Case Law Details

Case Name : Ashwin Purshotam Bajaj vs. ITO (ITAT Mumbai)
Appeal Number : I.T.A. No. 4736/Mum/2014
Date of Judgement/Order : 14/12/2016
Related Assessment Year : 2010-11
Courts : All ITAT (4266) ITAT Mumbai (1423)

It is observed that the A.O. has made addition of the entire purchases amount to Rs. 1.13 crores by making additions of Rs. 1,31,88,227/- being peak credit payable during the year for purchases to these parties which included balance of Rs.18,43,451/- for purchases made in the earlier year, while the AO has , however , not doubted the sales made by the assessee against these purchases. The assessee has reconciled the quantitative details of the stock reflected in these purchases with quantitative details of stock as per sale invoices.

The A.O. has doubted the purchases from these four alleged accommodation entry providers being hawala dealers as concluded by Sales Tax Department of Government of Maharashtra to be bogus purchases, that these four parties only provided accommodation bills and the goods were never supplied by these parties and the assessee allegedly made purchases from some other parties for which payments were made through undisclosed income.

Thus, the A.O. observed that the assessee has purchased the material from someone else while bogus bills were organized by these hawala dealers, hence, section 69C of the Act was invoked by the AO and additions were made by the AO.

The conclusion of the ld. CIT(A) that the assessee has purchased material from some other dealers but quantitative reconciliation of the stock was duly done by the assessee of the sale and purchase and hence the profit element in this accommodation entries are to be added to the income cannot be faulted .

The ld. CIT(A) restricted the addition by estimating GP ratio of 12.5% of Rs. 1,13,44,778/- being purchases from these alleged four accommodation entry providers. We do not find any infirmity in the well reasoned order of the ld. CIT(A) whereby net profit was estimated which was a reasonable estimation made by learned CIT(A) and we sustain1affirm the order of learned CIT(A).

Relevant Extract of the Judgment

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4. The Brief facts of the case are that the assessee is an individual running a proprietorship firm namely M1s The Shoe Box INC Retail Store of footwear, bags, belts, wallets and leather goods, boutique etc. having shops at Pune, Ahmedabad, Jalandhar and office at Mumbai. It was observed by the A.O. that the assessee had incurred expenditure in terms of purchases of Rs. 4,89,88,555.31 , out of which it was alleged by the AO that purchases of Rs. 1,13,44,77/- was made from the allegedly bogus parties as per information received from Sales Tax Department, Government of Maharashtra , who as per Government of Maharashtra web-site are suspicious parties providing accommodation entries and are thus bogus bill giving entities without doing any business , as detailed hereunder:

S No. Name of parties TIN Financial year Amount
1 Rohit Enterprises 27020680974V 2009-10 Rs. 8,84,584
2 Deep Enterprises 27750595164V -do- Rs. 18,09,710
3 Kwality Enterprises 27790284742V -do- Rs. 60,33,496
4 V3 Enterprises 27860613194V -do- Rs. 26,16,988
Total Rs. 1,13,44,7781/-

The sales tax department conducted independent enquiries in each of the above parties and concluded that these parties were engaged in the business of providing accommodation entries only. The notices were issued by the AO u/s 133(6) of the Act to these four parties which returned back unserved. The assessee was asked by the AO to produce all these parties. The assessee failed to produce these parties before the AO to prove genuineness of the claim. The assessee submitted that the purchases were made through brokers who are now not co-operating with the assessee. The assessee requested that GP ratio be estimated at 46% on these purchases. The assessee also could not offer explanation regarding the source of the said expenditure as well that purchases are genuine. The AO observed that these parties denied to supplying goods as being accommodation entries, hence the AO observed that the human probability is that goods as mentioned in the paper transactions have been purchases by the assessee through an undisclosed entity, whose identity the assessee does not wish to disclosed and also purchases were made from undisclosed source of income. The said unexplained expenditure of Rs. 1,31,88,227/- (being maximum credit balance outstanding in the ledger accounts of the parties, as against purchases of Rs. 1,13,44,778/- from these four parties) was deemed to be the income of the assessee and was added to the income of the assessee u/s 69C of the Act which was alleged to be expended through an undisclosed source of income to carry out purchase from an undisclosed entity, vide assessment order dated 28-03-2013 passed by the AO u/s 143(3) of the Act.

Aggrieved by the assessment order dated 28.03.2013 passed by the A.O. u/s 143(3) of the Act, the assessee filed first appeal before the ld. CIT(A).

The ld. CIT(A) after considering the submissions of the assessee came to the conclusion that quantitative details were maintained and the assessee being a trader of goods, the A.O. has not doubted the genuineness of sales, could not have gone ahead and made addition in respect of maximum credit balance of purchases especially when the A.O. himself recorded a finding that the assessee made the purchases from some other party. The ld. CIT(A) observed that the element of profit embedded in bogus purchases which the assessee would have made from some unknown entities needs to be computed. It was observed by learned CIT(A) that the purchases made from four parties during the year was Rs. 1,13,44,778 /- on which the GP reflected was 41% as against 46% reflected on over all basis, hence, there was a suppression of GP ratio to the tune of 5%. The learned CIT(A) observed that the A.O. had held that the assessee must have purchased the goods from someone else and not from the four parties in whose names the bills were procured and hence, the only recourse left is to estimate the profit element embedded in the purchases made during the year of Rs. 1,13,44,778 /- , rather than on Rs. 1,31,88,227/- (which included opening balance added by the A.O.), which were estimated by learned CIT(A) @12.5% of the purchases made during the year of Rs. 1,13,88,227/-. The ld. CIT(A) accordingly partly allowed the appeal of the assessee vide appellate orders dated 02-05-2014.

7.Aggrieved by the appellate orders dated 02-05-2014 passed by the ld. CIT(A) , both the assessee and Revenue are in appeal before the Tribunal.

8. The assessee is challenging the addition made of the undisclosed profit of Rs. 14,18,097/- @12.5% on purchases of Rs. 1,13,44,778/- , while the Revenue in its appeal is challenging deletion of addition made by the AO u/s 69C of the Act to the tune of Rs. 1,31,88,227/- which was restricted to profit element embedded in the purchases to the tune of 12.5% of Rs. 1,13,44,778/-. The ld. Counsel for the assessee submitted that the following parties were included in the list of bogus parties by Sales Tax Department of Government of Maharashtra with whom the assessee had made purchases:-

S No. Name of parties TIN Financial year Amount
1 Rohit Enterprises 27020680974V 2009-10 Rs. 8,84,584
2 Deep Enterprises 27750595164V -do- Rs. 18,09,710
3 Kwality Enterprises 27790284742V -do- Rs. 60,33,496
4 V3 Enterprises 27860613194V -do- Rs. 26,16,988
Total Rs. 1,13,44,778 /-

The A.O. observed that the above parties are suspicious parties who were providing accommodation entries without doing any business as per the information received from Sales Tax Department, Government of Maharashtra and the assessee had made purchases from these parties without actual supply of goods. The A.O. also issued notice u/s 133(6) of the Act asking to furnish certain documents of the above parties but the notices were returned back unserved. The assessee was also asked to produce the parties but the assessee failed to produce the parties. The A.O. has made addition u/s 69C of the Act on the peak credit outstanding in the books of accounts, whereby addition of Rs. 1,31,88,227/- was wrongly made, as against total purchases of Rs. 1,13,44,778/- made by the assessee from these 4 parties. The A.O. added the entire amount while the ld. CIT(A) has restricted the addition by estimating GP ratio of 12.5% of Rs. 1,13,44,778/- being total purchases made from these four parties. The ld. Counsel for the assessee submitted that the sales are not in doubt which is accepted by the Revenue. The ld. Counsel also drew our attention to the orders of authorities below. While, the ld. D.R. relied on the order of the A.O.

9. We have considered the rival contentions and also perused the material available on record. We have observed that the assessee is an individual running a proprietorship firm namely M1s The Shoe Box INC Retail Store of footwear, bags, belts, wallets and leather goods, boutique etc. having shops at different places , and office at Mumbai. Information was received by the AO from the Sales Tax Authorities, Government of Maharashtra that the assessee has made bogus purchases to the tune of Rs. 1.13 crores from following four parties who are in the list of hawala dealers giving accommodation entries without supplying any goods:-

Sr. No. Name of Parties TIN  Financial  year Amount
1 Rohit Enterprises 27020680974V 2009-10 Rs. 8,84,584
2 Deep Enterprises 27750595164V -do- Rs. 18,09,710
3 Kwality Enterprises 27790284742V -do- Rs. 60,33,496
4 V3 Enterprises 27860613194V -do- Rs. 26,16,988
Total Rs. 1,13,44,778 /-

The AO issued notices u/s 133(6) of the Act to the above stated parties to seek relevant information1documents but the notices were returned un-served. The assessee was asked by the AO to produce these four parties but the assessee could not produce the parties from whom the purchases were made. The AO made additions u/s 69C of the Act of the peak credit outstanding to be payable to these four parties during the year to the tune of Rs. 1,31,88,227/- as against purchases of Rs. 1,13,44,778/- . The credit for purchases from these four parties of Rs. 1,13,44,778/- are appearing in the books of accounts of the assessee. The assessee has to discharge the primary onus as to the genuineness and bonafide of the transaction of purchase of goods. It is observed that the A.O. has made addition of the entire purchases amount to Rs. 1.13 crores by making additions of Rs. 1,31,88,227/- being peak credit payable during the year for purchases to these parties which included balance of Rs.18,43,451/- for purchases made in the earlier year, while the AO has , however , not doubted the sales made by the assessee against these purchases. The assessee has reconciled the quantitative details of the stock reflected in these purchases with quantitative details of stock as per sale invoices. The A.O. has doubted the purchases from these four alleged accommodation entry providers being hawala dealers as concluded by Sales Tax Department of Government of Maharashtra to be bogus purchases, that these four parties only provided accommodation bills and the goods were never supplied by these parties and the assessee allegedly made purchases from some other parties for which payments were made through undisclosed income. Thus, the A.O. observed that the assessee has purchased the material from someone else while bogus bills were organized by these hawala dealers, hence, section 69C of the Act was invoked by the AO and additions were made by the AO. The conclusion of the ld. CIT(A) that the assessee has purchased material from some other dealers but quantitative reconciliation of the stock was duly done by the assessee of the sale and purchase and hence the profit element in this accommodation entries are to be added to the income cannot be faulted . The ld. CIT(A) restricted the addition by estimating GP ratio of 12.5% of Rs. 1,13,44,778/- being purchases from these alleged four accommodation entry providers. We do not find any infirmity in the well reasoned order of the ld. CIT(A) whereby net profit was estimated which was a reasonable estimation made by learned CIT(A) and we sustain1affirm the order of learned CIT(A). In the result, we dismiss both the appeal of the assessee as well of Revenue. We order accordingly.

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Category : Income Tax (25148)
Type : Judiciary (9971)
Tags : Bogus purchases (62) Section 69C (18)

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