ITO 28(3)(3), MUMBAI vs. SANJAY R. MEHTA - HUF, MUMBAI

O R D E R PER C.N. PRASAD (JM) 1. This appeal is filed by the revenue against the order of the Learned Commissioner of Income Tax (Appeals) – 26, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 20.08.2018 for the A.Y. 2009-10 in restricting the disallowance to 12.5% of the purchases of ₹.5,06,958/- as against entire purchases disallowed as non-genuine/bogus by the Assessing Officer.

(A.Y: 2009-10) Shri Sanjay R. Mehta-HUF 2. Briefly stated the facts are that, the assessee is engaged in the business of “Manufacturer of Chemicals”, filed return of income on 16.09.2009 for the A.Y.2009-10 declaring income of ₹.1,45,347/- and the return was processed u/s. 143(1) of the Act. Subsequently, Assessing Officer received information from the DGIT(Inv.), Mumbai about the accommodation entries provided by various dealers and assessee was also one of the beneficiary from those dealers. The assessment was reopened U/s. 147 of the Act based on the information received from DGIT(Inv.), Mumbai, that the assessee has availed accommodation entries from M/s. Padmavat Dyes & Chemicals and M/s. Kothari Enterprises who are all said to be providing accommodation entries without there being transportation of any goods. In the re-assessment proceedings, the assessee was required to prove the genuineness of the purchases made from various parties which were referred to in the Assessment Order. The assessee produced ledger account of the parties in the books of the assessee and copy of purchase bills and submitted that the purchases made are genuine. Not convinced with the submissions of the assessee the Assessing Officer treated the purchases as non-genuine and he was of the opinion that assessee had obtained only accommodation entries without there being any transportation of materials and the assessee might have made purchases in the gray

(A.Y: 2009-10) Shri Sanjay R. Mehta-HUF market. It is the finding of the Assessing Officer since the purchases made by the assessee and claimed as expenses in his Profit and Loss Account are not genuine, the purchases to that extent remained unverifiable and rejected the Books of Accounts. Assessing Officer observed that the notices issued u/s. 133(6) of the Act to the parties were returned unserved with a remark “left/not known’. He also observed that the dealers from whom the assessee made purchases stated that they have issued only accommodation bills. Therefore, Assessing Officer treated purchases of ₹.5,06,958/- as non-genuine and added to the income of the assessee. On appeal the Ld.CIT(A) considering the evidences and various submissions of the assessee restricted the disallowance to the extent 12.5% of the non-genuine purchases.

(A.Y: 2009-10) Shri Sanjay R. Mehta-HUF Order and following the decision of Hon'ble Gujarat High Court in the case of the CIT v. Simit P. Sheth [356 ITR 451] restricted the disallowance to 12.5% of the non-genuine purchases, while holding so, the Ld.CIT(A) observed as under: - “5.3 I have considered the facts of the case and the appellant's submissions. Notices u/s 133(6) of the Act issued to the impugned parties were returned unserved by the postal authorities with the remark 'left/not known". The appellant also failed to produce the parties inspite of opportunity being given. However, perusal of details submitted before the AO and also during appellate proceedings shows that the appellant had filed purchase bills, delivery challans, quantitative tally, sales details, bank statement showing cheques debited, consumption details item wise and statement of working of raw material used for production of finished goods and onward sales Since there can be no sales without corresponding purchases, the only logical explanation is that the appellant would have made purchases from undisclosed parties in the grey market at lower rates and purchases were shown as being made from the impugned parties to suppress its profits In such a situation, the various Courts including the Hon'ble Gujarat High Court in the case of CIT vs Simit P Sheth, 356 ITR 451 have held that not the entire purchases but only the profit element embedded in these purchases was to be disallowed. The estimation would vary with the nature of business and no uniform yardstick could be adopted. In view of this decision of the Hon'ble Gujarat High Court, the addition of Rs. 5,06,958/- made by the Assessing Officer is restricted to 12.5% of the same which should sufficiently cover the profit element embedded in the impugned purchases. The appellant's grounds of appeal are partly

6. On a careful perusal of the order of the Ld.CIT(A) and the reasons given therein, we do not find any infirmity in the order passed by the Ld.CIT(A). None of the findings and observations of the Ld.CIT(A) have been rebutted with evidences by the revenue and thus we do not see any infirmity in the order passed by the Ld.CIT(A) in sustaining the (A.Y: 2009-10) Shri Sanjay R. Mehta-HUF addition/disallowance to the extent of 12.5% of the purchases. Grounds raised by the revenue are dismissed.

Order pronounced in the open court on the 02nd December, 2019