ITO-28(1)(4), MUMBAI vs. ISHWARLAL H MISTRY, NAVI MUMBAI

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ITA 2984/MUM/2019Status: DisposedITAT Mumbai23 November 2020AY 2009-105 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal upheld the CIT(A)'s decision, finding that the profit element in bogus purchases should be taxed, not the entire amount. The reduction in ad-hoc disallowance of expenses was also deemed reasonable.

What were the facts?

The Revenue appealed against the CIT(A)'s order which restricted additions on account of bogus purchases to 12.5% and reduced ad-hoc disallowance of expenses. The Assessing Officer had made additions for bogus purchases and disallowed certain expenses for lack of proper bills.

What were the issues?

Whether the CIT(A) was justified in restricting the addition on bogus purchases to the profit element and reducing the ad-hoc disallowance of expenses.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 147

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI

Before: SHRI VIKAS AWASTHY

For Respondent: Ms. Smita Verma

आदेश/ ORDER

1.

This appeal by the Revenue is directed against the order of Commissioner of Income Tax (Appeals)-26, Mumbai ( in short ‘the CIT(A)’) dated 28/02/2019 for the assessment year 2009-10.

2.

The brief facts of the case as emanating from records are: The assessee is an Interior Contractor and Architecture. The assessment for assessment year 2009- 10 was reopened in the case of assessee on the basis of information received from Sales Tax Department, Government of Maharashtra that the assessee has indulged in obtaining bogus purchases aggregating to Rs.19,82,606/- from declared hawala operators. The Assessing Officer made addition of the entire alleged bogus purchases made during the period relevant to assessment year under appeal. Further, the Assessing Officer made adhoc disallowance of Rs.2,05,544/- in respect of certain expenditure viz. conveyance expenses ,office expenses, labour charges, painting expenses, petrol expenses, staff welfare, telephone, etc., as these expenses were not fully supported by proper bills/vouchers or were made by way of self made vouchers for cash. Aggrieved by the assessment order dated 28/03/2015 passed under section 143(3) r.w.s. 147 of the Income Tax Act, 1961 ( in short ‘the Act’), the assessee filed appeal before the CIT(A). The CIT(A) in principle upheld the findings of Assessing Officer in respect of assessee’s involvement in obtaining bogus purchase bills. However, the CIT(A) restricted the addition to 12.5% of such bogus purchases. In respect of adhoc disallowance of expenses, the CIT(A) observed that disallowance made is on higher side. The CIT(A) granted part relief to the assessee by restricting the disallowance on office expenses to 10%. Against the relief allowed by the CIT(A), the Revenue is in appeal before the Tribunal.

3.

Ms. Smita Verma, representing the Department vehemently defended the assessment order and prayed for reversing the findings of CIT(A). The ld.Departmental Representative submitted that the assessee has failed to prove genuineness of the purchases. Neither the parties from whom purchases were made were produced before the Assessing Officer nor the assessee could show any documentary evidence in the form of octroi receipts, transportation charges, etc. to prove trail of goods. The Assessing Officer had issued notices to the suppliers under section 133(6) on the addresses furnished by the assessee. However, the same were returned back unserved with remark “Left” or “Unknown”. The ld.Departmental Representative pointed that in so far as disallowance of expenditure is concerned the assessee had not furnished original bills in respect of certain expenses, hence, the Assessing Officer disallowed 20% of such expenditure.

4.

Submissions made by ld.Departmental Representative heard and orders of authorities below examined. The Revenue is in appeal against the part relief granted by the first appellate authority in respect of bogus purchases and adhoc disallowance of expenditure.

5.

The assessee has purportedly obtained bogus purchase bills amounting to Rs.19,82,606/-. The Assessing Officer has not questioned the turnover/sales declared by the assessee. Without purchases, there cannot be sales/execution of work. Since the sales/turnover declared by the assessee has been accepted by the Assessing Officer there cannot be addition of entire alleged bogus purchases. The CIT(A) in impugned order has observed that ostensibly the assessee has made purchases from grey market at lower rates and has obtained bogus bills from entry providers to match such purchases. In such like transactions it is only profit element embedded in the bogus purchase bills that has to be brought to tax. The CIT(A) has estimated G.P @ 12.5% of the bogus purchases. I find that the order of CIT(A) is reasonable and justified, hence, no interference is warranted. Ground No.1 of the appeal by the Revenue is dismissed sans-merit.

6.

In ground No.2 of appeal, the Revenue has assailed the order of CIT(A) in restricting adhoc disallowance in respect of office expenses to 10%. The Assessing Officer has made adhoc disallowance of 20% in respect of expenses such as conveyance expenses, petrol expenses, staff welfare expenses, telephone expenses, etc. on the ground that these expenses were not fully supported by bills/vouchers and in respect of certain expenditure there were self made vouchers against cash. I find that the adhoc disallowance made by Assessing Officer in respect of office expenses is on the higher side. The CIT(A) restricted the disallowance to 10%. The same is reasonable and I concur with reasons for reducing the rate of adhoc disallowance. No interfere with the findings of CIT(A) is warranted. The impugned order is upheld and ground No.2 of the appeal by Revenue is dismissed.

7.

Ground No.3 and 4 of the appeal are general in nature, hence, require no adjudication.

8.

No appeal/cross objections by the assessee against the order of CIT(A) has been brought to the notice of Bench. In case at later point of time any appeal/cross objections by the assessee against impugned order of CIT(A) is found, then this order may be recalled and the cross appeals may be listed together for disposal by a common order.

9.

In the result, appeal by the Revenue is dismissed.

Order pronounced on Monday the 23rd day of November, 2020.

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