INCOME TAX OFFICER 4(2)(4), MUMBAI, MUMBAI vs. KMS MEDISURGI PRIVATE LIMITED, MUMBAI

आअसं. 6172/मुं/2019 (िन.व.2011-12 ) (A.Y. 2011-12) course of scrutiny assessment proceedings, the Assessing Officer (AO) found that the assessee has obtained accommodation entries aggregating to Rs. 15,88,861/- from following vendors declared as hawala operators: Sr.No. Name of the party Purchases during the year 1 Shreeji Sales 4,47,930/- 2 Caprihans Trade Centre 4,80,113/- 3 Growell Enterprises 4,46,513/- 4 Alpesh Trading Co. 2,14,305/- Total Rs. 15,88,861/- The AO issued notices under section 133(6) of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’] to the aforesaid parties, however, the notices were received back unserved from postal authorities with remarks “Left/Not Known”. The notice was served to only one vendor i.e. Alpesh Trading Co. The said vendor despite service of notice did not respond. Though, the payments were made by assessee to the aforesaid vendors through banking channel, nevertheless, no confirmations from the vendors were filed by the assessee to substantiate genuineness of the transactions. Further, no document was produced by the assessee to prove trail of goods. The AO held the transactions with the aforesaid parties as non-genuine and made addition of the entire bogus purchases. Aggrieved by the assessment order dated 27.02.2014, the assessee filed appeal before the CIT(A). The First Appellate Authority after examining facts of the case and submissions of assessee restricted the disallowance on bogus purchases to Rs. 2,38,329/- by estimating suppressed profit margin on bogus आअसं. 6172/मुं/2019 (िन.व.2011-12 ) (A.Y. 2011-12) purchases @ 12.5%. Now, the Revenue is in appeal against the relief allowed by the CIT(A).

Sh. Sanjay J. Sethi representing the Department vehemently defended the assessment order. The ld. DR submitted that the assessee has failed to prove genuineness of the dealers and the purchases made from them during the period relevant to the AY under appeal. The ld. DR prayed for reversing the findings of CIT(A) and restoring the disallowance made by the AO.

Submissions made by ld. DR heard, orders of the authorities below examined. Undisputedly, the assessee failed to discharge its onus in proving genuineness of the vendors and the purchases made from them. The assessee could neither produce the vendors nor any confirmations was furnished by the assessee from the said vendors. Payments made through banking channel are not sacrosanct and does not absolve the assessee to discharge its onus in proving genuineness of the transaction. At the same time, it is observed that the sales turnover declared by the assessee has been accepted by the AO. Without purchases, there cannot be sales. Therefore, it is only the suppressed profit margin embedded in such transactions that can be brought to tax (Re: PCIT vs. Paramshakti Distributors Pvt. Ltd. in Income Tax Appeal No. 413 of 2017 decided on 15.07.2019).

Ergo, disallowance of 100% alleged bogus purchases by the AO is unjustified. A perusal of the impugned order reveals that in the submissions made before the CIT(A), the assessee has contended that it has already offered Gross Profit (GP) @ 45.22% on the sales made to various parties. The CIT(A) after considering the entire facts has restricted disallowance on unproved