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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SRI MAHAVIR SINGH
O R D E R भहावीय स िंह, उऩाध्मक्ष के द्वाया / PER MAHAVIR SINGH, VP: This appeal of Revenue is arising out of order of the Commissioner of Income Tax (Appeals)]-38, Mumbai [in short CIT(A)], in appeal No. CIT(A)-38/ACIT-26(2)/IT.508/2015-16 vide dated 28.06.2018. The Assessment was framed by the Asst. Commissioner of Income Tax, Circle-26(2) Mumbai (in short ACIT/ AO) for the A.Ys. 2010-11 vide dated 21.01.2016 under section 143(3) of the Income-tax Act, 1961 (hereinafter ‘the Act’).
The only issue in this appeal of Revenue is against the order of CIT(A) restring the disallowance made by AO applying the profit rate at 25% of the bogus 2 Mahesh Vasant Raut; AY 11-12 purchase instead of 100%. For this Revenue has raised the following ground in AY 2010-11:-
1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in restricting the disallowance to 25% of the total amount of bogus purchase transaction instead of 100% of the total amount of bogus purchases made by the AO.
Brief facts of the case are that the assessee is engaged in the business of Manufacturing processing, and packing Lift materials from one point to another point. The AO received information from DGIT (Investigation), who in turn received information from Sales Tax Department, Mumbai that the assessee has made purchases from hawala parties, as listed in hawala dealers by the Maharashtra Sales Tax Department who are providing bogus bills of purchase amounting to Rs. 1,61,428/- for AY 2010-11 from the following hawala parties:
For 2010-11 Name of the Party Amount (Rs) S.M. Trading Co. 10,608/- Mahavir Trading Company 1,50,820/- Total 1,61,428/- 4. During the course of assessment proceedings, assessee has failed to produce delivery challans. According to the AO, the assessee failed to establish the genuineness of the purchase and accordingly, he made full addition of unproved purchase of 3 Mahesh Vasant Raut; AY 11-12 ₹ 1,61,428/- for AY 2010-11 to the returned income of the assessee. Aggrieved, assessee preferred the appeal before CIT(A), who restricted the disallowance to 25% of the bogus purchases by observing in para 7.6 by observing as under: - “7.3 As the parties could not be served with the notice u/s. 133(6) at the given address and there is no confirmation of purchases that could be filed by the appellant at any time during the course of assessment and the appellate proceedings, it is held that the appellant has not been able to discharge his onus to prove the claim of such purchases as being genuine and bonafide. Considering the fact that the appellant has claimed to have made purchases from these alleged parties, the appellant is expected to know the address and whereabouts of the alleged bogus suppliers/ parties and provide the present address to the AO when the AO brought to the notice of the appellant that service of notice u/s. 133(6) by the postal authorities as well as by the Circle Inspector was not successful as the parties were not found in the address given in the purchase invoices submitted by the appellant. In the given facts and circumstances, it is not tenable on the part of the appellant to take the plea that the Assessing Officer ought to have made further enquiries. It cannot be argued that the AO has not made enquiries from the banking channels about cash withdrawals from the bank account of the aforesaid parties when the appellant failed to furnished the bank details of the aforesaid parties during the course of assessment as well as appellate proceedings. It is seen from the assessment order that the AO had given sufficient opportunity to the appellant 4 Mahesh Vasant Raut; AY 11-12 even after the notices u/s.133(6) could not be served on the aforesaid parties on the address available in the purchase invoice submitted by the appellant and there was no further information about the whereabouts of the aforesaid alleged suppliers was provided by the appellant. Accordingly it cannot be said that the AO did not give reasonable opportunity of being heard to the appellant.
7.4 The Appellant had neither produced any details with respect to his ledger account in the books of the suppliers/ parties duly confirmed by the parties nor had produced their bank statements wherein the payment made by the appellant for the transactions are reflected and immediate withdrawal of cash is not there.
Therefore in the absence of any cogent material, the purchases were not regarded as genuine purchases by the AO. The fact remains that the appellant has not been able to controvert the findings that the aforesaid parties declared as hawala parties the Sales Tax Department is not real and, therefore, the purchases of the appellant from these aforementioned parties are not established. It is the contention of the AO is that the appellant has not been able to give any convincing or cogent explanation as to how these goods happened to come in the possession of the appellant.
7.5 In the present facts and circumstances of the case, the alleged purchases from the aforesaid parties are not proved to be genuine. However, as the sales turnover are not disputed, applying the logical corollary that there cannot be sales without purchases of materials utilized in the process of manufacture as admitted by the AO that the AR submitted details of consumption of goods purchased from the said 5 Mahesh Vasant Raut; AY 11-12 parties, it is a case wherein the appellant being a manufacturer only took bills from the above parties to record in the books of the appellant the higher price mentioned therein in the alleged purchase invoices to inflate expenses and reduce the profits of its business though the purchases were made from open market. Taking into account the benefit of lower price in the grey market due to non-levy of sales tax, excise duty, income-tax and the inflation in the purchase price accounted in the books of the appellant as per the purchase invoices issued by the alleged suppliers/ parties and considering the entire material on record, in my considered opinion, rejecting the hook entries to that extent and estimating the profit embedded in the alleged purchases would be justifiable.