SUPER FORGE PVT LTD.,MUMBAI vs. ITO WARD 14(3)(4), MUMBAI

The dispute in the present appeal is confined to disallowance made on account of non genuine purchases.

Briefly the facts are, the assessee, a resident company, is engaged in manufacture and sale of pipe fittings. For the assessment year under dispute, assessee filed its return of income on 29-01-2011 declaring total income of Rs.1,52,444/-. On the basis of information received from the Investigation Wing of the department that the assessee is a beneficiary of hawala transactions through non genuine purchases, the assessing officer reopened the assessment under section 147 of the Act. In course of assessment proceedings, the assessing officer called upon the assessee to prove the genuineness of purchases of Rs.28,95,516/- from two parties. Further, to independently verify the genuineness of such purchases, the Assessing Officer issued notices under section 133(6) of the Act to the concerned selling dealers which returned back unserved.The evidences furnished by the assessee could not also satisfy the Assessing Officer to accept the purchases as genuine. Therefore, ultimately he concluded that the purchases claimed to have been made from the two parties are non genuine. Noticing that the assessee has disclosed gross profit rate of 16% for the year under consideration, the Assessing Officer held that the assessee must have earned profit at the same rate from the non genuine transaction. Accordingly, he disallowed 16% out of the alleged non genuine purchases and made an addition of Rs.4,63,286/-. The addition so made by the Assessing Officer was also sustained by the learned Commissioner (Appeals).

The learned Counsel for the assessee submitted, the assessee had purchased the goods from genuine sources and has also made payment through banking channel. Further, he submitted, assessee effects sales only to government agencies and the assessee has established the co-relation between the purchases and the sales. He submitted, the books of account maintained reflecting the purchases and sales have also been produced before the departmental authorities. He submitted, for the year under consideration the assessee has shown gross profit rate of 27%. He submitted, for last so many years the assessee is purchasing goods from the very same parties. He submitted, while considering similar disallowance made in assessment year 2010-11 in respect of purchases made from the very same parties, the Tribunal has restricted the disallowance to 3% of the non genuine purchases. In this regard, he drew attention to the order of the Tribunal in dated 20-05- 2020. Thus, he submitted, in the impugned assessment year also the disallowance should be restricted to 3%.

Strongly relying upon the observations of the Assessing Officer and learned Commissioner (Appeals) learned Departmental Representative submitted, in course of assessment proceedings assessee failed to furnish cogent evidence to prove the genuineness of purchases. She submitted, even notices issued under section 133(6) of the Act also returned unserved. Therefore, she submitted, when the assessee was unable to prove the genuineness of purchases, the disallowance made was justified.

I have considered rival submissions and perused materials on record. Undisputedly, on the basis of information received from Sales-tax department through the Investigation Wing, the Assessing Officer found that certain purchases claimed to have been made by the assessee were non genuine. As it appears from the facts on record, in course of assessment proceedings, though, the assessee furnished some documentary evidences, however, they were not to the satisfaction of the Assessing Officer. Therefore, he treated the purchases as non genuine. However, ultimately, he restricted the disallowance to 16% being the gross profit shown by the assessee. From the aforesaid facts, it is very much clear that the Assessing Officer was convinced that not only assessee had purchased the goods, but corresponding sales have been made. I find, while dealing with identical nature of dispute in assessee’s own case in assessment year 2010-11, the Tribunal in ITA No.6719/Mum/2018 dated 20-05-2020 has restricted the disallowance to 3% of the alleged non genuine purchases. The factual position relating to the disallowance made in the impugned assessment year is identical. Therefore, respectfully following the decision of the Division Bench, as referred to above, I direct the assessing officer to restrict the disallowance to 3% of the alleged non genuine purchases. Grounds are partly allowed.

In the result, appeal is partly allowed.