Purchases as a whole cannot be considered fraudulent – ITAT upheld addition of 17%

Facts and Issue of the case

These are the appeals and cross objections filed by the revenue and the assessee respectively, against the separate orders dated 22.01.2018 passed by the Ld. Commissioner of Income Tax (Appeals)-47, (for short CIT (A) Mumbai pertaining to the Assessment Years 2008-09, 2009-10, 2010-11, 2011-12, 2012-13, 2013-14 & 2014-15, whereby the Ld. CIT (A) has partly allowed the appeals filed by the assessee against the assessment orders passed u/s 143 (3) r.w.s.147 of the Income Tax Act, 1961 (for short ‘the Act’.) Since these appeals and cross objections pertain to the same assessee and the issues raised by the parties are identical, these were clubbed, heard together and are being disposed of by this common and consolidated order for the sake of convenience.

In these cases, the AO reopened the assessment order passed u/s 143(3) of the Act, on the basis of information received from the DGIT (Inv.) Mumbai to the effect that during the previous year the assessee had obtained fake purchase bills from bogus parties who used to provide accommodation entries on commission basis. During the reassessment proceedings, the assessee failed to establish the genuineness of the transactions to the satisfaction of the AO. Accordingly, the AO made additions of the amounts of bogus purchases to the income of the assessee and passed assessment orders u/s 143(3) r/w section 147 of the Act. The assessee challenged the assessment orders before the CIT(A). The Ld. CIT(A) after hearing the assessee restricted the addition to 17% of the bogus purchases. Aggrieved by the action of the Ld. CIT(A), the revenue has filed the present appeals and the assessee has filed the cross objection.

The revenue has challenged the impugned orders passed by the Ld. CIT(A). Before this court the Ld. Departmental Representative (DR), supporting the assessment orders passed by the AO submitted that since the assessee failed to establish the genuineness of the transactions in these cases, the Ld. AO had rightly made addition of the entire amount of bogus purchases claimed by the assessee. The Ld. DR further submitted that the findings of the Ld. CIT(A) are contrary to the ratio laid down by the Hon’ble Gujarat High Court in the case of N.K. Proteins and Pawanraj B. Bokadia. Therefore, the impugned orders are liable to be set aside.

On the other hand, the Ld. counsel for the assessee fairly admitted that the findings of the Ld. CIT(A) are based on the decision of the Mumbai Bench of the Tribunal in the case of M/s Hotel Mayfair Pvt. Ltd, a Group concern of the appellant company, for the A. Y. 2011-12, wherein the addition of 17% of the total amount of bogus purchases made by the AO was sustained by the Tribunal in an appeal filed by the assessee against the order passed by the Ld. CIT u/s 263 of the Act. However, the Ld. counsel further submitted that a reasonable percentage of profit may be sustained considering the fact and circumstances of the present cases. The Ld. counsel further submitted that so far as the Cross Objections filed by the assessee is concerned, since the assessee intends to settle the dispute under Vivad se Vishwash Act, 2020, it does not want to press the same. Hence, the Ld. counsel submitted that the COs may be dismissed as withdrawn.

Observation of the court

Court has heard both the parties and perused the material on record including the cases relied upon by the revenue and the authorities below. Court notices that the assessee challenge the assessment orders on legal ground as well as on merits. The Ld. CIT (A) dismissed the legal ground i.e., reopening of assessment orders passed u/s 143 (3) of the Act, however, partly allowed the ground raised on merits by restricting the addition to 17% of the total amount of bogus purchases determined by the AO in each of the cases. The Ld.CIT (A) has based his findings on the decision of the coordinate Bench, rendered in the case of M/s Hotel Mayfair Pvt. Ltd., a group company of the present assessee in appeal filed by the assessee against the order passed by the Ld. CIT u/s 263 of the Act, in which the AO had made addition of 17% of the total amount of bogus purchases.

Court notices that in the case of M/s Hotel Mayfair Pvt. Ltd. the facts of the case and the issues involved were identical to the facts and the issue involved in the present cases. The AO had made addition of 17% of the total amount of bogus purchases made by the assessee. The CIT exercising the jurisdiction u/s 263 of the Act set aside the assessment order holding that the AO should have disallowed the entire amount of bogus purchases. The matter traveled to the ITAT and the coordinate Bench following the ratio laid down by the Hon’ble Delhi High Court in the case of Jyoti Foundation (357 ITR 388) quashed the order of the CIT. Since, the findings of the Ld. CIT (A) are based on the decision of the coordinate Bench rendered in the case of M/s Hotel Mayfair Pvt. Ltd (supra), we do not find any reason to interfere with the findings of the Ld. CIT (A). Accordingly, we uphold the orders dated 22.01.2018 passed by the Ld. Commissioner of Income Tax (Appeals)-47, Mumbai pertaining to the Assessment Years 2008-09, 2009-10, 2010-11, 2011-12, 2012-13, 2013-14 & 2014-15 and dismiss the appeals of the revenue.