Case Law Details

Case Name : Shri Kamal H. Shah Vs ITO (ITAT Mumbai)
Appeal Number : ITA No. 3847/MUM/2019
Date of Judgement/Order : 01/04/2021
Related Assessment Year : 2010-11

Shri Kamal H. Shah Vs ITO (ITAT Mumbai)

Undisputedly, the assessee has failed to prove genuineness of purchases and the authenticity of the dealers in both the impugned assessment years. The notices sent to the dealers under section 133(6) of the Act on the addresses furnished by the assessee by the Assessing Officer were received back unserved by the postal authorities with the remark ‘left or not known’. No confirmations from the dealers were filed by the assessee. Further, the assessee has failed to substantiate trail of goods. Payments made through cheque/banking channels are not sacrosanct and does not prove authenticity of transactions. Since, the Revenue has accepted the sales declared by the assessee, it is only the profit element embedded in such bogus transactions that has to be brought to tax.

Taking into consideration entirety of facts, I am of the considered view that estimation of G.P by CIT(A) at 12.5% on bogus purchases is on higher side. To meet the ends of justice, addition is restricted to 6% of the bogus purchases in each of the assessment years. The impugned order is modified, accordingly.

FULL TEXT OF THE ITAT JUDGEMENT

These two appeals by the assessee are directed against the order of Commissioner of Income Tax (Appeals) -29, Mumbai (in short ‘the CIT(A)) dated 18/03/2019 common for assessment years 2010-11 and 2011-12. Since, the facts germane to both the appeals and the grounds of appeal are similar these appeals are taken up together for adjudication and are decided by this common order.

2. The assessee in appeals has assailed the addition of Rs.30,80,585/- in assessment year 2010-11 and Rs.31,75,554/- in assessment year 2011-12 on account of alleged bogus purchases.

3. The brief facts of the case as emanating from records are: The assessee is a dealer and stockist of tools and alloy. The assessment in the case of assessee for assessment years 2010-11 and 2011-12 were reopened on the basis of information received from the Sales Tax Department, Government of Maharashtra. As per information received the assessee had obtained bogus purchase bills amounting to Rs.2,46,44,676/- from various hawala dealers in assessment year 2010-11 and bogus purchase bills aggregating to Rs.2,53,04,428/- from dealers declared as hawala operators in assessment year 2011-12. The Assessing Officer made addition by estimating profit embedded in bogus purchases @ 12.5% of such purchases in both the impugned assessment years and made addition of Rs.3o,80,585/- in AY 2010-11 and Rs.31,75,554/-in AY 2011-12. In first appellate proceedings, the CIT(A) upheld the addition same and dismissed the appeals of assessee. Hence, the present appeals by the assessee.

4. The assessee has filed written submissions along with Paper Book. The contents of the written submissions are under:-

“I the undersigned Mr. Kamal H Shah have respectfully submit to your honour as under:-

1. The Hon’ble CIT A (29) confirmed the addition @12.5% of purchased value in my returned Income ignoring following relevant facts:

a. List of purchase creditors with relevant details were furnished during the course of assessment proceedings.

b. No constructive inquiries were conducted nor any data’s w.r.t. my creditors were brought on record to prove that the purchase were bogus.

c. No conclusive working, evidences or basis for estimation was ever done or discussed Thus estimation @12.5% was merely or presumption & surmises which can never sustain as per several judicial pronouncements.

d. My business of last more than 5 years are of same nature, same material viz. Tools, Steel and Alloy steel & with almost same traders and or their associates sister concerns with more or less same margin of profit with no significant change in market condition hence estimation if at all to be adopted it should be based on last 3 years average G P margin as submitted herewith.

e. Merely relying on statement of creditors before VAT authority without knowing their objective of skin saving exercise & not making independent inquiry viz. Bank statements, PAN, IT records etc leads to incorrect assessment of income.

f. Maintenance of stock movement records too a conclusive evidence of my firm doing real business hence any addition based on estimation is uncalled for & needs to be deleted.

g.My audited books of accounts & especially cl 17 (h) of Audit report which doesn’t qualify any cash payment above permissible limit to the purchase creditor.

Thus it’s established that payment for purchases were made by a/c payee cheques as reflected in Bank statement probing without any doubt the sellers genuinety

Without prejudice my GP if at all is to be estimated the logical methodology should be average of last 3 years.

I therefore based on my above facts & arguments have to request honour to delete the estimated addition or restrict addition to average G. P. of last 3 years less declared G P off year in question & oblige.”

5. Shri Sanjay J. Sethi, representing the Department vehemently defended the impugned order and prayed for dismissing both the appeals by the assessee. The ld. Departmental Representative submitted that the Assessing Officer has made addition in respect of bogus purchases by placing reliance on the decision of Hon’ble Gujarat High Court in the case of CIT vs. Simit P. Sheth, 356 ITR 451. The addition sustained by the CIT(A) is fair and reasonable therefore should be upheld.

6. The submission made by ld. Departmental Representative heard, written submissions filed by the assessee and orders of authorities below examined. Undisputedly, the assessee has failed to prove genuineness of purchases and the authenticity of the dealers in both the impugned assessment years. The notices sent to the dealers under section 133(6) of the Act on the addresses furnished by the assessee by the Assessing Officer were received back unserved by the postal authorities with the remark ‘left or not known’. No confirmations from the dealers were filed by the assessee. Further, the assessee has failed to substantiate trail of goods. Payments made through cheque/banking channels are not sacrosanct and does not prove authenticity of transactions. Since, the Revenue has accepted the sales declared by the assessee, it is only the profit element embedded in such bogus transactions that has to be brought to tax. The assessee has filed a chart at page 70 of the Paper Book giving tabulating G.P. ratio in preceding three assessment years, the same is reproduced herein below:

Assessment Year G.P.Ratio (%)
2009-10 4.65%
2008-09 5.99%
2007-08 4.76%

Average G.P. ratio 5.13%

7. Taking into consideration entirety of facts, I am of the considered view that estimation of G.P by CIT(A) at 12.5% on bogus purchases is on higher side. To meet the ends of justice, addition is restricted to 6% of the bogus purchases in each of the assessment years. The impugned order is modified, accordingly. The appeals of the assessee are partly allowed in the terms aforesaid.

8. In the result, both appeals by the assessee are partly allowed.

Order pronounced in the open Court on Thursday, the 01st day of April, 2021.

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