ASST CIT 21(3), MUMBAI V. SIDDHARTH PRAFUL MEHTA, MUMBAI

ITA 3946/MUM/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9304 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-09-2017
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2009-2010
• Appeal Filed On: 10-06-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S PADMAJA; POOJA SWARUP
• Keywords: Bogus purchase; Wrong claim; Corroborative evidences; Onus to prove
• Section: 133(6); 131; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI BEFORE SHRI B.R. BASKARAN (AM) & SHRI PAWAN SINGH (JM) I.T.A. NO. 3946/ MUM/20 16 (ASSESSMENT YEAR 20 09 - 10 ) I.T.A. NO. 2703/MUM/2015 (ASSESSMENT YEAR 2010 - 11) ACIT 21(3) ROOM NO. 209 2 ND FLOOR PIRMA L CHAMBERS LALBAUGH MUMBAI - 400 012. VS. SHRI SIDDHARTH PRAFUL MEHTA (PROP. M/S. SYNDROME TECHNOLOGIES), 167 NO. 2, VISHAL VILLA SHIVAJI PARK, ROAD NO. 5 MAHIM WEST MUMBAI - 400 016. ( APPELLANT ) ( RESPONDENT ) I.T.A. NO. 4381/MUM/2016 (ASSESSMENT YEAR 20 09 - 10) I.T.A. NO. 2407/MUM/2015 (ASSESSMENT YEAR 2010 - 11) SHRI SIDDHARTH PRAFUL MEHTA (PROP. M/S. SYNDROME TECHNOLOGIES), 167 NO. 2, VISHAL VILLA SHIVAJI PARK, ROAD NO. 5 MAHIM WEST MUMBAI - 400 016. VS. ACIT 21(3) ROOM NO. 209 2 ND FLOOR PIRMAL CHAMBERS LALBAUGH MUMBAI - 400 012. ( APPELLANT ) ( RESPONDENT ) PAN NO . AEXPM2847Q ASSESSEE BY S HRI SHAILESH PARMAR DEPARTMENT BY S MT. S. PADMAJA - CIT & MS. POOJA SWARUP DATE OF HEARING 18.8 . 201 7 DATE OF PRONOUNCEMENT 20 .9 . 201 7 O R D E R PER B.R. BASKARAN (AM) : - THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDERS PASSED BY LD CIT(A) - 33, MUMBAI AND THEY RELATE TO THE ASSESSMENT YEARS 2009 - 10 AND 2010 - 11. THE ADDITION RELATING TO BOGUS PURCHASES, HAVING BEEN PARTIALLY CONFIRMED BY LD CIT(A), BOT H THE PARTIES ARE IN APPEAL BEFORE US. SHRI SIDDHARTH PRAFUL MEHTA 2 2. THE ASSESSEE IS THE PROPRIETOR OF M/S SYNDROME TECHNOLOGIES, WHICH IS ENGAGED IN PROVIDING IT AND NETWORKING HARDWARE SERVICES. IT ALSO DEALS IN HARDWARE PRODUCTS OF LEADING COMPANIES LIKE CISCO, HP, DELL, AVA YA ETC. THE ASSESSEES CLIENTS ARE ALSO LEADING COMPANIES LIKE 3I INFOTECH, ASIAN PAINTS, BHARTI AIRTEL, BNP PARIBAS, TATA GROUP, NDTV ETC. CONSEQUENT TO THE INFORMATION RECEIVED FROM THE SALES TAX DEPARTMENT THAT CERTAIN DEALERS ARE INDULGING IN PROVIDIN G ONLY ACCOMMODATION BILLS WITHOUT ACTUALLY SUPPLYING MATERIALS AND UPON NOTICING THAT THE ASSESSEE HAS PURCHASED GOODS FROM SUCH DEALERS DURING THE YEARS RELEVANT TO AY 2009 - 10 AND 2010 - 11, THE ASSESSING OFFICER REOPENED THE ASSESSMENTS OF BOTH THE YEARS. IT WAS NOTICED THAT THE ASSESSEE HAS PURCHASED GOODS TO THE TUNE OF RS.1,40,13,513/ - AND RS.3,77,91,277/ - RESPECTIVELY DURING THE YEARS RELEVANT TO AY 2009 - 10 AND 2010 - 11. 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER ISSUE D NOTICES U/S 133(6) OF THE ACT AND ALSO SUMMONS U/S 131 OF THE ACT TO THE SUPPLIERS, BUT ALL OF THEM WERE RETURNED BACK UNSERVED. THE ASSESSEE WAS ASKED TO PRODUCE THE SUPPLIERS, BUT THE ASSESSEE ALSO COULD NOT PRODUCE THEM. HOWEVER, THE ASSESSEE SUBMIT TED THE DETAILS AVAILABLE WITH IT LIKE PURCHASE BILLS AND PAYMENT DETAILS AND CONTENDED THAT THE PURCHASES WERE GENUINE. THE AO NOTICED THAT THE ASSESSEE HAS PAID THE VAT TAX LIABILITY ARISING OUT OF ACCOMMODATION BILLS BY ACCEPTING THE SAME, SINCE THE SU PPLIERS HAD FAILED TO REMIT THE SAME. THE AO ALSO NOTICED THAT THE ABOVE SAID SUPPLIERS HAVE ALSO CONFESSED BEFORE THE SALES TAX AUTHORITIES THAT THEY HAVE PROVIDED ONLY ACCOMMODATION BILLS. SINCE THE ASSESSEE HAS FAILED TO PRODUCE THE SUPPLIERS, THE AO TOOK THE VIEW THAT THE ASSESSEE COULD NOT PROVE THE GENUINENESS OF PURCHASES. THE AO TOOK THE VIEW THAT THE ONUS TO PROVE THE GENUINENESS WILL BE HEAVY, SINCE THE SELLERS HAVE ADMITTED THAT THEY HAVE NOT SUPPLIED THE PRODUCTS. THE AO ALSO TOOK THE VIEW T HAT THE ASSESSEE IS USING THE PRODUCTS IN THE COURSE SHRI SIDDHARTH PRAFUL MEHTA 3 OF PROVIDING SERVICES AND HENCE THE PRODUCTS WILL LOSE ITS IDENTITY. ACCORDINGLY THE AO TOOK THE VIEW THAT THE ASSESSEE SHOULD BE CONSIDERED AS END USER OF THE PRODUCTS PURCHASED FROM THE TAINTED SUPPLI ERS. THE AO TOOK THE SUPPORT OF THE DECISION RENDERED IN THE CASE OF CIT VS. CALCUTTA AGENCY LTD (19 ITR 191) RENDERED BY HONBLE SUPREME COURT AND ALSO UPON THE DECISION RENDERED BY HONBLE AP HIGH COURT IN THE CASE OF CIT VS. TRANSPORT CORPORATION OF IN DIA LTD (256 ITR 701) AND HELD THAT THE ASSESSEE HAS FAILED TO DISCHARGE THE ONUS PLACED UPON HIM. ACCORDINGLY HE DISALLOWED THE ENTIRE AMOUNT OF PURCHASES IN BOTH THE YEARS UNDER CONSIDERATION. IT MAY BE NOTED HERE THAT THE AO HAD ERRONEOUSLY DISALLO WED A SUM OF RS.1.40 CRORES ONLY IN AY 2010 - 11, I.E., THE PURCHASES AMOUNT PERTAINING TO AY 2009 - 10, BUT LATER RECTIFIED THE SAME BY PASSING AN ORDER U/S 154 OF THE ACT BY DISALLOWING CORRECT AMOUNT OF RS.3.78 CRORES. 4. BEFORE THE LD CIT(A), THE ASS ESSEE CONTENDED IN AY 2009 - 10 THAT ITS CLIENTS ARE REPUTED COMPANIES AND THE PRODUCTS WERE USED IN FULFILLING CONTRACTS ENTERED WITH THEM. HENCE THE SALE OF PRODUCTS WAS BEYOND DOUBT. IT WAS SUBMITTED THAT THE AO HAS SIMPLY PLACED RELIANCE ON THE STATEME NT GIVEN BY THE SUPPLIERS BEFORE THE SALES TAX DEPARTMENT, BUT DID NOT MAKE ENQUIRIES WITH THE CUSTOMERS OF THE ASSESSEE TO WHOM THE GOODS HAVE BEEN SOLD BY THE ASSESSEE. IT WAS ALSO POINTED OUT THAT THE AO HAS DISALLOWED WRONG AMOUNT WITHOUT COMPARING TH E DATA RECEIVED FROM THE SALES TAX DEPARTMENT WITH THE BOOKS OF ASSESSEE. IT WAS SUBMITTED THAT THE AO HAS ADDED A SUM OF RS.1,40,13,513/ - IN AY 2009 - 10 AS AGAINST THE PURCHASES OF RS.1,13,28,155/ - . THE ASSESSEE SUBMITTED THAT THE SUPPLIERS HAVE MERELY DEFAULTED IN PAYMENT OF VAT TAX LIABILITY AND NOWHERE, THE SALES TAX DEPARTMENT HAS SAID THAT THEY HAVE FAILED TO SUPPLY THE MATERIALS. ACCORDINGLY IT WAS SUBMITTED THAT IT CANNOT BE SAID THAT THE SUPPLIERS DO NOT EXIST. IT WAS CONTENDED THAT THE AO HAS NOT FOUND FAULT SHRI SIDDHARTH PRAFUL MEHTA 4 WITH THE EVIDENCES FURNISHED BY THE ASSESSEE TO PROVE THE GENUINENESS OF PURCHASES. IT WAS ALSO CONTENDED THAT THERE WAS NO EVIDENCE TO SHOW THAT THE MONEY GIVEN FOR PURCHASES HAS FLOWN BACK TO THE ASSESSEE. IT WAS FURTHER SUBMITTED THAT THE GROSS PROFIT RATE OF THE ASSESSEE DISCLOSED AT 13.77% WOULD ALSO INCREASE TO A VERY HIGH FIGURE OF 23.53%, IF THE ADDITION MADE BY THE AO IS SUSTAINED. HE SUBMITTED THAT THE ADDITION MAY, AT THE MOST, BE SUSTAINED TO THE EXTENT OF VAT RATE OF 4%. THE ASSESSEE ALSO PLACED HIS RELIANCE ON THE FOLLOWING DECISIONS TO SUPPORT ITS CONTENTIONS: - (A) CIT VS.NIKUNJ EXIMP ENTERPRISES P LTD (2013 - TIOL - 04 - HC - MUM - IT) (B) SHRI RAJEEV G KALATHI (ITA NOS.6727/MUM/2012 & 06/MUM/2014) (C) JAGDAMBA TRADING COMPANY (I TAT JODHPUR 107 TTJ 398) (D) ITO VS. PERMANAND (107 TTJ 395)(JODHPUR) (E) DY. CIT VS. ADINATH INDUSTRIES (252 ITR 476)(GUJ). THE ASSESSEE ALSO RELIED UPON CERTAIN OTHER CASE LAWS TO BUTTRESS ITS CONTENTIONS. ACCORDINGLY IT WAS PRAYED THAT THE ADDITIO N MADE BY THE AO SHOULD BE DELETED. 5. IN AY 2010 - 11, THE ASSESSEE, IN ADDITION TO THE CONTENTIONS MADE IN AY 2009 - 10, CONTENDED BEFORE THE LD CIT(A) THAT THE AO DID NOT ISSUE NOTICES TO THE SUPPLIERS, BUT PLACED HIS RELIANCE FULLY ON THE REPORT OF SAL ES TAX AUTHORITIES. ACCORDINGLY IT WAS CONTENDED THAT THE AO HAS NOT MADE ANY INDEPENDENT ENQUIRY. IT WAS SUBMITTED THAT THE ASSESSEE HAS RECONCILED THE PURCHASES AND SALES AND ALSO FURNISHED ALL THE DOCUMENTS TO PROVE THE GENUINENESS OF PURCHASES, BUT T HE AO DID NOT EXAMINE THEM AT ALL. 6. THE LD CIT(A) TOOK THE VIEW THAT THE DISALLOWANCE OF ENTIRE PURCHASES IS NOT JUSTIFIED, SINCE THE SALE OF PRODUCTS CANNOT BE DOUBTED WITH. HE TOOK THE VIEW THAT THE PURCHASE PRICE SHOWN IN THE PURCHASE BILLS MAY NOT BE RELIABLE AND ACCORDINGLY TOOK THE VIEW THAT THE PROFIT MADE ON PURCHASES SHOULD BE ADDED. IN AY 2009 - 10, THE ASSESSEE HAD SHOWN GROSS PROFIT RATE OF 13.77% AND HENCE SHRI SIDDHARTH PRAFUL MEHTA 5 THE LD CIT(A) SUSTAINED ADDITION TO THE EXTENT OF 13.77% OF THE VALUE OF PURCHASES MADE FROM SUSPICIOUS DEALERS. IN AY 2010 - 11, THE ASSESSEE HAD SHOWN GROSS PROFIT RATE OF 12.64% AND HENCE THE LD CIT(A) SUSTAINED ADDITION TO THE EXTENT OF 12% OF THE VALUE OF ALLEGED BOGUS PURCHASES. 7. AGGRIEVED BY THE ORDERS PASSED BY LD CIT(A), BOTH THE PARTIES HAVE FILED APPEALS BEFORE US. THE ASSESSEE IS ASSAILING THE ADDITION SUSTAINED BY LD CIT(A) AND THE REVENUE IS ASSAILING THE RELIEF GRANTED BY LD CIT(A). 8. THE LD A.R SUBMITTED THAT THE ASSESSING OFFICER WAS WRONG IN OBSERVING TH AT THE ASSESSEE DID NOT CORRELATE PURCHASES WITH SALES. HE SUBMITTED THAT THE ASSESSEE HAS FILED A DETAILED PAPER BOOK BEFORE THE TAX AUTHORITIES AND HAVE IDENTIFIED THE USE OF PRODUCTS PURCHASED FROM THE IMPUGNED SUPPLIERS. HE SUBMITTED THAT THE LD CIT( A) HAS EXTRACTED THE INDEX OF PAPER BOOK FURNISHED BEFORE HIM IN HIS ORDER PASSED FOR AY 2010 - 11, WHICH CLEARLY ESTABLISHES THAT THE ASSESSEE HAS CORRELATED PURCHASES WITH SALES. THE LD A.R ALSO TOOK US THROUGH THE PAGES OF PAPER BOOK TO BUTTRESS HIS CONT ENTIONS. HE FURTHER SUBMITTED THAT THE PRODUCTS PURCHASED BY THE ASSESSEE ARE THAT OF REPUTED COMPANIES AND THEY HAVE BEEN SOLD TO REPUTED COMPANIES. HE SUBMITTED THE ASSESSEE CANNOT DARE TO SUPPLY SUB - STANDARD ITEMS TO ITS REPUTED CLIENTS AND HENCE THE INFERENCE DRAWN BY THE LD CIT(A) THAT THE ASSESSEE MIGHT HAVE PURCHASED GOODS FROM SOME OTHER SOURCE IS NOT CORRECT. HE SUBMITTED THAT THE PRICES OF PRODUCTS OF STANDARD COMPANIES ARE GENERALLY SAME IN ALL PLACES AND HENCE THE INFERENCE THAT THE ASSESSEE MIGHT HAVE MADE PROFITS IS ALSO NOT CORRECT. HE SUBMITTED THAT THE SALES TAX DEPARTMENT HAS WRITTEN A LETTER TO THE ASSESSING OFFICER, WHICH HAS ALSO BEEN INCORPORATED IN THE ASSESSMENT ORDER PASSED FOR AY 2009 - 10. IN THAT LETTER, THE SALES TAX DEPARTMEN T HAS POINTED OUT ONLY ABOUT THE DEFAULT COMMITTED BY THE SUPPLIERS IN PAYMENT OF TAX. IT NOWHERE STATES ABOUT NON - SUPPLY OF GOODS OR NON - EXISTENCE OF PARTIES . HE FURTHER SUBMITTED THAT THE SHRI SIDDHARTH PRAFUL MEHTA 6 STATEMENT GIVEN BY THE SUPPLIERS BEFORE THE SALES TAX AUTHORITIE S IS A SELF SERVING STATEMENT GIVEN BY THEM IN ORDER TO ESCAPE FROM THE TAX LIABILITY AND HENCE THE SAME CANNOT BE USED AGAINST THE ASSESSEE. HE FURTHER SUBMITTED THAT THE SUPPLIERS HAVE NOT RESPONDED TO THE NOTICES AS WELL AS SUMMONS ISSUED BY THE AO. TH E ASSESSEE HAS BEEN PURCHASING MATERIALS FROM MANY PERSONS THROUGH HIS PURCHASE DEPARTMENT AND HE DOES NOT HAVE DIRECT RELATIONSHIPS WITH THEM. WHEN THE SUPPLIERS COULD NOT BE LOCATED BY THE ASSESSING OFFICER, HOW THE ASSESSEE COULD ENSURE THEIR PRESENCE. HE SUBMITTED THAT THE HONBLE BOMBAY HIGH COURT HAS HELD IN THE CASE OF NIKUNJ EXIMP ENTERPRISES P LTD (SUPRA) THAT THE ADDITION COULD NOT BE SIMPLY ON THE REASON THAT THE ASSESSEE COULD NOT PRODUCE SUPPLIERS. ACCORDINGLY HE SUBMITTED THAT THE ENTIRE AD DITION MADE BY THE AO IN BOTH THE YEARS IS LIABLE TO BE DELETED. 9. ON THE CONTRARY, THE LD D.R SUBMITTED THAT THE ASSESSEE HAS FAILED TO CONCLUSIVELY PROVE THAT THE IMPUGNED PURCHASES ARE GENUINE. HE SUBMITTED THAT THE ASSESSEE IS END USER OF THE PR ODUCTS PURCHASED FROM THE HAWALA DEALERS AND HENCE COULD NOT CONCLUSIVELY PROVE THAT THE PRODUCTS PURCHASED FROM THEM HAVE BEEN CONSUMED BY HIM IN THE COURSE OF RENDERING THE SERVICES. HE FURTHER SUBMITTED THAT THE SUPPLIERS HAVE ADMITTED BEFORE THE SALES TAX AUTHORITIES THAT THEY HAVE PROVIDED ONLY ACCOMMODATION BILLS WITHOUT ACTUALLY SUPPLYING MATERIALS. THE ASSESSEE HAS FAILED TO REBUT THE SAME. IN THESE SCENARIO, THE ASSESSING OFFICER HAS DISALLOWED ENTIRE PURCHASES AND HENCE THE LD CIT(A) WAS NOT JU STIFIED IN RESTRICTING THE ADDITION TO THE GROSS PROFIT RATE DISCLOSED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNTS. 10. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE RECORD. WE NOTICE THAT THE ASSESSING OFFICER HAS INITIATED THE REASSESSMENT PROCEEDI NGS IN ORDER TO EXAMINE THE PURCHASES MADE FROM SUSPICIOUS DEALERS. SINCE THOSE DEALERS HAVE ADMITTED BEFORE THE SALES TAX DEPARTMENT THAT THEY HAVE PROVIDED ONLY SHRI SIDDHARTH PRAFUL MEHTA 7 ACCOMMODATION BILLS AND SINCE THE NOTICES/SUMMONS ISSUED TO THEM HAVE BEEN RETURNED BACK UN - SERVED, THE AO HAS TAKEN THE VIEW THAT THOSE SUPPLIERS DO NOT EXIST AND THE PURCHASES MADE FROM THEM ARE BOGUS IN NATURE. THE AO HAS ALSO TAKEN SUPPORT OF THE FACT THAT THE ASSESSEE ALSO COULD NOT PRODUCE THOSE SUPPLIERS BEFORE HIM AND ALSO OBSERVED THAT THE ASSESSEE DID NOT MAINTAIN DAY TO DAY STOCK REGISTER. ACCORDINGLY THE AO HAS TAKEN THE VIEW THAT THE ENTIRE PURCHASES MADE FROM THOSE SUPPLIERS SHOULD BE DISALLOWED AND ACCORDINGLY DISALLOWED THE SAME IN BOTH THE YEARS. 11. WE NOTICE THAT THE LD C IT(A) DID NOT AGREE WITH THE VIEW TAKEN BY THE ASSESSING OFFICER. HE WAS OF THE VIEW THAT THE ASSESSING OFFICER COULD NOT HAVE PLACED RELIANCE ON THE GENERAL STATEMENT GIVEN BY THE SUPPLIERS BEFORE THE SALES TAX AUTHORITIES. FOR THE SAKE OF CONVENIENCE, WE EXTRACT BELOW THE RELEVANT DISCUSSIONS MADE BY LD CIT(A) IN THE ORDER PASSED FOR AY 2009 - 10: - 27. AS FAR AS THE INFORMATION RECEIVED FROM THE SALES TAX AUTHORITIES REGARDING THE DEFAULT COMMITTED BY THE ABOVE MENTIONED 10 PARTIES IN PAYMENTS OF VAT IS CONCERNED, THIS CANNOT BE TAKEN AS THE BASIS TO TREAT THE ENTIRE PURCHASES MADE FROM THEM AS BOGUS OR NON - GENUINE. THE ASSESSING OFFICER HAS PRIMARILY RELIED ON THE CONCLUSIONS DRAWN BY THE SALES TAX AUTHORITIES ON THE BASIS OF THE STATEMENTS GIVEN BEFORE THESE AUTHORITIES AND RELIANCE ON SUCH STATEMENTS ONLY TO TREAT PURCHASES MADE FROM THE ABOVE PARTIES AS BOGUS, CANNOT BE HELD TO BE JUSTIFIED. THE INFORMATION RECEIVED FROM THE SALES TAX AUTHORITIES WAS A PIECE OF EVIDENCE TO INITIATE IN - DEPTH INDEPENDENT INVESTIGATION ON THE ISSUE, WHICH THE ASSESSING OFFICER DID NOT CARRY OUT. THE ASSESSING OFFICER HAS SIMPLY PROCEEDED TO ADD BACK THE PURCHASES MADE FROM THE ABOVE PARTIES ON THE BASIS OF THE INFORMATION RECEIVED FROM SALES TAX AUTHORITIES WITHOUT MAKING FURTHER ENQUIRY ON THE GIVEN SET OF FACTS AND CIRCUMSTANCES AND WITHOUT APPRECIATING THE EVIDENCES SUBMITTED BY THE APPELLANT IN RESPECT OF THE PURCHASES MADE FROM THE 10 ALLEGED BOGUS PARTIES. 28. IT IS AN ADMITTED FACT THAT THE SALES TAX DEPARTMENT HAS C ATEGORIZED CERTAIN PARTIES WHO HAVE FAILED TO PAY SALES TAX/VAT AS 'SUSPICIOUS DEALER'. BUT CATEGORIZING THESE PA RTIES AS 'SUSPICIOUS DEALER AND THE NON - PAYMENT OF VAT BY SUCH PARTIES WOULD NOT AUTOMATICALLY LEAD TO THE CONCLUSION THAT THE TRANSACTIONS DON E BY THE APPELLANT WITH THESE PARTIES ARE ALL BOGUS. IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT THE OPERATORS OF ABOVE 10 PARTIES HAVE SHRI SIDDHARTH PRAFUL MEHTA 8 SPECIFICALLY STATED THAT THEY HAD MADE BOGUS SALES TO THE APPELLANT. THE STATEMENTS GIVEN BEFORE THE SALES TAX AUTH ORITIES BY OPERATORS OF THE ABOVE FIRMS REGARDING THE BOGUS SALES MADE BY THEM WERE GENERAL STATEMENTS BEFORE THE GOVERNMENT AUTHORITIES WITHOUT NAMING ANY SPECIFIC PARTIES TO WHOM THEY HAD MADE SUCH BOGUS SALES. THE ASSESSING OFFICER HAS PRESUMED THAT SIN CE THE NAMES OF ABOVE 10 PARTIES APPEAR IN THE LIST OF BOGUS DEALERS, AS CATEGORIZED BY THE SALES TAX AUTHORITIES, THE SALES MADE BY SUCH PARTIES TO THE APPELLANT AND TO ANY OTHER PARTY ARE ALSO TO BE TREATED AS BOGUS. THEREFORE, THE CONCLUSION DRAWN REGAR DING THE PURCHASES MADE FROM THE ABOVE 10 PARTIES BEING ENTIRELY BOGUS, IS NOT JUSTIFIED. 29. T HE RATIO WAS LAID DOWN BY THE HON'BLE HIGH COURT OF 1YOMPAY IN THE CASE OF C/T V. NIKUNJ EXIMP ENTERPRISES (P.) LTD., WHEREIN IT WAS HELD BY THE HON . BLE HIGH COURT T HAT 'WHEN THE ASSESSEE HAVE FILED LETTER OF CONFIRMATIONS OF THE SUPPLIERS, BANK STATEMENTS HIGHLIGHTING THE PAYMENT ENTRIES THROUGH ACCOUNT PAYEE CHEQUE, COPIES OF INVOICES, STOCK RECONCILIATION STATEMENTS BEFORE THE AO: AND MERELY BECAUSE THE SUPPLIERS DID NOT APPEAR BEFORE THE AO, ONE CANNOT CONCLUDE THAT THE PURCHASES WERE NOT MADE BY THE ASSESSEE. THE AO CANNOT DISALLOW THE PURCHASES ON THE BASIS OF SUSPICION BECAUSE THE SUPPLIERS WERE NOT PRODUCED BEFORE THEM.' 30. THE FACT CANNOT BE IGNORED THAT TH E APPELLANT HAS SUBMITTED ALL INVOICES/BILLS ISSUED BY THE PARTIES IN QUESTION IN RESPECT OF THE GOODS PURCHASED FROM THEM, WHICH CONTAINS THE DESCRIPTION OF THE GOODS PURCHASED AMOUNT OF THE SALE PRICE AND THE AMOUNT OF THE VAT CHARGED. FURTHER THERE IS A LSO A PRINTING ON EVERY BILL CERTIFYING THAT THE REGISTRATION CERTIFICATE UNDER MAHARASHTRA VALUE ADDED ACT 2002 OF THE PARTY IS IN FORCE ON THE DATE OF SALE OF GOODS. THE VAT/TIN NO. OF THESE PARTIES ARE ALSO MENTIONED ON THE BILLS ISSUED BY THEM. THESE P ARTIES HAVE ALSO CHARGED THE VAT @ 4% ON THE SALES MADE BY THEM TO THE APPELLANT. SUBSEQUENTLY, IF THESE PARTIES HAVE NOT PAID VAT TO THE SALES TAX DEPARTMENT ON THE SALES MADE BY THEM, THE APPELLANT CANNOT BE PENALIZED FOR THIS DEFAULT COMMITTED BY THESE PARTIES AND ALSO IT WOULD NOT LEAD TO THE CONCLUSION THAT THESE PURCHASES ARE SUO - MOTTO BOGUS. THE APPELLANT HAS SHOWN THESE PURCHASES IN ITS REGULAR BOOKS OF ACCOUNTS WHICH ARE AUDITED AND THE ASSESSING OFFICER HAS NOT FOUND ANY FAULTS WITH THE MAINTENANC E OF THE BOOKS OF ACCOUNTS OF THE APPELLANT AND HAS ALSO NOT REJECTED THESE BOOKS OF ACCOUNTS. IN THE ABSENCE OF THE EXISTENCE OF ANY DEFECTS IN THE BOOKS OF ACCOUNTS, THE PURCHASES ENTERED IN THESE BOOKS OF ACCOUNTS UNDER THE NAME OF SUCH PARTIES CANNOT B E TREATED ENTIRELY AS BOGUS PURCHASES. 31 . FURTHER THE EVIDENCES PLACED ON RECORD BY THE APPELLANT SUCH AS BILLS/INVOICES, LEDGER ACCOUNT OF THESE PARTIES, CANNOT BE SET ASIDE SUMMARILY SHRI SIDDHARTH PRAFUL MEHTA 9 WITHOUT MAKING ANY INDEPENDENT INVESTIGATIONS IN RESPECT OF THESE EVI DENCES S UBMIT TED THE INQUIRIES COULD HAVE BEEN MADE FROM THE AREA AROUND THE ADDRESSES GIVEN BY THE SUCH PARTIES FROM WHERE THEY WERE CARRYING THEIR BUSINESSES REGARDING THE EXISTENCE OF THESE PARTIES AT THE GIVEN ADDRESSES. NO SUCH ENQUIRIES WERE MADE BY THE AG TO PROVE THE NON - EXISTENCE OF THESE PARTIES. IN VIEW OF THE ABOVE FACT, EVEN IF THE PARTIES ISSUING THESE BILLS/INVOICES ARE NOT AVAILABLE FOR VERIFICATION AT THE ADDRESSES MENTIONED ON THE BILLS, IT CANNOT LEAD TO THE CONCLUSION THAT THE PURCHASES ARE NOT MADE BY THE APPELLANT, AS HELD BY THE HON'BLE HIGH COURT OF BOMBAY IN THE CASE OF CIT V. NIKUNJ EXIMP ENTERPRISES (P.) LTD. (SUPRA). THE AR OF THE APPELLANT HAS CONTENDED THAT THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS, HAS N OT DOUBTED THE INVOICES/BILLS ISSUED BY THESE PARTIES TO THE APPELLANT WHICH PROVES THE GENUINENESS OF THESE TRANSACTIONS OF SALE/PURCHASE OF MATERIALS, I AGREE WITH THE ABOVE ARGUMENTS OF THE AR OF THE APPELLANT THE ASSESSING OFFICER HAS SIMPLY PROCEEDED TO DISALLOW THE PURCHASES MADE FROM THE PARTIES IN QUESTION ON THE BASIS OF THE STATEMENT GIVEN BEFORE THE SALES TAX AUTHORITIES AND THE AG DID NOT MAKE MUCH ATTEMPT TO PROVE THAT THE BILLS/INVOICES PRODUCED BY THE APPELLANT ARE BOGUS OR THE PAYMENTS MADE AGAINST THESE BOGUS PURCHASES ARE ALSO NOT GENUINE. WITHOUT PROVING THAT THE BILLS/VOUCHERS PLACED ON RECORD BY THE APPELLANT ARE NON GENUINE OR FABRICATED BY THE APPELLANT, THESE BILLS/VOUCHERS CANNOT BE REJECTED. THE DETAILS OF PURCHASES MADE AVAILABLE D URING THE COURSE OF ASSESSMENT PROCEEDINGS HAS NOT BEEN DOUBTED BY THE AO WHICH PROVES THE GENUINENESS OF THESE SALE/PURCHASE OF MATERIALS SHOWN IN THE BILLS ISSUED BY THESE 10 PARTIES. 32. ALL THE ABOVE REFERRED EVIDENCES SUCH AS INVOICES/BILLS, COPY OF PURCHASE BILLS, DETAILS OF THE PAYMENTS MADE THROUGH CHEQUES, PLACED ON RECORD BY THE APPE LLANT DURING THE ASSESSMENT PROCEEDINGS CANNOT BE SET ASIDE SUMMARILY BY THE ASSESSING OFFICER WITHOUT MAKING FURTHER INVESTIGATIONS IN THE MATTER TO PROVE THAT THESE ARE NOT GENUINE PURCHASES. THE PURCHASES CANNOT BE TREATED AS BOGUS ONLY FOR THE REASON THAT THE 10 PARTIES HAD ADMITTED IN THE STATEMENT RECORDED BEFORE THE SALES TAX AUTHORITIES THAT THEY INDULGED IN BOGUS BILLING WITHOUT ACTUAL DELIVERY OF GOODS. THESE CONFESSIONAL STATEMENT WERE UNCORROBORATED BY OTHER MATERIAL EVIDENCES PLACED ON RECORD BY THE ASSESSING OFFICER TO PROVE THE AUTHENTICITY OF THE STATEMENTS GIVEN. SUCH CONFESSIONAL STATEMENTS, IN THE ABSENCE OF CORROBORATIVE EVIDENCES OR THE CROSS EXAMIN ATION OF THESE PARTIES, DO NOT JUSTIFY COMPLETE DISALLOWANCE OF PURCHASES AS STATED ABOVE. 33. THE FACTS AND CIRCUMSTANCES AS OUTLINED ABOVE, CLEARLY SUGGEST THAT THE PURCHASES OF MATERIALS BY THE APPELLANT AS INDICATED FROM THE PARTIES IN QUESTION CANNOT BE DOUBTED BUT ONLY FLAW IN THESE TRANSACTIONS IS THE UNVERIFIABLE NATURE OF TRANSACTIONS OF THESE PURCHASES FROM THE PARTIES IN QUESTION AS THEY WERE NOT FOUND AVAILABLE AT THE GIVEN ADDRESSES AT PRESENT. THUS THE PURCHASES PRICES SHOWN ON THESE INVOICES ARE NOT SUBJECTED TO SHRI SIDDHARTH PRAFUL MEHTA 10 VERIFICATION AND AS SUCH IT WAS DIFFICULT TO ESTABLISH THE CORRECTNESS OF THE PURCHASE PRICES PAID FOR THE MATERIALS PURCHASED FROM THEM. SUCH VERIFICATION OF THE SALE PRICE SHOWN ON THE INVOICES/BILLS WAS NECESSARY TO - ASCERTAIN THE C ORRECTNESS OF THE PROFITS SHOWN BY THE APPELLANT FOR THE PERIOD UNDER CONSIDERATION. THIS VERIFICATION WAS ALSO VITAL TO DETERMINE AS TO WHETHER THE PURCHASE PRICES SHOWN ON THE BILLS/INVOICES, ARE AS PER PREVAILING MARKET PRICES OF THE MATERIALS PURCHASED AND TO ASCERTAIN THAT THE PRICE PAID FOR THE MATERIALS PURCHASED FROM THESE PARTIES IS NOT OVER INVOICED. IN THE ABSENCE OF ANY SUCH VERIFICATION OF THE CORRECTNESS OF THE PRICE PAID FOR THE MATERIALS PURCHASED BY THE APPELLANT, THE PURCHASE PRICE PAID AS MENTIONED ON THE INVOICES/BILLS CANNOT BE ACCEPTED AS THE CORRECT PRICE PAID FOR THE GOODS PURCHASED FROM SUCH PARTIES IN VIEW OF THE SAME, THE POSSIBILITY OF OVER - INVOICING OF THE MATERIALS PURCHASED TO REDUCE THE PROFITS, CANNOT BE RULED OUT. THEREFORE , THE GROSS PROFIT RATE SHOWN BY THE APPELLANT FOR THE YEAR UNDER CONSIDERATION CANNOT BE RELIED UPON. IN THE CIRCUMSTANCES, THE CORRECT APPROACH IN SUCH TRANSACTIONS WOULD BE TO ESTIMATE THE ADDITIONAL BENEFIT OR PROFIT EARED ON THESE PURCHASES AND NOT TO DISALLOW THE ENTIRE PURCHASES FROM THESE TEN PARTIES. THE DISALLOWANCE OF THE ENTIRE AMOUNT OF PURCHASES FROM SUCH PARTIES WOULD NOT BE LOGICAL AND WOULD AMOUNT TO TRAVESTY OF JUSTICE. IN MY VIEW THE PURCHASES FROM THESE PARTIES ARE EITHER OVER INVOICED OR WERE ACTUALLY MADE BUT NOT FROM THE PARTIES FROM WHICH IT WAS CLAIMED TO HAVE BEEN MADE AND INSTEAD MIGHT HAVE BEEN PURCHASED FROM GREY MARKET WITHOUT PROPER BILLING OR DOCUMENTATION. THE LD CIT(A) HAS DRAWN INFERENCE THAT THE ASSESSEE MIGHT HAVE PURC HASED GOODS FROM THE GREY MARKET AND ACCORDINGLY TOOK THE VIEW THAT THE PROFIT EMBEDDED IN SUCH PURCHASES IS REQUIRED TO BE ADDED. THE LD CIT(A) HAS ACCORDINGLY ESTIMATED THE PROFIT AT THE SAME RATE OF G.P AS DISCLOSED IN THE BOOKS OF ACCOUNTS. 12. TH OUGH THE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE HAS NOT MAINTAINED STOCK DETAILS, YET THE ASSESSEE HAS SHOWN THAT HE HAS CORRELATED PURCHASES WITH THE CONSUMPTION/SALES. THE LD A.R ALSO DREW OUR ATTENTION TO THE PAPER BOOKS FILED BY THE ASSESSEE IN THIS REGARD. HE SUBMITTED THAT THE LD CIT(A) HAS EXTRACTED THE INDEX OF PAPER BOOK IN HIS ORDER PASSED FOR AY 2010 - 11, MEANING THEREBY, HE HAS ALSO EXAMINED THE ABOVE SAID SUBMISSIONS OF THE ASSESSEE. WE HAVE NOTICED THAT THE ASSESSEES CLIENTS ARE R EPUTED CLIENTS AND SHRI SIDDHARTH PRAFUL MEHTA 11 THE PRODUCTS SUPPLIED TO THEM ARE ALSO FROM REPUTED COMPANIES. HENCE THERE IS MERIT IN THE CONTENTIONS OF THE ASSESSEE THAT HE COULD NOT HAVE SUPPLIED SUB - STANDARD ITEMS TO THEM. UNDER THESE SET OF FACTS, WE HAVE TO ACCEPT THE VIE W TAK EN BY LD CIT(A) THAT THE SALES ARE ABOVE SUSPICION. IN THAT CASE, WHAT IS REQUIRED TO BE ADDED IS THE PROFIT ELEMENT, IF ANY, EMBEDDED IN THE IMPUGNED PURCHASES. 13. WE NOTICE THAT THE ASSESSING OFFICER HAS CALLED FOR DETAILS FROM THE SALES TAX DEPAR TMENT AND THE SALES TAX OFFICIAL, VIDE HIS LETTER DATED 14/01/2013 HAS OBSERVED AS UNDER: - .DURING THE COURSE OF INVESTIGATION OF BOOKS OF ACCOUNT OF M/S SYNDROM TECHNOLOGIES*, IT IS NOTICED THAT SOME OF THE PURCHASES ARE EFFECTED FROM SUSPICIOUS/DECLARE D HAWALA DEALERS. THE TAX LIABILITY ON ACCOUNT OF WRONG CLAIM OF SET OFF AGAINST THE PURCHASES FROM SUSPICIOUS/DECLARED HAWALA DEALER IS WORKED OUT FOR THE PERIOD 2006 - 07 TO 2009 - 10. THE TAX LIABILITY INCLUDING INTEREST WHICH IS WORKED OUT AT THE TIME OF VISIT IS ATTACHED HEREWITH. DEALER HAS ACCEPTED THE TAX LIABILITY COMMUNICATED BY THIS OFFICE AND PAID THE SAME AFTER ADJUSTING REFUND AMOUNT. (* TRADE NAME OF THE ASSESSEE) A PERUSAL OF THE REPLY GIVEN BY THE SALES TAX OFFICIALS WOULD SHOW, THAT THE SA ME TALKS ABOUT THE TAX LIABILITY, MEANING THEREBY, IT WAS A CASE OF NON - PAYMENT OF TAX COLLECTED BY THE SUSPICIOUS/DECLARED HAWALA DEALERS. THE SALES TAX OFFICIAL HAS, NOWHERE, STATED THAT THE SUSPICIOUS/DECLARED HAWALA DEALERS HAVE NOT SUPPLIED GOODS OR THEY WERE NON - EXISTENT . THE CONTENTION OF THE ASSESSEE IS THAT THE SUPPLIERS HAVE GIVEN GENERAL STATEMENT BEFORE THE SALES TAX AUTHORITIES IN ORDER TO ESCAPE FROM THE TAX LIABILITY, MEANING THEREBY, THE CASE OF THE ASSESSEE IS THAT THE SUPPLIERS HAVE SUPP LIED GOODS TO THE ASSESSEE AND FURTHER THERE IS NO SPECIFIC STATEMENT GIVEN BY THE SUPPLIERS AGAINST THE ASSESSEE. 14. THE LD A.R PLACED HIS RELIANCE ON THE DECISION RENDERED BY THE CO - ORDINATE BENCH IN THE CASE OF M/S GEOLIFE ORGANICS & OTHERS (ITA SHRI SIDDHARTH PRAFUL MEHTA 12 N O.3699/MUM/2016 & OTHERS DATED 05 - 05 - 2017). IN THE ABOVE SAID CASE, THE CO - ORDINATE BENCH HAS EXPRESSED AS UNDER: - 12.THOUGH, IT MAY BE A FACT THAT ASSESSEE WAS NOT ABLE TO PRODUCE THE CONCERNED PARTIES BEFORE THE ASSESSING OFFICER, FOR WHATEVER MAY BE THE REASON, FACT REMAINS THAT DURING ASSESSMENT PROCEEDINGS ITSELF THE ASSESSEE HAD PRODUCED CONFIRMED LEDGER COPIES OF CONCERNED PARTIES, BANK ACCOUNT STATEMENT, PURCHASE BILLS, DELIVERY CHALLANS ET.,C TO PROVE THE GENUINENESS OF PURCHASES. IT IS ALSO A FACT ON RECORD THAT THE ASSESSING OFFICER HAS NOT DOUBTED THE SALES EFFECTED BY THE ASSESSEE. THUS, IT IS LOGICAL TO CONCLUDE THAT WITHOUT CORRESPONDING PURCHASES BEING EFFECTED THE ASSESSEE COULD NOT HAVE MADE THE SALES. MOREOVER, THE ASSESSING OFFICER HAS NOT BROUGHT ANY MATERIAL ON RECORD TO CONCLUSIVELY ESTABLISH THE FACT THAT PURCHASES ARE BOGUS. MERELY RELYING UPON THE INFORMATION FROM THE SALES TAX DEPARTMENT OR THE FACT THAT PARTIES WERE NOT PRODUCED THE ASSESSING OFFICER COULD NOT HAVE TREATED THE PURCHASES AS BOGUS AND MADE ADDITION. IF THE ASSESSING OFFICER HAD ANY DOUBT WITH REGARD TO PURCHASE MADE, IT WAS INCUMBENT UPON HIM TO MAKE FURTHER INVESTIGATION TO ASCERTAIN THE GENUINENESS OF THE TRANSACTIONS. WITHOUT MAKING ANY FURTHER ENQUIRY OR INVESTIGATION, THE ASSESSING OFFICER CANNOT SIT BACK AND MAKE THE ADDITION BY SIMPLY RELYING UPON THE INFORMATION OBTAINED FROM THE SALES TAX DEPARTMENT AND ISSUING NOTICES UNDER SECTION 133(6) OF THE ACT. AS THE ASSESSING OFFICER HAS FAILED TO MAKE ANY ENQUIRY OR INVESTIGATION TO PROVE THE FACT THAT THE PURCHASE TRANSACTIONS ARE NOT GENUINE WHEREAS THE ASSESSEE HAS BROUGHT DOCUMENTARY EVIDENCES ON RECORD TO PROVE GENUINENESS OF SUCH TRANSACTIONS WHICH ARE NOT FOUND TO BE FABRICATED OR NON - GENUINE, THE AC TION OF THE ASSESSING OFFICER IN IGNORING THEM CANNOT BE ACCEPTED. WHEN THE PAYMENT TO THE CONCERNED PARTIES ARE THROUGH PROPER BANKING CHANNEL AND THERE IS NO EVIDENCE BEFORE THE ASSESSING OFFICER THAT THE PAYMENTS MADE WERE AGAIN ROUTED BACK TO THE ASSE SSEE, THE ADDITION MADE BY ESTIMATING FURTHER PROFIT OF 12.5% EARNED BY THE ASSESSEE IS NOT SUSTAINABLE IN LAW AND FACTS. IN THE INSTANT CASE, THOUGH THE AO HAS OBSERVED THAT THE ASSESSEE HAS NOT MAINTAINED STOCK REGISTER, YET THE LD CIT(A) HAS HELD , ON THE BASIS OF FACTS AND CIRCUMSTANCES OF THE CASE, THAT THE SALES ARE ABOVE SUSPECT AND THE ASSESSEE HAS ALSO SHOWN THAT IT COULD CORRELATE PURCHASES WITH SALES. HENCE THE OBSERVATIONS MADE BY THE CO - ORDINATE BENCH WOULD APPLY TO THE FACTS OF THE PRESENT C ASE ALSO. UNDER THESE SET OF FACTS, WE AGREE WITH THE VIEW TAKEN BY LD SHRI SIDDHARTH PRAFUL MEHTA 13 CIT(A) THAT THE ADDITION SHOULD BE RESTRICTED TO THE PROFIT ELEMENT, IF ANY, EMBEDDED IN THE PURCHASE TRANSACTIONS. 15. THE LD A.R HAS CONTEND ED THAT NO ADDITION IS CALLED FOR. IN THE ALTERNATIVE HE SUBMITTED THAT THE CO - ORDINATE BENCH HAS ESTIMATED PROFIT AT 2% IN THE CASE OF M/S GEOLIFE ORGANICS (SUPRA) AND ACCORDINGLY PRAYED THAT THE ADDITION MAY BE RESTRICTED TO 2% . IN OUR VIEW, THE QUANTUM OF ADDITION WOULD DEPEND UPON FACTS A VAILABLE IN EACH CASE. IN OUR VIEW, THE ENTIRE ADDITION CANNOT BE DELETED IN VIEW OF THE FACT THAT THE ASSESSEE COULD NOT PRODUCE THE PARTIES BEFORE THE AO AND HENCE IT CANNOT BE SAID THAT THE ASSESSEE HAS CONCLUSIVELY PROVED THE GENUINENESS OF PURCHASES. HENCE, WE ARE OF THE VIEW THAT THE ASSESSEE MIGHT HAVE MADE SOME PROFIT IN THE IMPUGNED PURCHASES, WHICH WOULD CALL FOR AN ADDITION. 16. WE HAVE NOTICED THAT THE SALES TAX OFFICIAL HAS WRITTEN A REPLY TO THE AO, WHEREIN, HE WAS MENTIONING ABOUT THE FAILURE OF THE SUPPLIERS TO REMIT THE SALES TAX LIABILITY. SINCE THE ASSESSEE WAS DEALING IN PRODUCTS OF REPUTED COMPANIES, WHOSE RATES ARE STANDARDIZED ONE, WE ARE OF THE VIEW THAT THE POSSIBILITY OF MAKING ANY PROFIT OUT OF SUCH PRODUCTS IS ALSO REMOTE . HOWEVER, THERE IS A POSSIBILITY THAT THE ASSESSEE MIGHT HAVE SAVED VAT TAX FROM SUCH PURCHASES. KEEPING IN VIEW THE FACTS SURROUNDING THE CASE , WE ARE OF THE VIEW THAT THE PROFIT THAT WOULD HAVE BEEN MADE BY THE ASSESSEE MAY BE ESTIMATED AT 5% OF THE V ALUE OF ALLEGED BOGUS PURCHASES OF BOTH THE YEARS AND IN OUR VIEW, THE SAME WOULD TAKE CARE OF REVENUE LEAKAGE, IF ANY IN BOTH THE YEARS. 17. THE ASSESSEE HAS SUBMITTED THAT THE VALUE OF PURCHASES MADE FROM THE SUSPICIOUS SUPPLIERS WAS ONLY RS.1,13, 28,156/ - IN AY 2009 - 10 AND RS.3,77,84,783/ - IN AY 2010 - 11. THE AO IS DIRECTED TO VERIFY THE SAME AND ACCORDIN GLY ESTIMATE THE PROFIT AT 5% ON THE ACTUAL VALUE OF PURCHASES MADE SHRI SIDDHARTH PRAFUL MEHTA 14 FRO M THE SUSPICIOUS DEALERS IN THE YEAR S UNDER CONSIDERATION . THE ORDER S PASS ED BY LD CIT(A) WOULD STAND MODIFIED ACCORDINGLY. 18. IN THE RESULT, THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED AND THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER HAS BE EN PRONOUNCED IN THE COURT ON 20 . 9 .201 7. SD/ - SD/ - (PAWAN SINGH ) (B.R.BA SKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 20 / 9 / 20 1 7 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( DY./ASSTT. REGISTRAR) PS ITAT, MUMBAI