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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SHRI S. RIFAUR RAHMAN & SHRI PAVAN KUMAR GADALE
The captioned appeal has been filed by the Revenue challenging the impugned order dated 23rd August 2019, passed by the learned Commissioner (Appeals)–2, Nashik, for the assessment year 2011–12.
The grounds of appeal raised by the Revenue are as reproduced below:–
1. On the facts and in the circumstances of the case, and in law, the Ld. CIT(A) has erred in not appreciating the fact that 2 Rakesh Jitendra Kumar Shah the assessee could not establish the genuineness of the purchases from the non- existent vendors as per information received from Law enforcement agency of State Govt. of Maharashtra i.e. Sales Tax Department, and established by the Assessing Officer.
2. On the facts and in the circumstances of the case, and in law, the Ld.CIT(A) has erred in not appreciating the fact that the onus to justify the claim of expenses is on the assessee and the same has failed to discharge it in relation to the purchases made from the non-existent vendors.
3. On the facts and in the circumstances of the case, and in law, the Ld. CIT(A) has erred in ignoring, the fact that the assessee could not substantiate its claim of purchases from non- existent vendors by means of relevant supporting documents related to movement of goods, stock register, etc. to restrict the addition to 25% of bogus purchases from the non-existent vendors.
4. On the facts and in the circumstances of the case, and in law, the Ld. CIT(A) has erred in not appreciating the law correctly that once the purchases are unverifiable/not genuine/bogus, the same should have been disallowed in entirety, particularly in view of the ratio of the decision of the Hon'ble Gujarat High Court in Tax Appeal No. 242 of 2003 dated 20/06/2016 in the case of N. K. Proteins Ltd. against which the SLP was dismissed by the Hon'ble Apex Court.
5. It is humbly requested that present appeal is being filed in accordance with the CBDT's Instruction No.3/2018 dated 11.07.2018 amended vide letter dtd. 20.08.2018 as per para 10(e) of the said circular. Therefore, the order of the CIT(A) may kindly be vacated and that of the AO may be restored.
Facts in brief:– In the present case, the assessee is a firm engaged in the business of designing, purification, conservation, audit and supply, erection and maintenance of water treatment plant. For the year under consideration, the assessee filed its return of income on 9th September 2011, declaring total income of ` 1,09,78,070. Subsequently, information has been received from the Sales Tax
3 Rakesh Jitendra Kumar Shah Department that the assessee has claimed expenses towards purchase during the financial year 2010–11 from M/s. Harish Metal & Tubes of ` 32,80,369 and from M/s. Triveni Metal India of ` 69,31,546. Hence, the Assessing Officer issued notice under section 133(6) of the Act to these parties to confirm the transactions as claimed by the assessee but the notice was returned un–served with remark “not known”. Thereafter, the Assessing Officer issued show cause notice to the assessee seeking explanation from the assessee as to why the transactions made with the aforesaid two parties should not be treated as bogus expenses and be added back to the total income for the year under consideration. The learned Authorised Representative submitted that what the Sales Tax Department has done is that if the dealer has not paid the sales tax dues or have not filed the return of income for a long time, the materials have been used for the items exported by the company. However, the Assessing Officer was not convinced with the submissions of the assessee and held that the assessee has wrongly claimed purchases from the two parties which are hawala entry provider and accordingly total expenses claimed of ` 1,02,11,915, was added to the total income of the assessee. Aggrieved by the addition made by the Assessing Officer, the assessee carried the matter in appeal before the first appellate authority.
4 Rakesh Jitendra Kumar Shah
The learned Commissioner (Appeals) after considering the submissions of the assessee in the context of facts and material on record partly allowed the claim by confirming the addition to the extent of 25% i.e., 25% of ` 1,02,11,915 = 25,52,979.
Considered the rival submissions and perused the material on record. We find that though, the assessee may not have been able to prove the genuineness of purchases from the declared source, however, it is a fact on record that the Assessing Officer has not disputed the sales effected by the assessee. Therefore, it goes to prove that the assessee must have purchased goods from some other undisclosed source or from grey market. In such circumstances, it is the settled legal position that the entire purchases cannot be disallowed, but only the profit element embedded in such purchases can be considered for addition. Therefore, keeping in view the decisions of the Tribunal in identical nature of cases, the decision of learned Commissioner (Appeals) to restrict the disallowance to 25% of the non–genuine purchase is fair and reasonable warranting no interference at the instance of the Revenue. Accordingly, we uphold the order of learned Commissioner (Appeals) by dismissing the grounds raised by the Revenue.
5 Rakesh Jitendra Kumar Shah
In the result, Revenue’s appeal is dismissed. Order pronounced in the open court on 10.06.2021