INCOME TAX OFFICER 32 (3) (1), MUMBAI vs. RAMREKHA SHUKLA, MUMBAI

3. The brief facts of the case are that the assessee filed its return of income on 29.09.2011 declaring total income to the tune of Rs.3,17,380 for the A.Y. 2011-12. The return was processed u/s 143(1) of the I. T. Act, 1961. Thereafter, the assessment of the assessee was reopened on the basis of the information received from the DGIT(Inv.), Mumbai in which it was Rs.89,70,817/- from the following parties.:-

TIN Name of the Party Amount 27690680848V Harshil Ferromet Pvt. Ltd. 7,16,721/- 27910623885V Donear Trading Pvt. Ltd. 4,03,588/- 27030610110V Romex Metal & Tubes Pvt. 1,55,770/- Ltd. 27230561209V Srishti Mercantile Pvt. Ltd. 2,70,695/- 27050634058V Linux sales Agency Pvt. Ltd. 4,46,269/- 27940626827V Ujwal Enterprises 3,28,500/- 27440561142V Alok Trading Co. 16,62,481/- 27550784036V Axon Industries 15,72,630/- 27950675467V Jinalay Trading Pvt. Ltd. 13,22,455/- 27360675452V Avion Sales Pvt. Ltd. 17,73,816/- 27970650430V Subham Steel Impex 3,17,892/- Total 89,70,817/- Thereafter, the notice u/s 148 of the Act was given and after the reply of the assessee, the AO raised the addition to the extent of 12.50% of bogus purchase amount in sum of Rs.89,70,817/-. The total income of the assessee was assessed to the tune of Rs.14,38,730/-. Feeling aggrieved, the assessee filed an appeal before the CIT(A) who restricted the addition to the extent of 5% of the bogus purchase but the revenue was not satisfied, therefore, the revenue has filed the present appeal before us.

“5.1 Ground no. 1 I have perused the assessment order. The information received from the sales tax department and the investigation wing was authentic and reliable, therefore the reopening cannot be said to have been made on suspicion as alleged but the assessee. There was a 'reason to believe' by the assessing officer and it was his independent opinion after perusal of information in his hand. The AO is not required to carry out any investigation before reopening as held by Hon'ble Supreme Court in the case of Raymond Woollen Mills Ltd vs ITO 236 ITR 3 (SC). Hon'ble Apex Court held that in determining whether commencement of reassessment proceedings was valid, it has only to be seen whether there was prima facie some material on the basis of which the department could reopen the case. The sufficiency or correctness of the material is not a thing to be considered at the stage of reopening. Therefore, reopening of assessment is found to be in order and is upheld. Accordingly, this ground of appeal is dismissed. 5.2 Ground no.

2. On identical ground proceedings for A.Y. 2010-11 were concluded. The CIT(A)-45/IT032(3) ITA 74/2017-18 dated 19.07.2018. 5.2.1. The operative part of the order is in para

5. Ground no.2 relates to addition of Rs.9,27,975 being 12.5% of the purchases of Rs.74,23,796/- rejecting books of account U/s 145(3). Following are the details of parties from whom the assessee obtained bogus purchases: S. Name of the Dealers Amount No 1. Veer Industries 7,03,368

2. Ratandeep Traders 9,23,646 3. Sivamani Traders Pvt. Ltd. 5,99,522 4. Kanak Steel (India) 14,43,665 5. Anhant Tradelink 17,95,227 6. Aman Impex 88,959 7. S. K. Engineering Co. 4,65,196

8. Dev Deep Steel 14,04,213 Total 74,23,796 During the assessment proceedings, the AR of the assessee furnished copy of purchase bills, ledger accounts of supplying parties, proof of delivery of goods, transport proof, and bank account statement and copy of stock register. Further, to ascertain the genuineness of transportation the AO issued notices u/s 133(6) of the Act on the parties who sold material to the appellant. However, such notices were Returned unserved by postal department with noting "Left/Unserved". AO gave a finding as under in para 8.4 of his order. "Since the sales are claimed as genuine, by the assessee it procured that the assessee was own actually in possession of goods This is based on the floorings that there ran not be any sales without purchases. At the same time, it did not purchase goods from other suppliers. may be without bills, which is commonly known as grey market. Such purchases in this line of business cannot be denied as per the no-evading practice o market. Therefore, the purchase rate mentioned in the alleged sales bills cannot be accepted The obvious reason is that the assessee did make purchases but at a lower price so as to increase it's overall profits. By recording the bogus purchases at a higher level, the assessee managed to siphon off profit to the extent to the different like actual purchases and bogus purchases. Any person indulging in practice of purchasing the goods from the grey market and obtaining bogus bills of some of the parties would do so for getting since benefits. Bat tuba? would be the magnitude of the benefit would depend upon on the pets of the case"

AO relied upon certain decisions mentioned in par 8.5 of assessment order. and on certain findings mentioned in para 8.6 of assessment order and held that 12.5% of the total amount of 74,23,796/- be taken as unproved/non genuine purchases and added to the total income returned. 5.1 I have considered the assessment order and the submissions of the appellant including the case laws cited. During the appellate proceedings the appellant filed some copies of purchase bills corresponding sales bills, ledgers of parties and copy of bank statements highlighting the payments made for purchases from the setter parties, copies of transportation and delivery challans. It is noticed that without considering these evidences including the delivery challans, the AO estimated the profit on alleged bogus purchases. In this regard. it is that many Benches of ITAT and Hon’ble High Courts and in recent judgment the Hon’ble Supreme Court have held that when purchase are supported by sufficient documentary evidences then one cannot conclude that the purchases we' a not made by the appellant. 5.2 However remains that the appellant produced bank account lenient, pun hose bills, ledgers of supplying parties etc., to prove the genuineness purchases. I he appellant has brought documentary evidences on record to prove genuineness of such transactions, the action of the Assessing Officer in ignoring them cannot be accepted. Considering the reasoning given by the AO in 8.4 which is extracted above in para 5, the Assessing Officer could not have treated the 12.5% of said purchases as inflation in cost of purchases with bogus bills, which is on higher side. Therefore, the saving on account of VAT and other incidental charges made by the appellant on the said bogus purchases as argued by the AC) are liable to be reduced considering the facts of the case and the actual CI' declared by the assessee in the books which is 2.87%. Keeping in view the totality of facts and circumstances of the case, the disallowance made by the AO is restricted to 5% of such purchases of Rs.74,23,796/- which comes to Rs.3,71,290/-. The AO is directed to modify the addition accordingly and the appellant gets part relief. This ground is partly allowed.

5.2.2 The AR during the proceedings has filed tax invoices indicating that that VAT was only 4% and 5% during the year. Other supporting evidence in form of invoices transport bill etc were also filed. 5.2.3 Having considered the details/findings of the AO, I am inclined to follow the findings of learned CIT(A) for A.Y. 2010-11 as the issue under consideration is identical. 5.2.4 Hence following the same the disallowance is directed to be restricted to 5% in light of the present facts i.e 5% of 89,70,817/-, hence ground no. 2 is partly allowed.”