M/S BOSS INFOSOLUTIONS PVT LTD,MUMBAI vs. ITO WARD 12(1)(3), MUMBAI

This appeal by the assessee is directed against the order of learned Commissioner of Income Tax (Appeals)-20 dated 04.12.2019 and pertains to assessment year 2011-12.

GROUND NO. I: REOPENING TO BE BAD IN LAW:

1. 1. On the facts and in circumstances of the case and in law, the Ld. CIT(A) erred in upholding the reassessment proceedings initiated by the Learned Assessing Office (Income tax Officer Ward 12(l)(3))("Ld. AO") under section 147 of the Act.

2. The Appellant prays that the reopening be held to be bad in law. GROUND NO. II: DISREGARDING PURCHASES:

2. The Appellant prays that the purchases be held to be genuine and the same be allowed while computing the taxable income of the Appellant. GROUND NO. III: ADDITION ON ACCOUNT OF PURCHASES FROM M/s. GLOBAL 1MPEX (INDIA):

1. 1. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in upholding the action of the Ld. AO in disallowing purchases made from M/s Global Impex (India) on the basis of third party statement. . .

2. The Appellant prays that the Ld. AO be directed to allow the purchases from M/s. Global Impex (India).

3. Brief facts of the case are that assessee is engaged in the business of wholesale and retail trade of computers and its peripheral/parts. Upon information received from Sales tax department regarding bogus purchases, the AO reopened and issued notice to the assessee. The assessee responded as under;-

In response to the same the assessee's representative vide letter dated 12-11-2018 submitted that the assessee has discharged its primary onus of providing the purchase details in the form of purchase bills, ledger account, bank details and subsequent sale of the products. The assessee further stated that the purchases made from the above party was properly recorded in the books of assessee and the payments were made through bank accounts. The said purchases were subsequently sold and the same was recorded in the sales tax return. The assessee further contended that non-service of notice u/s. 133(6) is not a basis for disallowance of purchase. The assessee, therefore, contended that the purchases are genuine and no additions on this account is warranted.

Under this circumstance, after considering the submissions and perusing the material available on record and in view of lack of material deficiencies, I hold that since purchase shown by the assessee during the year remained unverifiable, there is a leakage of revenue. Therefore, books of account of the assessee is hereby rejected to the extent of hawala purchase by invoking the provisions of Section 145(3) of the I.T. Act, 1961, As mentioned hereinabove, the purchase rate as mentioned in the alleged purchase bill cannot be accepted. Any person indulging in the practice of purchasing goods from the grey market and obtaining bills of other parties to support the grey purchases of the alleged qualification as genuine purchases, would do so for getting some benefit. But what would be the magnitude of the benefit in this type of case. The above noted party become conduit between the assessee and the seller of the goods. Under the circumstances, it was able to inflate the price of goods. Accordingly, the purchases made from the above party is treated as non-genuine and assessee could not explain these expenses satisfactory beyond1 any doubt and the same is disallowed u/s. 69C of the Income Tax Act on the following findings:- (i) that the physical delivery of the goods were obtained from the party based in grey market and to give it colour of being a genuine purchase, the bogus bill/ accommodation bill was obtained from the supplier who declared himself as Hawala Dealers under MVAT •Act, 2002. . (ii) Though the purchase alleged as genuine and shown to have been made by making payment thereof by an account payee cheque, the cheques have been deposited in bank account ostensibly in the name of the apparent seller. ' (iii) The assessee has produced certain details but could not prove beyond doubt that the transactions were genuine. Even though the details of supplier and goods purchased are filed it cannot be relied upon as the Sales Tax Registration of the said supplier stood cancelled with effect from 2011. The supplier has intentionally stayed away from the confirmation of account as they are aware that the said transactions were not genuine. In the absence of details from the supplier no further enquiry could be made regarding the transfer of money from their account. (iv). Moreover, the party have given affidavit before the Sales Tax Department that they have not supplied the goods and only bills were issued. They have further confirmed that they have received the cheques against such bogus purchase bills. Subsequent to the action by the Sales Tax Department these parties have closed their bank account and left the premises in which bills were issued. These parties were only paper concerns and had no capacity to purchase these items and had no facility to store these stocks. They have issued bills for different type of goods which they have not purchased and had no stocks and had no infrastructure to store such items. (v) Reliance is placed in the Supreme Court decision in the case of N.K.Proteins wherein it was held that in case of bogus purchases 100% disallowance is required as these parties have been declared bogus. Further, recently the Hon’ble Bombay High Court has held that disallowance should be made in respect of bogus purchases. It is further seen that the assessee has shown a meagre net profit . of Rs. 1,98,981 on a sales turnover of Rs. 6,60,16,842/- which is quite abnormal in the field of wholesale and retails of computer and peripherals in the financial year 2010-11 when there was great demand for computer and peripherals. The assessee has indulged in the practice of bogus purchase to inflate the expenses and reduce the profits. Considering the facts of the case, I am of the considered opinion that expenses are covered under section 69C of the Income Tax Act and the expenses incurred in the form of non-genuine purchases of Rs. 13,11,393/-from M/s. Globe Impex (India) is disallowed and added to the income of the assessee. Penalty proceeding under section 271 (l)(c) and explanations thereof of the Act are initiated for concealment of income.

6. As regards, Ld.CIT(A)’s order on reopening. I have heard both the parties and perused the records. I find that the above order is laconic order without proper application of mind. It is settled law that even administrative orders have to be consistent with rules of natural justice. Hence, I remit the issue to the file of the Ld.CIT(A) to pass proper speaking order after granting the assessee proper opportunity of being heard.

7. As regards merits, I note that Ld.CIT(A) has held that part rejection of books of accounts as been done by the AO is correct. I find that this limb of Ld.CIT(A)/adjudication is also not sustainable. As the same books cannot be accepted and rejected at the same time. The common law maxim of approbate and reprobate does not mandate such a view point. Furthermore, the merits of the addition have also been upheld by the Ld.CIT(A). I note that merely on the basis of return of notice issued u/s. 133(6) as unserved 100% disallowance is not at all sustainable. In this regard, the case law from Nikunj Eximp Enterprises( in Writ Petition No.2860, order dated 18.06.2014)of the Hon’ble Jurisdictional High Court and in the case of Mohammad Hazi Adam & Co in of 2006, dated 11.02.2019 of Hon’ble High Court are germane. These relevant decisions of Hon’ble Bombay High Court have not been considered by Ld.CIT(A). Hence, since I have already remitted the issue of reopening in the file of Ld.CIT(A), Ld.CIT(A) is directed to consider the issue on merits afresh keeping in mind, the observations hereinabove.