ITO , WARD- 3 (2), KALYAN vs. PANKAJ UMEDCHAND GANDHI, DOMBIVALI

ORDER PER N.K. PRADHAN, A.M. This is an appeal filed by the Revenue. The relevant assessment year is 2010-11. The appeal is directed against the order of the Commissioner of Income Tax (Appeals)-1, Thane [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’).

Though the case was fixed for hearing on 12.09.2019 and 25.11.2019, neither the assessee nor his authorized representative appeared before the Bench on the above dates. As there is non-compliance on the part of the assessee, we are proceeding to dispose off this appeal on merits, after examining the documents available on record.

1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in not appreciating the law correctly that once the purchases are unverifiable/not genuine/bogus, the same should have been disallowed in entirety? 2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law by not appreciating the fact that the assessee could not establish the genuineness of the purchases from the non-existent vendors? 3. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law by not appreciating the fact that the onus to justify the claim of expenses is on the assessee and the same has failed to discharge it in relation to the purchases made from the non-existent vendors? 4. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law by ignoring the fact that the assessee could not substantiate its claim of purchases from non-existent vendors by means of relevant supporting documents related to movement and delivery of goods, stock register, etc. to arrive at disallowance at 23% of the purchases from the non-exigent vendors? 5. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in not appreciating the law correctly that once the purchases are unverifiable/not genuine / bogus, the same should have been disallowed in entirety, particularly in view of the ratio of the decision of the Hon’ble Gujarat High Court in Tax Appeal No. 242 of 2003 dated 20/06/2016 in the case of N K. Proteins Ltd. against which the SLP was dismissed bythe Hon’ble Apex Court and also decision of Hon’ble Supreme Court in case of Kanchwala Gems V/s JCIT 288 ITR 10 (SC)?

3. Briefly stated, the facts of the case are that the assessee filed his return of income for the assessment year (AY) 2010-11 on 25.09.2010 declaring total income of Rs.2,40,102/-. On receipt of information from the Sales Tax Department, Government of Maharashtra that the assessee had obtained bogus purchase bills from M/s Manibhadra Trading Co. of Rs.1,61,450/- and from M/s Mahavir Corporation of Rs.1,78,937/-, totaling to Rs.3,40,387/-, the Assessing Officer (AO) re-opened the assessment by issuing notice u/s 148 dated 05.04.2013 to the assessee. During the course of re-assessment proceedings, the assessee filed before the AO copies of bills of purchases from the said parties, ledger copy of purchasing party, monthly cash book, copy of bank pass book. He stated that the nature of business of the assessee is trading in ball bearing, electrical goods, hardware etc. and considering the nature of business, there are no transport or octroi bills as the purchasers and sellers are local and as such there are no transport or octroi charges as the same was hand delivered. However, the AO was not convinced with the above explanation of the assessee for the reason that the notices issued u/s 133(6) to the above two parties were returned un-served by the postal authorities. Further, the inquiry conducted by the Inspector of Income Tax found that no such business activity was carried out at the said premises. Further, the assessee could not produce the said parties before the AO, though requested during the course of assessment proceedings. In view of the above facts, the AO made an addition of Rs.3,40,387/-.

4. Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). We find that vide order dated 06.08.2018, the Ld. CIT(A), by following the judgment of the Hon’ble Gujarat High Court in M/s Vijay Proteins restricted the disallowance to 25% of the disputed purchases of Rs.3,40,387/- which comes to Rs.85,097/-.

5. Before us, the Ld. Departmental Representative (DR) submits that there is no basis for restricting the disallowance to 25% of the disputed purchases because the assessee failed to produce the parties before the AO for examination ; the notices issued u/s 133(6) were returned un-served by the postal authorities. Relying on the decision in N.K. Proteins Ltd. (supra), the Ld. DR submits that the disallowance of Rs.3,40,387/- made by the AO be restored. 6. We have heard the Ld. DR and perused the relevant materials on record. In the case of N.K Proteins Ltd. (supra), there was search proceedings conducted by the Revenue at the office premises of the assessee wherein blank signed cheque books and voucher of number of concerns were found. Accordingly, the purchases made from these concerns were treated as bogus by the AO and the entire deposits in bank accounts of these parties were treated as assessee’s income on protective basis. On appeal, the ITAT restricted the addition on account of alleged bogus purchases at 25% i.e. Rs.73,23,322/- of the total purchases amounting to Rs.2,92,93,288/-. On further appeal, the Hon’ble High Court modified the order of the Tribunal and directed for addition of entire bogus purchases. After hearing the counsels, the Hon’ble Supreme Court dismissed the SLP filed by the assessee and confirmed the decision of the High Court for addition of entire income on account of bogus purchases.

In the instant case, the assessee is a trader in ball bearing, electrical goods, hardware etc. The notices issued by the AO u/s 133(6) were returned un-served by the postal authorities. The assessee failed to produce the said parties before the AO for examination. However, the assessee filed before the AO bills of purchases, ledger copy of the purchasing parties, monthly cash book, copy of bank pass book and statement. The AO could have made inquiries to ascertain the transactions. The AO has not made even an elementary inquiry. In such a scenario, we affirm the estimation @ 25% of the disputed purchases made by the Ld. CIT(A).