Itxa/1354/2017 Of Pr. Commissioner Of Income Tax-15 Mumbai v. Jakharia Fabric Pvt. Ltd

Priya Soparkar IN THE 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 the Appellant.Mr.M.Subramanian i/by Mr.V.S.Hadade, Advocate for theRespondent. --- CORAM : UJJAL BHUYAN & MILIND N. JADHAV, JJ. DATE : FEBRUARY 10, 2020 P.C.:- 1.Heard Mr.Akhileshwar Sharma, learned standing counselRevenue for the appellant; and Mr.M.Subramanian alongwithMr.V.S.Hadade , learned counsel for the respondent/assessee. 2.This appeal has been preferred by the Revenue underSection 260A of the Income Tax Act, 1961 (briefly “the Act”hereinafter) against the order dated 21[st] September, 2016passed by the Income Tax Appellate Tribunal, Mumbai Bench"J", Mumbai (“Tribunal” for short) in Income Tax AppealNo.6851/Mum/2014 for the assessment year 2010-11. 3.The appeal has been preferred on the followingquestions stated to be substantial questions of law:- “(i) Whether on the facts and in the circumstancesof the case, Tribunal was correct in law inconfirming the order of the Commissioner ofIncome-tax (Appeals) restricting the disallowanceto only 17.5% of the total alleged boguspurchase of Rs.1,14,92,970/- ignoring the factthat the said seller parties were found to beHawala operators/bogus billers as per findingsgiven by the Sales Tax Department, Governmentof Maharashtra and the Investigation Wing of theIncome Tax Department ? (ii) Whether on the facts and in the circumstances of the case, Tribunal was correct in law inconfirming the order of the Commissioner ofIncome-tax (Appeals) restricting thedisallowance to only 17.5% of the total allegedbogus purchase of Rs.1,14,92,970/-, ignoring thefact that the assessee had neither filed anydocumentary evidence nor confirmation forpurchase nor produced any evidence in the formof stock register during the course of assessmentproceedings to substantiate its claim that thegoods claimed to have been purchased fromalleged parties were actually consumed/sold?(iii) Whether on the facts and in the circumstancesof the case, Tribunal was correct in law in relyingupon the decision of CIT Vs.Nikunj EximpEnterprises Pvt. Ltd. 372 ITR 612 case ignoringthat the facts of the said case are distinguishablefrom the facts of the present case, as in that caseit was held that the material was actuallypurchased from defence organisation and socannot be treated as bogus whereas the allegedpurchases in the present case is from privateparties who are found to be Hawalaoperators/bogus billers as per the findings givenby the Sales Tax Department, Government ofMaharashtra? (iv) Whether on the facts and in thecircumstances of the case, Tribunal was correct inlaw in confirming the order of the Commissionerof Income-tax (Appeals) restricting thedisallowance to only 17.5% of the total allegedbogus purchases ignoring the decision of the Priya Soparkar Delhi High Court in the case of La Medica 250ITR 575 (2001) wherein it is held that purchasesfrom unproven parties is bogus and the decisionof the Gujarat High Court in Hynoup Foods & OilIndustries Pvt. Ltd. 290 ITR 702 (Guj) wherein itis held that provisions of Section 40A(3) of theIncome Tax Act, 1961 were applicable to thecases of bogus purchase? " (iv) Whether on the facts and in thecircumstances of the case, Tribunal was correct inlaw in confirming the order of the Commissionerof Income-tax (Appeals) restricting thedisallowance to only 17.5% of the total allegedbogus purchases ignoring the decision of the Priya Soparkar Delhi High Court in the case of La Medica 250ITR 575 (2001) wherein it is held that purchasesfrom unproven parties is bogus and the decisionof the Gujarat High Court in Hynoup Foods & OilIndustries Pvt. Ltd. 290 ITR 702 (Guj) wherein itis held that provisions of Section 40A(3) of theIncome Tax Act, 1961 were applicable to thecases of bogus purchase? " 4.Respondent (also referred to as “the assessee”), is anassessee under the Act. It is a company engaged in thebusiness of trading in job work of dying of fabrics. In theassessment proceedings for the assessment year 2010-11Assessing Officer received information from the InvestigationWing of the Income Tax Department in Mumbai thatassessee had obtained bogus purchase bills amounting toRs.1,14,92,970.00 from hawala operators, the details of whichare as under :- Priya Soparkar 4 10 itxa 1354-17-o 5.Following the same, notice under Section 142(1) of theAct was issued to the assessee in response to which assesseesubmitted show cause reply denying the allegation. On dueconsideration, Assessing Officer vide his assessment orderdated 2[nd] March, 2013 passed under Section 143(3) of theAct treated the aforesaid amount as bogus purchases beingmade to reduce the profit of the assessee by inflating thepurchases. Accordingly, the amount of Rs.1,14,92,970.00 wasadded to the total income of the assessee. 6.Assessee preferred appeal before the Commissioner ofIncome Tax (Appeals)-22, Mumbai (briefly referred tohereinafter as “CIT (A)”) 7.In the appellate proceedings, CIT(A) while accepting thecontention of the Assessing Officer about the bogus nature ofthe transactions however held that the entire purchases fromthe eight parties could not be added as bogus, but whatneeded to be taxed is the profit element embedded in suchtransaction. Following Gujarat High Court decision in thecase of CIT Vs. Simit P. Sheth, 356 ITR 451 (Guj), CIT(A)vide its appellate order dated 18[th] August, 2014 took the viewthat the estimation of 17.5% of profit would meet the endsof justice. Accordingly, direction was issued to the AssessingOfficer. 8.In appeal before the Tribunal by the Revenue, Tribunalheld that there was no reason to intervene in the finding ofthe CIT(A) which was a reasonable view. Accordingly, vide Priya Soparkar 5 10 itxa 1354-17-o the order dated 21[st] September, 2016, Tribunal affirmed thefindings of the CIT(A). 9.Hence, Revenue is in further appeal before us underSection 260-A of the Act. 10.Submissions made have been considered. 11.In the assessment proceedings Assessing Officer hadrelied upon information obtained from the Investigation Wingof the Department at Mumbai which in turn had obtained theinformation from the Sales Tax Department, Government ofMaharashtra. The information was to the effect that the eightparties from whom the purchases were allegedly madewere alleged hawala dealers who had issued bogus billstotalling Rs.1,14,92,970.00. 12.In the appellate proceedings before the first appellateauthority, it was held as under :- Priya Soparkar 5 10 itxa 1354-17-o the order dated 21[st] September, 2016, Tribunal affirmed thefindings of the CIT(A). 9.Hence, Revenue is in further appeal before us underSection 260-A of the Act. 10.Submissions made have been considered. 11.In the assessment proceedings Assessing Officer hadrelied upon information obtained from the Investigation Wingof the Department at Mumbai which in turn had obtained theinformation from the Sales Tax Department, Government ofMaharashtra. The information was to the effect that the eightparties from whom the purchases were allegedly madewere alleged hawala dealers who had issued bogus billstotalling Rs.1,14,92,970.00. 12.In the appellate proceedings before the first appellateauthority, it was held as under :- “2.15 The facts in the present case shows that theappellant was not in a position to prove theexistence of the suppliers. The suppliers werefound to be engaged in providing bogus billswithout actual delivery of goods. Moreover few ofthe suppliers are not regular parties and theywere found to have supplied only during the yearand there were no supply either in the earlier yearor in the subsequent year from such parties. Thiscircumstantial evidence also prove the bogusnature of the transaction. On careful analysis ofthe finding of Hon’ble High Court of Gujarat in theabove mentioned cases, I am of the firm view thatwithout purchase of materials it was not possiblefor the appellant to complete the job work of dying. As mentioned above the AO had neverdisputed or examined the aspect of job workreceipts. Hence I am of the firm belief that theappellant had made cash purchases from otherparties which were not recorded in the books. Theappellant took only bills from these 8 parties asaccommodation to explain the purchases.Therefore the entire purchase from these 8 partiescannot be added as bogus and what needs to betaxed is the profit element embedded in suchtransaction. The appellant carryout only the jobwork of dying the cloths on a contract basis.Estimation ranging from 12.5% to 25% has beenupheld by the Hon’ble Gujarat High Courtdepending upon the nature of the business. Asheld in the case of Simit P. Sheth (supra) nouniform yardstick could be applied to estimatethe rate of profit and it vary with the nature ofbusiness. Taking all the facts into considerationand the findings of the Hon’ble Courts on thisissue, I am of the view that estimation of 17.5% ofprofit would meet the ends of justice. Therefore, Idirect the AO to estimate profit of 17.5% on thetotal alleged bogus purchase which works out toRs.20,11,270(17.5% of Rs.1,14,92,970/-). Theappellant get the relief of the balanceRs.94,81,700/-. The grounds raised are partlyAllowed.” 13.Thus as can be seen from the above, CIT (A) had reliedupon the decision of the Gujarat High Court in Simit P. Sheth(Supra) and took the view that entire purchases from theeight parties could not be added as bogus but what neededto be added to the total income of the assessee was theprofit element embedded in such transaction. CIT (A) notedthat assessee carried out only the job work of designing theclothes on contract basis; profit estimation ranged from12.5% to 25%. In the circumstances of the case, CIT(A) tookthe view that taking of 17.5% as the profit would meet the ends of justice. Accordingly, Assessing Officer was directed toestimate profit of 17.5% on the total alleged boguspurchases and thereafter, to delete the balance amount ofaddition. 14.In further appeal Tribunal referred to the above findingof the CIT(A), whereafter it was held as under:- ends of justice. Accordingly, Assessing Officer was directed toestimate profit of 17.5% on the total alleged boguspurchases and thereafter, to delete the balance amount ofaddition. 14.In further appeal Tribunal referred to the above findingof the CIT(A), whereafter it was held as under:- “6.Thus, from the aforesaid analysis,conclusions and findings recorded by the Ld.CIT(A), it is evident that total purchases werewrongly disallowed by the Assessing Officer. TheLd.CIT (A) took a reasonable view whereby thedisallowance was sustained to the extent ofestimated inflation in the amount of purchasesmade by the assessee. The disallowance sustainedby the Ld. CIT(A) @ 17.5% of the purchases havebeen accepted by the assessee with a view to burythe litigation. Nothing has been brought before usby the Ld.DR to contradict the findings recorded bythe Ld.CIT(A). The assessee’s counsel has alsoplaced reliance upon the judgment of Hon’bleBombay High Court in the case of CIT Vs. NikunjEximp Enterprises Pvt. Ltd. (supra) whereinsimilar issue has been decided on identical linesby the Hon’ble Bombay High Court. In our view, nointervention is required in the findings of Ld.CIT(A)and, therefore, the same is confirmed. The groundsraised by the revenue are dismissed.” 15.Thus, Tribunal concurred with the view taken by theCIT(A) that the Assessing Officer had erred in disallowingthe entire total purchases and adding the same to the totalincome of the assessee. View taken by the CIT(A) that17.5% of the purchases be added to the total income of theassessee as the profit element was a reasonable one. It wasalso noted that the said percentage was accepted by the Priya Soparkar 810 itxa 1354-17-o assessee with a view to close the litigation. Nothing wasbrought on record by the Revenue to contradict the findingsrecorded by the CIT(A). Tribunal had also referred to thedecision of this court in CIT Vs. Nikunj Eximp EnterprisesPvt. Ltd. 372 ITR 6129. Infact, this court has also heldfollowing the decision of Nikunj Eximp Enterprises Pvt.Ltd. that the revenue is required to furnish the informationreceived from the Sales Tax Department or from theInvestigation Wing of the Department to the assesseeallowing the assessee to test the veracity of such informationotherwise such information could not be relied upon. Thiscourt in the case of Principal Commissioner of Income TaxVs. Vaman International Pvt. Ltd., Income Tax AppealNo.1940 of 2017, decided on January 29, 2020 held as under:- “17.1.Thus, from the above, it is seen thatTribunal had returned a finding of fact that theassessee had filed copies of purchase bills, copiesof purchase/ sale invoices, challan cum taxinvoices in respect of the purchases, extracts ofstock ledger showing entry/exit of the materialspurchased, copies of bank statements to show thatpayment for such purchases were made throughregular banking channels, etc., to establish thegenuineness of the purchases. Thereafter, Tribunalheld that Assessing Officer could not bring onrecord any material evidence to show that thepurchases were bogus. Mere reliance by theAssessing Officer on information obtained from theSales Tax Department or the statements of twopersons made before the Sales Tax Departmentwould not be sufficient to treat the purchases asbogus and thereafter to make addition underSection 69C of the Act. Tribunal has also held thatif the Assessing Officer had doubted thegenuineness of the purchases, it was incumbent upon the Assessing Officer to have caused furtherenquiries in the matter to ascertain genuineness orotherwise of the transaction and to have given anopportunity to the assessee to examine/cross-examine those two parties vis-a-vis the statementsmade by them before the Sales Tax Department.Without causing such further enquiries in respectof the purchases, it was not open to the AssessingOfficer to make the addition under Section 69C ofthe Act. 18.We are in agreement with the view expressedby the Tribunal. In fact, Tribunal has only affirmedthe finding of the first appellate authority. Thus,there is concurrent finding of fact by the two lowerappellate authorities. 19.This Court in the case of Commissioner ofIncome Tax -1, Mumbai v/s. Nikunj EximpEnterprises(P.) Ltd., 372 ITR 619; wherein anidentical fact situation arose did not interfere withthe order passed by the Tribunal and held that nosubstantial question of law arose from such order.It was held that merely because the suppliers hadnot appeared before the Assessing Officer, noconclusion could be arrived at that the purchaseswere not made by the assessee.” 16.Today while dealing with Income Tax Appeal No.1330 of2017 (Principal Commissioner of Income Tax Vs.Rishabhdev Tachnocable Limited), we have held as under: “19. On thorough consideration of the matter, wedo not find any error or infirmity in the view takenby the Tribunal. The lower appellate authoritieshad enhanced the quantum of purchases muchbeyond that of the Assessing Officer i.e., fromRs.24,18,06,385.00 to Rs.65,65,30,470.00 buthaving found that the purchases corresponded tosales which were reflected in the returns of theassessee in sales tax proceedings and in addition,were also recorded in the books of accounts withpayments made through account payee cheques, the purchases were accepted by the twoappellate authorities and following judicialdictum decided to add the profit percentage onsuch purchases to the income of the assessee.While the CIT (A) had assessed profit at 2% whichwas added to the income of the assessee,Tribunal made further addition of 3% profit,thereby protecting the interest of the Revenue.We have also considered the two decisions reliedupon by learned standing counsel and we findthat facts of the present case are clearlydistinguishable from the facts of those two casesto warrant application of the legal principlesenunciated in the two cited decisions. 20.In Bholanath Polyfab Limited (supra),Gujarat High Court was also confronted with asimilar issue. In that case Tribunal was of theopinion that the purchases might have been madefrom bogus parties but the purchases themselveswere not bogus. Considering the fact situation,Tribunal was of the opinion that not the entireamount of purchases but the profit marginembedded in such amount would be subjected totax. Gujarat High Court upheld the finding of theTribunal. It was held that whether the purchaseswere bogus or whether the parties from whomsuch purchases were allegedly made were boguswas essentially a question of fact. When theTribunal had concluded that the assessee didmake the purchase, as a natural corollary notthe entire amount covered by such purchase butthe profit element embedded therein would besubject to tax. 21.We are in respectful agreement with theview expressed by the Gujarat High Court.” 16.On thorough consideration of the matter, we do not findany error or infirmity in the finding returned by the Tribunal.No substantial question of law arises from such findingreturned by the Tribunal. 17.Consequently, we find no merit in the appeal.Accordingly, the appeal is dismissed. However, there shall beno order as to cost. (MILIND N. JADHAV, J.) (UJJAL BHUYAN, J.) ….