PCK METALS P.LTD,MUMBAI vs. DCIT 5(2)(1), MUMBAI

The brief facts of the case as emanating from records are : The assessee is a trader in ferrous and non-ferrous metals. The assessment for assessment year 2009-10 in the case of assessee was reopened on the basis of information received from CIT (Central)-1, Mumbai that the assessee has indulged in availing accommodation entries to the tune of Rs.1,32,32,807/- from hawala traders. In assessment proceedings the Assessing Officer after recording that the assessee has failed to produce the parties from whom alleged purchases were made and assessee’s failure to produce vital documents viz. Stock register and books of account leades to the fact that purchases were not genuine. Thus, the Assessing Officer made addition of the entire alleged bogus purchases under section 69 of the Income Tax Act, 1961 (in short ‘the Act’).

Aggrieved by the assessment order dated 30/03/2015 passed under section 143(3) r.w.s. 147 of the Act, the assessee filed appeal before the CIT(A). In first appellate proceedings, the CIT(A) in principle accepted the findings of Assessing Officer in holding that the assessee has indulged in obtaining bogus purchase bills from hawala dealers. However, CIT(A) restricted the disallowance by estimating GP @ 12.5% on bogus purchases. As regards disallowance of interest, the CIT(A) upheld the findings of Assessing Officer in the absence of any contrary material.

Now the assessee is in appeal against the order of CIT(A) assailing the additions on merits as well as challenging the validity of reopening.

Shri V.Sreekar, representing the Department vehemently defended the impugned order and prayed for dismissing the appeal of assessee. The ld. Departmental Representative submitted that the assessee has failed to prove genuineness of the purchases. The CIT(A) has granted relief to the assessee by estimating G.P @ 12.5% on bogus purchases. The estimation of G.P by CIT(A) is fair and reasonable. As regards disallowance of interest expenditure, the ld. Departmental Representative submitted that the assessee has failed to substantiate that the funds advanced to sister concern were for business purpose. Further, the assessee failed to show that the loan to sister concern was advanced from own non-interest bearing funds.

We have heard the submissions made by the ld. Departmental Representative and have examined the orders of authorities below. In ground No.1 of the appeal the assessee has assailed reopening of assessment. The assessee has assailed the reopening before the CIT(A). No contrary material is available on record to rebut the findings of CIT(A). We find no reason to interfere with the order of CIT(A) on this issues. Accordingly, ground No.1 of the appeal is dismissed being devoid of any merit.

In ground No.2 of the appeal, the assessee has assailed disallowance made on bogus purchases by estimating GP at 12.5%. As per the contentions of the assessee, the assessee had furnished confirmations with PAN of the alleged hawala operators. It is contended that no independent enquiry was made by the Assessing Officer . In the absence of proper verification, the purchases cannot be treated as non-genuine.

In ground No.3 of the appeal, the assessee has assailed disallowance on interest under section 36(1) (iii) of the Act. The assessee has allegedly advanced interest bearing funds to its sister concern M/s. Prakash Stainless Steel Pvt. Ltd. without charging any interest. It is not emanating from records whether the assessee was having own sufficient funds for advancing of loans to its sister concern. The assessee has submitted that the advances have been given in connection with business. However, we find that there is no reference to the material by authorities below that have been placed on record by the assessee to substantiate that the advances were in respect of business transactions. In the absence of complete facts and reference to material brought on record by assessee, we deem it appropriate to restore this issue back to the file of Assessing Officer for fresh adjudication. While deciding this issue, the Assessing Officer shall also consider the applicability of decision rendered in the case of CIT vs. Reliance Utility Power Ltd. reported as 313 ITR 340(Bom).

In the result, appeal of the assessee is partly allowed in the terms aforesaid.