RAMCHANDRA KADAVA SHARMA,MUMBAI vs. INCOME TAX OFFICER, MUMBAI
Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI AMIT SHUKLA, JM & SHRI ARUN KHODPIA, AM
Per Arun Khodpia, AM:
The captioned appeal is filed by the assessee against the order of Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre, Delhi
(for short “ld. CIT(A)”) dated 27.06.2024 for Assessment Year (AY) 2010-11, which in turn arises from the order under section 143(3) r.w.s. 147 of the Income
Tax Act, 1961 (the Act) dated 29.01.2016, passed by Income Tax Officer, Ward-
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27(3)(1), Mumbai (for short ‘the AO’). The grounds of appeal raised by the assessee read as under:
“1(i) That on the facts and circumstances of the case, the CIT(A) has grossly erred in dismissing the appeal of the appellant without adjudicating the legal ground regarding validity of assumption of juri iction u/s 147 of the Income tax Act, 1961
(ii) That the appellant having raised specific grounds challenging the validity of notice u/s 148 for want of valid reasons, the CIT(A) was duty bound to adjudicate the ground so raised and as such the impugned order of CIT(A) is arbitrary and contrary to section 250(6) of the Act.
2((1) That on the facts and circumstances of the case, the notice u/s 148 having been issued without recording proper reasons and in absence of there being no case of income escaping assessment in terms of section 147 of the Act, the assumption of juri iction u/s 147 is invalid and bad in law.
(ii) That the reasons recorded being vague and merely based on borrowed satisfaction without any independent enquiry or application of mind, the notice u/s 148 is illegal and sustainable under the law.
(iii) That in the absence of any tangible material to suggest any escapement of income and the assumption of juri iction u/s 147 being for making roving enquiry, the entire basis of notice u/s 148 is fallacious and contrary to settled legal principles.
(iv) That in the absence of proper and valid approval u/s 151, the notice u/s 148 is non-est and void-ab-initio.
3(1) That on the facts and circumstances of the case, the CIT(A) was not justified in upholding the addition of Rs. 35,82,062/-u/s 69C on the alleged ground of non- genuine purchases in total disregard to the submission made.
(ii) That there being no dispute with regard to the source of purchases which are duly recorded in the books of account, the invocation of section 69C is mechanical and without application of mind.
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(iii) That the purchases made from M/s. Harish Metal & Tubes and P.M. Trading being genuine and supported from documentary evidences, the upholding of addition by CIT(A) is arbitrary and devoid of merits.
(iv) That in the absence of any dispute with regard to correctness of audited books of account and trading results and the purchases forms integral part of manufacturing process which is supported from quantitative record, the allegation of non-genuine purchase is irrational and purely based on conjectures and surmises.
(v) That the assessing officer having failed to confront the so-called information from sales tax department and in absence of any opportunity of cross examination, the addition made is in direct violation of principles of natural justice and thus not sustainable.
(v) That in any case, the addition of entire recorded purchase which is part of trading account is highly arbitrary and without backing of law.
That the orders passed by lower authorities are not sustainable on facts and bad in law.”
The brief facts of the case are that the assessee is proprietor of M/s Atomic Vacuum Company, engaged in manufacturing of engineering goods. The case was selected for assessment proceedings under section 147 of the Act, based on certain information received from designated AO of CIT-27, Mumbai that the assessee has taken bogus bills to suppress the profit from Sales Tax Department amounting to Rs. Rs. 36,82,062/- during the Financial Year (FY) 2009-10. Notice under section 147 was issued on 03.04.2014, in response to which the assessee filed a letter requesting that the original return filed under section 139(1) on 15.10.2010 for the relevant AY may be treated as return filed in response to notice under section 148 Ramchandra Kadava Sharma 4
of the Act. Further, statutory notices under section 143(2) and 142(1) along with questionnaire were issued. In compliance, the assessee through his Counsel have attended the office of ld. AO and have made necessary submissions. During the assessment proceedings, ld. AO has found certain transactions of purchase to be taxed based on information received from the DGIT(Inv.), Mumbai, according to which the assessee has made bogus purchases from M/s Harish Metal & Tubes for Rs. 30,80,762/- and M/s P.M. Trading Company for Rs. 5,01,280/-, aggregating the total transactions for Rs. 35,82,062/-. The assessee was asked to furnish Ledger
A/c, Bank Statement for payment made to the aforesaid parties, delivery challans,
Inward Register / Stock Register also notice under section 133(6) were issued to the seller parties, but the same were returned back un-served by the postal authorities. The assessee before the AO failed to produce the parties for verification, therefore a show-caused was issued, as to why the purchases from above mentioned parties should not be treated as non-genuine and added to the income of assessee. In response to the said show-cause, assessee submitted copies of bills, delivery challans and payment proof by A/c payee cheque, corresponding sale effect and credit in P&L A/c. The AO analyzed the information furnished by the assessee and have observed that out of purchase of Rs. 35,82,067/- the assessee has made the payment of Rs. 5,00,000/- only, through cheque as reflected in the Bank Statement / Ledger A/c and copies of invoices for purchase and stock.
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Therefore, it was held that the assessee was unable to prove the genuineness of purchases and had suppressed his profits. Accordingly, an amount of Rs.
35,82,067/- was added back to the income of assessee on account of unproved purchase.
Being aggrieved with the aforesaid finding by the AO, assessee preferred an appeal before the ld. CIT(A) however the CIT(A) had decided the issue against the assessee and have confirmed the addition made by the AO stating that the assessee failed to discharge the onus cast upon him by not disproving or rebutting with cogent evidences.
After getting dismissal of the appeal from the CIT(A), the assessee being dissatisfied with the order of First Appellate Authority (FAA) has filed the present appeal before this Tribunal which is under consideration before us.
At the outset, ld. Counsel representing the assessee submitted that the assessee had actually purchased SS Pipe, SS Plate and Electric Motors from M/s Harish Metal & Tubes, it is duly reflecting in the books of accounts of the assessee as purchase and corresponding sale was also duly accounted for in the books which are explained before the AO. Ramchandra Kadava Sharma 6
Similarly, assessee purchase SS Pipe from M/s P.M. Trading Company which is used in the goods manufactured by the assessee and the entire manufacturing of the engineering goods were exported by the assessee which is corroborated with the documentary evidences and such contention of the assessee are not dislodged by the authorities below. It is further submitted by the ld. AR that the assessee had furnished necessary evidences which are primarily required, however as the notices under section 133(6) could not be responded by the alleged bogus parties, which is beyond the control of assessee, the assessee should not be penalized for the same. The ld. AR submitted that there was no evidence on record to show that the documentary evidences and invoices furnished by the assessee are self-made or fabricated, also the quantity or amount of corresponding sales made are not disputed by the ld. AO, neither any adverse remarks on the sales of the assessee has been made. It was the submission that the addition was made under pre-conceived mind-set of the AO merely on the basis that the Sales Tax Department has offered certain observations regarding the parties, however no concrete evidence could be brought on record. It was the submission that the AO himself in the assessment had observed that the assessee brought the goods from market on payment of cash and after the goods were received the accommodation bills are taken from hawala operators to bring the goods into the regular books of accounts. The rate of purchase made in cash from undisclosed parties or un- Ramchandra Kadava Sharma 7
registered dealers is considerably lower than the rate on credit purchase account for evasion of sales tax, other taxes and cash discounts, thus, the AO inferred that the assessee has purchased goods from some other parties by way of cash and has introduced those in regular stock of the assessee by obtaining accommodation bills from these parties. Taking support from aforesaid observation of the AO, the ld.
AR argued that although the entire purchase of the assessee are genuine and cannot be tagged as bogus but alternatively even if the observation of AO is considered correct and since the sales of the assessee are not disturbed neither any adverse observation to the quantitative details of assessee’s stock, purchase and sale was made, without prejudice to the first contention that the purchases are genuine and therefore no addition was to be made, alternatively the assessee propose to offer estimated Gross Profit (GP) rate of 12.5% on the so called bogus purchases of the assessee, so as to meet the ends of justice.
The ld. DR on the other hand representing the revenue submitted that the AO had issued notices under section 133(6) of the Act to summon the parties but such notices were returned back by the postal department stating that such parties were not available on their respective address, further the assessee was also unable to bring the parties before the AO to confirm about the genuineness of the purchases. The ld. DR allegedly drew are attention to page 32 of the assessee’s PB consisting there in delivery challan of M/s Harish Metal & Tubes, stockist dealer Ramchandra Kadava Sharma 8
in stainless steel and all raw-materials, it is contended that the bill was prepared for electric motor 10HP, whereas the seller M/s Harish Metal & Tubes as per the description of bills/ challans do not deal with such material. In view of such facts, it is Ld. DR tried to prove that the purchases made by assessee are bogus only. The ld. DR vehemently placed reliance on the orders of revenue authorities and prayed to uphold the same.
We have considered the rival submissions and perused the material available on record. Going through the factum of case, we find that the AO has received certain information from Sales Tax Department thorough Investigation wing according to which certain purchases were made by the assessee amounting to Rs. 35,82,062/- from alleged bogus parties, who are involved in the activities of bogus transactions and providing bogus accommodation entries in the form of purchase bills. Notice under section 133(6) of the Act were issued by the AO to parties but there was no response, even the assessee was unable to produce the so-called parties. The assessee furnished before the AO copies of bills, delivery challans, payment proof by A/c payee cheques, corresponding sales effect and respective credits in P&L A/c. The turnover of assessee was not disturbed by the AO also the books of accounts of assessee are not treated as wrongly prepared or are subject to rejection. The AO was having a conviction that the parties are tented parties as per Sales Tax Department, further as the notices under section 133(6) were not Ramchandra Kadava Sharma 9
responded by such parties or such parties have not put up any appearance before the AO, therefore the purchases are treated as ingenuine and bogus. The AO further observed with the presumption that the assessee must have made such purchases from the market by paying cash and to bring such transaction into regular books of accounts for obtaining accommodation bills from the alleged parties. The AO have not estimated the profit on alleged unproved purchases but have added the entire amount of purchases to the income of assessee. However, as per settled principle of law as held by Hon’ble Juri ictional High Court in various cases, if the assessee’s sales are found to be correct, quantitative details of opening stock, purchase, sales, closing stock are undisputed and books of accounts are in accordance with the Accounting Principles, the profit should be estimate on the bogus purchase on a reasonable basis, if there is a presumption that the purchases recorded on the basis of accommodation bills are actually made in cash from some other parties from open market. In present matter as the assessee before us has offered a Gross Profit @ 12.5% on the alleged purchases, we find that this would be a fair and appropriate amount to be offered for taxation, we therefore without giving any finding as to whether the purchases are genuine or not, permit the assessee to estimate its profit at 12.5% on the alleged bogus purchases and accordingly offer the income for taxation. Revenue is directed to recompute the income of assessee accordingly.
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The remaining grounds of appeal raised by the assessee challenging the validity of assessment on legal grounds as well as on merits are not pressed before us, thus are treated as dismissed.
In result, the appeal of assessee is partly allowed in terms of aforesaid observations.
Order pronounced in the open court on 18-12-2025. (AMIT SHUKLA) (ARUN KHODPIA)
Judicial Member Accountant Member
*SK, Sr. PS
Copy of the Order forwarded to :
1. The Appellant
2. The Respondent
3. DR, ITAT, Mumbai
4. 5. Guard File
CIT
BY ORDER,
(Dy./Asstt.