YEAR TO YEAR, THE AO IS DIRECTED TO VERIFY THE CORRECTNESS OF THE AVERAGE GP PERCENTAGE STATED BY THE APPELLANT IN THE SUBMISSIONS (WHICH IS AROUND 7% AS PER THE CALCULATION FOR THE 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. PURCHASES, THE PERCENTAGE OF GP ALREADY OFFERED IN THE BOOKS OF ACCOUNT ON THE RELEVANT SALES OUT OF THE PURCHASES AND 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 (WHICH IS AROUND 7% AS PER THE CALCULATION) AND TO REDUCE THE SAME FROM THE ESTIMATED NET PROFIT OF 17.5% ON THE PURCHASES MADE FROM THE PARTY. WHEN THE BENCH ENQUIRED HOW MUCH WAS THE SALES-TAX CHARGEABLE ON THE ITEM IN WHICH THE ASSESSEE DEALS, IT WAS INFORMED B Y THE LEARNED AR THAT THE SALES TAX IS LEVIED @4%. 7. THE LEARNED DR, ON THE OTHER HAND, VEHEMENTLY CO NTENDED THAT THIS TRIBUNAL IS CONSISTENTLY TAKEN A VIEW WHERE THERE I S 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 W AS FURTHER CONTENDED THAT IN ALL THESE DECISIONS WHICH HAVE BEEN REFERRE D BY THE CIT(A) BY HOLDING RISHABH STEEL HOUSE 12 THE ESTIMATION OF THE INCOME @17.5% OF THE BOGUS PU RCHASES. GUJARAT HIGH COURT HAS TAKEN A VIEW THAT INCOME SHOULD BE ESTIMA TED @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 ALTHOUG H THE TRIBUNAL HAS REFERRED TO ALL THESE DECISIONS IN WHICH INCOME HAS BEEN EST IMATED @12.5% TO 25%, BUT WITHOUT GIVING ANY REASON TOOK A VIEW THAT CONS IDERING THE ENTIRETY OF THE FACTS AND CIRCUMSTANCES OF THE CASE, WE RESTRICT TH E ADDITION TO 2% OF SUCH BOGUS PURCHASES. THE TRIBUNAL HAS NOT GIVEN ANY RE ASON WHY THE ASSESSING OFFICER HAS BEEN DIRECTED TO ESTIMATE INCOME @2% OF SUCH BOGUS PURCHASES. THEREFORE, THIS DECISION DOES NOT HAVE BINDING FORC E. 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 CAREFULL Y 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 P URCHASES 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 REVEN UE. RATHER IT IS A FACT THAT REVENUE HAS ACCEPTED THE SALES MADE BY THE ASS ESSEE. THE ASSESSING OFFICER HAS DISALLOWED ALL THE ALLEGED BOGUS PURCHA SES AND MADE THE ADDITION IN THE INCOME OF THE ASSESSEE U/S. 69C OF THE I T A CT. IT IS NOT DISPUTED THAT THE PARTIES, WHICH ARE ALLEGED TO BE BOGUS PURCHASE S ARE AVAILABLE IN THE RISHABH STEEL HOUSE 13 PUBLIC DOMAIN IN THE WEBSITE OF THE SALES TAX DEPAR TMENT BEING THE HAWALA OPERATORS. IT IS NOT A CASE THAT THE ASSESSEE IS N OT MAINTAINING THE STOCK RECORD, RATHER IT IS A CASE WHERE THE ASSESSEE IS D ULY RECONCILING THE QUANTITATIVE DETAILS IN RESPECT OF THE PURCHASE AND SALES. THEREFORE, IN OUR OPINION, THE FACT REMAINS THAT HE ASSESSEE WOULD HA VE MADE THE PURCHASES BUT NOT FROM THE ALLEGED PARTIES. IT IS A CASE WHER E THE PURCHASES WOULD HAVE BEEN MADE FROM THE GREY MARKET AND WHEN THE PURCHAS ES ARE BEING MADE FROM THE GREY MARKET NATURALLY THE ASSESSEE WOULD H AVE 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 RESTR ICTED THE ADDITION TO THE EXTENT OF 2% OF SUCH PURCHASES. WE HAVE GONE T HROUGH THE SAID ORDER OF THE TRIBUNAL AND NOTED THAT IT HAS BEEN HELD AS UND ER: AGAINST THE ABOVE ORDER OF CIT(A), BOTH ASSESSEE A ND REVENUE ARE IN FURTHER APPEAL BEFORE US. WE HAVE CONSIDERED RIV AL CONTENTIONS AND CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW AND ALSO DELIBERATED ON THE JUDICIAL PRONOUNCEMENTS REF ERRED BY LOWER AUTHORITIES IN THEIR RESPECTIVE ORDERS AS WELL AS C ITED BY LEARNED AR AND DR DURING THE COURSE OF HEARING BEFORE US IN TH E CONTEXT OF FACTUAL MATRIX OF THE CASE. FROM THE RECORD, WE FOU ND THAT AO HAS MADE ADDITION IN RESPECT OF PURCHASES FOUND TO BE B OGUS AS PER THE INFORMATION FROM SALES TAX DEPARTMENT. IN THE APPEL LATE PROCEEDINGS, THE CIT(A) RECORDED A FINDING TO THE F ACT THAT AO HAS NOT DISPUTED THE QUANTITATIVE DETAILS AND ALSO DAY TO DAY STOCK REGISTER MAINTAINED BY THE ASSESSEE. ASSESSEE COMPA NY BEING A TRADER OF GOODS, AO NOT HAVING DOUBTED THE GENUINEN ESS OF SALES, COULD NOT HAVE GONE AHEAD AND MADE ADDITION IN RESP ECT OF PEAK BALANCE ON SUCH PURCHASES. ACCORDINGLY, CIT(A) CONC LUDED THAT ISSUE BOIL DOWN TO FIND OUT THE ELEMENT OF PROFIT E MBEDDED IN BOGUS PURCHASES WHICH THE ASSESSEE WOULD HAVE MADE. WHEN THE RISHABH STEEL HOUSE 14 CORRESPONDING SALES HAVE NOT BEEN DOUBTED AND THE Q UANTITATIVE DETAILS OF PURCHASES AND SALES VIS-A-VIS STOCK WAS AVAILABLE, WE DEEM IT APPROPRIATE CONSIDERING THE ENTIRETY OF FAC TS AND CIRCUMSTANCES OF THE CASE TO RESTRICT THE ADDITION TO THE EXTENT OF 2% OF SUCH BOGUS PURCHASE. ACCORDINGLY, THE ORDER O F BOTH THE LOWER AUTHORITIES ARE MODIFIED AND AO IS DIRECTED T O RESTRICT THE ADDITION TO THE EXTENT OF 2% ON SUCH PURCHASES. FROM THIS ORDER, WE NOTED THAT THE TRIBUNAL WHILE D IRECTING THE ADDITION TO BE RESTRICTED TO 2% OF SUCH BOGUS PURCHASES HAS NOT GI VEN ANY REASON BUT MENTIONED THAT THEY DEEMED IT APPROPRIATE, CONSIDER ING THE ENTIRETY OF FACTS AND CIRCUMSTANCES OF THE CASE, TO RESTRICT THE ADDI TION TO THE EXTENT OF 2% OF SUCH BOGUS PURCHASES. THE TRIBUNAL WHILE GIVING SU CH DIRECTIONS UNDER PARA 3 OF ITS ORDER, REPRODUCED VARIOUS ORDERS DEALING W ITH THE IDENTICAL ISSUE PASSED BY THE GUJARAT HIGH COURT AS WELL AS AHMEDAB AD 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. I N THESE CASES, WE NOTED THAT THE TRIBUNAL/HIGH COURT HAS NOT DIRECTED THE A SSESSING OFFICER TO RESTRICT THE ADDITION TO THE EXTENT O F2% BUT THE ADDITION W AS SUSTAINED RANGING FROM 12.5% TO 25%. WE MAY ALSO MENTION THAT THE GROSS P ROFIT 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 ESTIMA TING THE ADDITION FOR ALLEGED BOGUS PURCHASES IS THAT THE ASSESSEE WOULD HAVE MADE PURCHASES FROM THE GREY MARKET AND BY MAKING THE PURCHASES FR OM THE GREY MARKET THE RISHABH STEEL HOUSE 15 ASSESSEE WOULD HAVE SAVED TAXES MAY BE IN THE FORM OF EXCISE DUTY AND SALES TAX, WHICH IS BEING SHARED BETWEEN THE SELLER AND T HE 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 MAT ERIAL. THE LEARNED AR BEFORE US EVEN THOUGH SUBMITTED A COMPARATIVE CHART IN RES PECT OF VARIOUS DECISIONS, WHICH WERE REFERRED TO BY THE CIT(A) WHILE ESTIMATI NG INCOME ON SUCH ALLEGED BOGUS PURCHASES @17.5%, WE DO NOT AGREE WIT H THE CONTENTION OF THE ASSESSEE BECAUSE IN OUR OPINION, WHATEVER THE A SSESSEE CLAIMS DEDUCTION FOR A EXPENDITURE, ONUS IS ON THE ASSESSEE TO PROVE THE GENUINENESS OF THE EXPENDITURE. BEFORE US NO COGENT MATERIAL OR EVIDE NCE 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 CA SE OF MODERN ROAD MAKER IN ITA NO. 4734/MUM/2016 VIDE ORDER DATED 24.10.201 4, TO WHICH THE VICE- PRESIDENT WAS ONE OF THE PARTY, DIRECTED THE ASSESS ING 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 BE LOW 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 EXP ENDITURE UNDER SECTION 69C OF THE ACT (BEING 12.5% OF SURAT-DAHISA R AND KOLHAPUR PROJECT I.E. RS. 3,90,58,839/-, 100% OF MUMBAI- PUN E EXPRESSWAY I.E RS. 2,01,85,145/- AND NAGPUR HYDERABAD PRO JECT I.E. RS.10,98,565/-). WE HAVE SEEN THAT WHILE FARMING T HE ASSESSMENT THE ASSESSING OFFICER OBSERVED THAT DURING THE FINA NCIAL YEAR RELATED TO THE ASSESSMENT UNDER CONSIDERATION THE ASSESSEE HAS SHOWN RISHABH STEEL HOUSE 16 THE PURCHASES OF RS.33,37,54,424/- FROM KARMA INDUSTRIES LTD (KIL). THE ASSESSING OFFICER ISSUED SHOW CAUS E DATED 10.02.2012 TO THE ASSESSEE AS TO WHY THE PU RCHASES FROM KIL AND ITS ASSOCIATE SHOULD NOT BE TREATED AS BO GUS. THE ASSESSEE FILED ITS REPLY DATED 18.02.2014. IN REP LY THE ASSESSEE CONTENDED THAT THE MATERIAL PURCHASED DURING TH E RELEVANT PERIOD HAD BEEN CONSUMED IN DIFFERENT PROJECT EXECU TED BY ASSESSEE NAMELY MUMBAI- PUNE, NAGPUR- HYDERABA D, KOLHAPUR AND SURAT- DAHISAR PROJECT. THE ASSESSEE ALSO FILED RECONCILIATION OF MATERIAL CONSUMED ALONG WITH CH ART WITH RATIO OF MATERIAL. THE ASSESSEE ALSO FILED THE WORKING OF TH E ESTIMATED COST FOR BIDDING PURPOSE, CERTIFICATE FROM HIS BANKER/ L ENDERS BANK, I.E STUP CONSULTANT. CERTIFICATE FROM INDEPENDENT ENGIN EER APPOINTED BY NATIONAL HIGH WAY AUTHORITY (NHAI) I.E. IN TERCONTINENTAL CONSULTANT AND TECHNOCRATS PVT LTD. ALL THE PURCHASES WERE MADE THROUGH ACCOUNT PAYEE CHEQUES. THE ASSESSING O FFICER 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 O FFICER RECORDED THAT FROM THE ENQUIRIES FROM THE RTO OFFICE, I T WAS REVEALED THAT THE MAJORITY OF VEHICLES ALLEGEDLY USED FOR TRANSPO RTATION ARE OWNED BY THE ASSESSEE ITSELF. IF THE ASSESSEE WAS USING I TS OWN VEHICLE WHILE IT WAS CLAIMING THAT TRANSPORT CHARGES BORN BY THE DEALER. THE ASSESSING OFFICER FURTHER CONCLUDED THA T NO DELIVERY CHALLANS WERE FOUND DURING A SEARCH AND SEIZU RE PROCEEDING. FURTHER THE VEHICLES OTHER THAN THE VEHICLE O WNED 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 P RIVATE PARTIES. THE PRIVATE PARTIES HAVE DENIED TO HAVE RENDERED ANY SERVICES TO THE ASSESSEE OR TO THE DEALER. ONE OF THE VEHICL ES WAS TANKER AND ONE TIPPER. THE ASSESSEE COULD NOT PROVIDE THE SLIP OF WEIGHT AT THE TIME OF DELIVERY. THE ASSESSING OFFICER DISALLO WED THE ENTIRE PURCHASES OF RS.33,37,54,424/- FROM KARMA INDUSTRIE S LTD. THE ASSESSING OFFICER REJECTED THE DOCUMENTARY EVIDENCE S FURNISHED BY THE ASSESSEE. THE ASSESSING OFFICER DISBELIEVED TH E CERTIFICATE OF CONSUMPTION ISSUED BY ENGINEER APPOINTED BY N HAI. 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 G IVEN ANY ADVERSE FINDING NOR POINTED OUT ANY INFIRMITY IN THEIR REPO RT ABOUT THE CONSUMPTION OF THE MATERIAL.NO OTHER VERIFICATION O F SITE OR THE PROJECTS WERE CARRIED BY THE ASSESSING OFFICE R. THE ESTIMATED RISHABH STEEL HOUSE 17 CONSUMPTION OF THE MATERIAL IN THE PROJECT BEING EX ECUTED BY ASSESSEE WAS NOT EXAMINED. RATHER CONCLUDED THAT TH E ESTIMATED COST OF SUCH PROJECTS ARE ALWAYS ON HIGHER SIDE. WE HAVE SEEN THE STATEMENT OF MD OF THE ASSESSEE COMPANY, THERE IS N O SUCH ADMISSION ABOUT THE BOGUS TRANSACTIONS. RATHER, IN HIS STATEMENT CATEGORICALLY STATED THAT THE PURCHASES ARE NOT VER IFIABLE IN ABSENCE OF RECORD AT THAT TIME. THE STATEMENT WAS RETRACTED VIDE LETTER DATED 16.2.2011. THE ASSESSING OFFICER RELIED ON TH E STATEMENT OF RAJESH MEHTA. HOWEVER, RAJESH MEHTA IN HIS STATEMEN T DISCLOSED THAT HE NEVER MEET THE MD OF THE ASSESSEE COMPANY. THE TRANSACTIONS WERE MADE THROUGH NITIN AND SUNIL MEHT A. 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 DISA LLOWED THE ENTIRE PURCHASES FROM KIL. 22. HOWEVER, THE LD COMMISSIONER (APPEALS) RE STRICTED THE DISALLOWANCE OF COST OF PURCHASES OF STEEL FOR SUR AT-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 WEB SITE OF SALES TAX DEPARTMENT GOVERNMENT OF MAHARASHTRA. THE ASSESSEE ALSO EXPLAINED THE TYPOGRAPHICAL MISTAKE IN THE REGISTRA TION NUMBER OF VEHICLES USED IN TRANSPORTATION OF THE STEEL, DETAI LS OF WHICH ARE AVAILABLE IN THE PAPER BOOK FILED IN APPEAL FOR AY 2008-09. THE PERUSAL OF THE DETAILS OF REGISTRATION NUMBER OF VE HICLES REVEALS THAT THE MISTAKE IN WRITING IS VERY MINOR WHICH MAY OCCUR DUE TO HUMAN ERROR. THE ASSESSEE FURNISHED THE CERTIFIED C OPIES OF THE REGISTRATION CERTIFICATE (RC) AND PHOTOGRAPHS OF TH E VEHICLES AND THE EVIDENCE HOW THE TIPPER WAS USED FOR TRANSP ORTATION. THE ASSESSEE ALSO FURNISHED EXPLANATION OF THE DIS CREPANCIES 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 A SSESSING 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 TH AT SO FAR AS PROJECT OF SURAT- DAHISAR AND KOLHAPUR ARE CONCERNE D, THE PURCHASE OF STEEL CANNOT BE TREATED AS BOGUS. (PARA 6.3.8 O F LD CIT(A) ORDER) RISHABH STEEL HOUSE 18 HOWEVER, THE LD COMMISSIONER (APPEALS) CONCLUDED TH AT SUCH PURCHASES ARE MADE FROM THE PARTIES OTHER THAN THOS E 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 LEVIE D THEREON AT 2% AND SUSTAINED THE DISALLOWANCE AT 12.5% OF T HE PURCHASES SHOWN FOR SURAT- DAHISAR AND KOLHAPUR. THE LD AR FO R THE ASSESSEE WHILE MAKING HIS SUBMISSION BEFORE ARGUED THA T 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 HI GHER SIDE, WHEN THE LD. COMMISSIONER (APPEALS) HAS CONCLUDED THAT T HE PURCHASES OF STEEL FOR SURAT- DAHISAR AND KOLHAPUR CANNOT BE TREATED BOGUS. FURTHER, WHEN THE LD. COMMISSIONER (APP EALS) ALSO NOTED THAT THE CONSUMPTION CERTIFICATE OF ENGIN EER IS MARGINAL AND WITHIN REASONABLE LIMIT THE DISALLOWANCE A T 12.5% IS ON HIGHER SIDE. IN OUR VIEW EVEN IN CASE THE T RANSACTIONS 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 INC OME/ PROFIT COMPONENT AND NOT THE ENTIRE TRANSACTION. WE HAVE NOTED THAT THE LD CIT(A) HAS OBSERVED THAT SUCH PURCH ASES ARE MADE TO AVOID 10% OF THE PAYMENTS OF EXCISE DUTY. THE L D CIT(A) HAS NOT EXAMINED IF , THE PURCHASES WERE SHOWN TO AVOID THE EXCISE DUTY. THE ASSESSEE THROUGHOUT THE PROCEEDINGS CLAIM ED 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 POSSIBILI TY OF THE REVENUE LEAKAGE WHICH IS VERY THIN IN THE P RESENT CASE, THE DISALLOWANCE OF PURCHASES OF STEEL FOR SURAT- DAHISAR AND KOLHAPUR PROJECT AT 5% OF THE IMPUGNED (DISPUTED) P URCHASES WOULD MEET THE END OF JUSTICE. SIMILAR VIEW WAS TAK EN BY HONBLE GUJARAT HIGH COURT IN CIT VS SIMIT P SETH [20 13(356 ITR 451)] AND BY HONBLE BOMBAY HIGH COURT IN HARIR AM BHAMBANI ITA NO 313 OF 2013. THE FACTS OF THE DECISION IN N . K. PROTEINS (SUPRA) RELIED BY LD. DRFOR THE REVENUE ARE AT VARI ANCE. IN THE SAID CASE THE ASSESSEE WAS TRADER.DURING THE SEARCH ACTI ON IN THAT CASE RISHABH STEEL HOUSE 19 BLANK SIGNED CHEQUES BOOKS AND NUMBERS OF VOU CHERS WERE FOUND ON THE BASIS OF WHICH THE TRANSACTION WAS TRE ATED BOGUS. HOWEVER, IN THE PRESENT CASE THE ASSESSEE HAS GIVEN SUFFICIENT EVIDENCES TO SUBSTANTIATE ITS PURCHASES. MOREOVER , NO INCRIMINATING MATERIAL WAS FOUND DURING THE SE ARCH AT THE PREMISES OF THE ASSESSEE. THE ADDITION OF AL LEGED BOGUS PURCHASED ARE BASED ON THIRD PARTY INFORMATION. NO YARDSTICK FORMULA CAN BE APPLIED WHILE ASSESSING THE AMOUNT O F REVENUE LEAKAGE. MOREOVER, THE REVENUE HAS NOT DISPUTED THE CONSUMPTION OF STEEL. THUS, RESPECTFULLY FOLLOW ING THE DECISION OF HONBLE GUJARAT HIGH COURT IN CIT VS SIMIT P SETH SUPRA AND BY HONBLE BOMBAY HIGH COURT IN HARIRAM BHAMBANI SUPRA, THE DISALLOWANCE OF COST OF PURCHASES OF STEEL IS RESTR ICTED TO 5% OF THE IMPUGNED PURCHASES ONLY. THE ASSESSING OFFICER IS DIRECTED ACCORDINGLY. IN THE RESULT THE GROUND NO.1 OF THE A PPEAL 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 PROFI T 2%% WHILE WE NOTED IN THE CASE OF M/S. STEEL LINE (INDIA) (SUPRA), THE TR IBUNAL 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 DECISIO N 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 FOLLOW ING THE SAME, DIRECT THE ASSESSING OFFICER TO ESTIMATE THE PROFIT @5%. SINC E IN ALL THE APPEALS FILED BY THE ASSESSEE THE ISSUE INVOLVED IS COMMON, WE THERE FORE FOLLOWING THE DECISION FOR A.Y. 2006-07 DIRECT THE ASSESSING OFFI CER TO ESTIMATE THE PROFIT @5%. RISHABH STEEL HOUSE 20 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 22 ND DAY OF DECEMBER, 2017. SD/- SD/- (RAVISH SOOD) (P K BANSAL) JUDICIAL MEMBER VICE-PRESIDENT MUMBAI; DATED: 22 ND DECEMBER, 2017 SA COPY OF THE ORDER FORWARDED TO : 1. THE APP ELL ANT. 2. THE RESPONDENT. 3. T HE CIT(A), MUMBAI 4. THE CIT 5. DR, D BENCH, ITAT, MUMBAI BY ORDER, #TRUE COPY # ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI
Mehul