D KETAN & CO., Mumbai V. ACIT-32(1), Mumbai

ITA 978/MUM/2023

AI Insights

The case involves D.Ketan & Co., a partnership firm engaged in trading of iron and steel, which faced an assessment for the year 2010-11 that was reopened due to alleged bogus purchase bills amounting to Rs.2,01,91,960 from various parties declared as hawala operators. The Assessing Officer made an estimated addition of 12.5% on these purchases, amounting to Rs.25,23,995 under section 69C of the Income Tax Act. The assessee's appeal to the CIT(A) was dismissed in ex-parte due to the non-appearance of their Chartered Accountant, who was ill. The Tribunal found that while the assessee failed to prove the genuineness of the purchases, the estimation of G.P at 12.5% was excessive and modified it to 7.5%. The Tribunal also directed the exclusion of the cost of a machinery item from the bogus purchases.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 126968 (ITAT-MUMBAI)
• Duration Of Justice: 2 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: D
• Next Hearing Date: 20-06-2023
• Assessment Year: 2010-2011
• Appeal Filed On: 27-03-2023
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bogus purchase; Depreciation
• Section: 271(1)(c); 69C; 143(3); 234B; 133(6)

Judgement Text

आयकर य कर म ु ंबई ठ “ड ”, म ु ंबई ठ क , य यक य ए ं गगन गोय , ेख क र य के म% IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “D ”, MUMBAI BEFORE SHRI VIKAS AWASTHY, JUDICIAL MEMBER & SHRI GAGAN GOYAL, ACCOUNTANT MEMBER आ ं.978/म ु ं/ 2023 ( न. .2010-11) ITA NO. 978/MUM/2023(A.Y. 2010-11) D.Ketan & Co., 310,Sai Leela, Commercial Complex, Opp Moksh Plaza, S.V.Road, Borivali (W), Mumbai – 400 091. PAN: AADFD-2513-L ...... + /Appellant बन म Vs. Asstt. Commissioner of Income Tax 32(1), Mumbai. ..... , - /Respondent + . र / Appellant by : Shri D.C.Saboo , - . र /Respondent by : Smt. Mahita Nair ु न ई क/ - / Date of hearing : 21/06/2023 0ो1 क/ - / Date of pronouncement : 23/06/2023 आदेश/ ORDER PER VIKAS AWASTHY, JM: This appeal by the assessee is directed against the order of Commissioner of Income Tax(Appeals), National Faceless Appeal Centre, Delhi [in short ‘the CIT(A)’] dated 28/01/2023, for the assessment year 2010-11. 2. The assessee in appeal has raised as many as eight grounds. The ground No.1 to 5 of the appeal relate to a single issue i.e. estimated addition on account of bogus purchases. The ground No. 6 of appeal is with respect to levy 2 ITA NO. 978/MUM/2023(A.Y. 2010-11) of interest u/s. 234A, 234B and 234C of the Income Tax Act, 1961 [ in short ‘the Act]. In ground No.7 of appeal, the assessee has assailed initiation of penalty proceedings u/s. 271(1)(c) of the Act. The ground No.8 is general in nature. 3. Shri D.C.Saboo appearing on behalf of the assessee submits that the assessee is a partnership firm engaged in trading of iron and steel. The assessment for Assessment Year 2010-11 was reopened on the ground that the assessee has indulged in obtaining bogus purchase bills amounting to Rs.2,01,91,960/- from various (eleven) parties, declared as hawala operators. The ld. Authorized Representative of the assessee submitted that during the assessment proceedings, the assessee furnished various documents viz. ledger accounts, copy of purchase bills, bank statements, corresponding sale details, etc. to substantiate genuineness of transactions. However, the Assessing Officer disregarded the documents furnished by the assessee and made estimated addition of 12.5% on alleged bogus purchases. Thus, the Assessing Officer made addition of Rs.25,23,995/- u/s. 69C of the Act. Aggrieved against assessment order dated 18/02/2016 passed u/s. 143(3) r.w.s. 147 of the Act, the assessee filed appeal before the CIT(A). The notices of hearing of appeal were served on the Chartered Accountant of the assessee i.e. Shri Ketan Navalchand Shah. On account of ill-health he could not appear before the CIT(A), the CIT(A) dismissed the appeal of assessee in an ex-parte proceedings and confirmed the addition made in the assessment order. The ld. Authorized Representative of the assessee pointed that Shri Ketan Navalchand Shah, Chartered Accountant has furnished an affidavit along with medical certificate. The same is at page 4 & 5 of the paper book. 3 ITA NO. 978/MUM/2023(A.Y. 2010-11) 3.1 On merits of the addition the he submitted that in the impugned assessment year G.P. on non-hawala purchases is 6.39% and G.P. on alleged hawala purchases is 10.56%. The overall G.P. is 6.59%. The G.P in the preceding three assessment years is : Assessment Year G.P.Ratio 2009-10 3.20% 2008-09 2.35% 2007-08 1.60% Thus, the G.P declared in the impugned assessment year is far more than the G.P in the preceding assessment years. The ld. Authorized Representative of the assessee submitted that estimation of G.P by Assessing Officer and CIT(A) at 12.5% on alleged bogus purchases is very much on the higher side. The ld. Authorized Representative of the assessee further submitted that while computing the amount of alleged bogus purchases, the Assessing Officer has erroneously included cost of one machinery amounting to Rs.1,94,832/-. A perusal of the balance sheet and statement of fixed assets would show that the assessee has capitalized the cost of said machinery and has claimed depreciation on the same. The depreciation claim on said machinery has been allowed to the assessee. Hence, the cost of machinery may be excluded from the total amount of alleged bogus purchases. 4. Per Contra, Smt. Mahita Nair representing the Department vehemently defended the impugned order and prayed for dismissing the appeal of assessee. The ld. Departmental Representative submits that the assessee has failed to discharge its onus in proving genuineness of the purchases and the dealers. Notices issued u/s. 133(6) to the dealers were returned back 4 ITA NO. 978/MUM/2023(A.Y. 2010-11) unserved, hence, the Assessing Officer has rightly made addition of 12.5% in respect of bogus purchases. The estimation of additional G.P on bogus purchases is fair and reasonable. The assessee failed to appear before the CIT(A) despite service of notice. 5. Both sides heard and orders of authorities below examined. A perusal of the assessment order reveals that the assessee has failed to discharge its onus in proving genuineness of the purchases and authenticity of parties from whom alleged goods were purchased. Though the assessee has placed on record purchase bills and bank statements, however, no documentary evidence was furnished to substantiate delivery of goods. The Assessing Officer after examining the facts has concluded that the assessee has purchased goods from the grey market for benefits like lower duties, better credit facilities and bargaining, etc. The Assessing Officer has thereafter estimated suppressed profit element on such goods at 12.5% and thus, made addition of Rs.25,23,985/- u/s. 69C of the Act. The assessee failed to appear before the CIT(A) despite repeated notices. Thus, the First Appellate Authority was constrained to decide appeal on merits in ex-parte proceedings. The CIT(A) has upheld the assessment order. We are of the considered view that the assessee has failed to show genuineness of the purchases and the parties from whom such purchases were made. We concur with the findings of the Authorities below that the assessee has indulged in obtaining bogus purchase bills from declared hawala dealers. As regards estimation of G.P on bogus purchases, we are of considered view that the estimation of G.P at 12.5% is on the higher side. Keeping in view, the assesee’s nature of business and the G.P already declared by the assessee in 5 ITA NO. 978/MUM/2023(A.Y. 2010-11) the impugned assessment year we deem it appropriate to restrict G.P on bogus purchases to 7.5% over and above the G.P already declared by the assessee. 6. The assessee has pointed that while quantifying bogus purchases the cost of fixed asset (machinery) purchased during the year has been included in bogus purchases. The assessee has already disclosed machinery in the block of assets and has claimed depreciation thereon. The Assessing Officer is directed to reduce the cost of machinery i.e.1,94,832/- from the bogus purchases i.e. Rs. 2,01,91,960/-. Thus, the impugned order is modified to the extent mentioned herein above. The ground No.1 to 3 of the appeal are partly allowed. 7. No submissions were made in respect of ground No.4 and 5, hence, the same are dismissed. 8. In ground No.6 of appeal, the assessee has assailed charging of interest u/s. 234A, 234B and 234C of the Act . Charging of interest under aforesaid sections is mandatory and consequential, hence, ground No.6 is dismissed being devoid of any merit. 9. In ground No.7 of appeal, the assessee has assailed initiation of penalty proceedings u/s. 271(1)(c) of the Act. Challenge to penalty proceedings at this stage is premature, hence, ground No.7 of appeal is dismissed. 6 ITA NO. 978/MUM/2023(A.Y. 2010-11) 10. In the result, appeal of the assessee is partly allowed. Order pronounced in the open court on Friday the 23 rd day of June, 2023. Sd/- Sd/- (GAGAN GOYAL) (VIKAS AWASTHY) ेख क र य/ACCOUNTANT MEMBER य यक य/JUDICIAL MEMBER म ु ंबई/ Mumbai, 2 न ंक/Dated 23/06/2023 Vm, Sr. PS(O/S) े Copy of the Order forwarded to : 1. +/The Appellant , 2. , - / The Respondent. 3. The PCIT 4.. 3 ग य , - न , आय. . ., म ु बंई/DR, ITAT, Mumbai 5. ग ड5 6 7 /Guard file. BY ORDER, //True Copy// (Dy./Asstt. Registrar), ITAT, Mumbai