ITO WARD 12(3)(3), MUMBAI vs. M/S SPARR TEST SYSTEM & CHEMICALS PVT LTD., MUMBAI

This appeal by the Revenue is directed against the order of Commissioner of Income Tax (Appeals)-21, Mumbai ( in short ‘the CIT(A)’) dated 28/03/2019 for the assessment year 2010-11.

The brief facts of the case as emanating from records are: The assessee is engaged in trading of testing machines used for testing strength of corrugated boxes. On the basis of information received from Sales Tax Department, Government of Maharashtra by DGIT(Investigation), Mumbai the assessment for assessment year 2010-11 in the case of assessee was reopened. As per the information received, the assessee had bogus purchase transactions with M/s. Amar Trading Corporation amounting to Rs.17,24,006/-. The name of the aforesaid trader appeared in the list of hawala operators drawn by Sales Tax Department, Government of Maharashtra. The assessee in reassessment proceedings could not produce delivery challans, transport receipts, goods inward register, etc. to substantiate trail of goods. The Assessing Officer held that the purchase bills obtained by the assessee from M/s. Amar Trading Corporation are bogus. The Assessing Officer disallowed the entire bogus purchases. Aggrieved by the assessment order dated 13/03/2015 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) after examining the facts, restricted the disallowance to 12.5%. Against the findings of CIT(A), the Revenue is in appeal.

Shri Sanjay J. Sethi, representing the Department submitted that though the tax effect involved in the appeal is less than the monetary limit specified vide CBDT Circular No. 17/2019, dated 08-08-2019 but the case of assessee falls under exception specified in para 10(e) of Circular No. 03 of 2018 dated 11/07/2018 and amended on 20/08/2018. The ld.Departmental Representative further submitted that the assessee has failed to prove genuineness of the purchases, therefore, the Assessing Officer made addition of the entire such bogus purchases. The ld.Departmental Representative prayed for reversing the finding of CIT(A) and restoring the finding of Assessing Officer. The ld.Departmental Representative placed reliance on the decision of Hon'ble Supreme Court of India in the case of N.K. Proteins Ltd. vs. DCIT in Income Tax Appeal No.769 of 2017 decided on 16/01/2017.

Per contract, Ms.Pratima Rati, appearing on behalf of the assessee vehemently defended the order of CIT(A) in restricting the disallowance on alleged bogus purchases to 12.5%. The ld.Authorized Representative of the assessee submitted that sales made by the assessee have not been doubted by the Assessing Officer, therefore, the entire alleged bogus purchases cannot be added. Without purchases there cannot be sales. The ld.Authorized Representative of the assessee prayed for confirming the findings of CIT(A) and dismissing the appeal of Revenue.

Both sides heard, orders of authorities below examined. The Assessing Officer in the absence of supporting documents to prove genuineness of purchases has treated the purchases made by assessee from M/s. Amar Trading Corporation amounting to Rs.17,24,006/- as bogus. Undisputedly, the sales declared by the assessee have by the Assessing Officer. Since, the sales have been accepted, the same would not have been possible without purchases. In such like transactions it is only the profit element embedded in bogus purchase bills that has to be brought to tax. The entire purchases cannot be added. The CIT(A) has disallowed 12.5% of the bogus purchases, the same has been accepted by the assessee. I find no infirmity in the order of CIT(A, hence, calls for no interference.

In the result, impugned order is upheld and the appeal of Revenue is dismissed being devoid of merit.