SHIVJI PARBAT PATEL,MUMBAI vs. ITO WARD 19 (3)(3), MUMBAI

This appeal is filed by the assessee against order of the Learned Commissioner of Income Tax (Appeals)–30, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 27.09.2019 for the A.Y. 2009-10.

Brief facts of the case are that, return of income for the A.Y.2009-10 was originally filed on 29.09.2009 declaring total income at (A.Y: 2009-10) Shri Shivji P. Patel ₹.4,79,960/- and the return was processed u/s. 143(1) of the Income-tax Act, 1961 (in short “Act”). Subsequently the case was reopened u/s. 147 of the Act by issue of notice u/s. 148 of the Act after recording reasons. The assessee vide his letter dated 17.12.2015 had requested to treat the return originally filed in response to the notice u/s. 148 of the Act. Subsequently notice u/s. 142(1) of the Act was issued and served on the assessee along with questionnaire. Assessee engaged in the business of counter retail sale of computer and computer related peripheral products/parts. The Assessing Officer received information from DGIT (Investigation), Mumbai based on the information received from Sales Tax Department, Government of Maharashtra about the dealers who are indulging in the practice of providing accommodation entries in the form of issuing bogus purchases without sales. Based on the above information Assessing Officer observed that assessee has availed accommodation entries from the 14 parties during this year to the extent of ₹.1,58,70,426/-. Based on the information submitted by the assessee, Assessing Officer rejected the information and contentions of the assessee and treated the purchases made from the parties as non-genuine and proceeded to estimate the profit element at 12.5% of the non-genuine purchases, disallowed ₹.19,83,804/-. Aggrieved assessee preferred an appeal before the Ld.CIT(A) and filed detailed submissions along with (A.Y: 2009-10) Shri Shivji P. Patel various case laws. After considering the detailed submissions of the assessee, Ld.CIT(A) agreed with the finding of the Assessing Officer that these are non-genuine purchases and not convinced with the estimation of income adopted by the Assessing Officer. Accordingly, issued notice for enhancement u/s. 251(1)(a) of the Act and served on the assessee. Since there was no compliance to the notice of enhancement, Ld.CIT(A) proceeded to sustain 100% of the non-genuine purchases with the following observation: - “6.12 The assessee-appellant did not avail the opportunities provided of being heard. The findings of the Ld.AO with respect to purchases have not been rebutted; no further material was brought on record during appellate proceedings to substantiate the purchases held to be bogus by the Ld.AO. Mere filing of paper book without explaining the contents therein cannot tantamount to rebuttal. In the light of the above facts, there is no merit in the appeal. The grounds of appeal no 1 with respect to the addition by the Ld AO estimating the income to be 12.5 percent of the bogus purchases is dismissed. The income is enhanced to Rs. 1,58,70,426/being 100% of such purchases claimed as expenses in the Profit & Loss account, disallowed u/s 37(1) as it does not satisfy the conditions specified therein. Consequently, the income assessed by the AO, being 12.5% of the bogus purchases of Rs.19,83,804/- is enhanced to Rs. 1,58,70,426/-.”

After considering the material placed on record we noticed that the Assessing Officer and the Ld.CIT(A) came to the conclusion that the purchases made by the assessee are non-genuine and Assessing Officer has considered all the information available on record and came to the conclusion that the income of the assessee should be estimated considering the fact assessee has sold the materials purchased from gray market. On the other hand, Ld.CIT(A) rejected the same and sustained the 100% of the non-genuine purchases by relying on certain case law overlooking the fact that the Hon'ble High Courts including Hon'ble Jurisdictional High Court has held that when the non-genuine purchases are supported by onward sales, only the profit element has to be disallowed and bring to tax, not the whole purchases. Therefore, we are (A.Y: 2009-10) Shri Shivji P. Patel not in agreement with the finding of the Ld.CIT(A) and accordingly we are in agreement with the finding of the Assessing Officer. Coming to the submissions of the assessee that the income should be estimated only to the extent of 5% by relying on decision of the Coordinate Bench we observe that the Coordinate Bench has sustained the addition at 5% of the non-genuine purchases considering the fact that the respective assessees were in the business of iron and steel whereas in the present case the assessee is into computer and related peripherals business. Therefore, in our considered view the addition made by the Assessing Officer is proper and reasonable, accordingly appeal filed by the assessee is partly allowed.

In the result, appeal filed by the assessee is partly allowed.