ELECTROMAC INDUSTRIES, MUMBAI V. INCOME TAX OFFICER-24(1)-5, MUMBAI

ITA 4700/MUM/2017

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 7018 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2011-2012
• Appeal Filed On: 03-07-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Reopening of assessment; Bogus purchase; Period of limitation; Question of law; Cost of acquisition; Accommodation entries; Time period of passing order; Reassessment proceedings
• Section: 142(1); 133(6); 143(1); 139(1); 147; 148; 6; 12

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND G. MANJUNATHA, ACCOUNTANT MEMBER ITA NO.4697/MUM./2017 (ASSESSMENT YEAR: 2008-09) ITA NO.4698/MUM./2017 (ASSESSMENT YEAR: 2009-10) ITA NO.4699/MUM./2017 (ASSESSMENT YEAR: 2010-11) ITA NO.4700/MUM./2017 (ASSESSMENT YEAR: 2011-12) M/S ELECTRO MAC INDUSTRIES, 28, AFNEW EMPIRE INDL. ESTATE, KONDIVITA ROAD, J.B. NAGAR, ANDHERI (E), MUMBAI PAN-AAAFE0557A . APPELLANT V/S THE INCOME TAX OFFICER, 24(1)-5, MUMBAI . RESPONDENT ASSESSEEBY : SH. ASHWIN CHHAG, AR REVENUE BY :SH. MANOJ KUMAR SINGH, SR, DR DATE OF HEARING 09.07.2019 DATE OF ORDER 31.07.2 019 O R D E R PER: MANJUNATHA G. 2 THESE FOUR APPEALS FILED BY THE ASSESSEE ARE DIREC TED AGAINST COMMON ORDER OF THE LD. CIT(A)-51, MUMBAI DATED 15. 5.2017 FOR THE ASSESSMENT YEARS 2008-09, 2009-10, 2010-11 AND 2011-12. SINCE, FACTS ARE IDENTICAL AND ISSUES ARE COMMON, F OR THE SAKE OF CONVENIENCE, THESE APPEALS WERE HEARD TOGETHER AND ARE DISPOSED OF BY THIS CONSOLIDATED ORDER. 2. THE ASSESSEE, HAS MORE OR LESS RAISED COMMON GRO UNDS OF APPEAL FOR ALL ASSESSMENT YEARS. FOR THE SAKE OF BR EVITY, GROUNDS OF APPEAL TAKEN FOR ASSESSMENT YEARS 2008-09 IN ITA NO . 4697/MUM/2017 ARE REPRODUCED AS UNDER:- I. THAT THE REOPENING OF ASSESSMENT FOR THE 1 ST TIME IN THE 6 TH YEAR OF THE ASSESSMENT FROM THE END OF RELEVANT FIN ANCIAL YEAR, IS WITHOUT AUTHORITY OF THE LAW FOR MORE THAN ONE R EASON, AS STATED HERE UNDER:- (A) THAT THE REOPENING UNDER SECTION 147 IS WITHOUT AUT HORITY OF THE LAW AS NOTICE ISSUED UNDER SECTION 148 IS ME RELY ON PROPOSAL PUT UP FOR THE PERUSAL AND APPROVAL ON LAST DAY OF THE LIMITATION PERIOD TO REOPEN THE PROCEEDI NG UNDER SECTION 147. (B) THAT THE ADDITION ESTIMATING THE INCOME IS BAD IN L AW AS IT IS VIOLATING THE ARTICLE 14 OF THE CONSTITUTION OF INDIA AS INCOME ESTIMATED ALLEGING THAT THE INDUSTRY RATE OF GP IS 30% WITHOUT BRINGING ANY COMPARATIVE CASES AND HENC E, ASSESSMENT COMPLETED IS ARBITRARY AND HENCE, VOID A B INITIO. (C) IN VIEW OF AFORESAID, REOPENING DOESNT SURVIVE AS BEING BAD IN LAW AND HENCE, ADDITION UNDER SECTION 41 IS ALSO WITHOUT AUTHORITY OF THE LAW. 3 II. (ON MERIT) (A) THE LOWER AUTHORITIES HAVE FAILED TO APPRECIATE THA T THE REASONS FOR TREATING THE TRANSACTION UNDER THE SALE S TAX LAW WAS FAILURE TO PAY THE TAXES COLLECTED BY THE C REDITORS WHICH HAD RESULTED CLAIM OF WRONG INPUT CREDIT UNDE R THE SAID LAW AND HENCE, ON PAYMENT OF THE SAME DEFICIEN CY CLAIMED BY THE SAID LAW WAS CORRECTED AND HENCE, TRANSACTIONS COULD NOT BE HELD AS IN-GENUINE UNLESS AO BRINGS ANY CORROBORATIVE EVIDENCE FOR SUCH CLAIM. (B) IT IS URGED THAT MAXIMUM OF THE EVIDENCES WERE PROV IDED TO PROVE THE GENUINENESS OF THE PURCHASE LIKE, INTE R ALIA, DELIVERY CHALLAN, BANK CERTIFICATE, STOCK DETAILS E TC., AND HENCE, GENUINENESS OF THE TRANSACTION MAY BE SEEN I N VIEW OF PRINCIPLE PREPONDERANCE OF PROBABILITY RATH ER THAN SUSPICIOUSLY, IF ANYTHING IS MISSING. (C) LD. CIT(A) HAS FAILED TO APPRECIATE THAT THE APPELL ANT HAS ALREADY OFFERED ADDITION MADE UNDER SECTION 41 IN T HE ASSESSMENT YEAR 2016-17 AND HENCE, IF THE ADDITION IS NOT DIRECTED TO DELETE, IT WOULD BE A CASE OF DOUBL E TAXATION WHICH IS CONTRARY TO THE LAW. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PARTNERSHIP FIRM WHICH IS ENGAGED IN THE BUSINESS O F MANUFACTURING OF BOND TRAPS ETC., FILED ITS RETURN OF INCOME FOR ALL ASSESSMENT YEARS UNDER SECTION 139(1) OF THE INCOME TAX ACT, 1 961 AND SUCH RETURNS FILED BY THE ASSESSEE HAVE BEEN PROCESSED U NDER SECTION 143(1) OF THE I.T. ACT, 1961. THEREAFTER, THE ASSES SMENTS FOR ASSESSMENT YEAR 2008-09 TO ASSESSMENT YEAR 2011-12 HAVE BEEN REOPENED UNDER SECTION 147 OF THE INCOME TAX ACT, 1 961 FOR THE REASONS RECORDED AS PER WHICH THE ASSESSEE IS BENEF ICIARY OF ACCOMMODATION ENTRIES OF PURCHASE OF BILLS ISSUED B Y SUSPICIOUS / 4 HAWALA DEALERS AS PER LIST PREPARED BY THE SALES TA X DEPARTMENT, GOVT. OF MAHARASHTRA AND ACCORDINGLY, NOTICE UNDER SECTION 148 WAS ISSUED AND SERVED ON THE ASSESSEE. IN RESPONSE TO T HE NOTICES, THE ASSESSEE HAD FILED A LETTER AND REQUESTED TO TREAT RETURNSFILED UNDER SECTION 139(1) OF THE ACT AS RETURNS FILED IN RESPO NSE TO NOTICE ISSUED U/S 148 OF THE INCOME TAX ACT, 1961. THE CAS ES WERE SELECTED FOR SCRUTINY AND STATUTORY NOTICES U/S 143 (2) AND 142(1) OF THE ACT, WERE ISSUED. IN RESPONSE TO THE NOTICES, T HE AR OF THE ASSESSEE APPEARED FROM TIME TO TIME AND FILED VARIO US DETAILS AS CALLED FOR. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO IN ORDER TO VERIFY PURCHASES CLAIMS TO HAVE MADE FROM CERTAI N PARTIES AS LISTED IN THE LIST OF SALES TAX DEPARTMENT, GOVERNM ENT OF MAHARASHTRA CALLED UPON THE ASSESSEE TO FILE NECESS ARY EVIDENCES INCLUDING PURCHASE BILLS AND OTHER SUPPORTING EVIDE NCES TO JUSTIFY PURCHASES. SIMULTANEOUSLY, IN ORDER TO VERIFY THE G ENUINE PURCHASES, NOTICES UNDER SECTION 133(6) HAS BEEN IS SUED TO ALL PARTIES, BUT SUCH NOTICES WERE RETURNED UNSERVED BY THE POSTAL AUTHORITIES WITH REMARK LEFTOR NOT EXIST. THERE AFTER, ONE MORE NOTICE UNDER SECTION 142(1) WAS SERVED ON THE ASSES SEE CALLING FOR VARIOUS DETAILS. IN RESPONSE, THE ASSESSEEHAS FILED VARIOUS DETAILS INCLUDING PURCHASE BILLS / DELIVERY CHALLANS, MONTH WISE, SALES AND 5 PURCHASE DETAILS, LEDGER ACCOUNTS OF THE SUPPLIERS AND ALSO LEDGER ACCOUNTS OF THE PARTIES FROM WHOM PURCHASE ARE MADE . THE ASSESSEE HAD ALSO FILED BANK STATEMENT, PROOF OF PA YMENT AGAINST SUCH PURCHASES THROUGH PROPER BANKING CHANNELS. THE AO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEEAND ALSO TAKEN NOTE OF REPORT OF SALES TAX DEPARTMENT, GOVERNMENT OF MAHAR ASHTRA CAME TO THE CONCLUSION THAT MERE FURNISHING OF PURCHASE BILL AND PAYMENT THROUGH PROPER BANKING CHANNELS IS NOT SUFFICIENT E NOUGH TO PROVE PURCHASES CLAIMS TO HAVEMADE FROM ALLEGED SUSPICIOU S / HAWALA DEALERS, MORE PARTICULARLY WHEN THE PARTIES HAD ADM ITTED BEFORE THE SALES TAX AUTHORITIES IN THEIR STATEMENT ALONGWITH THE DEPOSITION OR AFFIDAVIT THAT THEY WERE INVOLVED IN PROVIDING ACCO MMODATION ENTRIES WITHOUT ANY BUSINESS ACTIVITY AND ALSO RETURNED CAS H TO THE PARTIES AFTER DEDUCTING THEIR COMMISSIONS / BROKERAGE. THE AO FURTHER OBSERVED THAT ALTHOUGH ASSESSEE HAS FURNISHED PURCH ASE BILL AND PAYMENT PROOF, BUT FAILED TO FILE FURTHER EVIDENCES IN THE BACKDROP OF CLEAR FACT BROUGHT OUT DURING ASSESSMENT PROCEEDING S THAT THE PARTIES ARE SUSPICIOUS / HAWALA DEALERS THEREFORE, WHEN THE GENUINENESS OF TRANSACTION IS IN DOUBTFUL IT IS FOR THE ASSESSEE TO PRODUCE NECESSARY DOCUMENTS TO CLEAR THE AIR. HE, H AS ALSO TAKEN SUPPORT FROM PROVISIONS OF SECTION 101 OF THE INDIA N EVIDENCE ACT, 1832 TO COME TO THE CONCLUSION THAT WHEN THE DEPEND ANT JUSTIFIES 6 EXISTENCE OF FACTS, HE MUST PROVE THAT THOSE FACTS EXIST AND ACCORDINGLY, HE OPENED THAT THE ASSESSEE HAS FAILED TO PROVE PURCHASES TO THE SATISFACTION OF THE AO WITH NECESS ARY EVIDENCES. HE, FURTHER OBSERVED THAT UPON CONSIDERATION OF FAC TS AND CIRCUMSTANCES THE ONLY CONCLUSION THAT CAN BE REACH ED IS THAT THE ASSESSEE WAS A BENEFICIARY OF ACCOMMODATION BILLS I SSUED BY THE HAWALADEALERS WITHOUT ACTUAL DELIVERY OF GOODS. FUR THER, WHEN SALES ARE CLAIMED TO BE GENUINE, THE ONLY INFERENCE THAT COULD BE DRAWN IS THAT THE ASSESSEE MUST HAVE PURCHASED GOODS FROM TH E GRAY MARKET AND TO COVER UP SUCH PURCHASES OBTAINED BILLS FROM ACCOMMODATION ENTRY PROVIDERS AND ACCORDINGLY BY TAKING SUPPORT F ROM THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. SIMIT P. SHETH {355 ITR 290 (GUJ)} ESTIMATED PROFIT ON ALLEGED BOGUS PURCHASES RANGING FROM 25% TO 34.40% DEPENDING UPON FACTS OF EACH CASE. 5. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A). BEFORE THE LD CIT(A) , THE ASSESSEEHAD FILED ELABORATE WRITTEN SUBMISSIONS ON THE ISSUE WH ICH HAS BEEN EXTRACTED AT PARA 4 ON PAGE 5 TO 9 OF LEARNED CIT(A ) ORDER. THE SUM AND SUBSTANCE OF ARGUMENTS OF THE LEARNED COUNSEL F OR THE ASSESSEEBEFORE THE LD. CIT(A)ARE THAT PURCHASES FRO M THE ABOVE PARTIES ARE GENUINE WHICH ARE SUPPORTED BY NECESSAR Y EVIDENCES AND ALSO PAYMENT FOR SUCH PURCHASES HAS BEEN PAID B Y ACCOUNT 7 PAYEE CHEQUES. THE AO NEVER POINTED OUT ANY DISCREP ANCIES IN BOOKS OF ACCOUNTS NOR DOUBTED SALES DECLARED BY THE ASSESSEE.IN ABSENCE OF ANY FINDING AS TO INCORRECTNESS IN BOOKS OR SALES DECLARED BY THE ASSESSEE, PURCHASES FROM CERTAIN PARTIES CAN NOT BE DOUBTED MERELY ON THE BASIS OF INFORMATION RECEIVED FROM TH E SALES TAX DEPARTMENT. THE LD. CIT(A) AFTER CONSIDERING THE SU BMISSIONS OF THE ASSESSEEAND ALSO TAKEN SUPPORT FROM THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. SIMIT P. SHETH {355 ITR 290 (GUJ)} SCALED DOWN ESTIMATION OF PROFIT ON ALLEGED BOGUS P URCHASES TO 15% FOR ALL YEARS ON THE GROUND THAT WHENTHE AO HAS NOT DOUBTED SALES DECLARED BY THE ASSESSEE, PURCHASES F ROM CERTAIN PARTIES CANNOT BE DOUBTED SO AS TO MAKE ESTIMATION OF PROFIT AT A HIGHER RATE. THE RELEVANT FINDINGS OF THE CIT(A) AR E AS UNDER:- 5.5. HELD. AT THE OUTSET, IT IS CATEGORICALLY UNTRUE THAT AO H AS NOT MADE EFFORTS BEYOND GETTING INFORMATION FROM INVESTIGATI ON WING. THE NOTICES U/S. 133(6) OF THE ACT WAS ISSUED TO THE ABOVE LISTED PA RTY WHICH WAS RETURNED UNSERVED. AO HAS AFFORDED OPPORTUNITIES TO THE APPE LLANT TO PRODUCE THE PARTIES. IN THE APPELLATE PROCEEDINGS, APPELLANT FA ILED TO PRODUCE THE WEIGHTMENT SLIPS. THE NEXT ASPECT TO CONSIDER IS TH E CLAIM OF THE APPELLANT THAT THE PURCHASES WERE MADE FROM THE ALLEGED SUPPL IER. HERE, IT IS RELEVANT TO TAKE INTO ACCOUNT THAT THE ENQUIRIES CO NDUCTED BY THE SALES TAX DEPARTMENT AS WELL AS THE INVESTIGATION WING OF INC OME TAX DEPARTMENT/THE ASSESSING OFFICER HAVE ESTABLISHED T HAT THE SAID SUPPLIERS ARE NOT GENUINE. THE SAID PARTIES WERE NOT PRODUCED FOR EXAMINATION. 5.6. THE TWO ASPECTS MENTIONED ABOVE LEAD TO THE IR RESISTIBLE CONCLUSION THAT THE APPELLANT DID MAKE THE SALE OF GOODS AND, THEREFORE, MADE THE CORRESPONDING PURCHASES. HOWEVER, THE CLAIM OF PURC HASES FROM ALLEGED SUPPLIERS IDENTIFIED BY THE APPELLANT CANNOT BE ACC EPTED DUE TO REASONS MENTIONED ABOVE. IN OTHER WORDS, WHILE THE IMPUGNED PURCHASES WERE MADE FROM BOGUS PARTIES, THE PURCHASES AS SUCH DID HAPPEN AS MENTIONED BY THE AO HIMSELF. THIS HAS ITS IMPLICATIONS IN TER MS OF PRICE ADVANTAGE 8 SECURED BY THE APPELLANT, SINCE IT WOULD NOT HAVE I NDULGED IN THIS MODALITY FOR ANY OTHER REASON. THE PURCHASE PRICES DEBITED A ND CLAIMED CANNOT BE ACCEPTED AS BEING IN TANDEM WITH THE PREVAILING MAR KET RATES, GIVEN THE SUPPLIER DISCREPANCY. THE APPELLANT HAS NOT FURNISH ED ANY EVIDENCE TO SHOW COMPARABLE SUPPORTED BY PURCHASE OF SIMILAR IT EMS FROM OTHER PARTIES TO ESTABLISH THAT THE TRANSACTIONS WERE AT ARM'S LENGTH. ACCORDINGLY, ADDITIONAL GROSS PROFIT NEEDS TO BE ESTIMATED ON TH E PURCHASES CLAIMED TO BE MADE FROM THE SUSPECTED SUPPLIERS. 5.7. IN CASE OF CIT V SIMIT P. SHETH {355 ITR 290 (GUJ)}, THE HON'BLE GUJARAT HIGH COURT ADJUDICATED UPON A CASE OF A STE EL TRADER WHEREIN THE AO HAD MADE ADDITIONS ON ACCOUNT OF BOGUS PURCHASES BASED ON STATEMENTS RECORDED FROM SOME STEEL SUPPLIERS THAT THEY HAD ONLY PROVIDED BILLS FOR A SMALL AMOUNT OF COMMISSION. THE ASSESSE E CHALLENGED THE MATTER IN APPEAL WHEREIN THE CIT(A) HELD THAT WHILE THE ASSESSEE HAD NOT MADE PURCHASES FROM THE DECLARED PARTIES, THE PURCH ASES HAD BEEN MADE FROM OTHER PARTIES IN THE OPEN MARKET AT LOWER RATE S AND UPHELD ADDITION TO THE EXTENT OF 30% OF PURCHASE COST AS THE PROBABLE PROFIT OF THE ASSESSEE. -ON FURTHER APPEAL, THE TRIBUNAL HELD THA T THE ESTIMATED PROFIT @ 12.5 % OF THE SAID PURCHASES AS FOLLOWS: HAVING HEARD THE SUBMISSIONS OF BOTH SIDES, WE HAVE BEEN INFORMED THAT THE MALPRACTICE OF BOGUS PURCHASE IS MAINLY TO SAVE 1O% SALES TAX ETC. IT HAS ALSO BEEN INFORMED THAT IN THIS INDUSTRY ABOUT 2.5% IS THE PROFIT MARGIN. THEREFORE, RESPECTFULLY FOLLOWING THE DECISIONS OF THE CO-ORDINATE BENCH PRONOUNCED ON IDENTICAL CIRCUMSTANCES, WE HEREBY DI RECT THAT THE DISALLOWANCE IS REQUIRED TO BE SUSTAINED AT 12.5% O F THE PURCHASES FROM THOSE PARTIES. WITH THESE DIRECTIONS, WE HEREBY DEC IDE. THE GROUNDS OF THE RIVAL PARTIES WHICH ARE PARTLY ALLOWED'. 5.8. THE MATTER TRAVELLED FURTHER TO THE HIGH COURT WHERE THE HON'BLE COURT, WHEN CONSIDERING THE MATTER NOTED THAT THE VITAL AS PECT FOR CONSIDERATION WAS WHETHER THE ENTIRE AMOUNT OF PURCHASES WAS TO B E HELD AS BOGUS OR THAT THE PURCHASES WERE HELD TO BE MADE NOT FROM TH E PARTIES FROM WHICH THEY WERE CLAIMED BUT FROM THE GREY MARKET WITHOUT PROPER BILLING AND DOCUMENTATION. THE COURT FURTHER OBSERVED THAT WHEN THE SALES IN QUESTION WERE ACCEPTED BY THE AO, THE PURCHASES WOULD HAVE B EEN MADE FROM SOME SOURCE AND HELD THAT ONLY THE PROFIT ELEMENT W AS TO BE ADDED TO THE INCOME OF THE ASSESSEE. THE RELEVANT PART OF THE OR DER IS AS FOLLOWS : 'WE ARE BROADLY IN AGREEMENT WITH THE REASONING ADO PTED BY THE COMMISSIONER (APPEALS) WITH RESPECT TO THE NATURE O F DISPUTED PURCHASES OF STEEL. IT MAY BE THAT THE THREE SUPPLIERS FROM WHOM THE ASSESSEE CLAIMED TO HAVE PURCHASED THE STEEL DID NOT OWN UP TO SUCH SAL ES. HOWEVER, THE VITAL QUESTION WHILE CONSIDERING WHETHER THE ENTIRE AMOUN T OF PURCHASES SHOULD BE ADDED BACK TO THE INCOME OF THE ASSESSEE OR ONLY TH E PROFIT ELEMENT EMBEDDED THEREIN WAS TO ASCERTAIN WHETHER THE PURCH ASES THEMSELVES WERE COMPLETELY BOGUS AND NON EXISTENT OR THAT THE PURCH ASES WERE ACTUALLY MADE BUT NOT FROM THE PARTIES FROM WHOM IT WAS CLAIMED T O HAVE BEEN MADE AND INSTEAD MAY HAVE BEEN PURCHASED FROM GREY MARKET WI THOUT PROPER BILLING OR DOCUMENTATION. 9 IN THE PRESENT CASE, THE COMMISSIONER OF INCOME TAX (APPEALS) BELIEVED THAT WHEN AS A TRADER IN STEEL THE ASSESSEE SOLD CERTAIN QUANTITY OF STEEL, HE WOULD HAVE PURCHASED THE SAME QUANTITY FROM SOME SOURCE. WHEN THE TOTAL SALE /S ACCEPTED BY THE ASSESSING OFFICER, HE COULD HAVE QU ESTIONED THE VERY BASIS OF THE PURCHASES. IN ESSENCE, THEREFORE, THE COMMIS SIONER (APPEALS) BELIEVED THE ASSESSEE'S THEORY THAT THE PURCHASES W ERE NOT BOGUS BUT WERE MADE FROM THE PARTIES OTHER THAN THOSE MENTIONED IN THE BOOKS OF ACCOUNT. THAT BEING THE POSITION, NOT THE ENTIRE PURCHASE PR ICE BUT ONLY THE PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES CAN BE ADDED TO THE INCOME OF THE ASSESSEE. SO MUCH CLEAR BY THE DECISION OF THIS COU RT. IN PARTICULAR, THE COURT HAS ALSO TAKEN A SIMILAR VIEW IN THE CASE OF CIT V VIJAY M MISTRY CONSTRUCTION LTD. VIDE ORDER DATED JANUARY 10,2011 PASSED I TAX APPEAL NO. 1090 OF 2009 - SINCE REPORTED IN [2013] 355 ITR 498(GUJ) AND IN THE CASE OF CIT V BHOLANATH POLY FAB P LTD, VIDE ORDER DATED OCTOBER 23, 2012, PASSED IN TAX APPEAL NO.63 OF 2012 - SINCE REPORTED IN [2013] 355 ITR 290 (GUJ). THE VIEW TAKEN BY THE TRIBUNAL IN THE CASE OF VIJAY PROTEINS LTD V. ASSTT. CIT [1996] 58 ITD 428 (AND) CAME TO BE APPROVED. IF THE ENTIRE PURCHASES WERE WHOLLY BOGUS AND THERE WAS A FINDING OF FACT ON RECORD THAT NO PURCHASES WERE MADE AT ALL, COUNSEL FOR THE REVENUE WOULD BE JUSTIFIED IN ARGUING THAT THE ENTIRE AMOUNT OF SUCH BOGUS PURCHASES SHOULD BE ADDED BACK TO THE INCOME OF THE ASSESSEE. SUCH WERE THE FACTS IN THE CASE OF ASSTT. CIT (OSC) V PAWANRAJ B BOKADIA(SUPRA)'. 5.9. IN THE DECISION RENDERED IN THE CASE OF DCIT V RAJEEV G. KALATHIL .- {MUM} {51 TAXMAN.COM 514}, THE TRIBUNAL ADJUDICATED UPON A CASE OF AN ASSESSEE IN THE BUSINESS OF EXECUTING CIVIL CONTRAC TS, WHERE THE AO MADE AN ADDITION OF RS. 13.69 LAKHS AS BOGUS PURCHASES/E XPENSES BASED ON THE FACT THAT ONE OF THE INVOLVED PARTIES WAS DECLARED AS A 'HAWALA' OPERATOR BY THE VAT AUTHORITIES. THE TRIBUNAL DELETED THE ADDIT ION HOLDING THAT SUCH ADDITION CANNOT BE SUSTAINED ON MERE SUSPICION AS F OLLOWS: ' WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT AO HAD MADE THE ADDITION AS ONE OF THE SUPPLIER WAS DECLARED A HAWALA DEALER BY THE VAT DEPARTMENT. WE AGREE THAT IT WAS A .GOOD STARTING POINT FOR MAKING FURTHER INVESTIGATION AND TAKE IT TO LOGICAL END. BUT, HE LEFT THE JOB AT INITIAL POINT ITSELF. SUSPICION OF HIGHEST D EGREE CANNOT TAKE PLACE OF EVIDENCE. HE COULD HAVE CALLED FOR THE DETAILS OF T HE BANK ACCOUNTS OF THE SUPPLIERS TO FIND OUT AS WHETHER THERE WAS ANY IMME DIATE CASH WITHDRAWAL FROM THEIR ACCOUNT. WE FIND THAT NO SUCH EXERCISE W AS DONE. TRANSPORTATION OF GOOD TO THE SITE IS ONE OF THE DECIDING FACTOR TO B E CONSIDERED FOR RESOLVING THE ISSUE. THE FAA HAS GIVEN A FINDING OF FACT THAT PART OF THE GOODS RECEIVED BY THE ASSESSEE WAS FORMING PART OF CLOSING STOCK. AS FAR AS THE CASE OF WESTERN EXTRUSION INDUSTRIES (SUPRA) IS CONCERNED, WE FIND THAT IN THAT MATTER CASH WAS IMMEDIATELY WITHDRAWN BY THE SUPPLIER AND THERE WAS NO EVIDENCE OF MOVEMENT OF GOODS. BUT, IN THE CASE BEFORE US, THER E IS NOTHING, IN THE ORDER OF THE AO, ABOUT THE CASH TRIAL. SECONDLY, PROOF OF MOVEMENT OF GOODS IS NOT IN DOUBT. THEREFORE, CONSIDERING THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE UNDER APPEAL, WE ARE OF THE OPINION THAT THE O RDER OF THE FAA DOES NOT SUFFER FROM ANY LEGAL INFIRMITY AND THERE ARE NOT S UFFICIENT EVIDENCE ON FILE TO 10 ENDORSE THE VIEW TAKEN BY THE AO. SO, CONFIRMING TH E ORDER OF THE FAA, WE DECIDE GROUND NO. 1 AGAINST -THE AO'. 5.10. THUS, A STUDY OF DIFFERENT CASES, WHEREIN ADD ITION ON ACCOUNT OF BOGUS PURCHASES HAS BEEN DEALT WITH BY VARIOUS COUR TS AND TRIBUNALS SHOWS THAT SUCH ADDITIONS HAVE BEEN UPHELD IN THEIR ENTIRETY ONLY IN A FEW CASES INCLUDING DECISIONS RENDERED IN THE CASES OF LA MEDICA, SRI GANESH RICE MILLS, VICKY FOODS (P.) LTD. ETC. WHERE APART FROM VARIOUS OTHER FACTORS THERE WAS LACK OF RELIABLE RECORD WITH REFERENCE TO QUANTITATIVE DETAILS ETC. AND WHERE EVIDENCE PRODUCED FOR PAYMENT WAS FOUND L ACKING. IN OTHER CASES, WHERE THE FULL QUANTITATIVE DETAILS ARE NOT AVAILABLE OR DETAILS PRODUCED WERE NOT FULLY RELIABLE INASMUCH AS CONSUM PTION OF MATERIAL WAS SHOWN BUT YIELD WAS TOO LOW AND PAYMENTS WERE ALSO DOUBTFUL (INCLUDING THE CASES OF VIJAY PROTEINS LTD., BHOLANATH POLY FA B PVT. LTD., SIMIT P. SHETH, SANKET STEEL TRADERS, SATHYANARAYAN P. RATHI ETC.) ADDITION WAS UPHELD IN THE RANGE OF 25% (AS IN VIIAV PROTEINS CA SE) TO 12.5 % TO AUGMENT THE POSSIBLE SUPPRESSION IN GP APPLYING REA L INCOME THEORY DEPENDING ON THE FACTS OF THE CASE.HOWEVER PERUSAL OF DECISIONS OF TRIBUNALS AND HIGH COURTS ON THIS ISSUE SHOWS THAT ALL SUCH CASES ARE DECIDED ON THE BASIS OF FACTS AND INVOLVE NO UNIFOR M QUESTION OF LAW. FROM THE ABOVE DECISIONS, THE GROUND-RULE THAT EMERGES I S THAT WHERE SUPPLIERS ARE NOT AVAILABLE, THE PRESENCE OF REASONABLE QUANT ITATIVE DETAILS AND PAYMENTS BY ACCOUNT PAYEE CHEQUES ARE PRIMARY TESTS ON WHEN THE GENUINENESS OF PURCHASES IS REQUIRED TO BE TESTED. IN ADDITION, FROM CASES LIKE NIKUNJEXIMP ENTERPRISES (P.) LTD (HIGH COURT A S WELL AS ITAT), M. K. BROTHERS, NANGALIA FABRICS PVT LTD., RAJIV G. KA LATHIL, PERMANAND, SAGAR BOSE, DIAGNOSTICS ETC., IT EMERGES THAT OTHER ASPECTS SUCH AS STATEMENTS OF HAWALA PROVIDERS RECORDED BY SALES TA X AUTHORITIES; AFFIDAVITS FILED BY SUCH SUPPLIERS BEFORE SALES TAX AUTHORITIES; ABSENCE OF EVIDENCE IN SUPPORT OF TRANSPORTATION/DELIVERY OF M ATERIAL ETC., HAVE BEEN HELD LESS RELEVANT AS MERE INDICATORS AND NOT DECIS IVE FACTORS, TO DRAW A CONCLUSION REGARDING GENUINENESS OF PURCHASES. THUS IN ESSENCE, THE BENEFIT DERIVED BY THE ASSESSEE BY SHOWING PURCHASE S FROM SUCH BOGUS PARTIES IS THE LOWERING OF GP THAT WOULD HAVE BEEN EARNED BY THE ASSESSE HAD SUCH PURCHASES AND CORRESPONDING SALES BEEN REM OVED FROM THE ACCOUNTS. IN OTHER WORDS, THE EFFECTIVE LOWERING OF THE GP IS THE REAL ADDITIONAL INCOME OF THE ASSESSEE BY SHOWING SUCH P URCHASES AND ONLY SUCH COMPONENT WOULD THEREFORE BE TAXABLE. 5.11. IN THE PRESENT APPEAL, THERE IS COMPELLING EV IDENCE TO SHOW THAT THIS WOULD BE A CASE OF PURCHASES MADE FROM BOGUS PARTIE S RATHER THAN A CASE OF BOGUS PURCHASES. THERE IS NOTHING TO SHOW THAT W ITHOUT MAKING THE PURCHASES, IT WAS POSSIBLE FOR THE APPELLANT TO COM PLETE THE SALES DECLARED IN THE RETURN OF INCOME WHICH HAVE NOT BEEN DISTURB ED BY THE AO. ON THE OTHER HAND, THE APPELLANT HAS FAILED TO ESTABLISH T HE GENUINENESS OF PURCHASES MADE FROM THE PARTIES CLAIMED. THIS WOULD INDICATE THAT THE PURCHASES WERE MADE FROM THE OPEN MARKET WITHOUT IN SISTING FOR GENUINE 11 BILLS AND IN SUCH CASES THE SUPPLIERS WOULD BE WILL ING TO SELL AT A MUCH LESS RATE AS COMPARED TO THE RATE THAT THEY WOULD HAVE C HARGED OTHERWISE. 5.12. KEEPING IN MIND THE TOTALITY OF CIRCUMSTANCES AS DISCUSSED ABOVE AND THE FACT THAT THE APPELLANT HAS NOT BROUGHT ON RECORD ANY EVIDENCE TO CORROBORATE HIS ARGUMENTS DURING APPELLATE PROCEEDI NGS, IN ORDER TO MEET THE ENDS OF JUSTICE, THE DISALLOWANCE IS RESTRICTED TO 15 PERCENT OF THE BOGUS PURCHASES OF RS.7,01,346/- AMOUNTING TO RS.1, 05,202/-. APPELLANT GETS RELIEF OF RS.1,05,202/-. THE GROUNDS OF APPEAL ARE PARTLY ALLOWED. THIS WILL ENSURE THAT ONLY THE REAL INCOME GETS SUBJECTE D TO TAX AND NOT A NOTIONAL INCOME OR AN EXAGGERATED AMOUNT DETERMINED IN AN ARBITRARY MANNER. 6. IN SO FAR AS, ADDITIONS MADE BY THE AO TOWARDS C ESSATION/ REMISSION OF LIABILITY UNDER SECTION 41(1) OF THE I NCOME TAX ACT, 1961 FOR A.Y. 2008-09 IN RESPECT OF TRADE CREDITOR, THE LD. CIT(A) OBSERVED THAT THERE IS NO DISPUTE WITH REGARD TO TH E LIABILITY IN THE NAME OF M/S VATCO ELECTRICALS PVT. LTD., IS A TRADI NG LIABILITY AND ALSO THE BENEFIT OF DEDUCTION HAS BEEN ALLOWED IN EARLIE R YEARS. HE, FURTHER OBSERVED THAT THE AMOUNT IS OUTSTANDING IN THE NAME OF THE PARTY SINCE FINANCIAL YEAR 2006-07 AND ALSO THE PAR TY WRITTEN OFF THE AMOUNT ON 31.3.2008, CONSEQUENTLY THE ASSESSEE ALSO SHOULD HAVE TREATED THE SAME AS CESSATION OR REMISSION OF LIABI LITY WITHIN THE MEANING OF SECTION 41(1) OF THE I.T. ACT, 1961.THER EFORE, THERE IS NO ERROR IN THE FINDINGS OF THE LD. AO IN MAKING ADDIT IONS TOWARDS TRADE CREDITOR UNDER SECTION 41(1) OF THE ACT. AGGRIEVED BY THE LD. CIT(A) ORDER, THE ASSESSEE IS IN APPEAL BEFORE US. 7. THE FIRST ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM GROUND NO. 1 AND 2 OF ASSESSEEAPPEAL IS VALIDITY OF REOPEN ING OF ASSESSMENT 12 UNDER SECTION 147 OF THE I.T. ACT, 1961. THE LD. AR FOR THE ASSESSEE SUBMITTED THAT THE REOPENING OF ASSESSMENT IS BAD I N LAW FOR WANT OF JURISDICTION,AS SUCH REOPENING IS BASED ON BORRO WED BELIEF OF THE OTHER DEPARTMENT AND AT THE BEHEST OF OTHER AUTHORI TIES, RATHER THAN BELIEF OF THE AO, THEREFORE ALL PROCEEDINGS INCLUDI NG REASSESSMENT PROCEEDINGS IS BAD IN LAW AND LIABLE TO BE QUASHED. THE ASSESSEE FURTHER SUBMITTED THAT REOPENING IS WITHOUT AUTHORI TY OF THE LAW AS NOTICE ISSUED UNDER SECTION 148 OR REASONS RECORDED UNDER SECTION 148(2) OR ORDER OF ASSESSMENT DOES NOT CLAIMS THAT THE REOPENING WAS FOLLOWED BY APPROVAL UNDER SECTION 148 OF THE I .T. ACT, 1961. 8. THE LD. DR,ON THE OTHER HAND, STRONGLY SUPPORTED THE ORDER OF THE AO AS WELL AS THE LD. CIT(A). 9. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIALS AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIES BELOW. ALTHOUGH, THE ASSESSEE HAS NOT CHALLENGED RE OPENING OF ASSESSMENT BEFORE THE LD. CIT(A), IT HAS TAKEN A GR OUND IN ITS MEMORANDUM OF APPEALALONGWITH REGULAR GROUNDS OF AP PEAL TO CHALLENGE REOPENING OF ASSESSMENT FOR THE FIRST TIM E BEFORE THE TRIBUNAL. IT IS AN ADMITTED POSITION OF LAW THAT WH EN REOPENING IS CHALLENGED FIRST TIME BEFORE, THE TRIBUNAL THE ASSE SSEE OUGHT TO HAVE TAKEN THIS ISSUE BY WAY OF FILING ADDITIONAL G ROUNDS OF APPEAL, 13 BECAUSE THE SAME HAS BEEN TAKEN FIRST TIME BEFORE T HE TRIBUNAL. HOWEVER, CONSIDERING THE NATURE OF LEGAL GROUND TAK EN BY THE ASSESSEE, WE ARE OF THE CONSIDERED VIEW THAT THE SA ME NEEDS TO BE ADJUDICATED IN LIGHT OF FACTS BROUGHT OUT BY THE AO AS WELL AS ARGUMENTS OF THE ASSESSEE AND HENCE ADMITTED AND AD JUDICATED ON MERITS. HAVING SAID SO, LET US EXAMINE WHETHER REOP ENING IS VALID OR NOT. WE NOTED THAT REOPENING OF ASSESSMENT HAS BEEN MADE IN LIGHT OF INFORMATION RECEIVED FROM EXTERNAL AGENCIES LIKE SALES TAX DEPARTMENT, GOVERNMENT OF MAHARASHTRA AS PER WHICH INCOME CHARGEABLE TO TAX HAD BEEN ESCAPED ASSESSMENT WITHI N THE MEANING OF SECTION 147 OF THE I.T. ACT, 1961 AND THE AO ON THE BASIS OF SUCH INFORMATION FORMED A REASONABLE BELIEF OF ESCAPEMEN T OF INCOME WHICH IS EVIDENT FROM REASONS RECORDED FOR REOPENIN G OF THE ASSESSMENT THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THERE IS NO MERIT IN THE ARGUMENTS OF ASSESSEE CHALLENGING V ALIDITY OF REOPENING OF ASSESSMENT AND HENCE, THE GROUND TAKEN BY THE ASSESSEECHALLENGING REOPENING OF ASSESSMENT FOR ALL ASSESSMENT YEARS IS HEREBY DISMISSED. 10. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FOR ALL ASSESSMENT YEARS IS ADDITIONS TOWARDS ALLEGED BOGUS PURCHASES FROM CERTAIN DEALERS APPEARED IN THE LIST OF SUSPIC IOUS/HAWALA DEALERS PREPARED BY THE SALES TAX DEPARTMENT, GOVER NMENT OF 14 MAHARASHTRA. THE LD. AR FOR THE ASSESSEE SUBMITTED THAT THE LD. CIT(A) ERRED IN RESTRICTING ADDITIONS MADE BY THE A O TOWARDS ALLEGED BOGUS PURCHASES TO 12% TO 15% OF SUCH PURCHASES WITHOUT APPRECIATING THE FACT THAT THE REASONS FOR TREATING TRANSACTIONS UNDER THE SALES TAX LAW WAS FAILURE TO PAY TAXES CO LLECTED BY THE DEALERS WHICH CAUSED CLAIM OF WRONG INPUT CREDIT AN D HENCE ON PAYMENT OF THE SAME, DEFICIENCY CLAIMED BY THE SAID LAW WAS CORRECTED AND ACCORDINGLY TRANSACTIONS COULD NOT BE HELD AS NON- GENUINE FOR WANT OF AO BRINGING ANY CORROBORATIVE E VIDENCE FOR SAID CLAIM. THE AR FURTHER SUBMITTED THAT THE ASSESSEE H AS FURNISHED ALL POSSIBLE EVIDENCES TO PROVE GENUINENESS OF PURCHASE S, INTER ALIA DELIVERY CHALLAN, BANK STATEMENT, STOCK DETAILS ETC ., AND HENCE MERELY FOR THE REASONS THAT THE PARTIES COULD NOT A PPEAR BEFORE THE AO IN RESPONSE TO 136(3) NOTICES,NO ADVERSE INFEREN CE COULD BE DRAWN AGAINST THE ASSESSEE, MORE PARTICULARLY WHEN THE ASSESSEE HAS DISCHARGED ITS BURDEN BY FILING ENORMOUS DOCUME NTS. THE AO NEITHER DISPUTED SALES, NOR MADE OUT ANY DISCREPANC Y IN BOOKS OF ACCOUNTS. IN ABSENCE OF ANY FINDING AS REGARDS BOOK S OF ACCOUNTS, MAKING ADDITIONS TOWARDS PURCHASES IS TOTALLY ARBIT RARY AND ALSO ESTIMATING SUCH A HUGE PROFIT MARGIN IS ALSO CONTRA RY TO INDUSTRY PRACTICE. 15 11. THE LD. DR, ON THE OTHER HAND, STRONGLY SUPPORT ED THE ORDERS OF THE LD. CIT(A) SUBMITTED THAT, ALTHOUGH THE AO H AS ESTIMATED HIGHER PROFIT ON ALLEGED BOGUS PURCHASES, THE LD. C IT(A) AFTER CONSIDERING RELEVANT FACTS HAS SCALED DOWN ADDITION S TO 15% SUCH PURCHASES THEREFORE, NO REASON TO INTERFERE WITH TH E FINDING OF LD. CIT(A). 12. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MAT ERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. THE AO HAS MADE ADDITIONS TOWARDS ALLEGED BOGUS PURCHAS ES ON THE BASIS OF INFORMATION RECEIVED FROM SALES TAX DEPART MENT, GOVERNMENT OF MAHARASHTRA COUPLED WITH ENQUIRIES CO NDUCTED DURING THE COURSE OF ASSESSMENT PROCEEDINGS WHICH C LEARLY REVEALS THAT THE PURCHASES CLAIMS TO HAVE MADE FROM CERTAIN PARTIES ARE NOT PROVED WITH NECESSARY EVIDENCE. THE AO HAS REACHED TO ABOVE CONCLUSION ON THE BASIS OF EVIDENCES FILED BY THE A SSESSEEAND ALSO INDEPENDENT ENQUIRIES CONDUCTED DURING THE COURSE O F ASSESSMENT PROCEEDINGS, ,WHERE NOTICES UNDER SECTION 133(6) WE RE RETURNED UNSERVED WITH THE REMARKS LEFT OR NOT CLAIMED. THE AO WAS ALSO TAKEN SUPPORT FROM DOCUMENTS FURNISHED BY THE ASSES SEEIN SUPPORT OF ABOVE PURCHASES AS PER WHICH ALTHOUGH PRIMARY EV IDENCES INCLUDING PURCHASES BILLS AND PAYMENT PROOF AGAINST PURCHASES THROUGH PROPER BANKING CHANNELS WAS FURNISHED BUT F URTHER 16 EVIDENCES INCLUDING LORRY RECEIPT, GOOD RECEIPT NOT E AND OTHER DETAILS WAS NOT FURNISHED SO AS TO CLEAR THE SUSPICION ABOV E PURCHASES FROM THE ABOVE PARTIES IN THE BACKDROP OF FINDINGS FROM THE SALES TAX DEPARTMENT. EXCEPT, THIS THE AO HAS NOT BROUGHT ON RECORD ANY OTHER CORROBORATIVE EVIDENCE OR CIRCUMSTANTIAL EVID ENCES TO PROVE THAT PURCHASES FROM THE ABOVE PARTIES ARE NON-GENUI NE WHICH ARE NOT SUPPORTED BY EVIDENCES. ON THE OTHER HAND, THE ASSESSEEHAS FURNISHED DOCUMENTARY EVIDENCES IN FORM OF PURCHASE S BILLS / DELIVERY CHALLANS AND PAYMENT DETAILS FOR HAVING PA ID TO THE PARTIES THROUGH ACCOUNT PAYEE CHEQUES. THE ASSESSEE HAS ALS O FURNISHED BOOKS OF ACCOUNTS AND MONTH WISE PURCHASES AND SALE S FIGURES. THE AO, NEITHER DISPUTED SALES DECLARED BY THE ASSESSEE , NOR MADE OUT A CASE OF SALES OUTSIDE BOOKS OR DISCREPANCY IN STOCK DETAILS FURNISHED BY THE ASSESSEE. IN ABSENCE OF ANY FINDING AS TO IN CORRECTNESS IN BOOKS OF ACCOUNTS OR SALES OUTSIDE BOOKS, NO ADVERS E INFERENCE COULD BE DRAWN AGAINST THE ASSESSEEONLY ON THE BASI S OF INFORMATION RECEIVED FROM THE SALES TAX DEPARTMENT, MORE PARTIC ULARLY WHEN THE ASSESSEEHAS FILED PRIMARY EVIDENCES IN SUPPORT OF SUCH PURCHASES. UNDER THESE FACTS AND CIRCUMSTANCES, IT IS DIFFICULT TO ACCEPT THE ARGUMENTS OF THE LD. AO THAT PURCHASE AR E NON-GENUINE WHICH ARE NOT SUPPORTED BY EVIDENCES. AT THE SAME T IME, IT IS DIFFICULT TO ACCEPT THE ARGUMENTS OF THE ASSESSEE T HAT PURCHASES ARE 17 GENUINE WHICH ARE SUPPORTED BY NECESSARY EVIDENCES MERELY ON THE BASIS OF PURCHASE BILL AND PAYMENT PROOF, MORE PART ICULARLY WHEN THE DEALERS THEMSELVES ADMITTED IN THEIR STATEMENT ALONGWITH AFFIDAVIT BEFORE THE SALE TAX AUTHORITIES THAT THEY ARE INVOLVED IN PROVIDING ACCOMMODATION ENTRIES. THIS FACT WAS FURT HER STRENGTHENED BY THE INVESTIGATION CARRIED OUT DURIN G THE COURSE OF ASSESSMENT PROCEEDINGS, WHERE NOTICES UNDER SECTION 133(6) WERE RETURNED UNSERVED. THE LOWER AUTHORITIES AFTER CONS IDERING RELEVANT FACTS AND ALSO TAKEN SUPPORT FROM CERTAIN JUDICIAL PRECEDENTS INCLUDING THE DECISION OF HONBLE GUJARAT HIGH COUR T IN THE CASE OF CIT VS. SIMIT P. SHETH {355 ITR 290 (GUJ)} ESTIMATED PROFIT ELEMENT ON ALLEGED BOGUS PURCHASES. ALTHOUGH, THE A O HAS ESTIMATED PROFIT RANGING FROM 25% TO 34% FOR DIFFER ENT YEARS, BUT FAILED TO SUPPORT HIS RATE OF PROFIT WITH COMPARABL E CASES OF SIMILAR NATURE OF BUSINESS OR ANY OTHER SCIENTIFIC METHOD. THE LD. CIT(A) AFTER CONSIDERING RELEVANT FACTS HAS SCALED DOWN ES TIMATION OF PROFIT TO 15% ON THE BASIS OF RATIOS LAID DOWN BY CERTAIN JUDICIAL PRECEDENTS INCLUDING THE DECISION OF HONBLE GUJARA T HIGH COURT IN THE CAE OF CIT VS. SMITH P. SHETH(SUPRA). WE FURTHER NOTED THAT THIS IS A RECURRING ISSUE, WHERE THE COORDINATE BEN CH OF ITAT MUMBAI IN NUMBER OF CASES HAD TAKEN A CONSISTENT VI EW AND DIRECTED THE AO TO ESTIMATE PROFIT RANGING FROM 10% TO 15% 18 DEPENDING UPON FACTS OF EACH CASE. WE FURTHER NOTED THAT THE HONBLE BOMBAY HIGH COURT IN THE CASE OF PCIT VS. MOHD HAJI ADAM & COMPANY IN ITA NO. 1004/2016 VIDE ITS ORDER DATED 11.2.2019 HAD CONSIDERED AN IDENTICAL ISSUE AND HEL D THAT THE ADDITION HAS TO BE RESTRICTED TO THE EXTENT OF THE G.P. RATE OF PURCHASES AT THE SAME RATE OF THE OTHER GENUINE PUR CHASES WHERE THE PURCHASES ARE CONSIDERED TO BE BOGUS IN NATURE. THEREFORE, CONSIDERING OVERALL FACTS AND CIRCUMSTANCES OF THIS CASE AND ALSO CONSISTENT WITH VIEW TAKEN BY THE COORDINATE BENCH, WE ARE OF THE CONSIDERED VIEW THAT IN ORDER TO SETTLE THE DISPUTE BETWEEN THE PARTIES A REASONABLE PERCENTAGE OF PROFIT NEEDS TO BE ESTIMATED ON ALLEGED BOGUS PURCHASES AND ACCORDINGLY BY TAKING S UPPORT FROM THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE O F PCIT VS. MOHD HAJI ADAM & COMPANY (SUPRA), WE DIRECT THE AO TO ESTIMATE 12.5 NET PROFIT ON ALLEGED BOGUS PURCHASES FOR ALL ASSESSMENT YEARS, BECAUSE IN THIS CASE GROSS PROFIT RATE DECLARED BY THE ASSESSEE ON REGULAR PURCHASES IS MORE THAN 12.5 0% . 13. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FOR ASSESSMENT YEAR 2008-09 IS ADDITIONS TOWARDS TRADE CREDITORS UNDER SECTION 41(1) OF THE I.T. ACT, 1961. THE AO HAS MAD E ADDITIONS TOWARDS TRADE CREDITORS AMOUNTING TO RS. 76,237/- O N THE GROUND THAT THE CREDITOR HAS WRITTEN OFF AMOUNT DUE TO THE ASSESSEE ON 19 31.3.2018, CONSEQUENTLY, THE ASSESSEE HAS DERIVED B ENEFIT FOR THE YEAR UNDER CONSIDERATION ON ACCOUNT OF CESSATION OF LIABILITY,CONSEQUENTLY THE SAME IS LIABLE TO BE TAX ED UNDER SECTION 41(1) OF THE I.T. ACT, 1961. IT IS CLAIM OF THE ASS ESSEEBEFORE THE AO THAT ALTHOUGH THE CREDITOR HAS STATED THAT THE AMOU NT HAS BEEN WRITTEN OFF AS ON 31.3.2008, BUT THE ASSESSEE WAS O N THE BELIEFTHAT AMOUNT DUE TO THE CREDITOR IS STILL PAYABLE AND ACC ORDINGLY THE SAME HAS BEEN CONTINUED IN ITS BOOKS OF ACCOUNTS. THE AS SESSEE FURTHER CLAIMED THAT IT HAS WRITTEN OF AMOUNT DUE ON M/S VA TCO ELECTRICALS PVT. LTD., IN ITS BOOKS OF ACCOUNTS ON 8.1.2016 I.E . ASSESSMENT YEAR 2016-17 AND THE SAME HAS BEEN CREDITED TO PROFIT & LOSS ACCOUNT THEREFORE, FURTHER ADDITIONS TOWARDS SAME IN THE IM PUGNED YEAR UNDER SECTION 41(1) AMOUNTS TO DOUBLE ADDITIONS WHI CH IS INCORRECT. 14. HAVING HEARD BOTH THE SIDES AND CONSIDERED MATE RIALS AVAILABLE ON RECORD, WE FIND THAT IN ORDER TO BRING ANY CREDIT WITHIN THE AMBIT OF SECTION 41(1) OF THE ACT, THE ASSESSEE MUST DERIVE CERTAIN BENEFIT OUT OF CESSATION OF LIABILITY ON AC COUNT OF WRITE OFF OF AMOUNTS IN THE BOOKS OF ACCOUNTS. IN THIS CASE, ALT HOUGH THE CREDITOR CLAIMS TO HAVE WRITTEN OF AMOUNTS DUE TO T HE ASSESSEEIN THEIR BOOKS OF ACCOUNTS AS ON 31.3.2008, THE ASSESS EECONTINUED TO CLAIM LIABILITY IN ITS BOOKS OF ACCOUNTS UP TO ASSE SSMENT YEAR 2016- 17. FURTHER, THE LIABILITY HAS BEEN WRITTEN OF IN I TS BOOKS OF ACCOUNTS 20 ON 8.1.2016 I.E. FOR ASSESSMENT YEAR 2016-17 AND AL SO OFFERED TO TAX BY CREDITING TO PROFIT & LOSS ACCOUNT. ONCE, TH E LIABILITY HAS BEEN WRITTEN OF IN THE BOOKS OF ACCOUNTS FOR SUBSEQUENT YEARS, WHEN THE SAME IS NO LONGER PAYABLE, MAKING ADDITIONS TOWARDS SAME LIABILITY IN THE PREVIOUS YEAR AMOUNTS TO DOUBLE ADDITION FOR THE SAME AMOUNT WHICH IS NOT PERMISSIBLE UNDER THE LAW. THER EFORE, WE ARE OF THE CONSIDERED VIEW THAT THE AO WAS ERRED IN MAKING ADDITIONS TOWARDS TRADE CREDITORS UNDER SECTION 41(1) OF THE I.T. ACT, 1961 FOR THE IMPUGNED ASSESSMENT YEAR EVEN THOUGH THE ASSESS EE CLAIMS TO HAVE WRITTEN OF SAID LIABILITY FOR THE ASSESSMENT Y EAR 2016-17. HENCE, WE DIRECT THE AO TO DELETE ADDITIONS TOWARDS TRADE CREDITORS UNDER 41(1) OF THE I.T. ACT, 1961. 15. IN THE RESULT,APPEALS FILED BY THE ASSESSEE FOR ALL ASSESSMENT YEARS ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON. 31. 07.2019. SD/- SD/- (PAWAN SINGH) (G. MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 31.07.2019 COPY OF THE ORDER FORWARDED TO : (1) THE ASSESSEE; (2) THE REVENUE; 21 (3) THE CIT(A); (4) THE CIT, MUMBAI CITY CONCERNED; (5) THE DR, ITAT, MUMBAI; (6) GUARD FILE. BY ORDER SH (DY./ASSTT.REGISTRAR) ITAT, MUMBAI