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Facts
The revenue filed an appeal challenging the restriction of additions on bogus purchases from 100% to 10% by the CIT(A). The AO had information that the assessee purchased goods from entities suspected of issuing bogus bills without actual supply.
Held
The Tribunal held that the facts of the present case are distinguishable from the relied upon judgment in NK Proteins Ltd. The alleged suppliers were genuine businesses with no connection to the assessee, and there was no evidence of fraudulent transactions.
Key Issues
Whether the purchases made by the assessee were genuine or bogus, and whether the additions made by the AO were justified.
Sections Cited
144, 250
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Income Tax Appellate Tribunal, “SMC” BENCH MUMBAI
Before: HON’BLE SHRI SANDEEP GOSAIN
Date of Hearing 06.05.2025 Date of Pronouncement 27.05.2025 आदेश / ORDER
PER SANDEEP GOSAIN, JM:
1. The present appeal has been filed by the revenue challenging the impugned order 20.01.2021 passed u/s 250 of the Income Tax Act, 1961 (‘the Act’), by the National Faceless Appeal Centre, Delhi / CIT(E), for the A.Y 2010- 11.
2. All the grounds raised by the revenue are interconnected and interrelated and relates to challenging order of Ld.CIT(A) in restricting the additions on bogus purchases from 100% to 10%, without appreciating the facts of the case therefore I have decided to adjudicate these grounds through the present consolidated order.
I have heard the counsels for both the parties, perused the material placed on record, judgements cited before me and also the orders passed by the revenue authorities. From the records, I noticed that the assessee filed her ROI for the A.Y 2010-11 thereby declaring a total income of Rs. 7,04,925/-. The AO had received information from the Investigation Wing that the assessee during the year had purchased goods from two entities namely M/s. Master Trading Co. for a sum of Rs.14,54,648/- and from M/s. Harsh Metal Corporation /Balaji Enterprises / Mahalaxmi Corporation for another sum of Rs.14,76,299/-. As per the report of the Investigation Wing, the said sellers are included in the list prepared by the ‘Maharashtra VAT’ Department in the famous case of Maharashtra VAT Scam where it was reported that the said sellers had issued bogus accommodation purchase bills without making actual supply of goods and the collected VAT had never been deposited with Government account by such tainted entities.
Therefore, AO completed the assessment u/s 144 of the Act in which the entire purchases were treated as bogus purchases and had been disallowed. However, during the appeal, the assessee submitted all the required documents in order to prove that the purchases were legitimate purchases. It was also noticed that the assessee had deposited the due VAT with Maharashtra government and also submitted the supporting documents.
After analysing the entire documents, placed on record Ld.CIT(A) rightly observed that the legitimate payments were received by the assessee against supplies under contract from reputed organisations like Bharat Heavy Electricals Ltd, inter-tech India Private Limited, Titan Antony Aviation India Private Limited and such receipts were never doubted by the revenue. Since the assessee could not produce the supporting evidences of actual supply of goods by the parties mentioned against the accommodation bills. Therefore while following the judicial decisions, where in consistently the courts have held that no sale can be made without procuring the goods as purchase. Therefore, keeping in view the said principles, Ld.CIT(A) estimated the income embedded in such accommodation purchases bills @10% of such purchases.
No new facts or material has been placed on record by the Ld. DR to rebut or controvert the findings so recorded by the Ld. CIT(A) except raising the ground that Ld. CIT(A) has failed to apply the decision of Hon’ble Supreme Court in the case of NK proteins Ltd Vs. DCIT where in the Hon’ble Supreme Court had confirmed the 100% additions on the similar issue.
However, in this regard after analysing the facts of the present case, I found that the decision in the case of NK proteins Ltd (Supra) is not applicable to the facts of the present case, as the facts therein were materially distinguishable from those of the case under consideration.
In N.K. Proteins Ltd., the assessee had allegedly formed shell companies and was actively involved in managing and controlling their operations, including facilitating bank transfers through cheques. The case was supported by substantial and concrete incriminating evidence.
In contrast, in the present case, there is no such incriminating material on record against the respondent, apart from certain external information which lacks corroborative value. Moreover, the respondent has been engaged in a genuine and bona fide business for over a decade, during which no similar allegations have ever been raised.
Apart from the above the distinguishing features of the present case has also been elaborately discussed as in the case of N.K. Proteins Ltd., (supra) the authorities established that the suppliers involved were not genuine businesses but merely fictitious entities or shell companies that were created, managed, and controlled by the assessee himself or by people directly associated with him. These entities existed solely on paper and had no independent business activity or operations.
Whereas in contrast, in the present case, the parties from whom the purchases were made are bona fide, independently functioning businesses with no relationship- direct or indirect-with the respondent. The department has failed to establish with any documentary evidence to suggest any form of control, association, or collusion between the respondent and the alleged vendors.
Moreover, the decision in the case of N.K. Proteins Ltd. was based on the specific finding that the entities alleged to have provided bogus purchases were not genuine. During the investigation, it was revealed that these suppliers did not possess any physical infrastructure or carry out actual business operations, and the addresses provided were either false or non-functional.
Whereas, in contrast, in the present case, the assessee has provided a detailed explanation in the preceding paragraph demonstrating the genuineness of the purchase transactions. Furthermore, I also noticed that the parties concerned were active and duly registered under MVAT during the relevant period, along with their valid TIN details as per the records of the Sales Tax Department.
In N.K. Proteins Ltd., the conclusion that purchases were bogus was also supported by the discovery of incriminating materials such as blank cheques, control over the entities, unsigned invoices, and other documents of the alleged suppliers at the premises of the assessee during the search. These findings indicated that the assessee had direct access to, and control over, the operations of those entities.
However, in the present case, however, no such incriminating material has been found during any inquiry or proceedings. There is no evidence to suggest that the respondent was in possession of, or had control over, any documents or instruments belonging to the suppliers. This further reinforces the independent and arm's length nature of the transactions in question.
In the case of N.K. Proteins Ltd., the additions were made based on concrete evidence, including confessions, seized documents, and links between the assessee and bogus suppliers.
However in the present case, the allegation of bogus purchases appears to be primarily based on third-party information or non-appearance of suppliers, without any direct or substantive and corroborative evidence against the respondent. It is a settled principle that suspicion, however strong, cannot replace actual proof.
In N.K. Proteins Ltd., there was no corroboration of the purchases in the records of the Sales Tax/VAT Department.
Whereas, in the present case, the transactions were reflected in our VAT returns, and the vendor was registered and active during the relevant period. This supports the fact that the transactions were duly reported and subjected to regulatory oversight.
Therefore, it is clear that the facts of present case are totally different from those in the case of N.K. Proteins Ltd. The alleged suppliers in the present case are genuine, independent businesses, with no connection to the respondent, and there is no evidence suggesting that the transactions were fraudulent or that they were part of a scheme to inflate expenses. Therefore, in our view the ratio of judicial pronouncement (N K Proteins Ltd.) is not applicable in the present case respondent and the ground taken by the appellant stands dismissed.
Since under the facts of the present case, since the department has not doubted the sales therefore this fact is sufficient to substantiate the genuineness of the transactions and while reliance is being placed the decisions in the following cases:
CIT -I Versus M/s NIKUNJ EXIMP ENTERPRISES PVT LTD. [2013 (1) TMI 88 (Bombay HC)] 2 Das Offshore Engineering Pvt. Ltd vs DCIT - 1(2) for AY 2009- 10 & 2011- 12 [ITA Nos. 671 & 672/PUN/2016]. 3 Ito 25(2)(1), Mumbai vs Actube Enterprises, Mumbai on 5 August, 2019 [Ι.Τ.Α. Νο.3941/Mum/2017] 4 Ito Ward-3(1), Mumbai vs M Sadashiv & Co, Mumbai on 2 November, 2021 [Ι.Τ.Α. Νο.118/Mum/2021] 5 M/S. Nikunj Eximp Enterprises, Mumbai vs Acit Cent. Cir 2(4), Mumbai on 31 October, 2022 [I.T.A. No.1823, 1819 & 1821/Mum/2021] 6 International Transmission Ltd. Vs. DCIT Mumbai [2016 (2) TMI 504 ITAT Mumbai] 7 Shri. Harilal Chunilal Jain Vs. ITO 14(1)(4) Mumbai [2016 (1) TMI 1089 ITAT Mumbai]
Therefore, considering the entire facts and circumstances of the present case and also keeping in view the settled proposition of law, I dismiss the grounds of appeal raised by the department and consequently dismiss the appeal filed by the department.
In the result, the appeal filed by the revenue stands dismissed.
Order pronounced in the open court on 27.05.2025