ITO 6 (1)(1), MUMBAI vs. M/S ACME SOLVENTS PVT LTD., MUMBAI

O R D E R PER C.N. PRASAD (JM) 1. This appeal is filed by the revenue against order of the Learned Commissioner of Income Tax (Appeals)–12, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 25.06.2019 for the A.Y. 2010-11 in restricting the addition @5% as against @12.5% made by the Assessing Officer.

(A.Y. 2010-11) M/s. ACME Solvents Pvt. Ltd., received information from the Sales Tax Department, Mumbai about the accommodation entries provided by various dealers and assessee was also one of the beneficiary from those dealers. The assessment was reopened U/s. 147 of the Act based on the information received from Sales Tax Department, Mumbai, that the assessee has availed accommodation entries from various parties as referred in the Assessment Order who are said to be providing accommodation entries without there being transportation of any goods. In the reassessment proceedings, the assessee was required to prove the genuineness of the purchases made from the parties mentioned in the Assessment Order. In response assessee vide letter dated 23.11.2015 furnished invoice from vendor, inventory, bank statement showing payment to vendors and also account confirmation from the vendor and submitted that the purchases made are genuine. Assessee further submitted that the payments are made through account payee cheques as such contended that all the purchases are genuine.

(A.Y. 2010-11) M/s. ACME Solvents Pvt. Ltd., that the assessee failed to produce the parties in support of its claim that purchases are genuinely made from the parties. Therefore, Assessing Officer treated 12.5% of the alleged bogus purchases of ₹.13,39,187/- for the A.Y. 2010-11 as non-genuine. On appeal the Ld.CIT(A) considering the evidences and various submissions of the assessee restricted the addition @5% as against @12.5% made by the Assessing Officer.

(A.Y. 2010-11) M/s. ACME Solvents Pvt. Ltd., assessee filed, invoices, inventory, account confirmation from vendors and bank statement to prove payment for purchases. Further, this is also not case in which signed blank cheque books are found with the buyer to hold that the purchases of material were not at all made but entered in the stock to inflate the raw material. Therefore the decision of the Supreme Court in the case of N K. Proteins Ltd 250 taxman 0022(SC) would not apply to the case. It is noticed that on account of non-production of suppliers and brokers, transportation bills etc., the A.O. added 12.5% as non- genuine purchases on assumption. It is seen that in appellant’s own case for A.Y: 2009-10, the same matter was involved, where the then CIT(A) following various judgements deleted early hearing disallowance made by the A.O. in the Assessment Order. 4.3 Further, in the recent judgment of the Hon'ble IT AT, Mumbai vide order ,16.02.2018 being 5064 & 5065/Mum/2017 in the case of Shri Sanjay H Shah has restricted the disallowance to 5% of the alleged bogus purchase, as under: "7. The Ld. AR of the Assessee in his submission claimed that VAT rate is only 4%. The rate of VAT is not disputed by Revenue. In our view considering the nature of trade of assessee and the facts of the present case, the disallowance made by AO and sustained by Ld. CIT (A) is excessive and unreasonable. In our view the assessee has given sufficient evidences to substantiate its purchases, on which no finding was given by the lower authorities. Moreover, no incriminating material is brought on record except assumption and presumption of AO that assessee has availed accommodation bills. The addition of alleged bogus purchased are based on third party information. We are of the considered opinion that under Income Tax Act only real income can be taxed by the Revenue. We may further note that even in cases where the whole transaction is not verifiable due to various reasons, the only taxable is the taxable income component and not the substantial part of the transaction. Thus, keeping in view the assessee has paid the VAT at the applicable rate on all the purchases. Further, in our view no yardstick formula can be applied while assessing the amount of revenue leakage. Moreover, the revenue has not disputed the consumption of steel. Hence, keeping in view of any possibility of the revenue leakage in the present case, the disallowance of purchases of steel at 5% of the purchases would meet the end of justice. Similar view was taken by Hon'ble Gujarat High Court in CIT Vs Simiih P Seth (A.Y. 2010-11) M/s. ACME Solvents Pvt. Ltd., [2013(356 ITR 451)] and by Hon'ble Bombay High Court in Hariram Bhambani of2013.

Order pronounced in the virtual court on 12.07.2021.