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Income Tax Appellate Tribunal, MUMBAI BENCH “A” MUMBAI
Before: SHRI C.N. PRASAD & SHRI N.K. PRADHAN
ORDER PER N.K. PRADHAN, A.M. This is an appeal filed by the Revenue. The relevant assessment year is 2010-11. The appeal is directed against the order of the Commissioner of Income Tax (Appeals)-20, Mumbai [in short ‘CIT(A)’] and arises out of the assessment completed u/s 143(3) r.w.s. 147 the Income Tax Act 1961, (the ‘Act’). 2. The grounds of appeal filed by the Revenue read as under :
1. Whether on the facts and circumstances of the caseand in law, Ld. CIT(A) was justified in deleting the addition of Rs.1,88,768/- made by the AO on account of bogus purchases without appreciating the fact that assessee failed to establish the genuineness of the purchases.
2. On the facts and circumstances of the case the ITAT is requested to entertain this appeal though the tax effect is below the monetary limit prescribed in the CBDT instruction no.3/2018 dated 11.07.2018 as amended on 20.08.2018 as the case falls in the exception provided in para 10(e) of the said instruction in as much as the addition is based on information received from external sources in the nature of law enforcement agencies, namely, Sales Tax Authorities.
3. The appellant submits that the order of the Ld. CIT(A) on the grounds be set aside and that of the Assessing Officer be restored.
3. Briefly stated, the facts of the case are that the assessee filed its return of income for the assessment year (AY) 2010-11 on 30.09.2010 declaring total income at Rs.2,15,36,770/-. On receipt of information from the Sales Tax Department, Government of Maharashtra that the assessee had obtained accommodation entries of Rs.15,10,144/- from Jay Enterprises, the Assessing Officer (AO) reopened the assessment by issuing notice u/s 148 dated 23.03.2015. In response to it, the assessee filed a reply stating that the return originally filed on 30.09.2010 may be treated as return in response to notice u/s 148 of the Act. During the course of reassessment proceedings, the AO issued notice u/s 133(6) dated 01.09.2015 to Jay Enterprises in the address given by the assessee for verification of the transaction. This was followed by a reminder dated 11.12.2015 to Jay Enterprises. However, there was no response from Jay Enterprises. By the said notice u/s 133(6), M/s Jay Enterprises was requested by the AO to furnish the following information/details/documents :
Copies of Income Tax Returns, computation of income, Balance Sheet and Profit & Loss account with Annexures and Schedules thereto for the A.Y. 2010-11.
Purchase orders, invoices, lorry receipts, check post entries, gate entries, goods receipt notes, issue of material, production record of consumption, delivery challans, Octroi charges in relation to the goods supplied to the assessee from A.Y. 2009-10 to till date. 3. Extract of Bank Statement(s) reflecting the relevant entries in relation to transactions with the assessee company till date. 4. Copy of ledger account in relation to the assessee company from A.Y. 2009-10 to till date. 5. Details of goods purchased by the assessee, which were supplied to the aforesaid parties, along with copy of purchase bill and ledger account of the parties from whom goods were purchased. As recorded by the AO, the assessee vide its letter dated 30.11.2015 filed objections to the notice issued u/s 148 of the Act. The said objections were disposed off by the AO vide his office order dated 11.12.2015. Subsequently, the assessee vide letter dated 04.01.2016 again filed objections to the re- assessment proceedings. The AO gave a reply to the assessee vide letter dated 01.02.2016 along with a copy of the sworn statement dated 12.08.2011 recorded by Shri Girish B. Shah, Proprietor of M/s Jay Enterprises before the Sales Tax Authorities along with his affidavit-cum-declaration stating that he had never entered into any true sale or purchase transactions through the proprietorship firm M/s Jay Enterprises.
During the course of reassessment proceedings, as recorded by the AO the assessee filed copy of ledger account of Jay Enterprises in its books of accounts and also purchase bills of the above party.
However, the AO was not convinced with the above reply of the assessee on the ground that as per the information received from the Sales Tax Department, Government of Maharashtra, the assessee had obtained bogus purchase bills amounting to Rs.15,10,144/- from M/s Jay Enterprises and therefore, estimated the profit @ 12.5% on the disputed purchases of Rs.15,10,144/-, which comes to Rs.1,88,768/-. Accordingly, the AO made an addition of Rs.1,88,768/- to the income shown by the assessee.
Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). We find that vide order dated 28.03.2019, the Ld. CIT(A) deleted the disallowance of Rs.1,88,768/- made by the AO by observing that :
4.4.1 I have considered the rival contentions. I find that the AO has relied entirely on the information received from the DGIT investigation. In the course of reassessment proceedings, the AO could not point out any discrepancy in the appellant's books of account or records. Nor has the AO pointed out any non- compliance or default on the part of the appellant in furnishing any information or document called for. In the course of assessment proceedings the AO issued notice under section 133(6) calling for information from Jay Enterprise. The AO has stated that Jay Enterprise did not furnish information. It appears from the tenor of the impugned order that the AO treated the non-compliance by Jay Enterprise as an evidence that the purchase claimed by the appellant was not genuine. Clearly, the non-compliance by Jay Enterprise cannot be an evidence against the appellant. In para 4.5 of the assessment order, the AO has referred to “anomalies with regard to the purchase bills procured from aforesaid hawala parties as pointed out in the preceding paragraphs . But I find from the assessment order that the no such anomalies were mentioned in the paras preceding para 4.5 of the order.
4.4.2 In view of the above, I hold that the AO was not justified in disallowing 12.5% of the purchases claimed to have been made from Jay Enterprises. Accordingly, I direct the AO to relieve the disallowance of Rs.1,88,768/-. In the result, ground of appeal
No. 1 is allowed.”
5. Before us, the Ld. Departmental Representative (DR) relies on the judgment of the Hon’ble Bombay High Court in Pr. CIT v. Jakharia Fabric (P.) Ltd. (2020) 118 taxmann.com 406 (Bom) and submits that in the facts and circumstances of the case, the AO has rightly estimated the profit @ 12.5% on the disputed purchases of Rs.15,10,144/- and made an addition of Rs.1,88,768/-. On the other hand, the Ld. counsel for the assessee relies on the order of the Ld. CIT(A) and submits that the same be affirmed.
6. We have heard the rival submissions and perused the relevant materials on record. The reasons for our decisions are given below. In Jakharia Fabric (P.) Ltd. (supra), it is held by the Hon’ble Bombay High Court that “where information was received by the Assessing Officer to the effect that eight parties from whom purchases were made by the assessee, engaged in job work of dying of fabrics were hawala dealers who had issued bogus bills and he treated aforesaid purchases as bogus purchases, since without purchase of materials, it was not possible for assessee to complete job work of dying and entire purchases could not be added as bogus, profit element embedded in such transaction had to be added to total income of assessee.”