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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SHRI ABY T VARKEY, JM &
Appellant) : Respondent) Appellant/Assessee by : Shri Mandar Vaidya, Adv. Revenue/Respondent by : Shri Rajesh Meshram, Sr. DR Date of Hearing : 30.10.2023 Date of Pronouncement : 31.10.2023 O R D E R Per Padmavathy S (AM): This appeal is against the order of the Ld. Commissioner of Income Tax (Appeals)-10, Mumbai / National Faceless Appeal Centre, Delhi [in short ‘Ld. CIT(A)’] dated 22.05.2023 for Assessment Year (AY) 2014-15. The assessee has raised the following grounds of appeal :
Network Electrodevices Pvt. Ltd. “1. The Ld. CIT(A) misdirected himself in not dismissing the appeal for non-prosecution without adjudicating the same on merits of the case.
2. The Ld. CIT(A) failed to note that the additions of purchases was made from purchases from parties whose names were not figuring the information of Sales tax/VAT Authorities 3. The Ld. CIT(A) fell in error of law in not appreciating that, the additions were made purely on conjectures & surmises.
4. The Ld. CIT (A) failed in Confirming the Adhoc disallowance of Gen. Exps.. Travelling Exps. & Conveyance Exps. in spite of the Fact that Books of A/cs are Audited.”
The assessee is in the business of trading fans and blowers, Battery chargers, LED drivers. The assessee filed the return of income for AY 2014-15 on 04.10.2014 declaring total income of Rs. 3,71,180/-. The case was selected for scrutiny and statutory notices were duly served on the assessee. During the course of assessment proceedings, the Assessing Officer (A) called on the assessee to furnish the details with regard to purchases made during the year. Based on the details furnished by the assessee, the AO issued notice under section 133(6) of the Income Tax Act, 1961 (in short ‘the Act’) to the parties from who purchases were made on test check basis. The list of parties and the details of purchases are as listed below:
Sl.No Name of the Party Amount – Rs. 1 Ramkrishna Electro 1,55,040 2 Honeywell Auto 2,00,700 3 J P Electro Devices 1,73,711 4 Byte Computer Spares 1,15,557 Total 6,45,008 Network Electrodevices Pvt. Ltd.
The notices issued were returned un-served and the assessee subsequently furnished the updated address details of the said party before the AO. The AO issued fresh notice under section 133(6) of the Act to these four parties, however, no reply was received. The assessee vide reply dated 26.12.2016 furnished the copy of confirmation from the above four parties. However, the AO did not accept the confirmations for various reasons and proceeded to treat the entire purchase of Rs. 6,45,008/- from these parties as bogus and made the addition accordingly.
4. Aggrieved, the assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A) issued various notices to the assessee through online portal, however, the assessee did not appear before the Ld. CIT(A), therefore, the Ld. CIT(A) proceeded to dismiss the appeal ex-parte.
Aggrieved, the assessee is in appeal before the Tribunal. The Ld. Authorized Representative (AR) submitted that the AO has not rejected the sales and the stock details and therefore, the AO has not correct in making addition of the entire purchases treating it as bogus. The Ld. AR drew our attention to the findings of the AO for rejecting the confirmations submitted by the assessee wherein he has mentioned that the genuineness and creditworthiness of the parties has not been established by the assessee. In this regard, the Ld. AR submitted that since these transaction relating to purchases from these parties the genuineness and creditworthiness of the parties is not right test to apply. The Ld. AR also drew our attention to the net profit ratio as has been declared in the financial statements for the year ended 31.03.2014 (page 35 of Paper Book) wherein the Net Profit ratio is 0.41% for 31.03.2014 and 0.35% for 31.03.2013. Accordingly, the Ld. AR made it without prejudice submission that even if the addition towards bogus purchase could be made, it
Network Electrodevices Pvt. Ltd. could be done only by applying the profit ratio on the said purchase and not the entire purchase could be added.
The Ld. Departmental Representative (DR) on the other hand submitted that the AO has not received any reply in response to notice issued under section 133(6) of the Act and therefore, the AO has correctly treated the purchase from the said parties as bogus. The Ld. DR further submitted that the confirmations produced by the assessee were not in order as has been rightly pointed out by the AO and that in some of the confirmations, there was no signature of the parties. Given this the Ld. DR submitted that AO’s order by making addition as bogus purchases is correct. With regard to the prayer of the Ld. AR that the issue could go back to the AO for fresh verification, the Ld. DR vehemently argued that inspite of several opportunities before the Ld. CIT(A), the assessee did not represent the case and therefore, there is no necessity for providing one more opportunity and accordingly prayed that the addition be upheld.
We have heard the parties and perused the material on record. The AO during the course of assessment issued notices under section 133(6) of the Act on test check basis to four parties and as per the AO no response was received to the notice from the said parties. The AO has also found the below mentioned discrepancies in the confirmations submitted by the assessee –
“4.5 The assessee vide its reply letter dated 26/12/2016 has furnished the copy confirmation in the case of the following which are not accepted: 1. Bamlkrishna Electo: the copy of confirmation is not accepted as there is no name of the authority who has signed, no original stamp or seal is there and no bank statement ITR copy is feld. Genuineness/creditworthiness of the purchase cannot be proved.
Network Electrodevices Pvt. Ltd.
2. Honeywell Automation India Ltd(P): In the confirmation there is no signature of the authority and neither stamp or seal of the party is there. No PAN is mentioned nor any bank statement and ITR is filed. Genuineness/creditworthiness of the purchase cannot be proved.
3. JP Electronic Devices (India) Pvt. Ltd.: In this case the confirmation filed is incomplete, as it does not contain any closing balance of the party or any signature nor accompanied with bank statement or ITR Genuineness/creditworthiness of the purchase cannot be proved.
Byte Computer Spares: In the confirmation there is no signature of the authority and neither stamp nor seal of the party is there. No bank statement and TTR is also filed. Genuineness/creditworthiness of the purchase cannot be proved.”
Accordingly, the AO treated the entire purchases from these parties as bogus for the reason that the assessee failed to discharge its onus. Before the Ld. CIT(A), the assessee did not make any representation and therefore, the Ld. CIT(A) has dismissed the appeal ex-parte. The plea of the Ld. AR before us is that the AO has made addition towards the entire purchases whereas he should have added only the profit percentage even assuming the purchases to be bogus. In this regard the contention of the Ld. AR is that the AO did not question the sales and the stock figures declared by the assessee and that the AO has not rejected the books of accounts also. On perusal of the financial statement as submitted by the Ld. AR, we noticed that the auditor's have not certified the Gross Profit ratio and the same is mentioned as NIL where as in the P&L account the cost of goods sold is shown as a separate line item from which the Gross Profit ratio could have been worked out. We also noticed that there is no outstanding from the impugned parties as per the schedule trade payables in the financial statements and on enquiry by the bench the ld AR submitted that the dues to the parties could have been settled during the year. It
Network Electrodevices Pvt. Ltd. is also relevant to note that the parties have not responded to the notices issued under section 133(6) and that the AO has mentioned certain discrepancies such signature missing etc., in the confirmations submitted by the assessee. In our considered view, these details needs factual verification. Further The assessee has not controverted the AO's findings and has not submitted any further details before the CIT(A) since the assessee did not appear before the CIT(A) representing the case. Therefore, in the interest of Justice and fair play, we deem it fit to remit the issue back to the Ld. CIT(A) for consideration of the issue afresh after giving reasonable opportunity of being heard to the assessee. It is ordered accordingly.
In the result, the appeal is allowed for statistical purposes.
Order pronounced in the open court on 31-10-2023.