PRABHAT GUPTA HUF,MUMBAI vs. ITO CIRCLE-26(2)(4), MUMBAI

The common issue involved in these appeals is in relation to the additions made/deleted on account of non–genuine purchases.

Brief facts, more or less common in these appeals are, the assessee is a Hindu Undivided Family (HUF) and is engaged in the business of trading in TMT Bars, Steel, etc. For the assessment year 2010–11, the assessee filed its return of income on 12th February 2011, declaring total income of ` 4,29,750. Similarly, for the assessment year 2011–12, the assessee filed its return of income on 24th September 2011, declaring total income of ` 5,07,944. The returns of income so filed were initially processed under section 143(1) of the Act. Subsequently, on the basis of information received from the Sales Tax Department, Government of Maharashtra, through the O/o the DGIT (Inv.), Mumbai, that the assessee is a beneficiary of accommodation bills provided by certain entities identified as hawala operators, the Assessing Officer re–opened the assessment under section 147 of the Act. During the assessment proceedings, the Assessing Officer, as per the information available on record, found purchases worth ` 51,92,052 in assessment year 2010–11 and ` 54,43,711, in assessment year 2011–12, claimed to have been made from certain parties to be non–genuine. Therefore, he called upon the assessee to prove the genuineness of such purchases through proper documentary evidence. In response to the query raised by the Assessing Officer, the assessee submitted the details called for and also explained that the purchases made are genuine. The Assessing

After considering the submissions of the assessee in the context of facts and material on record, learned Commissioner (Appeals) agreed with the Assessing Officer insofar as the issue of genuineness of purchases are concerned. He held that since the assessee could not furnish sufficient documentary evidence to prove the genuineness of purchases claimed to have been made from the concerned parties, such purchases cannot be accepted to be genuine. However, he did not agree with the estimation of rate of profit @ 12.5% as adopted by the Assessing Officer. He observed, the assessee has already declared gross profit ratio @ 3.3% on all its purchases. Further, the assessee has declared net profit @ 1.59%, whereas, VAT rate on such goods is shown at 4%. Considering these facts, learned Commissioner (Appeals) estimated the profit rate @ 4% and restricted the addition to 4% of the non–genuine purchases in both the assessment years under appeal. Against the aforesaid decision of learned Commissioner (Appeals), both, the assessee and the Revenue are in appeal before us.

While the assessee has raised grounds challenging, both, the re– opening of assessment under section 147 of the Act as well as the 5 Prabhat Gupta HUF merits of the additions sustained by learned Commissioner (Appeals), the Revenue has challenged the decision of learned Commissioner (Appeals) in restricting the addition to 4% of the non–genuine purchases.

The learned Authorised Representative submitted, the Assessing Officer has re–opened the assessment simply relying upon the information received from the O/o the DGIT (Inv.), Mumbai, without independently applying his mind. She submitted, no tangible material has come to the possession of the Assessing Officer to form belief that income has escaped assessment. Therefore, she submitted, re– opening of assessment under section 147 of the Act is invalid. As regards the merits of the issue, the learned Authorised Representative submitted, in course of assessment proceedings, the assessee has furnished all relevant and necessary evidences to prove the genuineness of purchases made during the year. She submitted, apart from purchase bills, bank statement, ledger account copy etc. the assessee has also furnished the details of corresponding sales, sales invoices, delivery challan and transportation bills relating to sale of goods to the end customers. Explaining the modus operandi, the learned Authorised Representative submitted, on receipt of purchase order from its customer, the assessee purchases the required goods. On arrival of vehicle along with goods in assessee’s premises, it is not 6 Prabhat Gupta HUF unloaded but sent directly to the customer/end user in the same vehicle. To prove such fact, learned Authorised Representative drew our attention to the purchase bills, corresponding sale bills, delivery challan, transport receipts relating to sale bills, etc. Further, she submitted, account confirmation from all the selling dealers were obtained and furnished before the Assessing Officer in the course of assessment proceedings. She submitted, the payments were made to the selling dealers through cheque which are reflected in the bank statement. Thus, she submitted, when all documentary evidences were furnished before the Assessing Officer to prove the purchases, there is no justification in treating the purchases as non–genuine and making addition by estimating the profit element at certain percentage. The learned Authorised Representative submitted, merely because the notices issued under section 133(6) of the Act returned back un–served, would not lead to the conclusion that the purchases are non genuine. Finally, the learned Authorised Representative submitted, while deciding identical issue in case of Prabhat Gupta (Individual), the Karta of the HUF, who is also in the similar line of business, in the assessment years 2009–10, 2010–11 and 2011–12, the Tribunal having found that the purchases are supported by valid documentary evidences, has fully deleted the addition made by treating such purchases as non–genuine. In this context, he drew our

The learned Departmental Representative submitted, the Assessing Officer having re–opened the assessment on the basis of specific information available on record, the validity of re–opening of assessment under section 147 of the Act cannot be questioned. As regards the merits of the issue, the learned Departmental Representative submitted, it has been established beyond doubt that the purchases made by the assessee in both the assessment years are non–genuine. Therefore, the books of account were rejected and addition was made by estimating profit rate. He submitted, the profit rate adopted by the Assessing Officer at 12.5% being reasonable should be restored.

We have considered rival submissions and perused the material on record. At the outset, we propose to deal with the validity of re– opening of assessment under section 147 of the Act. As could be seen from the facts on record, the return, of income filed by the assessee were initially not subjected to scrutiny but were simply processed under section 143(1) of the Act. Subsequently, the Assessing Officer received specific information from the O/o the DGIT (Inv.), revealing

As regards the merits of the issue, undisputedly, the assessee is a trader in TMT Bars and Steel. On a perusal of the assessment order it is evident that in response to the query raised by the Assessing Officer with regard to the disputed purchases, the assessee had furnished the documentary evidences called for which has been acknowledged by the Assessing Officer. However, the Assessing Officer has treated such purchases as non–genuine primarily for two reasons.

In the result, assessee’s appeals are allowed. Whereas, Revenue’s appeals are dismissed. Order pronounced in the open Court on 05.02.2020