I.T.A. No.6851/Mum/2014 IN INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES J , MUMBAI BEFORE SHRI C.N. PRASAD (JUDICIAL MEMBER) AND SHRI ASHWANI TANEJA (ACCOUNTANT MEMBER) I.T.A. No.6851/Mum/2014 (Assessment Year : 2010-11) Dy.CIT 10(3), Mumbai vs M/s Jakaria Fabrics Pvt Ltd B-2,605, Man Mandir Suraksha CHS Nahur Village Road, Near Sarvodaya Nagar, Mulund (W), Mumbai 80. PAN : AABCJ8510G (Appellant) (Respondent) Appellant by Shri Vijaykumar Soni Respondent by Shri M Subramanian Date of hearing : 06-09-2016 Date of pronouncement : 21-09-2016 ORDER Per ASHWANI TANEJA, AM This appeal has been filed by revenue against order of Commissioner of Income-tax (Appeals)[hereinafter called CIT(A)] passed against assessment order u/s 143(3) dt 02-03-2013 for A.Y. 2010-11 on following grounds: 1. " On facts and in circumstances of case and in law, Ld. CIT(A) erred in holding that out of total bogus purchases of Rs. 1,14,92,970/-, only 17.5% be treated as bogus purchases. 2 I.T.A. No.6851 /Mum/2014 2. "On facts and in circumstances of case and in law, Ld. CIT(A) erred in not providing any opportunity to AO and additional evidence(s) was admitted in violation to Rule 46A of I.T. Rules. 3. " On facts and in circumstances of case and in law, Ld. CIT(A) erred in applying ratio of Hon'ble Gujarat High Court decision in case of CIT vs Simit P. Seth, 356 ITR 451(Guj) and thereby Ld.CIT(A) erred in not appreciating fact that assessee failed to substantiate its case with evidence. 4. "On facts and in circumstances of case and in law, Ld. CIT(A) erred in not appreciating fact that assessee failed to substantiate its case with evidence that said purchase entries with 8 parties were not accommodation entries. 2. During course of hearing assessee filed petition u/r 27 of Income- tax (Appellate Tribunal) Rules, 1962 to support order of Ld.CIT(A) on following grounds: i) assessment order is invalid and bad in law, as no cross examination has been allowed of witnesses whose statement has been made basis of impugned order. ii) assessment order is invalid and bad in law, as same has been passed by A.O. without application of mind, on basis of information received from investigation wing which in turn relied on surveys conducted by sales tax department. 3. During course of hearing, Ld. Ld. Departmental Representative supported order of Assessing Officer whereas Ld.counsel for assessee supported order of Ld.CIT(A) and also relied upon judgement of Hon ble Bombay High Court in case of CIT(A) vs Nikunj Eximp Enterprises Pvt Ltd 372 ITR 6129 (Bom). 4. We have gone through orders passed by lower authorities and judgement placed before us. With respect to ground relating to additional 3 I.T.A. No.6851 /Mum/2014 evidences considered by Ld.CIT(A), we pointed out to Ld.DR to show us additional evidences considered by Ld.CIT(A) while passing his order and recording his conclusions and findings. In response, Ld.DR could not point out any additional evidences and did not press this ground, as result. We have also gone through findings recorded by Ld.CIT(A) and found that no additional evidence has been considered by Ld.CIT(A) and, therefore, this ground is dismissed. 5. As far as merits of case are concerned, brief background of issue involved is that during year under consideration, assessee was engaged in business of doing job work of dyeing of fabrics and has shown income from job work charges and scrap sales in its P&L account. During course of assessment proceedings, Assessing Officer found that in view of information received from Investigation Wing of Income-tax Department, Mumbai, assessee had obtained bogus purchase bills aggregating to Rs.1,14,92,970 from 8 parties, whose details have been given at paragraph 4 of assessment order. assessee was asked to substantiate these purchases. In response, assessee submitted copies of bogus invoices, delivery challans, details of payment made to said parties, ledger accounts of these parties and other documentary evidences to substantiate purchases. But Assessing Officer was not satisfied with documentary evidences and, therefore, he disallowed total amount of purchases made from these parties aggregating to R Rs.1,14,92,970 by solely relying upon alleged information received from investigation carried out by sales-tax department, Mumbai. While doing so, Assessing Officer did not point out any deficiencies, shortcomings or contradictions in documentary evidences submitted by assessee. Being aggrieved, assessee filed appeal before 4 I.T.A. No.6851 /Mum/2014 Ld.CIT(A) and submitted that complete documentary evidences have been submitted before Assessing Officer and without controverting these evidences, Assessing Officer made total disallowance of purchases. It was alternatively submitted that in any case, Assessing Officer has accepted income received by assessee on account of job work charges. Nothing has been brought on record by Assessing Officer to show that items purchased have not been used for purpose of job work. assessee was not in position to carry out job work in absence of impugned purchases. It was further submitted that Assessing Officer did not provide any adverse material in support of his allegations. Ld.CIT(A) considered submissions of assessee and documentary evidences submitted by assessee before Assessing Officer as well as Ld.CIT(A) and decided this issue by recording following findings: 2.15 facts in present case shows that appellan t was not in position to prove existence of suppliers. suppliers were found to be en g g ed in providing bogus 'bills without actual delivery of goods Moreover few of Suppliers are hot regular parties and they were found to have been supplied only during ear and there were no supply either in earlier year or in subsequent year from such parties. This circumstantial evidence also prove bogus nature of transaction. On careful analysis or finding of Hon ble High Court or Court in above mentioned cases, I am of firm view that without purchase of materials it was not possible for appellant to complete job work of dying. As mentioned above AO had never disputed or examined aspect of job work receipts. Hence I am of firm belief that appellant had made cash purchases from other parties which were not recorded in books. appellant took only bills from these 6 parties as accommodation to explain purchases. 5 I.T.A. No.6851 /Mum/2014 Therefore entire purchase from these 8 parties cannot . be added as bogus and what needs to be taxed is profit element embedded in such transaction. appellant carrvout only job work of dying cloths one contract basis. Estimation ranging from to 25% has been upheid by Hon'ble Gujarat High Court depending upon nature of business. As held in case of Simit P. Sheth (supra) no, uniform yardsticks could be applied to estimate rate of profit and it vary with nature of business. Taking all facts into consideration and findings of Hon ble Courts on this issue, I am of view that estimation of 17.5% of profit would meet ends of justice. Therefore, I direct AO to estimate profit of 17.5% on total alleged bogus purchase which, works out to Rs. 2011270 (17.5% of Rs.114,92,970!-). appellant get relief of balance Rs,94817001-. grounds raised are partly Allowed. 6. Thus, from aforesaid analysis, conclusions and findings recorded by Ld.CIT(A), it is evident that total purchases were wrongly disallowed by Assessing Officer. Ld.CIT(A) took reasonable view whereby disallowance was sustained to extent of estimated inflation in amount of purchases made by assessee. disallowance sustained by Ld.CIT(A) @17.5% of purchases have been accepted by assessee with view to bury litigation. Nothing has been brought before us by Ld.DR to contradict findings recorded by Ld.CIT(A). assessee s counsel has also placed reliance upon judgement of Hon ble Bombay High Court in case of CIT vs Nikunj Eximp Enterprises Pvt Ltd (supra) wherein similar issue has been decided on identical lines by Hon ble Bombay High Court. In our view, no intervention is required in findings of Ld.CIT(A) and, therefore, same is confirmed. grounds raised by revenue are dismissed. 6 I.T.A. No.6851 /Mum/2014 7. As result, appeal of revenue is dismissed. Order pronounced in court on this 21st day of September,2016. Sd/- sd/- (C.N. PRASAD) (ASHWANI TANEJA) JUDICIAL MEMBER ACCOUNTANT MEMBER st Mumbai, Dt : 21 September, 2016 Pk/- Copy to : 1. appellant 2. respondent 3. CIT(A) 4. CIT 5. Ld. Departmental Representative for Revenue, J-Bench (True copy) By order ASSTT.REGISTRAR, ITAT, MUMBAI BENCHES Dy.CIT 10(3), Mumbai v. M/s Jakaria Fabrics Pvt Ltd