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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEYAND SHRI N.K. PRADHAN
The aforesaid appeal has been filed by the Revenue challenging the order dated 28th February 2019, passed by the learned Commissioner of Income Tax (Appeals)-16, Mumbai, pertaining to the assessment year 2015-16.
The grievance of the Revenue is with regard to the partial relief granted by the learned Commissioner (Appeals) in the matter of addition made on account of non-genuine purchases.
2 Atlanta Limited
When the appeal was called for hearing in virtual court, no one was present on behalf of the respondent assessee to represent the case. There is no application seeking adjournment either. Considering the nature of dispute, we proceed to dispose off the appeal ex–parte qua the assessee after hearing the learned Departmental Representative and on the basis of material available on record.
Brief facts are, the assessee, a resident company, is engaged in civil construction, road construction, etc. For the assessment year under dispute, the assessee filed its return of income on 30th November 2015, declaring total income of ` 59,08,84,430. Originally, the assessment in case of the assessee was completed under section 143(3) of the Act vide order dated 4th May 2017, determining the total income at ` 61,04,76,490. Subsequently, on 16th November 2017, a survey under section 133A of the Act was carried out in the business premises of the assessee. In the course of such survey action, it was found that the assessee had entered into bogus purchase transactions with three parties viz. Gaurav Enterprises, Jai Maa Bhawani Business Group, Abdul Hafiz. On the basis of such information, the Assessing Officer re–opened the assessment under section 147 of the Act. In course of re–assessment proceedings, the Assessing Officer confronted to the assessee the report received from DDIT (Inv.), Mumbai, indicating that the aforesaid three parties from whom the assessee
3 Atlanta Limited claimed to have effected purchases during the year have been identified as hawala dealers by the Sales Tax Department as per information appearing in the website of the Sales Tax Department and their registration have either been cancelled or kept pending. He further observed, the summons issued under section 131 of the Act to the concerned parties either remained undelivered or was not responded to. Therefore, he called upon the assessee to furnish various documentary evidences such as bills, invoices, octroi receipts, delivery challans, bank statement, ledger account copies, etc., to prove the genuineness of the transaction. Further, he directed the assessee to produce the concerned parties before him. In response to the query made by the Assessing Officer, the assessee furnished all documentary evidences called for, such as, ledger account confirmation of the parties, sample purchase/service invoice, goods received note/delivery challans, store receipts, vouchers, purchase work order issued to the supplier, bank statement, showing payment to the parties, stock statement dealing with the material consumption at the work site, letter of credit and bill of exchange issued in favour of one of the parties, Gaurav Enterprise. Further, the assessee submitted that when the assessee entered into transactions with the concerned parties, they were carrying on regular activities and having valid registration with the Sales Tax Department. However, the assessee was unable to produce the concerned parties before the Assessing
4 Atlanta Limited Officer. Not being convinced with the submissions made by the assessee, the Assessing Officer ultimately proceeded to disallow the entire purchase of ` 7,49,33,848, shown to have been made from the aforesaid three parties and added back to the income of the assessee. The assessee challenged the aforesaid disallowance/addition before the first appellate authority.
After considering the submissions of the assessee in the context of the facts and material on record and relying upon certain judicial precedents, learned Commissioner (Appeals), though, agreed with the Assessing Officer that the assessee could not prove the source of purchases, however, he observed that the Assessing Officer has not doubted the consumption/sales of the material purchased. Thus, he was of the view that the assessee must have obtained bogus bills to inflate the purchase price so as to suppress profit rate. Accordingly, he proceeded to estimate the suppressed profit at 12.5% of the alleged non–genuine purchases and restricted the disallowance to that amount.
The learned Departmental Representative strongly relying upon the observations of the Assessing Officer submitted that when the assessee has failed to prove the purchases, the entire purchases have to be treated as bogus, hence, should be disallowed.
5 Atlanta Limited
We have considered the submissions of learned Departmental Representative and perused the material available on record. As could be seen from the facts on record, though, the Assessing Officer had information available with him to indicate that three parties mentioned above from whom the assessee had claimed to have purchased the goods worth ` 7,49,33,848, were identified as hawala dealers and their registration have been cancelled, it is also evident that in course of assessment proceedings, in response to the query raised by the Assessing Officer to prove the purchases, the assessee had furnished all the documentary evidences called for as enumerated elsewhere in the order. It is further evident from the facts on record that the assessee is engaged in the construction of business and the material representing alleged bogus purchase comprises of steel, TMT bars, consumables, spares which are required for executing the work and were delivered at the work site. It is seen from record that in respect of Gaurav Enterprises from whom the assessee had purchased goods worth ` 7,42,88,000, the assessee has opened an letter of credit with a nationalised bank after obtaining creditworthiness of the concerned party from a credit rating agency. On the basis of such credit rating, the banker has opened the letter of credit in favour of the suppliers. It is also a fact on record that when the assessee entered into purchase transactions with these parties, all of them had valid Sales Tax registration. In fact, the assessee had furnished all documentary
6 Atlanta Limited evidences for proving the genuineness of purchases including goods received note/delivery challans/store receipt, vouchers and also the bank statement showing payment made to the parties. In fact, the Assessing Officer has clearly accepted the aforesaid factual position in Para–7.7 of the assessment order. The only reason for which he doubted the genuineness of transaction was, the assessee could not produce the concerned parties. Inability to produce the parties could be for various factors, including, their non–cooperation with the assessee. But, that by itself cannot be a reason to disallow the entire purchase by treating them as non–genuine.
Be that as it may, the assessee has furnished all documentary evidences including stock statement showing the consumption of material at site which were also submitted to bank from where the assessee is availing cash credit facility. The aforesaid fact clearly proves that the assessee, indeed, had purchased the goods and the goods have entered its stock and were utilized/consumed in the work. The doubt, if any, is only with regard to the source of purchases. In such circumstances, the entire purchases of ` 7,49,33,848, cannot disallowed. As rightly observed by learned Commissioner (Appeals), only the profit element embedded in such purchases can be considered for disallowance. Considering the nature of business carried on by the assessee, in our considered opinion, disallowance @ 12.5% of the alleged non–genuine purchases is fair and reasonable. Hence, needs to 7 Atlanta Limited be upheld. As regards the reliance of the Revenue on the decision of the Hon'ble Supreme Court in N.K. Protein v/s DCIT, SLPno.769/2017, dated 16th January 2017, on careful examination, we find that the facts involved therein are completely different from the facts of assessee’s case. Therefore, the said decision would be of no help to the Revenue. Accordingly, grounds raised are dismissed.
In the result, Revenue’s appeal is dismissed. Order pronounced through notice board under rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1963, on 17.09.2020