ITO 6 (3)(1), MUMBAI vs. M/S IFHS STEELS PVT LTD, MUMBAI

This appeal by the Revenue is directed against the order of Commissioner of Income Tax (Appeals)-12, Mumbai [in short ‘the CIT(A)’ ] dated 30/09/2019 for the assessment year 2010-11.

The assessee is a trader in fasteners. The Assessing Officer made addition on account of assessee’s alleged involvement in obtaining bogus accommodation entries to the tune of Rs.31,87,604/- from suspicious dealers, declared as hawala operators by the Sales Tax Department, Government of Maharashtra. During assessment proceedings the assessee failed to substantiate genuineness of the dealers and the purchases made from them. The Assessing Officer made addition of entire alleged bogus purchases. Aggrieved by the assessment order dated 27/01/2016 passed under section 143(3) r.w.s. 147 of the Income Tax Act, 1961 ( in short ‘the Act’), the assessee carried the issue in appeal before the CIT(A). The CIT(A) after examining facts of the case and placing reliance on decision of the Tribunal in the case Sanjay H. Shah in decided on 16/02/2018 restricted the addition to 5%. Now, the Revenue is in appeal before the Tribunal assailing relief granted by the First Appellate Authority.

Shri Sanjay J. Sethi representing the Department vehemently defended the assessment order and prayed for restoring 100% disallowance of bogus purchases. The ld. Departmental Representative submitted that the assessee has failed to discharge its onus in proving authenticity of dealers. The notices issued under section 133(6) of the Act to the dealers were returned back unserved by the Postal Authorities with remarks ‘left/not known’. The assessee failed to furnish documents to prove the l of goods. The ld. Departmental Representative placed reliance on the decision of Hon'ble Supreme Court of India in the case of N.K. Proteins Vs. DCIT in SLP No.(C) 769 of 2017 decided on 16/01/2017 and prayed for reversing the findings of CIT(A).

Submissions made by ld. Departmental Representative heard, orders of authorities below examined. Undisputedly, the assessee failed to discharge its onus in proving genuineness of purchases and the dealers from whom such purchases were made. At the same time it is observed that the sales turnover declared by assessee has been accepted by the Assessing Officer. Without purchases, there cannot be sales. Therefore, entire alleged bogus purchases cannot be disallowed. It is only the profit element embedded in such transactions that can be brought to tax [ Ref. PCIT vs. Paramshakhti Distributors Pvt. Ltd. in Income Tax Appeal No.413 of 2017 decided on 15/07/2019 by Hon'ble Bombay High Court.]. The order of CIT(A) is fair and reasonable, hence, warrants no interference. The impugned order is upheld and appeal of the Revenue is dismissed, sans merit.