ITO 11 (2)(4), MUMBAI vs. M/S SUPERFLO FILTERS PVT. LTD, MUMBAI

This appeal has been filed by the revenue against the order dated 14.03.2019 passed by the Commissioner of Income Tax (Appeals)-18 (for short ‘the CIT(A), Mumbai, for the assessment year 2010-11, whereby the Ld. CIT(A) has partly allowed the appeal filed by the assessee against the assessment order passed u/s 143 (3) r.w.s. 147 of the Income Tax Act, 1961 (for short the ‘Act’).

In this case, assessment was reopened on the basis of information received from the Sales Tax Department through Directorate General of Income Tax (DGIT) (Investigation), Mumbai to the effect that during the previous year the assessee had obtained bogus entries for Rs. 12,40,195/- from three bogus entities which used to provide accommodation entries without supplying goods. Accordingly, the AO made addition of the said amount to the income of the Assessment Year: 2010-11 assessee and passed assessment order u/s 143 (3) r.w.s. 147 of the Act. The assessee challenged the assessment order before the Ld. CIT (A). Ld. CIT (A) after hearing the assessee restricted the addition to 12.5% of the alleged bogus purchases of Rs. 12,40,195/-. Aggrieved by the impugned order passed by the Ld. CIT (A), the revenue is in appeal. 3. The revenue has challenged the impugned order by raising the following effective grounds: “1. Whether on the facts and circumstances of the case and in law, the Ld. CIT (A) erred in restricting the disallowance of bogus purchases to the extent of 12.5% without appreciating the fact that the assessee failed to prove the genuineness of the parties by no producing the confirmation letters during the course of assessment proceedings as well as during the course of appellate proceedings.? 2. Whether on the facts and circumstances of the case and in law, the Ld. CIT (A) erred in restricting the disallowance of bogus purchases to the extent of 12.5% in spite of the Ld. CITs (A) himself concluded during the course of appellate proceedings that the documentary evidences furnished by the appellant did not adequately prove that the purchases were genuine.” 3. Whether on the facts and circumstances of the case and in law, the Ld. CIT (A) erred in not considering that the hawala operators have admitted on oath before the Sales Tax Authorities that they have not sold any material to anybody? 4. Whether on the facts and circumstances of the case and in law, the Ld. CIT (A) erred in law by not appreciating the fact that the onus to justify the claim of expenses is on the assessee and the same has failed to discharge it in relation to the purchases made from the non-existent vendors? 5. Whether on the facts and circumstances of the case and in law, the Ld. CIT (A) erred in restricting the disallowance of purchases to the extent of 12.5% without appreciating the decision of Hon’ble Punjab & Haryana High Court in the case of J.R. Solvents Industries (Pvt) Ltd (2012) (22 taxmann.com 115) wherein it was held that where Assessment Year: 2010-11 purchases were made from a non-existing seller, same would be held to be bogus even if complete quantitative details of the purchases were available in the assessee’s books of account? 6. Whether on the facts and in the circumstances of the case and in law, has the Ld. CIT (A) failed to uphold the decision of Hon’ble Apex Court in the case of NK Proteins Ltd vs. DCIT in SLP (Civil) No. 769/2017 dated 16.01.2017 where 100% of addition was confirmed by the Hon’ble Apex Court.?

The Ld. Departmental Representative (DR) submitted before us that the Ld. CIT (A) has wrongly restricted the addition to 12.5% without appreciating the fact that the assessee could not establish the genuineness of the purchases. The Ld. DR further pointed out that the Ld. CIT (A) has restricted the addition ignoring the fact the ‘hawala’ operators have admitted on oath before the Sales Tax Authorities that they did not sell any material to anybody. The Ld. DR further submitted that since the findings of the Ld. CIT (A) are contrary to the ratio laid down by the Hon’ble Apex Court in the case of N.K. Protein Ltd. Vs. DCIT in SLP (Civil) No. 769/2017 and the Hon’ble Punjab & Haryana High Court in the case of J.R. Solvent Industries Pvt. Ltd. 22 taxman.com 115, the same is liable to be set aside.

On the other hand, the Ld. counsel for the assessee submitted that the facts of the cases relied upon by the revenue are different from the facts of the present case. The Ld. counsel further pointed out that the Hon’ble Gujarat High Court in the case of CIT vs. Simit P. Sheth 356 ITR 451, has upheld the addition of 12.5% of bogus purchases shown by the assessee holding that in such cases only profit element embedded in such purchases could be added to the income of the assessee. The Ld. counsel further submitted that since the findings of the Ld. CIT (A) are based on the ratio laid down by the Hon’ble Gujarat High Court and the decisions of the Mumbai Benches of the Tribunal, there is no infirmity in the order passed by the Ld. CIT (A) to interfere with. 6. We have heard the rival submissions of the parties and perused the material on record including the cases relied upon by the parties and the Assessment Year: 2010-11 authorities below. As pointed out by the Ld. counsel, the Ld. CIT (A) has restricted the addition to 12.5% of the alleged bogus purchases by following the ratio laid down by the Hon’ble Gujarat High Court in the case of CIT vs. Simit P. Sheth (supra). The concluding paras of the Ld. CIT (A) read as under:-