What did the Tribunal hold?

The Tribunal found the disallowance of 12.5% to be on the higher side. To meet the ends of justice, it deemed it appropriate to restrict the disallowance to 5% of the unproved purchases and expenses.

The assessee, engaged in garment export and job work, declared an income of Rs. 3,51,350/-. The Assessing Officer disallowed 25% of alleged bogus purchases and expenses, totaling Rs. 11,99,123/-, as the parties involved could not be served. The CIT(A) restricted this disallowance to 12.5%.

What were the issues?

The primary issue was the genuineness of purchases and expenses claimed by the assessee and the quantum of disallowance for unproved amounts.

Zeenat Mohdkhalil Ansari vs ITO | ITAT Mumbai 2021

Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI

Hearing: 08/09/2021Pronounced: 03/12/2021

आदेश/ ORDER

This appeal by the assessee is directed against the order of Commissioner of Income Tax(Appeals)-33, Mumbai [ in short ‘the CIT(A)’] dated 20/12/2020 for the Assessment Year 2012-13.

Shri Prakash Jhunjhunwala appearing on behalf of the assessee submitted that the assessee is engaged in the business of export/local sale of ready made garments and fabric and is also doing job work. The assessee filed her return of income for the assessment year 2012-13 declaring total income of Rs.3,51,350/-. In scrutiny assessment proceedings the Assessing Officer held that the assessee has made bogus purchases amounting to Rs.35,13,988/- from the following parties:

S.No. Name of the party Amount(Rs.) 1. Pack Well 1,28,036 2. Shree Ram Fab 1,20,086 3. Sun Craft 1,62,065 4. Sujay Poly Plast 84,173 5. Sukanya Textiles 30,19,539 Total 35,13,899 Further, the Assessing Officer raised doubt over the payments made to AQD Garments in respect of Clearing & Forwarding Expenses Rs.6,64,656/- and Labour Charges Rs.6,17,935/- aggregating to Rs.12,82,591/-. The Assessing Officer issued notice to the said parties however, the same were received back from Postal Authorities unserved. The assessee furnished various documents to substantiate genuineness of the purchases/ expenses, however, the Assessing Officer rejected the same and made disallowance of 25% of the alleged bogus purchases and the amount paid by the assessee to AQD Garments in respect of clearing and forwarding expenses and labour charges. Thus, the Assessing Officer made addition of Rs.11,99,123/-. Aggrieved by the assessment order dated 31/03/2015 passed u/s 143(3) of the Income Tax Act, 1961 ( in short ‘the Act’), the assessee filed appeal before the CIT(A) . The First Appellate Authority after considering the submissions of the assessee and documents on record restricted the disallowance to Rs.5,99,561/- by estimating disallowance @12.5%. The ld. Authorized Representative for the assessee submitted that the authorities below have failed to take into consideration the confirmations from various parties (alleged accommodation entry providers) before the CIT(A) and Assessing Officer. The assessee had also furnished purchase bills, delivery challans and the bank statement. The assessee has declared G.P of 12.88% during the relevant period. Since, the assessee discharged its onus by furnishing all relevant documents, no addition on account of unproved purchases/expenses is called for. The ld. Authorized Representative for the assessee prayed for deleting the entire addition on account of alleged bogus purchases/expenses.

Per contra, Shri Sanjay J. Sethi representing the Department vehemently defended the impugned order and prayed for dismissing appeal by the assessee. The ld.Departmental Representative submitted that assessee has failed to prove genuineness of the dealers and the purchases made from them. The notices issued to the dealers were received back unserved from the Postal Authorities.

Submissions made by rival sides heard, orders of authorities below examined. The solitary issue in the present appeal is the addition confirmed by the CIT(A) in respect of bogus purchases from suspicious dealers. And unproved clearing and forwarding expenses and labour charges. The Assessing Officer disallowed 25% of the bogus purchases /expenses. The CIT(A) restricted the same to 12.5%. Taking into consideration entire facts and documents on record, I am of considered view that disallowance @12.5% of alleged bogus purchases /expenses is on the higher side. To meet the ends of justice I deem it appropriate to restrict the disallowance to 5% of the unproved purchases/expenses. The appeal of assessee is partly accepted in the aforesaid terms.

In the result, appeal by assessee is partly allowed.

Order pronounced in the open Court on Friday the 3rd day of December, 2021

ZEENAT MOHDKHALIL ANSARI,MUMBAI vs. ITO 21(3)(5), MUMBAI

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