Pr. Commissioner of Income-tax-15, Mumbai v. Jakharia Fabric Pvt. Ltd
[Citation -2020-LL-0210-90]

Citation 2020-LL-0210-90
Appellant Name Pr. Commissioner of Income-tax-15, Mumbai
Respondent Name Jakharia Fabric Pvt. Ltd.
Court HIGH COURT OF BOMBAY
Relevant Act Income-tax
Date of Order 10/02/2020
Assessment Year 2010-11
Judgment View Judgment
Keyword Tags documentary evidence • investigation wing • total purchases • bogus purchase • profit margin • bogus parties • bogus bills • hawala
Bot Summary: In the assessment proceedings for the assessment year 2010-11 Assessing Officer received information from the Investigation Wing of the Income Tax Department in Mumbai that assessee had obtained bogus purchase bills amounting to Rs.1,14,92,970. On due consideration, Assessing Officer vide his assessment order dated 2nd March, 2013 passed under Section 143(3) of the Act treated the aforesaid amount as bogus purchases being made to reduce the profit of the assessee by inflating the purchases. The Ld.CIT took a reasonable view whereby the disallowance was sustained to the extent of estimated inflation in the amount of purchases made by the assessee. Thus, from the above, it is seen that Tribunal had returned a finding of fact that the assessee had filed copies of purchase bills, copies of purchase/ sale invoices, challan cum tax invoices in respect of the purchases, extracts of stock ledger showing entry/exit of the materials purchased, copies of bank statements to show that payment for such purchases were made through regular banking channels, etc. Thereafter, Tribunal held that Assessing Officer could not bring on record any material evidence to show that the purchases were bogus. 00 but having found that the purchases corresponded to sales which were reflected in the returns of the assessee in sales tax proceedings and in addition, were also recorded in the books of accounts with payments made through account payee cheques, ::: Uploaded on - 03/03/2020 ::: Downloaded on - 04/09/2020 11:27:45 ::: Priya Soparkar 10 10 itxa 1354-17-o the purchases were accepted by the two appellate authorities and following judicial dictum decided to add the profit percentage on such purchases to the income of the assessee. Considering the fact situation, Tribunal was of the opinion that not the entire amount of purchases but the profit margin embedded in such amount would be subjected to tax.


Priya Soparkar 1 10 itxa 1354-17-o IN HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL (IT) NO.1354 OF 2017 Pr. Commissioner of Income Tax-15, Mumbai. Appellant V/s. Jakharia Fabric Pvt. Ltd. Respondent Mr.Akhileshwar Sharma, Advocate for Appellant. Mr.M.Subramanian i/by Mr.V.S.Hadade, Advocate for Respondent. --- CORAM : UJJAL BHUYAN & MILIND N. JADHAV, JJ. DATE : FEBRUARY 10, 2020 P.C.:- 1. Heard Mr.Akhileshwar Sharma, learned standing counsel Revenue for appellant; and Mr.M.Subramanian alongwith Mr.V.S.Hadade , learned counsel for respondent/assessee. 2. This appeal has been preferred by Revenue under Section 260A of Income Tax Act, 1961 (briefly Act hereinafter) against order dated 21 st September, 2016 passed by Income Tax Appellate Tribunal, Mumbai Bench "J", Mumbai ( Tribunal for short) in Income Tax Appeal No.6851/Mum/2014 for assessment year 2010-11. 3. appeal has been preferred on following questions stated to be substantial questions of law:- ::: Uploaded on - 03/03/2020 ::: Downloaded on - 04/09/2020 11:27:45 ::: Priya Soparkar 2 10 itxa 1354-17-o (i) Whether on facts and in circumstances of case, Tribunal was correct in law in confirming order of Commissioner of Income-tax (Appeals) restricting disallowance to only 17.5% of total alleged bogus purchase of Rs.1,14,92,970/- ignoring fact that said seller parties were found to be Hawala operators/bogus billers as per findings given by Sales Tax Department, Government of Maharashtra and Investigation Wing of Income Tax Department ? (ii) Whether on facts and in circumstances of case, Tribunal was correct in law in confirming order of Commissioner of Income-tax (Appeals) restricting disallowance to only 17.5% of total alleged bogus purchase of Rs.1,14,92,970/-, ignoring fact that assessee had neither filed any documentary evidence nor confirmation for purchase nor produced any evidence in form of stock register during course of assessment proceedings to substantiate its claim that goods claimed to have been purchased from alleged parties were actually consumed/sold? (iii) Whether on facts and in circumstances of case, Tribunal was correct in law in relying upon decision of CIT Vs.Nikunj Eximp Enterprises Pvt. Ltd. 372 ITR 612 case ignoring that facts of said case are distinguishable from facts of present case, as in that case it was held that material was actually purchased from defence organisation and so cannot be treated as bogus whereas alleged purchases in present case is from private parties who are found to be Hawala operators/bogus billers as per findings given by Sales Tax Department, Government of Maharashtra? (iv) Whether on facts and in circumstances of case, Tribunal was correct in law in confirming order of Commissioner of Income-tax (Appeals) restricting disallowance to only 17.5% of total alleged bogus purchases ignoring decision of ::: Uploaded on - 03/03/2020 ::: Downloaded on - 04/09/2020 11:27:45 ::: Priya Soparkar 3 10 itxa 1354-17-o Delhi High Court in case of La Medica 250 ITR 575 (2001) wherein it is held that purchases from unproven parties is bogus and decision of Gujarat High Court in Hynoup Foods & Oil Industries Pvt. Ltd. 290 ITR 702 (Guj) wherein it is held that provisions of Section 40A(3) of Income Tax Act, 1961 were applicable to cases of bogus purchase? " 4. Respondent (also referred to as assessee ), is assessee under Act. It is company engaged in business of trading in job work of dying of fabrics. In assessment proceedings for assessment year 2010-11 Assessing Officer received information from Investigation Wing of Income Tax Department in Mumbai that assessee had obtained bogus purchase bills amounting to Rs.1,14,92,970.00 from hawala operators, details of which are as under :- Hawala Name Hawala PAN FY Amount Rs. EVERREADY AACCE2069E 2009-10 1,41,960 MARKETING PRIVATE LIMITED SAILEELA TRADING AAKCS4578C 2009-10 22,21,232 PVT LTD ASHLEY TRADERS AAHCA8221H 2009-10 5,17,556 PRIVATE LIMITED KALPATARU AICPD6505H 2009-10 38,26,122 TRADING CO. K C ENTERPRISES AJWPD9140R 2009-10 26,46,092 DEEPALI AEAPT818P 2009-10 6,35,830 ENTERPRISES CIMCO 2009-10 2,11,744 CORPORATION SEVA ENTERPRISES AEZPT9865R 2009-10 12,92,434 Total 1,14,92,970 ::: Uploaded on - 03/03/2020 ::: Downloaded on - 04/09/2020 11:27:45 ::: Priya Soparkar 4 10 itxa 1354-17-o 5. Following same, notice under Section 142(1) of Act was issued to assessee in response to which assessee submitted show cause reply denying allegation. On due consideration, Assessing Officer vide his assessment order dated 2nd March, 2013 passed under Section 143(3) of Act treated aforesaid amount as bogus purchases being made to reduce profit of assessee by inflating purchases. Accordingly, amount of Rs.1,14,92,970.00 was added to total income of assessee. 6. Assessee preferred appeal before Commissioner of Income Tax (Appeals)-22, Mumbai (briefly referred to hereinafter as CIT (A) ) 7. In appellate proceedings, CIT(A) while accepting contention of Assessing Officer about bogus nature of transactions however held that entire purchases from eight parties could not be added as bogus, but what needed to be taxed is profit element embedded in such transaction. Following Gujarat High Court decision in case of CIT Vs. Simit P. Sheth, 356 ITR 451 (Guj), CIT(A) vide its appellate order dated 18 th August, 2014 took view that estimation of 17.5% of profit would meet ends of justice. Accordingly, direction was issued to Assessing Officer. 8. In appeal before Tribunal by Revenue, Tribunal held that there was no reason to intervene in finding of CIT(A) which was reasonable view. Accordingly, vide ::: Uploaded on - 03/03/2020 ::: Downloaded on - 04/09/2020 11:27:45 ::: Priya Soparkar 5 10 itxa 1354-17-o order dated 21st September, 2016, Tribunal affirmed findings of CIT(A). 9. Hence, Revenue is in further appeal before us under Section 260-A of Act. 10. Submissions made have been considered. 11. In assessment proceedings Assessing Officer had relied upon information obtained from Investigation Wing of Department at Mumbai which in turn had obtained information from Sales Tax Department, Government of Maharashtra. information was to effect that eight parties from whom purchases were allegedly made were alleged hawala dealers who had issued bogus bills totalling Rs.1,14,92,970.00. 12. In appellate proceedings before first appellate authority, it was held as under :- 2.15 facts in present case shows that appellant was not in position to prove existence of suppliers. suppliers were found to be engaged in providing bogus bills without actual delivery of goods. Moreover few of suppliers are not regular parties and they were found to have supplied only during year 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 of finding of Hon ble High Court of Gujarat 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 ::: Uploaded on - 03/03/2020 ::: Downloaded on - 04/09/2020 11:27:45 ::: Priya Soparkar 6 10 itxa 1354-17-o 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 8 parties as accommodation to explain purchases. 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 carryout only job work of dying cloths on contract basis. Estimation ranging from 12.5% to 25% has been upheld by Hon ble Gujarat High Court depending upon nature of business. As held in case of Simit P. Sheth (supra) no uniform yardstick 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.20,11,270(17.5% of Rs.1,14,92,970/-). appellant get relief of balance Rs.94,81,700/-. grounds raised are partly Allowed. 13. Thus as can be seen from above, CIT (A) had relied upon decision of Gujarat High Court in Simit P. Sheth (Supra) and took view that entire purchases from eight parties could not be added as bogus but what needed to be added to total income of assessee was profit element embedded in such transaction. CIT (A) noted that assessee carried out only job work of designing clothes on contract basis; profit estimation ranged from 12.5% to 25%. In circumstances of case, CIT(A) took view that taking of 17.5% as profit would meet ::: Uploaded on - 03/03/2020 ::: Downloaded on - 04/09/2020 11:27:45 ::: Priya Soparkar 7 10 itxa 1354-17-o ends of justice. Accordingly, Assessing Officer was directed to estimate profit of 17.5% on total alleged bogus purchases and thereafter, to delete balance amount of addition. 14. In further appeal Tribunal referred to above finding of CIT(A), whereafter it was held as under:- 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 judgment 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. 15. Thus, Tribunal concurred with view taken by CIT(A) that Assessing Officer had erred in disallowing entire total purchases and adding same to total income of assessee. View taken by CIT(A) that 17.5% of purchases be added to total income of assessee as profit element was reasonable one. It was also noted that said percentage was accepted by ::: Uploaded on - 03/03/2020 ::: Downloaded on - 04/09/2020 11:27:45 ::: Priya Soparkar 8 10 itxa 1354-17-o assessee with view to close litigation. Nothing was brought on record by Revenue to contradict findings recorded by CIT(A). Tribunal had also referred to decision of this court in CIT Vs. Nikunj Eximp Enterprises Pvt. Ltd. 372 ITR 6129. Infact, this court has also held following decision of Nikunj Eximp Enterprises Pvt. Ltd. that revenue is required to furnish information received from Sales Tax Department or from Investigation Wing of Department to assessee allowing assessee to test veracity of such information otherwise such information could not be relied upon. This court in case of Principal Commissioner of Income Tax Vs. Vaman International Pvt. Ltd., Income Tax Appeal No.1940 of 2017, decided on January 29, 2020 held as under:- 17.1. Thus, from above, it is seen that Tribunal had returned finding of fact that assessee had filed copies of purchase bills, copies of purchase/ sale invoices, challan cum tax invoices in respect of purchases, extracts of stock ledger showing entry/exit of materials purchased, copies of bank statements to show that payment for such purchases were made through regular banking channels, etc., to establish genuineness of purchases. Thereafter, Tribunal held that Assessing Officer could not bring on record any material evidence to show that purchases were bogus. Mere reliance by Assessing Officer on information obtained from Sales Tax Department or statements of two persons made before Sales Tax Department would not be sufficient to treat purchases as bogus and thereafter to make addition under Section 69C of Act. Tribunal has also held that if Assessing Officer had doubted genuineness of purchases, it was incumbent ::: Uploaded on - 03/03/2020 ::: Downloaded on - 04/09/2020 11:27:45 ::: Priya Soparkar 9 10 itxa 1354-17-o upon Assessing Officer to have caused further enquiries in matter to ascertain genuineness or otherwise of transaction and to have given opportunity to assessee to examine/cross- examine those two parties vis-a-vis statements made by them before Sales Tax Department. Without causing such further enquiries in respect of purchases, it was not open to Assessing Officer to make addition under Section 69C of Act. 18. We are in agreement with view expressed by Tribunal. In fact, Tribunal has only affirmed finding of first appellate authority. Thus, there is concurrent finding of fact by two lower appellate authorities. 19. This Court in case of Commissioner of Income Tax -1, Mumbai v/s. Nikunj Eximp Enterprises(P.) Ltd., 372 ITR 619; wherein identical fact situation arose did not interfere with order passed by Tribunal and held that no substantial question of law arose from such order. It was held that merely because suppliers had not appeared before Assessing Officer, no conclusion could be arrived at that purchases were not made by assessee. 16. Today while dealing with Income Tax Appeal No.1330 of 2017 (Principal Commissioner of Income Tax Vs. Rishabhdev Tachnocable Limited), we have held as under: 19. On thorough consideration of matter, we do not find any error or infirmity in view taken by Tribunal. lower appellate authorities had enhanced quantum of purchases much beyond that of Assessing Officer i.e., from Rs.24,18,06,385.00 to Rs.65,65,30,470.00 but having found that purchases corresponded to sales which were reflected in returns of assessee in sales tax proceedings and in addition, were also recorded in books of accounts with payments made through account payee cheques, ::: Uploaded on - 03/03/2020 ::: Downloaded on - 04/09/2020 11:27:45 ::: Priya Soparkar 10 10 itxa 1354-17-o purchases were accepted by two appellate authorities and following judicial dictum decided to add profit percentage on such purchases to income of assessee. While CIT (A) had assessed profit at 2% which was added to income of assessee, Tribunal made further addition of 3% profit, thereby protecting interest of Revenue. We have also considered two decisions relied upon by learned standing counsel and we find that facts of present case are clearly distinguishable from facts of those two cases to warrant application of legal principles enunciated in two cited decisions. 20. In Bholanath Polyfab Limited (supra), Gujarat High Court was also confronted with similar issue. In that case Tribunal was of opinion that purchases might have been made from bogus parties but purchases themselves were not bogus. Considering fact situation, Tribunal was of opinion that not entire amount of purchases but profit margin embedded in such amount would be subjected to tax. Gujarat High Court upheld finding of Tribunal. It was held that whether purchases were bogus or whether parties from whom such purchases were allegedly made were bogus was essentially question of fact. When Tribunal had concluded that assessee did make purchase, as natural corollary not entire amount covered by such purchase but profit element embedded therein would be subject to tax. 21. We are in respectful agreement with view expressed by Gujarat High Court. 16. On thorough consideration of matter, we do not find any error or infirmity in finding returned by Tribunal. No substantial question of law arises from such finding returned by Tribunal. ::: Uploaded on - 03/03/2020 ::: Downloaded on - 04/09/2020 11:27:45 ::: Priya Soparkar 11 10 itxa 1354-17-o 17. Consequently, we find no merit in appeal. Accordingly, appeal is dismissed. However, there shall be no order as to cost. (MILIND N. JADHAV, J.) (UJJAL BHUYAN, J.) . ::: Uploaded on - 03/03/2020 ::: Downloaded on - 04/09/2020 11:27:45 ::: Pr. Commissioner of Income-tax-15, Mumbai v. Jakharia Fabric Pvt. Ltd
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