Income Tax Appellate Tribunal - MumbaiHarish K. Chandak, Mumbai vs Ito 24(3)(1), Mumbai on 27 November, 2018ITA No. 3471, 3472 & 3473/Mum/2015


               आयकर अपीऱीय अधिकरण "H" न्यायपीठ मुंबई में ।

IN THE INCOME TAX APPELLATE TRIBUNAL "H"                   BENCH,      MUMBAI

        BEFORE SHRI C.N. PRASAD, JUDICIAL MEMBER
       AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER

        आयकर अपीऱ सं./I.T.A. No.3471 to 3473/ Mum/2015
     (नििाारण वर्ा / Assessment Year : 2009 -10, 2010-11 & 2011-12)

Mr. Harish K. Chandak          बिाम/             ITO 24(3)(1)
1001, "D"Wing,                                   Pratyakashkar Bhavan,
 Building No. 27,                v.              BKC, Bandra (E),
Anuruddha Building,
                                                 Mumbai 400051
Above ICICI Bank,
Tilak Nagar,
Chembur(W),
Mumbai-400089
स्थायी ऱेखा सं./ PAN: AABPC6410H


      Assessee by:               None
      Revenue by :               Shri. Manoj Kumar Singh (DR)


      सुनवाई की तारीख /Date of Hearing                  : 27.11.2018
      घोषणा की तारीख /Date of Pronouncement : 27.11.2018



                             आदे श / O R D E R



   PER BENCH:

   These three appeals, filed by assessee, being ITA No. 3471 to
   3473/Mum/2015, are directed against seperate appellate order(s) all
   dated 12.03.2015 passed by learned Commissioner of Income Tax
   (Appeals)-42, Mumbai (hereinafter called "the CIT(A)"), for assessment
   year 2009-10, 2010-11 & 2011-12, the appellate proceedings had
   arisen before learned CIT(A) from separate assessment order(s) all of
   different   dates    viz.26.02.2014,    28.03.2013          and    26.02.2014
   respectively   passed by learned Assessing Officer (hereinafter called
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                                          ITA No. 3471, 3472 & 3473/Mum/2015


"the AO") for AY 2009-10, 2010-11 & 2011-12. Since , common issues
are involved , all these three appeals were heard together and disposed
by this common order. First , we shall take up appeal of the assessee
for AY 2009-10 and our decision in appeal for AY 2009-10 shall apply
mutatis mutandis to the appeals for AY 2010-11 and 2011-12
respectively.

2.    The grounds of appeal raised by the assessee in the memo of
appeal filed with the Income-Tax Appellate Tribunal, Mumbai
(hereinafter called "the tribunal") in ITA No. 3471/Mum/2015 for AY
2009-10, read as under:-




      "1.1        It is submitted that in the facts and the
      circumstances of the case, and in law, the reassessment
      framed u/s. 147 of the Income - tax Act, 1961 ["the Act"] is
      bad in law.

      WITHOUT PREJUDICE TO THE ABOVE
      2.1         The Learned Commissioner of Income - tax
      (Appeals) - 42, Mumbai ("Ld. CIT (A)"], erred in confirming
      the addition u/s. 69C of the Act made by the A.O. on the
      ground of alleged bogus purchases to the extent of Rs.
      16,98,513/- by applying average gross profit rate at 5.64%
      to the amount of alleged bogus purchases.

      2.2          It is submitted that in the facts and the
      circumstances of the case, and in law, no such addition
      was called for.

      2.3     Without prejudice to the above, in the alternative,
      assuming - but not admitting - that some disallowance
      was called for, the computation of the same is not in
      accordance with the law, is arbitrary and excessive.

      3.     The Appellant craves leave to add to, alter, delete or
      modify all or any of the above grounds at the time of
      hearing."


3.    The assessee is engaged in the business of trading of rubber
products, chemicals and compounds and is proprietor of the concern


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                                                 ITA No. 3471, 3472 & 3473/Mum/2015


M/s. Giriraj Enterprises. The AO received information from Sales Tax
Department, Mumbai as well as DGIT(Inv.) Mumbai that assessee has
received accommodation entries of purchases from suspicious parties
who are hawala dealers which are only issuing bogus accommodation
bills without supplying any material. The AO invoked reopening
provisions as are contained in Section 147 of the Act, after recording
reasons thereof and notices u/s. 148 dated 25.03.2013 was issued by
the AO and served on the assessee. The return of income in this case
was originally filed by the assessee on 24.09.2009 for AY 2009-10
declaring „Nil‟ income which was processed by Revenue u/s. 143(1) of
the 1961 Act. The reasons recorded for reopening of the assessment
were provided by the AO to the assessee vide letter dated 14.08.2013 .
The statutory notices u/s 143(2) and 142(1) were issued to the
assessee by the AO.        The assessee had submitted copies of audit
report in form no. 3CB and 3CD , copies of Profits and Loss account
and Balance Sheet , audited statement of accounts etc. . The turnover
of the assessee during the AY 2009-10 under consideration was Rs.
6,74,61,625/- and GP declared was Rs. 33,31,662/- i.e @ 4.94% . The
AO observed that the assessee had debited purchases to the tune of
Rs. 6,41,29,630/- to the Profit and Loss Account. The assessee was
asked to file complete details of purchases along with name and
addresses of the parties from whom purchases were made along with
their TIN numbers. The assessee filed details called for by the AO
along with documentary evidences as recorded in the assessment
order. The AO observed that the assessee has made purchases from
following parties , as under:-



Sr. Name                       TIN            PAN            Particulars of
No.                                                          Transactions

                                                             A.Y          Amount

01   D H TRADING CORPORATION   27580139600V   ACIPV6880A     2009-10      2,09,54,2347-




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                                               ITA No. 3471, 3472 & 3473/Mum/2015


02   BS ENTERPRISES         27750288644V    ATBPS5210L     2009-10        2,23,54,7067-

03   NK TRADERS             27570136744V    AEDPC2617J     2009-10        2,27,26,3847-


                            Total                                         6,60,35,324/-




The AO observed that the Sales Tax Department made enquiries with
respect to aforesaid parties which proved that these parties were
hawala dealers issuing bogus accommodation invoices without
supplying any material. The notices were issued by the AO to all these
three    parties   u/s   133(6)     which   returned     unserved    by     postal
authorities as these parties were not tracable at the given addresses.
The assessee was asked by the AO to prove whereabouts of all these
three parties or to produce these parties for verification and prove the
genuineness of the purchases . The assessee only supplied ledger
accounts of these parties. The assessee did not produced these parties
nor supplied new addresses of these parties before the AO. The AO
made additions to the tune of Rs. 6,60,35,324/- to the income of the
assessee u/s. 69C by treating these purchases as an unexplained
expenditure , vide assessment order dated 26.02.2014 passed u/s
143(3) read with Section 147 of the 1961 Act.

4.The assessee filed first appeal before the Ld. CIT(A) and submitted
details before the Ld. CIT(A) which are reproduced as hereunder:-




        "      2.2. During the course of appellate proceedings the
        appellant has submitted that all the necessary documents
        and details as required by the AO were furnished during
        the course of the assessment proceedings. The Appellant
        also submitted all the details called for such as
        quantitative reconciliation of opening stock, purchase,
        sales and closing stock, payments made through a/c
        payee cheques and copies of bank statements duly
        highlighting the payments are held on record."




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                                          ITA No. 3471, 3472 & 3473/Mum/2015


5.    The Ld. CIT(A) after considering the submission of the assessee
partly allowed appeal of the assessee by restricting the additions to
the extent of gross profit margins to Rs. 35,11,220/- u/s. 69C , vide
appellate order dated 12.03.2015 , by holding as under:-




     "      2.3 I have considered the above submissions of the
     appellant, material available on record and the impugned
     assessment order on this issue. The list of the suspicious
     dealers and hawala parties have been obtained from
     DGIT(Inv), Mumbai. The Appellant has unable to prove the
     genuineness of the transactions by producing the parties
     or getting the confirmations from these parties. No reply or
     confirmation has been obtained to the notice/s issuedu/s.
     133(6)of the Income-tax Act, 1961.

     2.4 Further, considering that the sales of the Appellant are
     genuine and has not been under doubt, the entire amount
     of purchases cannot be disallowed. Also, the AO has not
     brought any evidence on record to reflect that the sales of
     the Appellant are incorrect or in genuine or that there
     appears to be some anomaly in the reconciliation of the
     stock statements. The Gross profit margin of the Appellant
     is as under-

      Particulars    AY 2007-08     AY 2008-09      AY 2009-10

      Gross Profit   6.29%          4.72%           4.94%
      Ratio



     The gross profit margin for the current year is 4.94% and
     the average gross profit of the last three year/s is 5.32%.
     Accordingly, the I do hereby direct to disallow only the
     sum of Rs.35,l1,220 being the gross profit margin on the
     purchases from the parties covered under hawala of
     Rs.6,60,35,324.

     In view of these facts, the entire additions made by the AO
     of Rs.6,60,35,324 is not justified and accordingly I direct
     the AO to restrict the additions to the extent of gross profit
     margins at Rs. 35,11,220 madeu/s. 69C. This ground of
     appeal is partly allowed."




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                                          ITA No. 3471, 3472 & 3473/Mum/2015


6.    Aggrieved by the appellate order passed by learned CIT(A) dated
12.03.2015, the assessee is in appeal before the tribunal.None
appeared on behalf of the assessee . The notices that were sent to the
assessee by tribunal intimating date of hearing had returned unserved
which are placed in file.    On one occasion on 4th May, 2017,the
assessee entered appearance before tribunal and sought adjournment
which was granted by the tribunal , while on other occasions on 9th
February , 2017, 15th March, 2017, 12th June, 2017, 26th Nov, 2018
and 27th Nov, 2018 , the assessee did not entered appearances when
the appeal was    called for hearing before the Bench.        The notices
which were sent by registered AD post on 15th February , 2017, 24th
July, 2017 and 8th Nov, 2018 had returned unserved and the original
envelops returned by postal authorities are placed in file. The assessee
is not vigilant in persuing his appeal with tribunal.

7.    The Ld. DR on the other hand submitted that revenue had also
filed appeal(s) for all these three years i.e. AY 2009-10, 2010-11 and
2011-12 , vide appeal in ITA no. 3578, 3659, 3579/Mum/2015
respectively which were disposed of by tribunal vide common orders
dates 11.07.2017 , wherein the tribunal was pleased to restrict
disallowance to the tune of 12.5% of bogus purchases . It was
submitted that the same principal was applied by tribunal in all the
three aforesaid appeals filed by revenue for all these three years
namely AY 2009-10 to 2011-12. The said common order dated
11.07.2017 of the tribunal is placed in the file. It was submitted that
the assessee also did not appeared before the tribunal when the
Revenue appeal was called for hearing before the tribunal. Thus, it
was submitted that the assessee is not vigilant in persuing his legal
remedies and the assessee appeal may be dismissed.

8.    We have considered contentions of the Ld. DR and perused the
material on record. We have observed that the assessee is engaged in
the business of Rubber products, chemicals and compounds. The AO
received information from Maharashtra Sales Tax Department as well

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                                                  ITA No. 3471, 3472 & 3473/Mum/2015


from DGIT(Inv.), Mumbai that the assessee had made purchases from
certain parties who are hawala dealers engaged in providing
accommodation entries wherein bogus purchases bills were issued by
these dealers without supplying any material. The Maharashtra Sales
Tax Department made enquiries wherein it was concluded that these
parties are hawala dealers engaged in issuing bogus invoices without
supplying any material. The assessee is one of the beneficiaries of the
bogus accommodation entries from these hawala dealers. The
assessee has claimed to have made purchases from following parties
who were listed as hawala dealers by Maharashtra Sales Tax
department:-



 Sr. Name                       TIN            PAN            Particulars of
 No.                                                          Transactions
T
                                                              A.Y          Amount
h
e01   D H TRADING CORPORATION   27580139600V   ACIPV6880A     2009-10      2,09,54,2347-

02    BS ENTERPRISES            27750288644V   ATBPS5210L     2009-10      2,23,54,7067-

A03   NK TRADERS                27570136744V   AEDPC2617J     2009-10      2,27,26,3847-

O                               Total                                      6,60,35,324/-




The AO also made inquiriesu/s. 133(6)from all these three parties
wherein notices sent were returned unserved by postal authorities as
these parties were not traceable at the given addresses. The assessee
did not furnish new addresses of these parties nor produced these
parties before the AO . The assessee however had submitted details
concerning these purchases before the AO. The assessee , however
could not prove the movement of material purchased from these
parties . The AO added 100% of the said purchases to the income of
the assessee , while the Ld. CIT(A) considered the three years gross
profit to determine the disallowance , wherein gross profit of the

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                                                 ITA No. 3471, 3472 & 3473/Mum/2015


assessee was computed at Rs.35,11,220/- as against declared gross
profit of Rs.33,31,662/-. The matter reached tribunal at the behest of
Revenue also as the Revenue was also aggrieved by the appellate order
passed by learned CIT(A) granting partial relief.               We have observed
that the tribunal in ITA no. 3578, 3659 & 3579/Mum/2015, AY 2009-
10, 2010-11 & 2011-12 in Revenue‟s appeal for all these three years,
vide common orders dated 11th July, 2017 has passed a well reasoned
order , wherein the disallowance was restricted to 12.5% of such
bogus purchases , wherein tribunal vide orders dated 11.07.2017
held as under:-




           "        These appeal have been filed by the Revenue against the
           orders of the CIT(A)-42, Mumbai dated 12.03.2015 for assessment
           years 2009-10 to 2011-12. Since common issues are involved in all
           these appeals, they are disposed off by this common order for the
           sake of convenience.

           2. The assessee has raised the following grounds for assessment
           years 2009-10 and 2011-12:-

           "1. On the facts and in the circumstances of the case, the Ld. CIT(A)
           erred in allowing the bogus purchases made by the assessee
           without appreciating the fact that the assessee failed to furnish
           documentary evidence to prove that purchase made were genuine.

           2. On the facts and in the circumstances of the case, the Ld. CIT(A)
           failed to appreciate the provisions of sections ofsection 69Cof the
           Act which categorically states that where the assessee offers no
           explanation about the source of such expenditure or part thereof."

           For A.Y. 2010-11 assessee has raised one more ground which reads
           as under: -

           "3. On the facts and in the circumstances of the case, the Ld. CIT(A)
           failed to appreciate the provisions ofSection 145where there is a
           gross deviation in maintenance of accounts of the assessee and the
           same is not in conformity with the prescribed norms the assessee
           has failed to maintain and produce the books."

           3. The brief facts of the case are that the assessee is an individual
           and is the proprietor of M/s. Giriraj Enterprises, engaged in the
           business of trading in Rubber & Rubber chemicals. The assessee
           made purchases from the following parties who were found to be
           hawala parties by the Sales Tax Department of the Government of
           Maharashtra: -

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                                        ITA No. 3471, 3472 & 3473/Mum/2015



    S.No.     Name of the Party                         Amount

    1         M/s. Balaji Traders                       1,89,32,986/

    2         M/s. Mahaveer Enterprises                 1,54,90,497/-

    3         M/s. Neeta Sales Corporation              54,69,269/-

    4         M/s. Krsna Enterprises                    1,89,16,208/-

    5         M/s. Jain Corporation                     20,61,330/-

              Total                                     6,08,70,272/-




The AO issued notice undersection 133(6)to the above mentioned
parties. However, the same was returned back. Therefore the AO
has added the peak balance of Rs. 1,02,57,284/- (for A.Y. 2010-11)
and made addition undersection 69Cof the I.T. Act. The AO has also
added the GP @8% on the total bogus purchases.

4. The matter was carried to the CIT(A) and the CIT(A) has applied
GP margin at 5.07% and restricted the addition to Rs. 30,86,720/-.

5. None appeared on behalf of the assessee. The learned D.R.
submitted before that in the case of NK Proteins Ltd. vs. DCIT the
Hon'ble Supreme Court has confirmed the addition on account of
bogus purchases at 100% and similar view has been taken by the
Hon'ble Gujarat High Court and applied GP @6%.

6. Having heard the learned D.R. we find that it is the case of
Revenue that the assessee failed to discharge the onus of proving
the purchases and could not produce evidence to show the actual
delivery of material and could not produce confirmation letters from
the alleged suppliers. However, we find that the assessee is in
possession of purchase invoices and payments are through banking
channels. Therefore, if at all the purchases are found to be bogus we
note that the sales turnover has not been disputed by the Revenue.
Therefore, in such a case the addition can be made only on the
profit element embedded in these purchase transactions to factorise
the profit earned by the assessee against the purchase of material in
gray market. We find that there are divergent views of various High
Courts on what amount of GP should be applied in such bogus
purchases. We find that in the case of Smith and Sheth the Hon'ble
Gujarat High Court has held that a trader sold some goods and he
would purchase the same from other sources. When the total sale is
accepted by the AO he could not have questioned the very basis of
purchase. Therefore purchases are not bogus but they are made
from parties other than those who are mentioned in the books of


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                                                      ITA No. 3471, 3472 & 3473/Mum/2015


               account. This being the decision not the entire purchase price but
               only the profit element in such purchases can be added to the
               income of the assessee. We find that we are taking a consistent
               view that the disallowance to the extent of 12.5% of such bogus
               purchase will be justified in the facts of this case also. Therefore, we
               modify the order of the CIT(A) and direct the AO to restrict the
               disallowance the extent of 12.5% of such bogus purchases."



We have observed that the assessee has duly reconciled quantitative
purchases with sales and the assessee is engaged in the trading
activities. The assessee could not prove movement of material nor
verification from these parties could be conducted. These parties are
undisputedly listed as hawala dealers by Maharashtra Sales Tax
department and on enquiries conducted by Maharashtra Sales Tax
department, it was proved that these parties are hawala dealers
issuing bogus accommodation bills without supplying any material.
The assessee is beneficiary of these accommodation entries. The sales
are however not doubted by Revenue and the assessee being trader
has reconciled quantitative sale and purchase of goods dealt within by
the assessee.        Under these circumstances, only profit element
embedded in such bogus purchases need to be brought to tax as
income of the assessee which definitely involved guess work. The ratio
of decision of Hon‟ble Supreme Court in the case of Kachwala Gems
v.JCIT reported in (2007) 288 ITR 10(SC) is applicable. We do not find
any reason to deviate from well reasoned order passed by tribunal in
Revenue appeal as detailed above, which we affirm/confirm. Thus the
assessee‟s appeal for AY 2009-10 is disposed off by following the order
dated 11.07.2017 passed by tribunal in revenue‟s appeal in assessee‟s
own case for AY 2009-10,2010-11, 2011-12. Thus, we confirm
additions to the tune of 12.5% of such bogus purchases for AY 209-
10. The assessee appeal for AY 2009-10 stood dismissed. We order
accordingly.

9. In the result assessee‟s appeal in ITA no. 3471/Mum/2015 for AY
2009-10 stood dismissed, as indicated above.


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                                                 ITA No. 3471, 3472 & 3473/Mum/2015


     10. Since common issues are involved in all the three years viz. AY
     209-10, 2010-11 and 2011-12 , the additions are confirmed to the
     tune of 12.5% of bogus purchases in all these three years and all the
     three    appeals   filed   by   the   assessee    viz.   ITA   no.   3471   to
     3473/Mum/2015 for AY 2009-10 to 2011-12 stood dismissed, as
     indicated above. We order accordingly.

     11.     Thus, in nutshell all the three appeals filed by the assessee in
     ITA no. 3471 to 3473/Mum/2015 for AY 2009-10 to 2011-12 stood
     dismissed as indicated above.

             Order pronounced in the open court on 27 .11.2018.

             आदे श की घोषणा खऱ
                             ु े न्यायाऱय में ददनांकः 27 .11.2018 को की गई



                    Sd/-                                             Sd/-

               (C.N PRASAD)                                (RAMIT KOCHAR)
             JUDICIAL MEMBER                           ACCOUNTANT MEMBER


       Mumbai, dated: 27.11.2018

     Nishant Verma
     Sr. Private Secretary


        copy to...

1.      The appellant
2.      The Respondent
3.      The CIT(A) - Concerned, Mumbai
4.      The CIT- Concerned, Mumbai
5.      The DR Bench,
6.      Master File
                            // Tue copy//

                                                      BY ORDERDY/ASSTT. REGISTRAR
                                               ITAT, MUMBAI11