DCIT, CIRCL- 14(1)(1), MUMBAI vs. ALI ISPAT PT. LTD., MUMBAI

As per the Objection Memo issued by the Registry this appeal is time barred by 93 days. Shri Mehul Jain representing the Department submitted that the delay in filing of the appeal was on account of COVID-19 Pandemic. The Hon'ble Supreme Court of India taking cognizance of the hardships caused by pandemic, on its own motion took up the matter and extended limitation period under all laws by passing a general order reported as Cognizance for Extension of Limitation, 132 taxamann.com 123. In view of the time limit extended by the Hon’ble Apex Court, there is no delay in filing of the appeal.

The ld. Departmental Representative submitted that the solitary issue in this appeal by the Revenue is against relief granted by the CIT(A) in restricting addition on account of bogus purchases to 10% as against disallowance of entire bogus purchases made by the Assessing Officer. The ld. Departmental Representative submitted that during the course of assessment proceedings Assessing Officer found that the assessee had obtained bogus purchases bills to the tune of Rs.1,81,44,292/- from hawala operators. During the course of assessment proceedings the assessee failed to substantiate genuineness of the purchases. No delivery challans, stock register, octroi receipts, etc. were produced by the assessee. Further, the assessee failed to produce the dealers from whom materials were allegedly purchased. Hence, the Assessing Officer made addition of the entire bogus purchases. In the First Appellate proceedings the CIT(A) restricted the addition to 10% of the bogus purchases following the order of Tribunal in assessee’s own case for Assessment Year 2010-11. The ld. Departmental Representative placed reliance on the decision of Hon'ble Supreme Court of India in the case of N.K. Proteins Vs. DCIT in SLP No.(C) 769 of 2017 decided on 16/01/2017 and prayed for upholding the assessment order.

Per contra, Shri Sameer G. Dalal appearing on behalf of the assessee vehemently defended the impugned order. The ld. Authorized Representative for the assessee submitted that entire alleged bogus purchases cannot be added , it is only the profit element embedded in such purchases that can be brought to tax. The Tribunal in assessee’s own case in decided on 24/10/2017 restricted the addition to 10% of the bogus purchases . The CIT(A) following the decision of Tribunal and restricted the addition to 10%.

Both sides heard, orders of authorities below examined. The assessee is engaged in trading of MS Pipes, Beams, Channels, etc. During the period relevant to assessment year under appeal, the assessee allegedly made bogus purchases to the tune of Rs.1,81,44,292/- from various (four) dealers. Undisputedly, the assessee failed to discharge its onus in proving genuineness of purchases from the said dealers. At the same time it is observed that the sales turnover declared by the assessee was accepted by the Revenue. Hence, without purchases there could not have been sales. The Hon'ble Jurisdictional High Court in the case of PCIT vs. Paramshakhti Distributors Pvt. Ltd. in Income Tax Appeal No.413 of 2017 decided on 15/07/2019 has held that in case of unproved purchases it is only the profit element embedded in such transaction that can be brought to tax. In the preceding Assessment Year the Co-ordinate Bench in similar set of facts has restricted the addition to 10% of unproved purchases. The CIT(A) followed the order of Tribunal in restricting the addition to 10% in the impugned assessment year as well. We see no error in the findings of CIT(A) hence, the same are upheld and appeal by the Revenue is dismissed being devoid of any merit.