RAINBOW CABLE CORPORATION,MUMBAI vs. ITO, 18(3)(1), MUMBAI

There is a delay of 277 days in filing the present appeal. The assessee has filed application seeking condonation of delay being supported by an affidavit. It has been stated by the assessee that the delay was caused due to the fact that the partnership firm was dissolved on 12th January 2010, and the partners were not in good

In ground no.(i), the assessee has challenged the validity of re– opening of assessment under section 147 of the Income Tax Act, 1961 (for short "the Act"). However, at the time of hearing, the leaned Counsel for the assessee did not press this ground. Accordingly, this ground is dismissed as not pressed.

In ground no.(ii), the assessee has challenged the addition made on account of non–genuine purchases.

Brief facts are, the assessee is a partnership firm engaged in trading of industrial cable, wires, etc. For the assessment year under dispute, the assessee filed its return of income on 22nd September 2010, declaring income of ` 1,260. The return of income was initially processed under section 143(3) of the Act. Subsequently, the Assessing Officer received information from the Sales Tax Department, Government of Maharashtra, and the DGIT (Inv.), Mumbai, that purchases worth ` 21,94,017, claimed to have been made during the year from six parties are non–genuine as the concerned parties are 3 Rainbow Cable Corporation merely providing accommodation bills. On the basis of such information, the Assessing Officer re–opened the assessment under section 147 of the Act. In the course of assessment proceedings, the Assessing Officer called upon the assessee to prove the genuineness of purchases. Though, the assessee furnished some evidences, however, the Assessing Officer was not convinced with them. Thus, he was of the view that the purchases made by the assessee are non–genuine. However, instead of disallowing the entire purchases, the Assessing Officer restricted the addition to the profit element embedded in such purchases by estimating it @ 12.5%. Thus, he made the addition of ` 2,74,252. The aforesaid addition was also sustained by learned Commissioner (Appeals) while deciding assessee’s appeal.

The leaned Counsel for the assessee submitted, in the course of assessment proceedings, the assessee has furnished necessary evidences, such as, purchase bills, bank statement showing payment made through cheques, details of corresponding sales, ledger account, etc. Thus, he submitted, in absence of purchases, the assessee could not have effected the sales. Further, he submitted that the VAT rate on cables and wires is 4%, whereas, the assessee has shown gross profit rate of 3.50%. Thus, he submitted, at the most addition, if any, should be restricted to 4%. In support of such contention, the leaned Counsel for the assessee relied upon the following decisions:–

The learned Departmental Representative relied upon the observations of learned Commissioner (Appeals) and the Assessing Officer.

I have considered rival submissions and perused the material on record. Undisputedly, the Assessing Officer on the basis of information received from the Sales Tax Department has treated certain purchases made by the assessee to be non–genuine. However, fact remains, before the Assessing Officer the assessee had furnished purchase invoices, bank statement showing payment to the selling dealers and sales invoice with quantitative tally. Undisputedly, the Assessing Officer was convinced that the assessee has made corresponding sales against the purchases shown. So, the doubt, if any, is only with regard to the source of purchases. For this reason only, the Assessing Officer added the profit element by estimating @ 12.5%. Thus, ultimately, it boils down to the reasonable profit element which can be considered for addition. It can be assumed that by purchasing from undeclared/unidentified sources what the assessee might have suppressed is the payment of VAT. It is the contention of the assessee

In the result, appeal is allowed. Order pronounced in the open court on 27.11.2020