SMB INCORPORATION,VADODARA vs. ITO, WARD 1(2)(5), VADODARA

The assessee has taken following grounds in this appeal: “1. The CIT(A) has erred both in Law and in Fact in confirming Reopening of Assessment us. 148 of the Act and since no income has escaped assessment or under assessed the proceedings initiated by the Assessing Officer u/s.148 are bad in Law and Void and the Ld. CIT(A) ought to have cancelled the Assessment Order. 2. Your Appellant further submits that the Show Cause Notice u/s. 148 of the Act is time barred and therefore the Reopening of Assessment is youd ab-initio. The Reasons Recorded by the Assessing Officer are invalid in as much as the Reasons Recorded are vague and does not have any nexus or connection with the Assessed Income and that the Reopening is for making fishing inquiry which is not valid and therefore the entire proceedings are vitiated and bad in Law and Void. 3. Your Appellant further submits that the ld. AO, has erred in upholding the assumption of jurisdiction for reassessment. The re-assessment proceedings in this case were only based on presumption suspicion and were thus not validly initiated. The Ld AO has reopened assessment based on borrowed information deserves to be deleted wholly and fully. On Merits 4. The CIT(A) has erred both in law and fact holding that Rs. 17,08,386 as Bogus Purchase. Alternatively, and without prejudice to above, It is submitted that since appellant has adequate and acceptable evidences of the purchase made. The purchase made may be treated as genuine. 5. The CIT(A) has also erred in upholding provisions of Sec.68 for unsecured loan as Unexplained cash credit of Rs. 14,79,794/- It is submitted that the credits are from known and identified people who have proved their Identity, Credit Worthiness and Genuineness. The Creditors have confirmed, that they have given Loan and therefore on facts of the case u/s.68 does not apply. 6. It is submitted the by you Appellant that as per provision of law in proceedings u/s. 148 Interest U/s.234 is not leviable as held by several judicial Authorities.” 3. A perusal of the above ground of appeal would reveal that the assessee has not only raised legal ground contesting the

The assessee, in this case vide Ground No.4, has raised the issue of confirmation of addition of Rs.17,08,386/- made by the Assessing Officer (in short ‘the Act’) holding the purchases made by the assesse as bogus and, thereby, making addition of the entire purchases. The assessee is a trader in cement sheets, glazed tiles, sanitary goods & construction materials. The AO received information that the assessee had made certain purchases from M/s. F.V. Enterprises, which, as per the Investigation Wing report, was an entity involved in providing accommodation entries / bogus billing. On the basis of the information of the Investigation Wing, the AO held that the purchases made by the assessee from the said entity, namely, M/s. F.V. Enterprises were bogus. He, therefore, added the entire purchase amount of the said concern of Rs.17,08,386/- as unexplained expenditure. The Ld. CIT(A) confirmed the additions so made by the AO.

We have heard the rival contentions and gone through the record. The Ld. Counsel for the assessee has relied upon the various documents and pleaded that the assessee is a trader. The purchases made by the assessee have not been absorbed in manufacturing etc. and that the corresponding sales have been admitted by the AO. She has also relied upon the copies of the VAT returns, wherein the name of the alleged entity, namely, M/s. F.V. Enterprises as seller has been duly mentioned. She,

As contended by the Ld. AR, the sales in this case have been admitted. It is obvious, there cannot be any sales without there being any purchases. Though, it is not proved on the file, at the most, it cannot be said that the assessee might have made the purchase in question from some third party / gray market at a lower rate and obtained invoices / bills from the alleged concerned M/s. F.V. Enterprises. Even if, we so assume, still the entire purchases cannot be added into income of the assessee. Only the profit element, which, allegedly the assessee might have avoided, could be added into the income of the assessee. Though, there is no conclusive evidence on the file that the assessee has indulged in bogus purchases, however, considering the overall facts and circumstances of the case and also as proposed the Ld. AR has agreed that the assessee has no objection if a reasonable profit element be assessed and added on the disputed purchase. The Ld. Counsel has demonstrated that the average net profit ratio of the assessee in the past so many years ranges from 1 to 2%. The Ld. Counsel has fairly agreed to offer 2% profit element on the disputed purchases. The assessee has already shown a net profit of .99% of the said purchases. Therefore, the addition is restricted to 1.01% profit on the disputed purchase totaling to 2% of the

The assessee, vide Ground No.5, has contested the addition made by the AO and further confirmed by the Ld.CIT(A) on account of unexplained cash credits. The AO treated the unsecured loans shown by the assessee of Rs.32,93,937/- as unexplained cash credits. However, in the appeal, the Ld. CIT(A) accepted the opening balance of Rs.18,14,143/- shown by the assessee as on 1st April, 2011, however, confirmed the addition to the extent of unsecured loans of Rs.14,79,794/- taken by the assessee during the assessment year under consideration. The Ld. Counsel for the assessee has demonstrated that out of the total addition confirmed by the Ld. CIT(A) of Rs.14,79,794/-, the assessee had taken loan for the purchase of Cars, out of which, some amount was prepaid and the closing balance at the end of the year was Rs.11,83,264/-. The Ld. DR has not disputed this fact. Therefore, the source of the loan to the extent of Rs.11,83,264/- has been proved on the file. So far as the remaining amount of Rs.2,96,530/- is concerned, the assessee has shown small amount of loan from various parties. Considering the smallness of the amount and also considering that the assessee has furnished the name and details of the concerned parties, we do not find justification on the part of the lower authorities in making the

Since, we have already adjudicated the issues on merits of facts, therefore, at this stage, the Ld. AR of the assessee has not pressed the legal grounds. The legal grounds are dismissed as not pressed. In view of the observations above, appeal of the assessee is treated as partly allowed.

In the result, the appeal preferred by the assessee is partly allowed.