CLONTO LOBO,MUMBAI vs. ITO RANGE 30(1)(2), MUMBAI

This appeal by the assessee is against the order of Commissioner of Income-Tax (Appeals)-41, Mumbai [In short ‘the CIT(A)’] dated 25.02.2018 for the Assessment Year 2010-11.

The brief facts of the case as emanating from the records are: The assessee is engaged in manufacturing of Cam for packaging industry. The assessment for Assessment Year 2010-11 in the case of assessee was re- opened on the basis of information received by DGIT (Investigations) that the assessee has indulged in obtaining bogus purchase bills aggregating to Rs. 5,30,994/- from hawala dealers. The Assessing Officer in the re-assessment proceedings estimated Gross Profit @ 18.86% on unproved purchases and made addition of Rs. 95,820/- on account of bogus purchases.

Shri Ajay Pratap Singh representing the department vehemently defended the impugned order and prayed for dismissing the appeal of assessee.

Submissions made by Departmental Representative (DR) heard and orders of authorities below examined. In ground no.3 of the appeal, the assessee has assailed the action of CIT(A) in enhancing the addition in respect of bogus purchases. A perusal of the assessment order shows that the assessee has furnished copies of invoices and the ledger accounts of the parties. The plea of assessee is that the payments were made through account payee cheques which were duly reflected in the bank statement and the material purchased was further sold. The sale proceeds have been duly credited in the Profit & Loss Account. However, the assessee was not able to substantiate trail of goods. Delivery challans, Lorry receipts, stock register etc. were not produced by the assessee. Further, the assessee failed to produce the parties from whom the goods were purchased.

Undisputedly, the department never questioned the sales declared by the assessee. Without purchases there cannot be sales, therefore, the only presumption that can be drawn is that the assessee made purchases from grey market and obtained bogus purchase bills. It is only the profit element embedded in the entire bogus transactions that can be brought to tax. The Assessing Officer after considering the Tax Audit Report of the assessee and Gross Profit declared by the assessee in the impugned assessment year, estimated Gross Profit at 18.86% on the bogus purchase. I find assessment order fair and reasonable. The findings of the CIT(A) on the issue are perverse and hence, set-aside. The ground no.3 of the appeal is partly allowed in the terms aforesaid.

In Ground No.4 of the appeal, the assessee has assailed addition of Rs. 1,60,251/- made by CIT(A). The assessee has claimed the sales tax payments to the tune of Rs. 1,60,251/- in respect of bogus purchases. The assessee has furnished evidence in the form of challan to show that the sales tax was actually paid by the assessee in respect of accommodation entries. It is an undisputed fact that the sales tax on bogus purchase bills were indeed paid by the assessee. The assessee’s claim of sales tax expenditure has not been disputed by the department. I find no merit in the reasoning given by the CIT(A) in making the addition. Accordingly, the addition of Rs. 1,60,251/- is deleted. The ground of appeal no.4 is allowed.

The assessee in ground of appeal no. 1 & 2 has assailed re-opening of assessment. The assessee has impugned re-opening for the first time before the Tribunal. No such ground was raised before the First Appellate Authority. Since, no material is available before the Bench to adjudicate this issue and relief has been granted to the assessee on merits of the addition, ground no. 1 & 2 of the appeal are not deliberated upon at this stage.

In the result, appeal of the assessee is partly allowed.