ITO 27 (3)(5), MUMBAI vs. VRAJLAL MANILAL SHAH, MUMBAI

ORDER PER N.K. PRADHAN, A.M. This is an appeal filed by the Revenue. The relevant assessment year is 2009-10. The appeal is directed against the order of the Commissioner of Income Tax (Appeals)-25, Mumbai [in short ‘CIT(A)’] and arises out of the assessment completed u/s 143(3) r.w.s. 147 of the Income Tax Act 1961, (the ‘Act’). 2. The grounds of appeal filed by the revenue read as under : i. Whether on the facts & the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs.1,38,104/- made by the Assessing Officer on account of bogus purchases without appreciating the fact that the assessee had Shri VrajlalManilal Shah failed to produce bills, vouchers and other documentary evidences in support of his claim and without considering the latest Apex court decision in the case of N. K. Proteins Ltd. wherein it is held that once it is proved that the purchases are bogus then addition should be made on entire purchases and not on profit element embedded in such purchases?

1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in estimating the profit from Hawala purchases by disallowing only Rs.19,729/- being 12.5% of the bogus purchases as even the basic onus of producing delivery challans, transportation details etc. were not fulfilled by the assessee?

3. Briefly stated, the facts of the case are that the assessee filed his return of income for the assessment year (AY) 2011-12 on 11.09.2011 declaring total income of Rs.8,15,570/-. The assessee manufactures vaccume forming/thermo forming of plastic items. On receipt of information from the Sales Tax Department, Government of Maharashtra that the assessee had obtained bogus purchase bills from three parties amounting to Rs.10,02,782/- , the AO re-opened the assessment by issuing notice u/s 148 dated 24.03.2014. In response to it, the assessee submitted that the return filed on 11.09.2011 may be treated as return filed in response to notice u/s 148 of the Act. During the course of re-assessment proceedings, the AO issued notice u/s 133(6) to the said parties. However, those notices were returned un-served by the postal authorities with the remarks “not known” and “unclaimed”. Keeping the above facts in mind, the AO asked the assessee to either furnish the current address of the said parties or to produce them before him for verification of the transactions. In response to it, the assessee failed to furnish the current address of the said parties. Further, the assessee failed to produce Shri VrajlalManilal Shah AO for examination. Considering the above facts, the AO made an addition of Rs.10,02,782/- towards bogus purchases.

4. Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). We find that vide order dated 04.09.2018, the Ld. CIT(A) by following the decision of the Hon’ble Gujarat High Court in CIT v. Simit P. Sheth (ITA No. 553 of 2012) and CIT v. Bholanath Polyfab (P.) Ltd. (ITA No. 63 of 2012) restricted the disallowance to 12.5% of the disputed purchases which comes to Rs.1,25,347/- and deleted the balance amount of Rs.8,77,435/-.

5. Before us, the Ld. Departmental Representative (DR) submits that the notices issued by the AO u/s 133(6) were returned un-served by the postal authorities with the remarks “not known” and “unclaimed”. The assessee also failed to produce the said parties before the AO for examination. The Ld. DR further submits that the assessee failed to furnish before the AO the current address of the said parties. Thus it is explained that the addition of Rs.10,02,782/- made by the AO be restored.

6. On the other hand, the Ld. counsel for the assessee submits that the Ld. CIT(A) considering the facts and circumstances of the case has rightly restricted the disallowance to 12.5% of the disputed purchases and the same may be affirmed.