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Income Tax Appellate Tribunal, “C” Bench, Mumbai
Before: Shri M. Balaganesh & Shri Ravish Sood
O R D E R
PER RAVISH SOOD, JM
The present appeal filed by the revenue is directed against the order passed by the CIT(A)-45, Mumbai, dated 25.03.2019 which in turn arises from the assessment order passed by the A.O under Sec. 143(3) r.w.s 147 of the Income Tax Act, 1961 (for short „Act‟), dated 27.03.2015 for A.Y. 2009-10. The revenue has assailed the impugned order on the following grounds of appeal before us : “1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition made in respect of bogus purchases especially when Ld. CIT(A) clearly found that the assessee did not substantiate the claim of genuine purchases.
2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in determining the profit percentage at the rate of the bogus purchases w hile the assessee had P a g e | ITO s. Paresh S. Sanghvi A.Y 2009-10 failed to establish the genuineness itself of the purchases claimed.
3. The appellant prays that the order of the Ld. CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored.
4. The appellant craves l eave to amend or to alter any ground which may be necessary.”
2. Briefly stated, the assessee HUF which is engaged in the business of trading in iron and steel had filed its return of income for A.Y 2009-10 on 29.09.2009, declaring its total income at Rs.6,16,901/-. Original assessment was framed by the A.O vide his order passed u/s 143(3), dated 23.12.2011 at an income of Rs. 16,12,270/-. Subsequently, on the basis of information received from the office of the DGIT(Inv.) that the assessee had booked bogus purchases aggregating to Rs. 2,60,02,507/- the case of the assessee was reopened u/s 147 of the Act. In compliance to the notice issued to the assessee u/s 148 of the Act it was requested by the assessee that its original return of income filed on 29.09.2009 be treated as the return in response to the aforesaid notice. The said request of the assessee was accepted by the A.O and notices u/ss. 143(2)/142(1) were thereafter issued to the assessee.
The A.O in the course of the assessment proceedings observed that as per the information received from the Sales tax department it was intimated that the assessee had procured bogus purchase bills from 11 parties therein aggregating to an amount of Rs. 2,60,02,507/- , as under:
Sr. No. Name of the hawala party Bill amount 1. Dhruv Sales Corporation 12,89,867/- 2. Manav Impex 35,52,341/- 3. CK Enterprises 6,25,156/- 4. Mihir Enterprises 11,86,376/- 5. KK Enterprises 43,02,730/- 6. DK Enterprises 10,18,161/- P a g e | ITO s. Paresh S. Sanghvi A.Y 2009-10 7. Navdeep Trading Corporation 24,17,905/- 8. Grifton India Ridhi Enterprise 37,11,809/- 9. Siddhi Enterprises 16,87,140/- 10. Ghatalia Steels 38,32,820/- 11. Ashirwad Expo 23,78,202/- Total 2,60,02,507/- It was further observed by the A.O that purchases relatable to 5 parties (out of 11 parties), viz. Manav Impex (Sr. No. 2), Navdeep Trading Corpn. (Sr. No. 7), Siddi Enterprises (Sr. No. 9), Ghatalia Sales (Sr. No. 10) and Ashirwad Exp (Sr. No. 11) were already considered by his predecessor while framing the regular assessment vide his order passed u/s 143(3), dated 23.12.2011 and an addition @1% of the turnover was made. Accordingly, the A.O confining himself to the purchases aggregating to Rs. 1,21,34,099/- claimed by the assessee to have been made from the remaining 6 parties therein called upon it to produce the purchase and sale bills/invoices to support the authenticity of the said purchase transactions. However, the assessee expressed its inability to produce the requisite documents on the plea that the Sales Tax department in the course of an action conducted on it had taken possession of all its books, purchase and sales files and other documents. In order to fortify its aforesaid claim the assessee produced the receipt issued by the Sales Tax department. However, in its attempt to impress upon the A.O as regards the genuineness of the impugned purchase transactions the assessee placed on record the copy of its bank statement evidencing the payments which were made to the aforementioned parties towards purchase consideration of the goods supplied by them. Observing, that de hors furnishing of supporting documentary evidence the impugned purchases could not be verified, the A.O invoked the provisions of Sec. 145(3) of the Act and rejected the books of accounts of the assessee and added the P a g e | ITO s. Paresh S. Sanghvi A.Y 2009-10 entire value of the impugned purchases of Rs. 1,21,34,099/- u/s 69C of the Act.
Aggrieved, the assessee assailed the assessment order before the CIT(A). Being of the view that the assessee would had benefited only to the extent of the savings he would had made by procuring the goods at a discounted value from the open/grey market by saving on account of VAT and other incidental charges, the CIT(A) relying on the order passed by his predecessor in the case of the assessee for A.Y 2010-11 restricted the addition to 4% of the value of the impugned purchases under consideration. Accordingly, the CIT(A) scaled down the disallowance of the entire value of purchases of Rs. 1,21,34,099/- made by the A.O to an amount of Rs. 4,85,364/- (i.e 4% of Rs. 1,21,34,099/-).
The revenue being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. It was submitted by the ld. Departmental Representative (for short “D.R”) that the CIT(A) had erred in dislodging the disallowance made by the A.O and substituting the same by an amount of Rs. 4,85,364/-. It was averred by the ld. D.R that the reliance placed by the CIT(A) on the order of his predecessor for A.Y 2010-11 being distinguishable on facts was thus misconceived. Elaborating on her aforesaid claim, it was submitted by the ld. D.R that unlike as in A.Y 2010-11, during the year under consideration i.e A.Y 2009-10 the assessee had failed to show that the sales correlating to the impugned purchases claimed to have been made from the hawala parties were duly accounted for in its books of accounts. It was the claim of the ld. D.R that in the absence of any material on record which would evidence that the impugned bogus purchases booked by the assessee were either accounted for in its sales or formed part of its closing stock, the A.O, had rightly P a g e | ITO s. Paresh S. Sanghvi A.Y 2009-10 concluded that the entire value of the said purchases was liable to be disallowed. On the basis of her aforesaid contentions it was averred by the ld. D.R that the order of the CIT(A) be „set aside‟ and that of the A.O be restored.
Per contra, the ld. Authorized Representative (for short “A.R”) for the assessee relied on the order of the CIT(A). It was submitted by the ld. A.R that the CIT(A) following the view that was taken by his predecessor while disposing off the assessee‟s appeal for A.Y 2010-11 had rightly restricted the addition to 4% of the aggregate value of the impugned purchases. It was further submitted by the ld. A.R that the order passed by the CIT(A) for A.Y 2010-11 had thereafter been upheld by the Tribunal, vide its order passed in dated 13.05.2019 (copy placed on record). It was thus submitted by the ld. A.R that as no infirmity did emerge from the order of the CIT(A), therefore, the appeal filed by the revenue being devoid and bereft of any merit was liable to be dismissed.
We have heard the authorised representatives for both the parties, perused the orders of the lower authorities and the material available on record. Admittedly, the assessee in the course of the proceedings before the lower authorities had failed to substantiate the genuineness and veracity of the impugned purchases claimed by the assessee to have been made from the aforementioned 6 parties. On being called upon by the A.O to produce the purchase and sale bills/invoices pertaining to the aforesaid impugned transactions the assessee had expressed its inability on the ground that the books, sales and purchase files and other documents were impounded by the Sales tax department in the course of an action conducted against it. As such, the assessee could not produce the bare minimum i.e the purchases bills, sales proof, and the ledger accounts of the purchases P a g e | ITO s. Paresh S. Sanghvi A.Y 2009-10 and sales appearing in its books of account for the year under consideration. Observing, that the assessee had failed to substantiate its claim of having carried out genuine purchase transactions the A.O invoked the provisions of Sec. 145(3) and after rejecting the books of accounts of the assessee disallowed the entire value of the impugned purchases aggregating to Rs. 1,21,34,099/- u/s 69C of the Act. On appeal, the CIT(A) relying on the order passed by his predecessor in the assessee‟s own case for A.Y 2010-11 observed that the addition was liable to be restricted only to the extent of the profit which the assessee would had made by purchasing the goods at a discounted value from the open/grey market and restricted the addition to 4% of the aggregate value of the impugned purchases under consideration.
After deliberating at length on the issue under consideration we are unable to persuade ourselves to subscribe to the view taken by the CIT(A). Admittedly, where an assessee is found to have purchased goods from the open/grey market and not from the parties shown in its books of accounts, then, in a case where such purchases had either found its way as a part of the accounted sales or formed part of the closing stock of the assessee for the year under consideration the addition would be restricted only to the extent the assessee would had benefited from procuring the goods at a discounted value from such unidentified suppliers operating in the open/grey market as against the value booked by it in its books of accounts. However, we find, that in the present case before us it is a matter of fact borne from the records that the assessee had failed to prove that the purchases claimed by the assessee to have been made from the aforementioned parties had either found its way as a part of the accounted sales or formed part of the closing stock of the assessee for the year under consideration. In fact, as observed by us hereinabove, the assessee had expressed its inability to produce the documentary evidence P a g e | ITO s. Paresh S. Sanghvi A.Y 2009-10 substantiating the fact that the sales corresponding to the impugned purchases were duly accounted for in its books of accounts. In the backdrop of the aforesaid facts we are unable to concur with the view taken by the CIT(A) that the addition in respect of the impugned purchases was liable to be restricted only to the extent of the profit which the assessee would had made by procuring the goods at a discounted value from the open/grey market. Insofar the reliance placed by the CIT(A) on the order passed by his predecessor while disposing off the assessee‟s appeal for A.Y 2010-11, we find, that the same being distinguishable on facts had wrongly been acted upon by him for restricting the addition only to the extent of the benefit which the assessee would had made by procuring the goods at a discounted value from the open/grey market as against that shown by it in its books of accounts. On a perusal of the order passed by the CIT(A) for A.Y 2010-11, we find, that unlike in the case of the assessee for the year under consideration in the said case the assessee by placing on record the sale bills had substantiated to the hilt that the sales pertaining to the impugned purchases were duly accounted for in its books of accounts. In our considered view the CIT(A) while relying on the order passed by his predecessor for A.Y 2010-11 had lost sight of the aforesaid material fact. In the backdrop of the aforesaid factual matrix we are unable to persuade ourselves to subscribe to the scaling down of the disallowance of the entire value of the impugned purchases made by the A.O to 4% of the value of such purchases by the CIT(A). At the same time, we also cannot remain oblivious of the fact that the assessee had failed to prove that the impugned purchases were either accounted for in its sales or formed part of its closing stock for the year under consideration, for the reason, that the relevant documentary evidence had been impounded by the Sales tax department in the course of an action conducted on the assessee, and P a g e | 8 – ITO s. Paresh S. Sanghvi A.Y 2009-10 thus, were not available with the assessee. In the backdrop of the aforesaid facts, we are of the considered view that the mater in all fairness requires to be revisited by the A.O with an opportunity to the assessee to demonstrate before him that the impugned purchases had either found its way as a part of the accounted sales or formed part of its closing stock for the year under consideration. In case the assessee is able to demonstrate before the A.O that the impugned purchases were either accounted for in its sales or formed part of its closing stock for the year under consideration, then, the scaling down of the disallowance by the CIT(A) to 4% of the aggregate value of the impugned purchases would be in order. On the contrary, in case the assessee fails to prove to the satisfaction of the A.O that the impugned purchases had either found its way as a part of the accounted sales or formed part of the closing stock for the year under consideration, then, no infirmity would emerge from the view taken by the A.O that the entire value of the impugned purchases were to be disallowed. Accordingly, we „set aside‟ the order of the CIT(A) and restore the matter to the file of the A.O for fresh adjudication in terms of our aforesaid observations.