ITO 32(1)(2), MUMBAI vs. C S SHARMA & CO., MUMBAI

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ITA 1120/MUM/2020Status: DisposedITAT Mumbai03 December 2021AY 2011-123 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal upheld the CIT(A)'s decision, stating that only the suppressed profit element embedded in bogus purchases can be taxed, not the entire purchase amount. The High Court's decision in a similar case was relied upon.

What were the facts?

The Revenue appealed against the CIT(A)'s order which restricted the addition for bogus purchases to 12.5% of the total amount, instead of the 100% disallowance made by the Assessing Officer. The assessee was engaged in construction and related activities.

What were the issues?

Whether the entire amount of bogus purchases should be disallowed, or only the profit element embedded therein.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 147,Section 133(6)

AI-generated summary — verify with the full judgment below

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

Before: SHRI VIKAS AWASTHY

Hearing: 07/09/2021Pronounced: 03/12/2021

ORDER This appeal by the Revenue is directed against the order of Commissioner of Income Tax(Appeals)-46, Mumbai [ in short ‘ the CIT(A)’] dated 01/11/2019 for the Assessment Year 2011-12.

2.

The solitary issued raised in this appeal by the Revenue is against relief granted by the CIT(A) in respect of alleged bogus purchases made by the assessee.

3.

Brief facts of the case as emanating from records are: The assessee is engaged in the business of construction, weather proofing, structural rehabilitation, etc. The assessment for Assessment Year 2011-12 in the case of assessee was reopened on the ground that that assessee has obtained bogus purchase bills aggregating to Rs.27,09,645/- from the parties engaged in providing bogus bills. During the course of assessment proceedings the Assessing Officer issued notice u/s 133(6) of the Income Tax Act, 1961 ( in short ‘the Act’) to the parties from whom the assessee had allegedly obtained bogus purchase bills. The notices remained unserved and were returned by the Postal Authorities with remarks “left/not known/unclaimed”. Since, the assessee failed to produce the parties or produced any documentary evidence to substantiate actual delivery of goods, the Assessing Officer made addition of the entire unproved purchases. Aggrieved by the assessment order dated 11/02/2016 passed u/s 143(3) r.w.s. 147 of the Act, the assessee filed appeal before the CIT(A). The First Appellate Authority after examining the facts upheld the findings of Assessing Officer to the extent that the assessee has indulged in obtaining bogus purchase bills. However, the CIT(A) in the light of various case laws cited before him estimated suppressed profit on bogus purchases at 12.5% and restricted the addition to 3,38,705/-. Against the above finding of CIT(A), the Revenue is in appeal before the Tribunal.

4.

Ms. Smita verma representing the Department vehemently supported the order of Assessing Officer and prayed for reversing of the order of CIT(A).

5.

Shri Subramanian appearing on behalf of the assessee/respondent strongly supported the impugned order and prayed for dismissing appeal of the Revenue.

6.

Both sides heard orders of authorities below examined. The Revenue is in appeal against the finding of CIT(A) in restricting disallowance on bogus purchases to 12.5% as against 100% disallowance made on bogus purchases by the Assessing Officer. A perusal of the assessment order reveals that the Assessing Officer has accepted the turn over and inventory declared by the assessee. Without purchases the assessee could not have carried out the construction activities/ structural rehabilitation activities. 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 such like transaction it is only the suppressed profit element embedded in the transaction that can be brought to tax, entire purchases cannot be disallowed. In the instant case, the CIT(A) has estimated suppressed profit margin on bogus transaction @12.5%. I see no reason to interfere with the impugned order. Accordingly, the same is upheld and the appeal of Revenue is dismissed being devoid of any merit.

7.

In the result, appeal by the Revenue is dismissed.

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

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