ITO 28 (2)(1), MUMBAI vs. KETAN PRATAP CHANDAN, MUMBAI

Briefly stated the facts are that, the assessee, an individual engaged in the business of “general traders & suppliers”, filed return of income on 17.09.2009 and 10.07.2010 declaring income of ₹.3,58,460/- and ₹.3,32,780/- for. A.Y: 2009-10 and A.Y 2010-11 respectively and the returns were processed u/s. 143(1) of the Act. Subsequently, Assessing Officer received information from the DGIT (Inv.,), Mumbai about the accommodation entries provided by various dealers and assessee was also one of the beneficiary from those dealers. The assessments were reopened U/s. 147 of the Act based on the information received from DGIT(Inv.) Mumbai, that the assessee has availed accommodation entries from various dealers who are said to be providing accommodation entries without there being transportation of any goods. In the re-assessment proceedings, the assessee was required to prove the genuineness of the purchases made from the parties which are referred in the Assessment Orders. In response to the notice, assessee furnished copies of invoices, delivery challans and proof of payments by cheques and submitted that the purchases made are genuine. Assessee further submitted that the payments are made through account payee cheques as such contended 3 & 1687/MUM/2019 (A.Ys: 2010-11 & 2011-12) M/s. Aeroflex Fittings Pvt. Ltd., that all the purchases are genuine. However, parties were not produced before the Assessing Officer and no explanation was offered.

Not convinced with the submissions of the assessee the Assessing Officer treated the purchases as non-genuine and he was of the opinion that assessee had obtained only accommodation entries without there being any transportation of materials and the assessee might have made purchases in the gray market. Assessing Officer observed that the notice issued u/s.133(6) of the Act to the parties were returned unserved with a remark “Not Known” and the assessee did not produced the parties before him. The Assessing Officer treated purchases of ₹.2,38,51,717/- and ₹.1,07,12,273/- for the A.Ys. 2009-10 & 2010-11 respectively, as non- genuine. However, the Assessing Officer estimated the profit element from such purchases at 25% and disallowed ₹.59,62,929/- and ₹.26,78,068/- for the A.Ys. 2009-10 & 2010-11 respectively, while computing the income. On appeal the Ld.CIT(A) considering the evidences and various submissions of the assessee restricted the disallowance to an extent of 12.5% of the non-genuine purchases.

Heard Ld. DR, perused the orders of the authorities below. On a perusal of the order of the Ld.CIT(A), we find that the Ld.CIT(A) considered this aspect of the matter elaborately with reference to the submissions of the assessee and the averments in the Assessment Order and following the decision of the Hon'ble Gujarat High Court in the case of Simit P. Sheth [356 ITR 451] restricted the disallowance to 12.5% of the non-genuine purchases. while holding so, the Ld.CIT(A) for A.Y.2009-10 observed as under: - “6.1. Ground No. 1 of the appeal is against addition being 25% of the purchases of Rs. 2,38,51,717/-. As per the investigations carried out by the Sales Tax Authorities, the aforementioned parties were found to be involved in giving accommodation entries only without actually supplying the goods. The logical inference is that the purchases made by the appellant would also be in the nature of accommodation entries only. To verify the same, the AO had made enquiries by issuing notices u/s 133(6) which were returned unserved by the postal authorities. This party was found to be non existent at the address given by the appellant. The appellant also failed to provide the latest address of the party. During the scrutiny assessment the appellant furnished details of purchases and corresponding sales. However, the appellant could not produce the party before the AO inspite of opportunity being given. The appellant also failed to produce delivery challans or transportation details. The onus of proving the genuineness of such purchases is on the appellant which the appellant had not been able to discharge fully. When the hawala party had admitted on oath that it had given accommodation entries only without actually supplying the goods, the genuineness of purchases made from these parties will have to be considered taking this into consideration while examining the documentation submitted by the appellant in 5 & 1687/MUM/2019 (A.Ys: 2010-11 & 2011-12) M/s. Aeroflex Fittings Pvt. Ltd., support of its claim. The documentary evidences such as purchase bills, payments by cheques, etc. would all have been orchestrated to present a facade of genuineness and does not necessarily mean that the purchases from these parties are genuine. The Courts have held that payment by cheque by itself is not sacrosanct so as to prove genuineness of purchases when the surrounding circumstances are suspect. However, the appellant has shown onward sales which has not been doubted by the Assessing Officer. Since there can be no sales without corresponding purchases, the only logical explanation is that the appellant would have made purchases from undisclosed parties in the grey market at lower rates and purchases were shown as being made from the impugned parties to suppress its profits. In such a situation, the various Courts including the Hon'ble Gujarat High Court in the case of CIT vs Simit P. Sheth, 356 ITR 451 have held that not the entire purchases but only the profit element embedded in these purchases was to be disallowed. The Hon'ble Gujrat High Court in this case has held that profit margin of 12.5% of the bogus purchases will be reasonable. Respectfully following the Order in the case of Simit P. Sheth the addition is restricted to 12.5% of the bogus purchases of Rs. 2,38,51,717/-. This ground of appeal is 'Partly Allowed'.”

In the result, appeals of the Revenue are dismissed.