M/s. Jai Hind Paper Mart v. Income Tax Officer 14(2)(3), Mumbai
[Citation -2016-LL-0928-174]

Citation 2016-LL-0928-174
Appellant Name M/s. Jai Hind Paper Mart
Respondent Name Income Tax Officer 14(2)(3), Mumbai
Court ITAT-Mumbai
Relevant Act Income-tax
Date of Order 28/09/2016
Assessment Year 2009-10
Judgment View Judgment
Keyword Tags best judgment assessment • issue of notice • total turnover • purchase price • cotton ginning • crossed cheque • peak credit • tax credit • sales tax • hawala
Bot Summary: If the purchases from the two parties are considered as bogus then the sales made to them out of the purchases ought to be deducted accordingly. The appellant has contended that the Sales Tax Department had disallowed the claim of input tax credit in hands of the purchaser, and the Hon'ble High Court of Bombay in the case of M/s Mahalaxrni Cotton Ginning Pressing Industries has directed the authorities to pursue recoveries against the defaulting selling dealers. The appellant has further contended that the' above parties had defaulted in not paying V AT into the government treasury which does not mean that the purchases from these parties were bogus, since the parties could have given false statement to save them from the action of the Sales Tax Department. In the case of CIT Vs Smith P Seth the Court held that not the entire purchase price but only the profit element embedded in such purchases should be added to the income of the assessee. After considering remand report the CIT(A) observed that since the AO has not found any fault with the quantitative information of purchases and sales submitted by assessee, AO cannot accept only sales by ignoring the other limb of purchases. In view of this finding the CIT(A) had restricted addition on net purchases by estimating additional gross profit of 15 on such net purchases. Accordingly, we do not find any infirmity in this order of CIT(A) for deleting the addition made on account of bogus purchases after upholding addition of 15 gross profit on such net bogus purchases amounting to Rs.43,52,417/-.


IN INCOME TAX APPELLATE TRIBUNAL J BENCH, MUMBAI BEFORE SHRI R.C. SHARMA, AM AND SHRI SANDEEP GOSAIN, JM I.T.A. No.6134 /Mum/2014 ( Assessment Year: 2009-10) M/s. Jai Hind Paper Mart Income Tax Officer 14(2)(3), 186, Hiramanek Bldg, 3rd Floor, Earnest House Dadiseth agiary Lane, Nariman Point, Chira Bazar, Vs. Mumbai-400 021. Mumbai-400 002. PAN/GIR No. AAAFJ3532E ( Appellant) : ( Respondent) I.T.A. No.6144 /Mum/2014 ( Assessment Year: 2009-10) Income Tax Officer 14(2)(3), M/s. Jai Hind Paper Mart 3rd Floor, Earnest House 186, Hiramanek Bldg, Nariman Point, Dadiseth agiary Lane, Mumbai-400 021. Vs. Chira Bazar, Mumbai-400 002. PAN/GIR No. AAAFJ3532E (Appellant) : ( Respondent) Appellant by : Shri Ratan Samul Respondent by : Shri K. Ravi Kiran : 13/07/2016 Date of Hearing : 28/09/2016 Date of Pronouncement 2 ITA No.6134&6144/M/2014 (A.Y. 2009-10) M/s. Jai Hind Paper Mart O R D E R Per R.C. SHARMA, A. M.: These are cross appeals filed by revenue and Assessee are directed against Order by Commissioner of Income Tax (Appeals)- 25, Mumbai ( CIT(A) for short) dated 01.07.2014 for assessment year (A.Y.) 2009-10. assessee has taken following grounds in its appeal:- 1. Learned CIT(Appeal) erred in partly confirming additions made by AO to extent of Rs.43,52,417/- and erred in treating same as unexplained expenditure. However, revenue is aggrieved for deleting addition of Rs.4,98,89,200/- out of bogus purchases. 3. Rival contentions have been heard and record perused. Facts in brief are that assessee filed return of income for A.Y. 2009-10 on 29.09.2009 declaring total income of Rs.5,90,910/-. return was processed u/s 143(1). case was re- opened on basis of information received from investigation wing based on investigation carried out by Sales Tax Authorities. Sales Tax Authorities had identified bogus billers/accommodation entry providers and recorded their statements, and list of such bogus billers and concerned beneficiaries having utilized their services had been prepared and forward to Department. As case of assessee appeared in list as beneficiary, case of assessee was re- 3 ITA No.6134&6144/M/2014 (A.Y. 2009-10) M/s. Jai Hind Paper Mart opened by issue of Notice u/s 148 dated 28.03.2013. AO has made addition of peak credit at Rs.5,42,41,617/- on account of purchases from alleged parties. By impugned order CIT(A) confirmed addition of Rs.43,52,417/- after observing as follows: 4.6. 1 have perused assessment order, remand report, submissions of appellant, and facts and circumstance of case. On careful examination of same, I observe as under: (i ) T he addit ion has been made on basi s of i nformati on recei ved from Investigation wing based on investigation carried out by Sales Tax Authorities. notices issued u1s133(6) could not be served to two parties. However, appellant on its part has produced ledger account, bills/tax invoices issued by said parties, and bank statements showing that payments have been made through banking channel. There is no evidence on record to prove that any part of cash has flown back to appellant. In above context, I find that in case of CIT vs. Kashirarn Taxtiles Mills (P.) Ltd. [2007] 284 ITR 61(Guj.) relied upon by appellant, it was held that there was no evidence to show that part of amount paid to suppliers had come back to assessee and therefore also there was no case for any addition in respect of such purchases. Similarly, in case of CIT vs. Nangalia Fabrics Pvt. Ltd., Tax Appeal No. 689 of 2010 (Guj. High Court) relied upon by appellant, it was observed that addition had been made only on ground that parties were not traceable, and it was found that assessee had made payment through crossed cheque and Assessing Officer did not find that payment made came back to assessee, hence additions was deleted relying upon case of Kashiram Textiles Mills (P.) Ltd. I also find that in case of CIT vs. M.K. Brothers 11987] 163 ITR 249 (Guj), assessee made certain purchases from some parties and made payment through cheques, and ITO found that parties were not available for cross examination, and hence ITO held those transactions to be bogus and added back purchases to income of assessee. Hon'ble Gujarat High Court held that Tribunal was justified in deleting addition on ground that there was no evidence to show that vouchers given by those parties to assessee were bogus or 4 ITA No.6134&6144/M/2014 (A.Y. 2009-10) M/s. Jai Hind Paper Mart that of those payment came back to assessee. I further find that in recent decision pronounced by Hon'ble ITAT, Mumbai on 1 st October, 2013, in case of Parmit Textiles vs. ITO (ITA Nos. 4012 to 4015 and 4020 to 4021/Mum/2012 Hon'ble ITAT, Mumbai observed that there was no material on record to say that purchases made by assessee was bogus except general statement recorded by Department in case of Shri Rakesh Kumar Gupta, which was later on retracted. Hon .ble ITAT held that in absence of any adverse material brought on record, addition made in case of assessee will be based on presumption only and it cannot be sustained in eyes of law. (ii) appellant has submitted during assessment proceedings combine stock statement of inward/outward. In remand report, AO has admitted that assessee had submitted ledger account of parties and combined stock movement of inwards/ outwards, and that sales were not suspected. appellant has contended that books of accounts as well as sales have not been doubted by AO, and hence, purchases are deemed to be genuine. If purchases from two parties are considered as bogus then sales made to them out of purchases ought to be deducted accordingly. I find said contention of appellant not without merit, since AO has not found any fault with quantitative information of purchases and sales submitted by appellant, and A.O. cannot accept one limb while ignore other. I find that in case of CIT vs. Nikunj Exirnp Enterprises (P.) Ltd. [2013] 216 Taxrnan 171 (Born.), jurisdictional Hon'ble High COUl1 of Bombay held that where sales supported purchases and payment was made through banks, merely because suppliers had not appeared before AO, purchases could not be rejected as bogus. (iii) appellant has contended that Sales Tax Department had disallowed claim of input tax credit in hands of purchaser, and Hon'ble High Court of Bombay in case of M/s Mahalaxrni Cotton Ginning Pressing Industries (51 VST 1) has directed authorities to pursue recoveries against defaulting selling dealers. appellant has further contended that the' above parties had defaulted in not paying V AT into government treasury which does not mean that purchases from these parties were bogus, since parties could have given false statement to save them from action of Sales Tax Department. I find that AO cannot make any addition just on basis of presumption. 5 ITA No.6134&6144/M/2014 (A.Y. 2009-10) M/s. Jai Hind Paper Mart Suspicion, however strong cannot take place of proof. This principle is reflected in following judicial pronouncements: Umacharan Shaw & Bros v. CIT (37 ITR 271) (SC) Dhakeshwari Cotton Mills v. CIT (26 ITR 775) (SC) SheoNarain DuliChand v. CIT (72 ITR 766)(All.) iv) Under Income Income Tax Act, 1961 what can be taxed is real income. Even though transaction is not verifiable, what is taxable is income component, and not entire transaction amount. It is quite possible that appellant would have made purchases from open market without insisting for genuine bills, as suppliers would be willing to sell those products at much lower rate as compared to rate at which they might charge in case dealer has to give genuine sale invoice. To cover up such purchases in open market, appellant might have taken hawala sale bills from alleged parties. I further find that in many such cases, additions are made based on G.P.IN.P. ratio. In present case of appellant, in fact AO himself has not ruled out possibility of appellant having to buy these goods from open market and requiring to make payments in cash to these parties, and in fact addition has been made on this presumption by calculating peak credit from ledger account accounts of alleged parties. In such situation, even assuming that appellant might have purchased goods by investing unaccounted cash, still it is undisputed that sale proceeds of goods have been duly accounted for in books and offered to tax. Hence, addition of entire purchase amount cannot be made in present case. Rather, cause of justice would be met by making addition of reasonable percentage of such purchases in order to fulfill gap of any revenue leakage in aforesaid circumstances. In case of CIT Vs Smith P Seth (356 ITR 451) (Guj) Court held that not entire purchase price but only profit element embedded in such purchases should be added to income of assessee. estimation of rate of profit may vary no uniform yardstick could be adopted. Court did not interfere regarding profit @12,5% estimated by Hon'ble ITAT. appellant also relied on decisions of CIT(A)-35, Mumbai in cases of Shri Vijay Bhogilal Shah [Appeal No.CIT(A)-35/ACIT-25(2)/ITA- 236/12-13]dated 16-01- 2014],in case of Shri Nipun Ishwardas Thakkar,[Appeal No.CIT(A)-35/ACIT- 25(1)/ITA-81/13-14 dt.10-02-2014] and in case of M/s. Prathmesh Realtors,[Appeal No.CIT(A)-35/ITO- 25(2)(2)/ITA-51/13-14 dt.14-02-2014] in similar and identical issues has adopted GP @ 15% of alleged purchases made by appellant. In case of Kachwala Gems vs. Joint Commissioner of Income Tax 6 ITA No.6134&6144/M/2014 (A.Y. 2009-10) M/s. Jai Hind Paper Mart [2007] 288 ITR 10 (SC) it has been held as under :- It is well settled that in best judgment assessment there is always certain degree of guess work. No doubt authorities concerned should make honest and fair estimate of income even in best judgment assessment, and should not act arbitrarily. In view of above facts and circumstances of case, I am of view that in present case, estimate of G.P. @ 15% earned on corresponding sales against alleged purchases of fill in gap of any revenue leakage in aforesaid circumstances would meet justice. disallowance of 15% of alleged purchases (vide4.5) amounting to Rs.2,90,16,119/- is Rs.43,52,417/- only. Accordingly, I confirm addition to extent Rs.43,52,417/- of alleged purchases and delete balance addition of Rs.5,42,41,617/- -- Rs.43,52,417/- = Rs.4,98,89,200/-. Therefore, this ground of appeal is partly allowed. 4. Against above order of CIT(A), both assessee and revenue are in further appeal before us. We have considered rival contentions and found that CIT(A) has restricted addition to extent of 15% on net bogus purchases, on plea that assessee has earned additional G.P. @15% on corresponding sales against alleged purchases. 5. We have considered rival contentions and gone through orders of authorities below and found from record that during year under consideration assessee had shown total turnover of Rs.22.94 crores on which GP 3.64% was shown. GP shown during year was better than GP shown by assessee in AY 2008-09 at 3.11%. CIT(A) has called for remand report wherein AO has observed that assessee has produced ledger account, bills/tax invoices issued by said parties, and bank statements showing that payments have been 7 ITA No.6134&6144/M/2014 (A.Y. 2009-10) M/s. Jai Hind Paper Mart made through banking channel. There is no evidence on record to prove that any part of cash has flown back to assessee. 6. We found that in remand report AO has admitted that assessee had submitted ledger account of parties and combined stock movement of inwards/outwards, and that sales were not suspected. After considering remand report CIT(A) observed that since AO has not found any fault with quantitative information of purchases and sales submitted by assessee, AO cannot accept only sales by ignoring other limb of purchases. In view of this finding CIT(A) had restricted addition on net purchases by estimating additional gross profit of 15% on such net purchases. Detailed findings recorded by CIT(A) after considering remand report have not been controverted by department by brining any positive material on record. Accordingly, we do not find any infirmity in this order of CIT(A) for deleting addition made on account of bogus purchases after upholding addition of 15% gross profit on such net bogus purchases amounting to Rs.43,52,417/-. 7. In result, both appeals of assessee and revenue are dismissed. Order pronounced in open court on 28/09/2016 Sd/- sd/- (SANDEEP GOSAIN) (R.C. SHARMA) Judicial Member Accountant Member Mumbai; Dated : 28.09.2016 8 ITA No.6134&6144/M/2014 (A.Y. 2009-10) M/s. Jai Hind Paper Mart Ps. Ashwini Copy of Order forwarded to : 1. Appellant 2. Respondent 3. CIT(A) 4. CIT - concerned 5. DR, ITAT, Mumbai 6. Guard File BY ORDER, (Dy./Asstt. Registrar) ITAT, Mumbai M/s. Jai Hind Paper Mart v. Income Tax Officer 14(2)(3), Mumbai
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