M/S. SPECIFIC ASSIGNMENTS PVT. LTD,MUMBAI vs. ITO 8(2) (3) , MUMBAI

The assessee in appeal has challenged reopening of assessment u/s. 147 of the Income Tax Act, 1961 [ in short ‘the Act’], as well as addition of Rs.24,41,715/- on account of alleged bogus purchases.

Shri Jayant Bhatt appearing on behalf of the assessee restricted his submissions only to the ground No.4 assailing addition on account of bogus purchases. The ld.Authorized Representative of the assessee submitted that the assessee is engaged in the business of printing. The assessment for assessment year 2010-11 in the case of assessee was reopened on the basis of information received from Sales Tax Department, Government of Maharashtra. As per the information the assessee allegedly obtained bogus purchase bills amounting to Rs.24,41,715/- from Padmavati Enterprises during the period relevant to the assessment year under appeal. The Assessing Officer made addition of the entire alleged bogus purchases. Aggrieved by the assessment order dated 30/11/2017, the assessee filed appeal before the CIT(A) challenging validity of reopening, as well as the addition on merits. The CIT(A) dismissed the appeal of assessee and upheld the assessment order. The ld.Authorized Representative of the assessee submitted that in assessment year 2009-10 similar additions on account of bogus purchases were made. One of the party in assessment year 2009-10 was M/s. Padmavati Enterprises , the same as in the assessment year under appeal. The Tribunal in decided on 30/06/2017 deleted the addition in entirety in respect of alleged bogus purchases from the said party. The ld.Authorized Representative of the assessee prayed that following the order of Tribunal in assessee's own case for assessment year 2009-10 the addition may be deleted in full.

Per contra, Shri Anil Gupta representing the Department vehemently defended the impugned order. The ld.Departmental Representative submitted that the assessee has failed to prove authenticity of the suppliers. During the assessment proceedings, the Assessing Officer issued notice under section 133(6) of the Act to M/s. Padmavati Enterprises. The notice was received back unserved from Postal Authorities with the remarks “Left” . No evidence was furnished by the assessee to substantiate that the material was ever despatched by the supplier and was ever received by the assessee. No lorry receipts, stock register or inward register was furnished by the assessee. In the absence of any supporting documents the Assessing Officer was constrained to make addition of the entire bogus purchases. The ld.Departmental Representative further submitted that M/s. Padmavati Enterprises is one of the hawala operator identified by the Sales Tax Department, Government of Maharshtra.

We have heard the submissions made by rival sides and the orders of authorities below. We have also considered the decision of Co-ordinate Bench of the Tribunal in assessee's own case for assessment year 2009-10. Undisputedly, the assessee failed to prove the authenticity of the supplier and genuineness of the transactions during the period relevant to the assessment year under appeal. Thus, in the facts of the case for the impugned assessment year entire addition made on account bogus purchases cannot be deleted. At the same time entire alleged bogus purchases cannot be added as revenue has accepted the turnover declared by the assessee. Without purchases/ inputs there cannot be processing or sale of goods. Therefore, it is only profit element embedded in unproved transactions that has to be brought to tax. [Re: PCIT vs. Paramshakhti Distributors Pvt. Ltd. in Income Tax Appeal No.413 of 2017 decided on 15/07/2019 by Hon'ble Bombay High Court]. We find that the Co-ordinate Bench in assessment year 2009-10 had sustained the addition on account of bogus purchases @5% of such purchases from other parties from whom the assessee had unproved transactions. Taking into consideration entirety of facts, we deem it appropriate to restrict the addition to 5% of such purchases in the impugned assessment year. The ground No.4 of the appeal is thus, partly allowed.

In so far as ground No.1 to 3 are concerned no submissions were made by the ld.Authorized Representative of the assessee at this stage, therefore, they are left open.

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