INCOME TAX OFFICER, PIRAMAL CHAMBER V. MUKESH HIRACHAND SANGHVI, MUMBAI

ITA 3514/MUM/2023

• Counselvise Citation: [2024] 101 COUNSELVISE.COM (IT) 6565 (ITAT-MUMBAI)
• Duration Of Justice: 8 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-06-2024
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 01-05-2024
• Assessment Year: 2012-2013
• Appeal Filed On: 02-10-2023
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bogus purchase; Unexplained expenditure; Set aside
• Section: 69; 271(1)(c); 142(1); 133(6); 250; 143(2); 145(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, ‘D’ BENCH MUMBAI BEFORE: SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER & SHRI SUNIL KUMAR SINGH, JUDICIAL MEMBER ITA No. 3514/MUM/2023 (Assessment Year : 2012–13) Income Tax Officer Lalbaug, Parel, Mumbai–400012. Vs. Mr. Mukesh Hirachand Sanghvi. 105/106, Gagan giri Tower, 25/29, Dr. Deshmukh Lane, V. P. Road, Mumbai–400004. PAN/GIR No. AAGPS1251H (Appellant) .. (Respondent) & CO No. 35/MUM/2024 (Arising out of ITA No. 3514/MUM/2023 for A.Y. 2012–13) Mr. Mukesh H. Sanghvi. 105/106, Gagangiri Tower, Dr. Deshmukh Lane, V. P. Road, Mumbai–400004. Vs. Income Tax Officer Lalbaug, Parel, Mumbai–400012. PAN/GIR No. AAGPS1251H (Appellant) .. (Respondent) Assessee by Shri. Prakash Pandit (Adv.) Revenue by Smt. Mahita Nair (Sr.DR.) CO No.35/MUM/2023 & ITA no. 3514/MUM/2023 Mukesh Hirachand Sanghvi 2 Date of Hearing 02/05/2024 Date of Pronouncement 11/06/2024 आदेश / O R D E R PER SUNIL KUMAR SINGH (J.M): The aforesaid revenue’s appeal in ITA no. 3514/MUM/2023 and assessee’s Cross Objections in Co no. 35/MUM/2024, arise out of the common impugned order dated 04.08.2023, passed by Learned CIT(A), hence both are being disposed off by this common order for the sake of convenience and brevity. ITA NO.3514/MUM/2023 1. This appeal has been preferred against the impugned order dated 04.08.2023 passed in appeal no. CIT(A)Mumbai– 30/12831/2015–16 by the Ld. Commissioner of Income– tax(Appeals)/National Faceless Appeal Centre(NFAC) [hereinafter referred to as the “CIT(A)”] u/s. 250 of the Income–tax Act, 1961 [hereinafter referred to as “Act”] for the Assessment year [A.Y.] 2012–13, wherein learned CIT(A) has reduced the addition to 5% of the total bogus purchase of Rs. 2,90,91,380/– as against the addition of 100% made by AO vide assessment order dated 27.03.2015. 2. The brief facts related to the appeal state that the respondent/assessee is an individual and proprietor of M/s. Raymond Tubes dealing in Ferrous and Non Ferrous Metals. He filed the return of income for A.Y. 2012–13 on 30.09.2012, CO No.35/MUM/2023 & ITA no. 3514/MUM/2023 Mukesh Hirachand Sanghvi 3 declaring total income of Rs. 11,54,359/–. Subsequently the case was selected for scrutiny and notices u/s. 143(2) and u/s. 142(1) were issued and served upon the assessee. Assessee’s representative Shri Shubhash Trivedi, CA participated in the assessment proceedings. Assessing Officer found that the assessee derived income from business and received purchases from the entities tabulated as under: S.No Name of Hawal Parties F.Y. Amount 1. Hans Enterprises 2011-12 22,70,866/– 2. Champion Steel (India) 2011-12 69,74,921/– 3. Mahavir Corporation 2011-12 90,84,757/– 4. Maruti Metal Industries 2011-12 10,13,318/– 5. R.K. Traders 2011-12 42,65,578/– 6. Radhika Enterprise 2011-12 24,19,770/– 7. Shreeji Enterprises 2011-12 3,64,504/– 8. Shubham Metal Corpon. 2011-12 26,97,667/– Total 2,90,91,380/– 2.1 It was further found by the Assessing Officer that the aforesaid entities were declared as non genuine entities as per the information provided by the Maharashtra Sales Tax Department. These entities were indulged in issuing all the bogus sales/purchases bills without supplying any goods, providing all the accommodation entries. The assessee accepted entries in respect of non genuine purchases during the previous year from above entities. The genuineness of the aforesaid entities could not be established as none the representative of these entities responded to notice u/s. 133(6) of the Act nor CO No.35/MUM/2023 & ITA no. 3514/MUM/2023 Mukesh Hirachand Sanghvi 4 produced by the assessee before the Assessing Officer. The assessee furnished his ledger accounts in the books, copies of purchase bills and bank statements showing payment made through cheques. The Assessing Officer rejected the contention of the assessee and after considering several judicial precedents, rejected the books of accounts of the assessee u/s. 145(3) of the Act and made 100% addition of Rs. 2,90,91,380/– as non genuine purchases from Hawala parties as an unexplained expenditure. 2.2 Learned Assessing Officer also initiated penalty proceedings u/s. 271(1)(C) of the Act for furnishing inaccurate particulars of income leading to the concealment of income. Assessee preferred an appeal against the assessment order dated 27.03.2015 before Leaned CIT(A), who restricted the 100% addition to the extent of 5% only. vide impugned order dated 04.08.2023. 3. Appellant revenue department, has filed this appeal on the following grounds: “1.Whether on the facts and in the circumstances of the case and, in law, Ld. CIT(A) is right in restricting the addition to 5% of the total bogus Purchases of Rs. 2,90,91,380/- as against the estimation by the AO of 100% of bogus purchases without appreciating the fact that the assessee had failed to establish the genuineness of the alleged parties from whom purchases is claimed to have been made during the year. 2 .Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is right in estimating addition to 5% of the total bogus purchases of Rs. 2,90,91,380/- as against the addition by the AO of 100% of bogus purchases without appreciating the fact that the assessee could neither produce any delivery challans or the transport bills/invoices nor could produce the alleged parties from whom purchases were claimed to have been made during the year? 3.Whether on the facts and in the circumstances of the case and in law, thedecision of Ld. CIT(A) is right in presuming that purchases have been made CO No.35/MUM/2023 & ITA no. 3514/MUM/2023 Mukesh Hirachand Sanghvi 5 during the year from the unknown parties, whereas bills have been received from Hawala dealer? 4 .Whether on the facts and in the circumstances of the case and in law, the decision of Ld. CIT(A) is right by presuming that purchases have been made from unknown parties, the Ld. CIT(A) has not clarified in its order, how the payment was made- and whether section 69 of the I.T. Act, 1961 will be applicable? 5. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in not appreciating the ratio of the decision of THE Hon'ble Supreme Court in the case of N.K.PROTEINS Ltd. wherein the Hon'ble Court has held that when the purchases are from bogus suppliers, the entire purchases are liable to disallowed. .................? 4. In response to the notice issued by the Tribunal, assessee appeared and participated in the hearing along with his cross objections. 5. We have perused the material on record and heard learned representatives for both the parties. 6. The main point for determination under appeal covering all five grounds taken by the appellant/revenue, is as to whether learned CIT(A) erred in restricting the addition to 5% of the total bogus purchases of Rs. 2,90,91,380/– as against the addition of 100% of bogus purchases made by the assessing officer? 7. The learned DR for the appellant/revenue department has submitted that the assessee could not establish the genuineness of the transaction before the assessing officer. Learned CIT(A) has erred in restricting the 100% additions made by the Assessing Officer to 5% only. Learned DR has supported the assessment order and prayed to set aside the impugned order passed by the first appellate authority. 8. Learned representative for the respondent assessee has submitted that in response to the notices u/s. 143(2) and u/s. 142(1), of the Act, assessee, in his reply explained that CO No.35/MUM/2023 & ITA no. 3514/MUM/2023 Mukesh Hirachand Sanghvi 6 the copies of the purchase bills, challans, copy of ledger accounts, copy of bank statements showing the payment made to the parties, item wise stock register showing the bills received from them and stock register of the parties for the year under assessment along with the last known addresses of the parties were submitted before the Assessing Officer. The learned CIT(A) has restricted the addition to 5% as against the addition of 4% of the bogus purchases contrary to the order dated 15.12.2020 passed by the Mumbai Bench of Tribunal in ITA No.5917/MUM/2018 for A.Y.2011-12, against which, the assessee has also filed his cross objections. He prayed to dismiss the revenue’s appeal and to allow his cross objections. 9. We find that learned CIT(A) has based his findings on the basis of the order dated 15.12.2020 passed by ITAT Mumbai in ITA No. 5917/MUM/2018 for the A.Y. 2011–12. Learned CIT(A) has referred relevant para 7 of the aforesaid ITAT order dated 15.12.2020, which is reproduced as under: “7. After hearing the Ld. D.R. and perusing the material on record, we observe that in this case the assessee is a dealer in ferrous and non ferrous metal items. Undisputed facts are that the assessee has made bogus purchases from 21 parties the details whereof are given on page 2 of the assessment order. Therefore, the only issue to decide by us is whether the GP rate applied by Ld. CIT(A) is reasonable or not. After considering the facts of the case, we are of the view that in the case of a ferrous and non ferrous items the profit is very meager ranging from 2% to 4% and GP rate as directed by the Ld. CIT(A) appears to be excessive and unreasonable. The co-ordinate benches of the Tribunal have been taking a consistent view that in such type of cases having trade of ferrous and non ferrous steel items, the profit GP can not exceed 3 to 4%. Though the Ld. CIT(A) has correctly followed the Hon'ble Gujarat High Court decision in the case of CIT vs. Simit P. Sheth (supra), however, the rate applied is on the higher side. We are, therefore, of the view that it would be reasonable if the GP rate @ 5% is applied on the said bogus purchases to bring the additional income on bogus purchases to tax which the assessee may have made by purchasing the CO No.35/MUM/2023 & ITA no. 3514/MUM/2023 Mukesh Hirachand Sanghvi 7 goods from grey market. Accordingly, we direct the AO to apply a GP of 4% and the order of Ld. CIT(A) is modified to that extent. The appeal of the assessee is partly allowed.” 10. It is pertinent to mention that according to the facts of the instant case, assessee also deals in the business of ferrous and non ferrous metals. It is also an undisputed fact that the assessee has made bogus purchases from 8 parties depicted at para 4 of the assessment order. The coordinate bench of this Tribunal, as referred above, has observed that in case of ferrous and non ferrous items, the profit is very meagre ranging from 2% to 4%. In the instant case the 100% addition of the total bogus purchases appears to be unreasonable and excessive. The above referred Mumbai bench of this Tribunal further observed to apply GP rate @5% on the said bogus purchases, however directed the AO to apply GP rate @4%. In the case in hand, due to clandestine activities of the assessee, he does not deserve any leniency and it appears just, proper and reasonable to apply GP at 5% of the said bogus purchases to bring the additional income on bogus purchases to tax which the assessee may have made by purchasing the goods from grey market. We are not inclined to disturb the impugned order passed by learned CIT(A), who has directed AO to apply GP rate @5% on the said bogus purchases of Rs. 2,90,91,380/-. The facts of the judgement of Hon’ble Supreme Court in N.K. Proteins Ltd. referred by the revenue in the ground no. 5 are not attracted to the facts of the present case, hence for no avail to the revenue. The aforesaid point is accordingly determined in negative against the appellant/revenue. The revenue’s appeal is thus liable to be dismissed. CO No.35/MUM/2023 & ITA no. 3514/MUM/2023 Mukesh Hirachand Sanghvi 8 Cross Objections(C.O) No. 35/MUM/2024 11. The assessee has filed cross objections on the following grounds: “1.In the facts and circumstances of the case and law, the CIT(A) erred in confirming the addition at 5% of alleged bogus purchases of Rs. 2,90,91, 280/- 2.Without prejudice to above, in the facts and circumstances of the case and in law the CIT(A) erred in misreading the direction given by ITAT and directed the AO to make addition at 5% of the alleged bogus purchases of Rs. 2,90,91,280/- as against 4% as directed by the ITAT.” 12. Both these grounds have already been considered by us in our conclusive findings arrived at ITA No. 3514/MUM/2023, wherein we have held that the application of GP rate @5% of the total bogus purchases in the instant case is just, proper and reasonable. Aforesaid findings shall apply mutatis mutandis to the assessee’s cross objections referred to above. The assessee’s cross objections are thus liable to be dismissed. 13. In the result, the revenue’s appeal ITA no. 3514/MUM/2023 stands dismissed. The assessee’s Cross Objection(CO) no. 35/MUM/2024 stands dismissed. Let the copy of this order be kept on the records of the assessee’s Cross Objections. Order pronounced on 11.06.2024. CO No.35/MUM/2023 & ITA no. 3514/MUM/2023 Mukesh Hirachand Sanghvi 9 Sd/- (GIRISH AGRAWAL) Sd/- (SUNIL KUMAR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated 11/06/2024 Anandi Nambi, Steno Copy of the Order forwarded to : BY ORDER, (Asstt. Registrar) ITAT, Mumbai 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy//