INCOME TAX OFFICER WARD 3(2) , KALYAN vs. M/S. RAS ENTERPRISES, KALYAN

PER OM PRAKASH KANT, AM

1. On the facts and in the circumstances of the case and in law, the On the facts and in the circumstances of the case and in law, the On the facts and in the circumstances of the case and in law, the Ld. CIT (NFAC) erred in restricting the disallowance to 12.5% of Ld. CIT (NFAC) erred in restricting the disallowance to 12.5% of Ld. CIT (NFAC) erred in restricting the disallowance to 12.5% of purchases instead purchases instead of 100% of purchases from nonexistent of 100% of purchases from nonexistent vendors by not following the judgment dated 26.06.2016 of the vendors by not following the judgment dated 26.06.2016 of the vendors by not following the judgment dated 26.06.2016 of the Hon'ble Gujrat High Court in the case of N. K. Proteins Ltd. Hon'ble Gujrat High Court in the case of N. K. Proteins Ltd. Hon'ble Gujrat High Court in the case of N. K. Proteins Ltd. against which SLP of the assessee was dismissed by the Apex against which SLP of the assessee was dismissed by the Apex against which SLP of the assessee was dismissed by the Apex Court wherein addition on account o Court wherein addition on account of bogus purchases has been f bogus purchases has been upheld in entirety. upheld in entirety.

2. On the facts and in the circumstances of the case and in law, Ld. On the facts and in the circumstances of the case and in law, Ld. On the facts and in the circumstances of the case and in law, Ld. CIT (NFAC) erred in deleting the above addition despite the fact CIT (NFAC) erred in deleting the above addition despite the fact CIT (NFAC) erred in deleting the above addition despite the fact that the assessee failed to discharge his onus of proving the that the assessee failed to discharge his onus of proving the that the assessee failed to discharge his onus of proving the purchases. purchases. 2. Briefly stated, the facts of the case are that in view of the Briefly stated, the facts of the case are that in view of the Briefly stated, the facts of the case are that in view of the information received from the Sales Tax Department about receipt information received from the Sales Tax Department about receipt information received from the Sales Tax Department about receipt of bogus purchase bills by the assessee from four entities, the of bogus purchase bills by the assessee from four entities, the of bogus purchase bills by the assessee from four entities, the assessment was reopened by way of issue of notice u/s 148 of the assessment was reopened by way of issue of notice u/s 148 of the assessment was reopened by way of issue of notice u/s 148 of the Income Tax Act, 1961 (in short ‘the Act’). During assessment Income Tax Act, 1961 (in short ‘the Act’). During assessment Income Tax Act, 1961 (in short ‘the Act’). During assessment proceedings, the Assessing Officer noticed that assessee derived proceedings, the Assessing Officer noticed that assessee derived proceedings, the Assessing Officer noticed that assessee derived income from business of manufacturing and trading of pumps used income from business of manufacturing and trading of pumps used income from business of manufacturing and trading of pumps used in chemical industries. During the year under consideration, the in chemical industries. During the year under consideration, the in chemical industries. During the year under consideration, the assessee had shown total turnover of ssessee had shown total turnover of ₹81,89,551/- and gross profit and gross profit of ₹12,14,110/- was shown at a gross profit rate of 14.81% as was shown at a gross profit rate of 14.81% as was shown at a gross profit rate of 14.81% as compared to turnover of preceding year of compared to turnover of preceding year of ₹12,35,285/ 12,35,285/- on which of ₹14,30,000/- was shown at a gross profit rate of 13.97%. The shown at a gross profit rate of 13.97%. The shown at a gross profit rate of 13.97%. The Assessing Officer asked the assessee to produce four parties from Assessing Officer asked the assessee to produce four parties from Assessing Officer asked the assessee to produce four parties from whom purchases of whom purchases of ₹5,71,056/- were recorded in the books of were recorded in the books of account of the assessee. However, the assessee failed to produce account of the assessee. However, the assessee failed to produce account of the assessee. However, the assessee failed to produce those parties and therefore, the Assessing Officer disallowed those parties and therefore, the Assessing Officer disallowed those parties and therefore, the Assessing Officer disallowed corresponding purchases of responding purchases of ₹5,71,056/- in the assessment in the assessment completed on 18.07.2014 u/s 147 of the Act. On further appeal, the completed on 18.07.2014 u/s 147 of the Act. On further appeal, the completed on 18.07.2014 u/s 147 of the Act. On further appeal, the Ld. CIT(A) distinguished the finding of the Hon’ble Gujarat High Ld. CIT(A) distinguished the finding of the Hon’ble Gujarat High Ld. CIT(A) distinguished the finding of the Hon’ble Gujarat High Court in the case of N.K. Proteins v. DCIT (supra) and following the Court in the case of N.K. Proteins v. DCIT (supra) and following the Court in the case of N.K. Proteins v. DCIT (supra) and following the finding of the predecessor in assessment year 2010 inding of the predecessor in assessment year 2010- 11 and 2011-12 and also finding of the Tribunal, Mumbai Bench in the case of and also finding of the Tribunal, Mumbai Bench in the case of and also finding of the Tribunal, Mumbai Bench in the case of Kanchan FerroMet Kanchan FerroMet ITA No. 1552/Mum/2017 restricted the disallowance to the extent of 25% of the amount of unproved disallowance to the extent of 25% of the amount of unproved disallowance to the extent of 25% of the amount of unproved purchases of ₹5,71,056/ ,71,056/-. The Ld. CIT(A) held that the Assessing . The Ld. CIT(A) held that the Assessing Officer has not disputed the sale or the closing stock Officer has not disputed the sale or the closing stock Officer has not disputed the sale or the closing stock and therefore, it is not the case that that those purchases have not been made at all by been made at all by the assessee. The assessee . The assessee has obtained purchases from somewhere has obtained purchases from somewhere else and bills from those parties. The relevant finding of the Ld. lse and bills from those parties. The relevant finding of the Ld. lse and bills from those parties. The relevant finding of the Ld. CIT(A) is reproduced as under: CIT(A) is reproduced as under:

8.4 I have carefully considered the facts of this case, the facts I have carefully considered the facts of this case, the facts I have carefully considered the facts of this case, the facts collected by the Id. AO, the arguments put forth by the Id. AR, collected by the Id. AO, the arguments put forth by the Id. AR, collected by the Id. AO, the arguments put forth by the Id. AR, various decisions related to various decisions related to the facts which are similar to this case the facts which are similar to this case and the decisions by the predecessor Ld. CIT(A) in the appellant's and the decisions by the predecessor Ld. CIT(A) in the appellant's and the decisions by the predecessor Ld. CIT(A) in the appellant's own case, on exactly similar facts. In the gamut of the facts of this own case, on exactly similar facts. In the gamut of the facts of this own case, on exactly similar facts. In the gamut of the facts of this case, I find myself in consonance with the decision delivered by the case, I find myself in consonance with the decision delivered by the case, I find myself in consonance with the decision delivered by the predecessor CIT(A)3, Nasik that the genuineness of the purchase sor CIT(A)3, Nasik that the genuineness of the purchase sor CIT(A)3, Nasik that the genuineness of the purchase bills have not been established in this case. However, it has also not bills have not been established in this case. However, it has also not bills have not been established in this case. However, it has also not been established that the purchases were not made at all. The Id. AO been established that the purchases were not made at all. The Id. AO been established that the purchases were not made at all. The Id. AO has not disputed the amounts of sale or of the closing stock has not disputed the amounts of sale or of the closing stock has not disputed the amounts of sale or of the closing stock. It is also not known at what price the appellant may have made these not known at what price the appellant may have made these not known at what price the appellant may have made these purchases from the unknown parties' and thus, one cannot rule out purchases from the "unknown parties' and thus, one cannot rule out purchases from the "unknown parties' and thus, one cannot rule out the possibility of their being an inflation in the amounts of the possibility of their being an inflation in the amounts of the possibility of their being an inflation in the amounts of purchases. In view of all these facts it is directed tha purchases. In view of all these facts it is directed that an amount of t an amount of 25% of the amounts of unproved purchases of Rs. 5,71,056 be 25% of the amounts of unproved purchases of Rs. 5,71,056 be 25% of the amounts of unproved purchases of Rs. 5,71,056 be disallowed.”

3. Aggrieved, the Revenue is in appeal before the Tribunal raising Aggrieved, the Revenue is in appeal before the Tribunal raising Aggrieved, the Revenue is in appeal before the Tribunal raising the grounds as reproduced above. the grounds as reproduced above.

“8.1 The appellant has submitted copies of the The appellant has submitted copies of the purchase bills and purchase bills and copy of the bank statement showing that it had made the purchases copy of the bank statement showing that it had made the purchases copy of the bank statement showing that it had made the purchases and payments are made by cheques. The assessee has also and payments are made by cheques. The assessee has also and payments are made by cheques. The assessee has also submitted that the material was consumed in manufacturing. I find submitted that the material was consumed in manufacturing. I find submitted that the material was consumed in manufacturing. I find that the ld. AO has rested his case only with a that the ld. AO has rested his case only with a finding that the finding that the parties from whom the alleged bogus purchases were made could parties from whom the alleged bogus purchases were made could parties from whom the alleged bogus purchases were made could not be traced or produced before the AO. He has not established any not be traced or produced before the AO. He has not established any not be traced or produced before the AO. He has not established any fact to show that the appellant did not at all make any purchase fact to show that the appellant did not at all make any purchase fact to show that the appellant did not at all make any purchase amounting to amounting to ₹5,71,056. Thus, from the facts on record, it may be on record, it may be safely inferred that this is not a case of bogus purchase but it is a safely inferred that this is not a case of bogus purchase but it is a safely inferred that this is not a case of bogus purchase but it is a case of obtaining bogus bills to support purchases made from case of obtaining bogus bills to support purchases made from case of obtaining bogus bills to support purchases made from 'unknown' sources. To this extent, in my view, the ratio of N.K 'unknown' sources. To this extent, in my view, the ratio of N.K 'unknown' sources. To this extent, in my view, the ratio of N.K Proteins vs. DCIT is not applicable to Proteins vs. DCIT is not applicable to the facts of this case. In N K the facts of this case. In N K Proteins, it was established that the assessee had inflated the Proteins, it was established that the assessee had inflated the Proteins, it was established that the assessee had inflated the purchases as during search at the office premises, blank signed purchases as during search at the office premises, blank signed purchases as during search at the office premises, blank signed cheque books, vouchers, blank bill books, letter heads of various cheque books, vouchers, blank bill books, letter heads of various cheque books, vouchers, blank bill books, letter heads of various concerns were found and it was concerns were found and it was established that these concerns established that these concerns were floated by the assessee just to create a facade of transactions were floated by the assessee just to create a facade of transactions were floated by the assessee just to create a facade of transactions for inflating expenses, such as purchase, etc for inflating expenses, such as purchase, etc”. 4.1 Before us, the Ld. DR could not support as how the ratio in the Before us, the Ld. DR could not support as how the ratio in the Before us, the Ld. DR could not support as how the ratio in the case of N.K. Proteins (supra) would app case of N.K. Proteins (supra) would apply over the facts of the case facts of the case where sales have not been doubted by the Ld. Assessing Officer where sales have not been doubted by the Ld. Assessing Officer where sales have not been doubted by the Ld. Assessing Officer and only defect has been raised by the Assessing Officer is non only defect has been raised by the Assessing Officer is non only defect has been raised by the Assessing Officer is non- production of those purchase parties. Though in the year under production of those purchase parties. Though in the year under production of those purchase parties. Though in the year under consideration, gross profit rate of consideration, gross profit rate of the assessee is better as compared the assessee is better as compared to the earlier year, however, the Ld. CIT(A) following the decision of the earlier year, however, the Ld. CIT(A) following the decision of the earlier year, however, the Ld. CIT(A) following the decision of the Tribunal has restricted the disallowance to the 25% of the as restricted the disallowance to the 25% of the as restricted the disallowance to the 25% of the unproved purchases of unproved purchases of ₹5,71,056/-. In our opinion, the order of the . In our opinion, the order of the Ld. CIT(A) on the issue Ld. CIT(A) on the issue-in-dispute is well reasoned and we do not dispute is well reasoned and we do not find any error in the same. Accordingly, we uphold the same. The find any error in the same. Accordingly, we uphold the same. The find any error in the same. Accordingly, we uphold the same. The grounds raised by the Revenue are accordingly dismissed. grounds raised by the Revenue are accordingly dismissed. grounds raised by the Revenue are accordingly dismissed.