IN INCOME TAX APPELLATE TRIBUNAL "F" Bench, Mumbai Before Shri Jason P. Boaz, Accountant Member and Shri Sandeep Gosain, Judicial Member ITA No. 7723/Mum/2014 (Assessment Year: 2010-11) Shri Vinod S. Deora DCIT, 24(2) Now 30(3) G-507, Sonmarg C-13, Room No. 601, 6th Floor Vs. S.V. Road, Malad (W) Pratyakshakar Bhavan Mumbai 400064 Bandra (E), Mumbai 400051 PAN - AAAPD4566E Appellant Respondent ITA No. 7251/Mum/2014 (Assessment Year: 2010-11) DCIT, 24(2) Now 30(3) Shri Vinod S. Deora C-13, Room No. 601, 6 th Floor G-507, Sonmarg Vs. Pratyakshakar Bhavan S.V. Road, Malad (W) Bandra (E), Mumbai 400051 Mumbai 400064 PAN - AAAPD4566E Appellant Respondent Appellant by: Shri Haresh P. Shah Respondent by: Shri Rajneesh K. Arvind Date of Hearing: 19.09.2016 Date of Pronouncement: 05.10.2016 ORDER Per Jason P. Boaz, A.M. These are cross appeals, one by Revenue and other by assessee, directed against order of CIT(A)-34, Mumbai dated 09.10.2014 for A.Y. 2010-11. 2. facts of case, briefly, are as under: - 2.1 assessee, Prop. of M/s. S.R. International and engaged in business of trading in licences and earning salary from M/s. Guruashish Exim Pvt. Ltd., filed his return of income for A.Y. 2010-11 on 30.09.2010 declaring total income of `22,87,440/-. return was processed under 2 ITA Nos. 7723&7251/Mum/2014 Shri Vinod S. Deora section 143(1) of Income Tax Act, 1961 (in short 'the Act') and case was subsequently taken up for scrutiny. In course of assessment proceedings, Assessing Officer (AO) records that information was received from Sales Tax authorities (Government of Maharashtra) that assessee is beneficiary of transactions made by M/s. Crystal Enterprises and M/s. Induja Traders Pvt. Ltd., firms engaged in business of issue of bills without delivery of materials; to extent of `44,67,716/- and `25,93,040/- respectively. AO required assessee to produce these parties alongwith all relevant documents to establish genuineness of aforesaid transactions. assessee expressed his inability to produce these two parties, but however, submitted Xerox copies of purchase bills, sale bills, bank statements indicating payments made and copies of ledger accounts of these two parties as appearing in its books. assessee contended before AO that there is no case of bogus purchases and that aforesaid documentary evidence established that said purchases amounting to `70,60,756/- from these two parties was genuine. explanation put forth by assessee did not find favour with AO who was of view that inability of assessee to produce these two parties before him, coupled with information from Sales Tax authorities made it clear that transactions with aforesaid two parties viz., M/s. Crystal Enterprises and M/s. Induja Traders Pvt. Ltd. were not genuine and were only accommodation entries and therefore furnishing of purchase bills in this regard would not suffice. Relying on statement of Shri Ramachandra Kore of M/s. Crystal Enterprises given before Sales Tax authorities on 01.03.2012 by way of affidavit; which AO felt was ample evidence to disprove claim of genuine purchases made by assessee, AO disallowed said purchases amounting to `70,60,756/- under section 40A(3) of Act. Apart from this, AO also made disallowance of personal expenses - `56,638/- and `6,908/- under section 14A of Act. assessment was accordingly completed under section 143(3) of Act vide order dated 14.03.2013. 2.2 Aggrieved by order of assessment dated 14.03.2013 for A.Y. 2010-11, assessee preferred appeal before CIT(A)-34, Mumbai. 3 ITA Nos. 7723&7251/Mum/2014 Shri Vinod S. Deora learned CIT(A) disposed off appeal vide impugned order dated 09.10.2014 allowing assessee partial relief of `52,95,567/- and confirmed disallowance only to extent of 25% of value of purchases, i.e. `17,65,189/- out of `70,60,756/- and holding that correct section under which disallowance ought to be made was 69C of Act. 3. Both Revenue and assessee, being aggrieved by order of CIT(A)-34, Mumbai dated 27.09.2014 for A.Y. 2010-11 to extent same is against them, have preferred appeals raising following grounds: - 3.1 Grounds raised by Revenue 1. On facts and in circumstances of case and in law, Ld. CIT(A) erred in deleting addition of Rs.70,60,756/- made under section 40A(3) of Act on account of non-genuine purchases from M/s. Crystal Enterprises and M/s. Induja Traders Pvt. Ltd. and directing disallowance at 25% of alleged purchases of Rs.70,60,756/- ignoring fact that these two parties are included in list of suspicious and/or hawala dealers provided by Sales Tax Department. 2. On facts and in circumstances of case and in law, Ld. CIT(A) erred in deleting additions of Rs.44,67,716/- and Rs.25,93,040/- made on account of purchases made from M/s. Crystal Enterprises and M/s. Induja Traders Pvt. Ltd. and directing disallowance at 25% of alleged purchases of Rs.70,60,756/- ignoring fact that Sales Tax Commissioner has recorded statement of Shri Sanjay Ramchandra Kore by way of affidavit that these dealers are engaged in business of issue of bills without physical delivery of materials. 3. On facts and in circumstances of case and in law, Ld. CIT(A) erred in deleting addition of Rs.70,60,756/- made under section 40A(3) of Act on account of non-genuine purchases from M/s. Crystal Enterprises and M/s. Induja Traders Pvt. Ltd. and directing disallowance at 25% of alleged purchases of Rs.70,60,756/- without giving any findings with regard to genuineness of claim of assessee. 4. On facts and in circumstances of case and in law, Ld. C.I.T. (A) erred in deleting additions of Rs.44,67,716/ and Rs.25,93,040/- made on account of purchases made from M/s. Crystal Enterprises and M/s. lnduja Traders Pvt. Ltd. and directing disallowance at 25% of alleged purchases of 4 ITA Nos. 7723&7251/Mum/2014 Shri Vinod S. Deora Rs.70,60,756/- ignoring fact that onus lies on assessee to produce concerned parties which assessee failed to do. 5. On facts and in circumstances of case, Ld. C.I.T.(A) erred in deleting additions relying on Hon'ble Bombay High Court's decision in case of CIT vs. Nikunj Eximp Enterprisers P. Ltd.(2013) 216 Taxman 171 without appreciating fact that assessee's case is entirely different from facts of Nikunj Eximp case whereas in assessee's case Sales Tax Department has carried out investigation and established that purchases are not genuine and that is not in Nikunj Eximp case. appellant prays that order of CIT(A) be set aside and matter may be decided according to law. appellant craves leave to amend or alter any ground or add new ground which may be necessary. 3.2 Grounds raised by assessee 1. Ld. CIT(A) erred in conforming disallowance of 25% of alleged purchases of Rs.70,60,756/- i.e. Rs.17,65,189/- [Order Page No. 8 - para (iv)] instead of allowing/ deleting entire addition of `70,60,756 as explained in written submission & paper book. 2. Without Prejudice to above, AO inferred in his order that Purchases of Rs.70,60,756 is in cash (inspite of cogent evidence of payment by A/C. Payee cheques) & disallowed U/S. 40A(3) which was corrected by Ld. CIT(A) to Section 69C as Unexplained Expenditure ignoring fact it was explained & further there was corresponding Sales of goods (i.e. Licences) is also wrong. 3. WIHTOU PREJUDICE TO ABOVE, Ld. CIT(A) stated on page 8 para (iv) as under: - Hence, addition of entire purchases 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 fulfil gap of any leakage in aforesaid circumstances. I further find that in many such cases, additions are made based on G.P./N.P. ratio. In present case, appellant has shown G.P. of 0.68% & 1.19% on subsequent sale out of purchases from two suspicious dealers, i.e. M/s. Crystal License, & M/S. Induja License respectively. appellant has not shown any comparison of G.P. ratio in respect of purchase/sale from other parties, and also his overall G.P. ratio. Ignoring fact that above details was given in written submission dt. 20.05.2014 Para 25 - WITHOUT PREJUDICE TO ABOVE, Assessing Officer failed to appreciate G.P. Ratio working of transaction which is as under: - 5 ITA Nos. 7723&7251/Mum/2014 Shri Vinod S. Deora PURCHASE SALES PROFIT G.P. RATE Crystal License 44,67,716 44,98,528 30,812 0.68 Induja License 25,93,040 26,24,297 31,257 1.19 70.60,456 71,22,825 62,069 0.87 ======== ======== ====== === overall G.P ratio for whole year is also as under: - A.Y. G.P. 2010-2011 0.76% 2009-2010 0.75% 2008-2009 1.11% 4. Appellant craves leave to add, alter or amend above Grounds of Appeal. 4. Grounds 2 to 4 of assessee s appeal At outset, learned A.R. for assessee submitted that assessee is not pressing grounds raised at S.Nos. 2 to 4 in its appeal. Since grounds at S. Nos. 2 to 4 of assessee appeal (supra) are not being pressed, same are rendered infructuous and are accordingly dismissed. 5. Grounds 1 to 5 of Revenue s appeal Ground No. 1 of assessee s appeal 5.1 only issue for consideration and adjudication before us is with respect to genuineness or otherwise of purchases amounting to `70,60,756/- allegedly made by assessee from M/s. Crystal Enterprises (i.e. `44,67,716/-) and M/s. Induja Traders Pvt. Ltd. (i.e. `25,93,040/-). Revenue challenges impugned order of learned CIT(A) in deleting addition in respect of 75% of aforesaid purchases from these two parties. On other hand, assessee s grievance is that learned CIT(A) ought to have deleted entire addition of `70,60,756/- on account of purchases and erred in confirming same to extent of `17,05,189/-, i.e. 25% of value of said purchases. 5.2 learned D.R. for Revenue was heard and he placed strong reliance on findings rendered by AO in order of assessment on his issue. 5.3.1 learned A.R. for assessee submitted that in impugned order at para 3.3 thereof, learned CIT(A) has observed that addition 6 ITA Nos. 7723&7251/Mum/2014 Shri Vinod S. Deora made by AO was made on basis of information received from Sales Tax authorities and that there was no mention of name of assessee in case on hand therein or in statement/affidavit of persons which is relied on by AO and consequently contended that addition made by AO cannot be sustained as it is based only on presumptions and surmises. It is submitted that assessee had admittedly placed before authorities below copies of purchase bills for purchases from aforesaid two parties (placed at pages 26 to 47 of paper book), bank statements evidencing payments made through banking channels, ledger copies of these two parties in its books of accounts which evidenced genuineness of purchases. It was further contended that there is no evidence with AO to prove that cash has flown back to assessee in these transactions or that bills given to assessee by those two parties were bogus. It was submitted that once purchases and sales are not disputed by authorities below, there was no reason to make addition of entire alleged purchases or sustain part of it. In this regard assessee placed reliance on decision of Hon'ble Bombay High Court in case of Nikunj Eximp Enterprises (P) Ltd. (2013) 216 Taxman 17 (Bom) wherein it was held that where sales supported purchases and payments were through banks, merely because suppliers had not appeared before AO, purchases could not be rejected as bogus. 5.3.2 learned A.R. for assessee further submitted that additions made by AO in cases of some other assessee s on identical reasons; i.e. on basis of statements given by third parties before Sales Tax Department without carrying out any other separate inquiry to establish allegation of bogus purchases, were held to be unjustified by various Coordinate Benches of this Tribunal and deleted. In this regard, learned A.R. placed reliance on, inter alia, following judicial pronouncements of Coordinate Benches: - (i) Ramila Pravin Shah (ITA No. 5246/Mum/2013 dated 05.03.2015) (ii) Ramesh Kumar & Co. (ITA No. 2959/Mum/2014 dated 28.11.2014) (iii) Rajeev G. Kalathil (ITA No. 6727/Mum/2012 dated 02.08.2014) 7 ITA Nos. 7723&7251/Mum/2014 Shri Vinod S. Deora It is submitted that in instant case also AO has made impugned addition on basis of statements given by third parties before Sales Tax Department. 5.4.1 We have heard rival contentions of both parties and perused and carefully considered material on record; including judicial pronouncements cited. assessee, Prop. S.R. International, is engaged in business of trading in licences. AO observed that Sales Tax Department of Government of Maharashtra has listed out names of certain dealers, who were allegedly providing accommodation entries to various parties without doing actual business. AO noticed that assessee had made purchases from two such parties, whose names found place in list given by Sales Tax Department, i.e. M/s. Crystal Enterprises (of `44,67,716/-) and M/s. Induja Traders Pvt. Ltd. (of `25,93,040/-) totalling to `70,60,756/-. AO also placed reliance on statement of third party, Shri Sanjay Ramachandra Kore. Before AO and later before CIT(A), admittedly assessee filed copies of purchase bills, bank statements evidencing payments made for purchase through banking channels and copies of ledger accounts of these two parties appearing in assessee s books of account to show that said purchases were genuine. AO was of view that inability of assessee to produce these two parties before him, coupled with reliance on statement of third party before Sales Tax Department, even though assessee was not named therein; rendered purchases bogus and therefore relying on said statement of third party held said purchases amounting to `70,60,756/- as bogus. 5.4.2 On appeal we find that learned CIT(A) observed that in statement made by third party before Sales Tax Department relied upon by AO to make addition on account of bogus purchases, assessee has not been named and that there being no corroborative evidence to prove that said purchases made from two parties were bogus, addition of bogus purchases made by AO in case on hand was based on presumptions and is not sustainable in eyes of law. 8 ITA Nos. 7723&7251/Mum/2014 Shri Vinod S. Deora It is seen that learned CIT(A) also acknowledged that assessee in its attempt to prove said purchases as genuine had filed copies of purchase bills, bank statements evidencing payment thereof, ledger accounts of these parties in assessee s books of account. We also find that no fault had apparently been found by learned CIT(A) with these purchases as there was no evidence on record to prove that cash in respect of said transaction had flown back to assessee or that vouchers/purchase bills given by these two parties were bogus. Once purchases and sales are not disputed, as in case on hand, there is no reason to make addition of entire alleged purchases. 5.4.3 In case of Shri Ramila Pravin Shah (ITA No. 5246/Mum/2013 dated 05.03.2015), Coordinate Bench of this Tribunal, following decisions of other Coordinate Benches in case of Ramesh Kumar & Co. (supra), held that AO was not justified in making such additions based on statements given by third parties before Sale Tax Department without conducting any further investigation to establish with corroborative evidence that said purchases were bogus. Coordinate Bench in case of Ramila Pravin Shah (supra) in this regard at para 6 and 7 thereof has held as under: - 6. On other hand, Id. AR submitted that additions made in case of some other assesses on identical reasons have been deleted by Co-ordinate Benches of Tribunal in following cases a) Ramesh Kumar and Co V/s ACIT in ITA No.2959/Mum/2014 (AY-2010-11) dated 28.11.2014; b) DCIT V/s Shri Rajeev G Kalathil in ITA No.6727/Mum/2012 (AY- 2009-10) dated 20.8.2014; and c) Shri Ganpatraj Sanghavi V/s ACIT in ITA No. 2826/Mum/2013 (AY-2009-10) dated 5.11.2014 In all above said cases, Co-ordinate Benches of Tribunal has held that AO was not justified in making addition on basis of statements given by third parties before Sales Tax Department, without conducting any other investigation. In instant case also, assessing officer has made impugned addition on basis of statements given by parties before Sales tax department. We notice that ld.CIT(A) has properly analysed facts prevailing in instant case and for sake of convenience, we extract same below:- 9 ITA Nos. 7723&7251/Mum/2014 Shri Vinod S. Deora "5.3.11. I have also gone though judicial pronouncements relied upon by Ld AR and find that facts of above referred judicial pronouncements are similar to present facts of case and, therefore ratio of judgments of above referred two cases are fully applicable in present case. Further, I have also taken into consideration decision of jurisdictional High Court and ITAT i.e. Commissioner of Income Tax - 1 Mumbai Vs Nikunj Eximp Enterprises Pvt, Ltd. Appeal No hA No. 5604 of 2010 (Hon. Mumbai High Court) and Balaji Textile Industries (P) Ltd. Vs Income Tax Officer (1994) 49 lTD (Bom) 177. While in case of Nikunj Eximp Enterprises, Hon'ble Bombay High Court in its latest judgment has held that once Sales are accepted, Purchases cannot be treated as ingenuine in those cases where appellant had submitted all details of purchases and payments were made by cheques, merely because sellers/suppliers could not be produced before A.O. by assessee. Further, I have also gone through judgment in case Balaji Textile Industries (P) Ltd. Vs Income Tax Officer by Hon. ITAT, Mumbai (1994) 49 lTD (BOM) 177 which was made as long back as 1994 and which still holds good in which was held that- "Issuing printed bills for selling textile goods to assessee-company at Bhiwandi was not conclusive proof but it was prima fade proof to arrive to correct conclusion that assessee purchased certain goods from certain parties at Bhiwandi. assessee sold those goods to '5' and adjusted sale proceeds against loan taken by it from that party. assessee's books of account and books of account of '5' in which entries of sale and adjustment were made, could not be discarded merely by saying that they were not genuine entries though neither Assessing Officer nor Commissioner (Appeals) opined anything in respect of those entries. Further, purchase of goods in month of March 1985 did not make any difference. assessee might not have carried on any business activities prior to March 1985, but that did not mean that assessee was not entitled to carry on business activity in March 1985. They could not be compelled to carry on business activity throughout year. There were no good reasons to disbelieve sales made by assessee to 'S'. No sales were likely to be effected if there were no purchases. sale could be made if goods were available with seller. From all these facts on record, reasonable and convincing inference which could be drawn, was that assessee purchased textile goods, sold them and adjusted same towards loan taken by it. Therefore, assessee was entitled to get entire deduction. I have also taken into consideration, G.P Ratio/G.P. Margin of appellant in previous A.Y. as well as subsequent Assessment Year. If addition made by A.O. is accepted, then G.P. Ratio of appellant during present A.Y.will become abnormally high and therefore that is not acceptable because it onus of A.O. by bringing adequate material on record to prove that such high G.P. ratio exists in nature of business carried out by appellant. 10 ITA Nos. 7723&7251/Mum/2014 Shri Vinod S. Deora Further, it has to be appreciated that (i)Payments were through banking channel and by Cheque,(ii) Notices coming back, does not mean , those Parties are bogus, they are just denying their business to avoid sales tax/VAT etc, (iii) Statement by third parties cannot be concluded adversely in isolation and without corroborating evidences against appellant,(iv) No cross examination has been offered by AO to appellant to cross examine relevant parties (who are deemed to be witness or approver being used by AO against appellant) whose name appear in website www.mahavat.gov.in and (v) Failure to produce parties cannot be treated adversely against appellant. In view of facts discussed above as well as binding judicial pronouncements of jurisdictional ITAT Mumbai Bench as well as Hon'ble Mumbai High Court and other legal precedents, addition made by AO amounting to Rs.28,08,071/- cannot be sustained. Accordingly, addition of Rs.28,08,071/- is deleted." 7. Hence, on conspectus of matter, we do not find any infirmity in decision of Id. CIT(A) on this issue. Following aforesaid decision of Coordinate Bench in case of Ramlia Parvin Shah (supra), we hold and direct that addition of `70,60,756/- made by AO (deleted to extent of `52,95,567/- by CIT(A)) is to be deleted in toto. We hold and direct accordingly. Consequently, Revenue s ground raised at S.Nos. 1 to 5 (supra) are dismissed. 5.4.4 After coming to above finding, it is seen that learned CIT(A) noticed that in respect of these transactions, i.e. purchases of `70,60,756/- assessee had shown G.P. of 0.68% on sale of items purchased from M/s. Crystal Enterprises and G.P. of 1.19% on sale of items purchased from M/s. Induja Traders Pvt. Ltd. Stating that, inter alia, assessee had not given his overall G.P. ratio, learned CIT(A) proceeded to hold, on estimate, that 25% of purchases amounting to `70,60,756/- i.e. R.17,65,189/- is to be brought to tax in assessee s hands. We find that this averment of learned CIT(A) to be factually incorrect. From details placed before learned CIT(A) it is seen that assessee vide letter dated 20.05.2014 had infact at page 15 thereof given its own G.P. for last few years as under: - 11 ITA Nos. 7723&7251/Mum/2014 Shri Vinod S. Deora Sr.No. A.Y. Gross Profit (i) 2010-11 0.76% (ii) 2009-10 0.75% (iii) 2008-09 1.11% In our view, when G.P. of assessee from A.Y. 2008-09 to 2010- 11 hovered between 1.11% to 0.76% and G.P. on sale of said purchases is 0.68% and 1.19%, nothing appears abnormally low in G.P. rates. There is no basis whatsoever for learned CIT(A) to have estimated said purchases at `17,65,189/- (i.e. 25% of `70,60,756/-) and neither has learned CIT(A) rendered any cogent reasons for coming to said finding. In our view, learned CIT(A) s estimation that 25% of alleged purchases of `70,60,756/- is profit therefrom, be taxed as income of assessee, is unsustainable and therefore delete same. Consequently, ground No. 1 of assessees appeal is allowed. 6. In result, assessees appeal for A.Y. 2010-11 is allowed and Revenue s cross appeal is dismissed. Order pronounced in open court on 5th October, 2016. Sd/- Sd/- (Sandeep Gosain) (Jason P. Boaz) Judicial Member Accountant Member Mumbai, Dated: 5th October, 2016 Copy to: 1. Appellant 2. Respondent 3. CIT(A) -34, Mumbai 4. CIT - 24, Mumbai 5. DR, F Bench, ITAT, Mumbai By Order //True Copy// Assistant Registrar ITAT, Mumbai Benches, Mumbai n.p. Vinod S. Deora v. DCIT-24(2) Now 30(3), Mumbai