ACIT , CIRCLE- 4(2)(2), MUMBAI vs. MAZDA HI-TECH ELECTRICALS PVT. LTD., MUMBAI

The only common dispute in both the appeals is with regard to the decision of learned Commissioner (Appeals) in restricting the disallowance on account of bogus purchase to the extent of 12.5%.

Brief facts are, the assessee company is engaged in the business of dealers, importers and suppliers of electrical switch gear, fuse gear, circuit breakers and panel accessories & gold bars, share trading, etc. For the assessment year 2010–11, the assessee filed its return of income on 29th September 2010, declaring total income of ` 6,63,16,770. The assessment in case of the assessee for the said assessment year was completed under section 143(3) of the Act, vide order dated 28th February 2013. Similarly, for the assessment year 2011–12, the assessee filed its return of income on 30th September 2011, declaring total income of ` 5,84,87,950. The return of income filed for the assessment year 2011–12, was initially processed under section 143(1) of the Act. Subsequently, the Assessing Officer received information from the office of the DGIT (Inv.), Mumbai, as well as the Sales Tax Department, Government of Maharashtra, that certain parties from whom assessee claimed to have made purchases worth ` 8,03,563 in assessment year 2010–11 and ` 8,77,189 in assessment year 2011–12, have been identified as entry providers/hawala operators by the Sales Tax Department. On the basis of such information, the Assessing Officer re–opened the assessment under section 147 of the Act for the assessment year 2010–11. Whereas, in the assessment year 2011–12, the Assessing Officer took up the issue in scrutiny assessment proceedings. During the assessment

After considering the submissions of the assessee in the context of facts and material on record, learned Commissioner (Appeals) restricted the addition to 12.5% of the alleged non–genuine purchases in each of the assessment years.

The learned Departmental Representative strongly relying upon the observations of the Assessing Officer submitted that the assessee has failed to prove the delivery of material through supporting evidences like delivery challan, transportation receipt, stock register, etc. She submitted, the notices under section 133(6) of the Act returned back unserved, thereby, raising doubt regarding existence of the party, delivery of goods and genuineness of transaction. That being the case, the Assessing Officer was justified disallowing the entire non–genuine purchases.

The learned Authorised Representative submitted, the assessee has furnished purchase bills as well as sale invoices, bank statement showing payment through cheque to the salling dealers as well as its books of account duly recording all purchases and sales. Therefore, merely because the notices issued under section 133(6) of the Act were not served or the assessee was unable to furnish delivery challan and transport receipt, the entire purchases cannot be disallowed and added back to the income of the assessee. He submitted, when the sales made by the assessee have not been doubted, only the profit element embedded in unproved purchases can be considered for addition. Thus, he submitted, learned Commissioner (Appeals) was justified in restricting the disallowance to 12.5% of the non–genuine purchases.

We have considered rival submissions and perused the material on record. No doubt, the Assessing Officer had material before him which indicated that certain purchases claimed to have been made by the assessee in the years under consideration are non–genuine. It is also a fact on record, during the course of assessment proceedings, the assessee has failed to furnish evidences to conclusively prove the source of purchases. However, it also emanates from record that the sales effected by the assessee has not been doubted, meaning thereby, in the absence of such purchases the assessee could not have effected the sales. Thus, in such circumstances, the presumption is, the assessee might have purchased the goods from unknown sources by avoiding payment of VAT / Sales Tax, etc. and to regularize such purchases might have obtained accommodation bills. Thus, in that view of the matter, the profit element embedded in such purchases can be considered for addition. As could be seen, learned Commissioner (Appeals) relying upon the decision of the Hon’ble Gujarat High Court in CIT v/s Simit P. Sheth, 356 ITR 451 (Guj.), has estimated the profit element embedded in such non–genuine purchases @ 12.5% and restricted the addition to that extent in both the assessment years. In our view, the aforesaid decision of learned Commissioner (Appeals) is in conformity with the ratio laid down in various decisions of the Tribunal and the High Courts in similar nature

In the result, both the appeals are dismissed. Order pronounced in the open Court on 19.12.2019