ITO 27(2)(1), MUMBAI vs. M/S.K.L.INDUSTRIES, MUMBAI

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ITA 5961/MUM/2018Status: DisposedITAT Mumbai04 December 2019AY 2009-106 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal upheld the CIT(A)'s decision to restrict the addition to 15% of the bogus purchases, representing the profit element. The Tribunal reasoned that only real income is taxable and disallowed the entire transaction.

What were the facts?

The Assessing Officer (AO) reopened the assessment of M/s K.L. Industries based on information that they made purchases from hawala operators. The AO disallowed the entire purchase amount of Rs. 71,042/- as unexplained expenditure. The assessee failed to produce supporting documents for these purchases.

What were the issues?

Whether the entire amount of bogus purchases should be disallowed or only the profit element embedded therein, when the assessee fails to substantiate the purchases.

Which sections of the Income-tax Act were involved?

Section 147,Section 148,Section 143(1),Section 143(2),Section 142(1)

AI-generated summary — verify with the full judgment below

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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI

Before: Shri Shamim Yahya (AM) & Shri Pawan Singh (JM)

For Appellant: Shri Akhtar H Ansari Sr DR

O R D E R Per Pawan Singh, JM : 1. This appeal filed by the revenue is directed against the order of the CIT(A)-26, Mumbai dated 04-07-2018. The revenue has raised the following grounds of appeal:-

“1. On the facts and circumstances of the case and in law the Id CIT(A) erred in deleting the addition of Rs.60,386/-made by assessing officer on account of bogus purchases, without appreciating the fact that the assessee had failed to produce bills, vouchers and others documentary evidences in support of its claim and without considering the latest Apex court decision in the case of N.K. Protein 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.

2. 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.10,656/-being 15% of the bogus purchases as even the basic onus of producing delivery challans, transportation details etc were not fulfilled by the assessee. The appellant prays that 2 ITA 5961/Mum/2018 M/s K.L. Industries

the order of the CIT(A) on the Above grounds be reversed and that of the assessing Officer be restored.

2.

The brief facts of the case are that the assessee, a partnership firm engaged in the business of manufacturing in steel tubular poles, etc. filed its return of income for the assessment year 2010-11 on 21-09- 2010 declaring total income at Rs.3,51,920/-. The return was processed u/s 143(1) of the Income-tax Act, 1961. The assessment was re-opened under section 147 on the basis of information received from Sale Tax Department, Government of Maharashtra that certain hawala operators are indulging in providing accommodation bills without actual delivery of goods. The Sale Tax Department, Government of Maharashtra referred the list of such hawala dealers and the beneficiary to the DGIT (Investigation), Mumbai. The name of assessee appeared in the list of beneficiaries. The assessee allegedly made the purchases of Rs.71,042/- from such hawala dealers. On the basis of information, the Assessing Officer made a belief that the income of the assessee escaped assessment, therefore, re-opened the assessment under section

147.

Notice under section 148 dated 26-03-2015 was issued to the assessee. However, the assessee, vide letter dated 16-04-2015

3 ITA 5961/Mum/2018 M/s K.L. Industries submitted that the return filed on 21-09-2010 may be treated as return having been filed in response to notice u/s 148 of the Act.

Subsequently, The Assessing Officer thereafter issued a notices u/s 143(2) and 142(1) alongwith a questionnaire. During the assessment, the Assessing Officer noted that the assessee has shown purchases from the following parties, which was declared as hawala dealers by the Sale Tax Department, Government of Maharashtra:

Name of the parties Bill amount (Rs.) 1 Riddhi Enterprises 71,042/- Total 71,042/-

3.

The assessing officer issued notices u/133(6) to the above parties, but all the notices returned unserved by the postal authorities with the remark, “left”. Therefore, the Ward Inspector was deputed to make enquiry and the local enquiry also failed to throw any light on the whereabouts of the parties. This fact was brought to the notice of the assessee by the assessing officer. The assessee was asked to produce the parties, alternatively also show cause as to why the purchases made from the above party should not be disallowed as unexplained expenditure. As the assessee failed to furnish evidence such as,

4 ITA 5961/Mum/2018 M/s K.L. Industries delivery challans, transportation details, etc. to substantiate his claim of purchases from aforesaid parties, the assessing officer, relying upon the decision of ITAT, Jaipur Bench in the case of Kachwala Gems vs JCIT in dated 10-12-2003 made addition of 100% of the amount of alleged bogus purchases to the total income.

4.

On appeal, the ld. CIT(A), on finding that the GP ratio of the assessee for the last three years ranged from 12.07% to 16.41%. The Ld. CIT(A) accordingly restricted the addition to the extent of 15% of such alleged bogus purchases being the profit element embedded in such purchases, by relying upon the decision of Hon’ble Gujarat High Court in CIT vs Simit P Sheth 356 ITR 451 (Guj). Aggrieved by the order of ld. CIT(A), the revenue has filed the present appeal before us.

5.

None appeared on behalf of the assessee before us. The notice of hearing sent by RPAD has been returned by the postal authorities with the remark, “left”. Therefore, we are left with no alternative but to hear the Ld. DR for the revenue and dispose of the appeal on the basis of material available on record. The ld DR submits that the ld CIT(A) granted relief to the assessee despite the facts that the assessee failed to prove the genuineness of the purchases during the assessment

5 ITA 5961/Mum/2018 M/s K.L. Industries

6.

We have considered the submissions of the Ld. DR for the revenue and perused the material available on record. The Ld. DR heavily relied upon the order of the assessing officer. However, we find that the decision arrived at by the Ld. CIT(A) in restricting the addition to the extent of profit element embedded in such bogus purchases at 15% is in conformity with the decision of the Hon’ble Gujarat High Court in CIT vs Simit P Sheth(supra) and other decisions mentioned in his order. We have noticed that neither the AO has not rejected the sales of the assessee, nor statement of accounts maintained by assessee was rejected. The assessing officer disallowed the entire amount of purchases. We are of the considered opinion that under Income Tax Act only real income can be taxed by the Revenue. We may further note that even in cases where the whole transaction is not verifiable due to various reasons, the only taxable is the taxable income component and not the entire transaction. The Hon’ble Bombay High Court in the case of “CIT vs. Hariram Bhambani” in of 2013 decided on 04.02.15 held that the Revenue is not entitled to bring the entire sales consideration to tax, but only the profit attributable on the total unrecorded sale consideration alone can be subject to income

6 ITA 5961/Mum/2018 M/s K.L. Industries tax. We have noted that the ld CIT(A) reasonably disallowed the purchase, which is sufficient to prevent the revenue leakage. No other contrary decision has been brought to our notice by the Ld. DR so as to enable us to come to a different conclusion than the one arrived at by the Ld. CIT(A). Therefore, in this view of the matter, we uphold the order of the Ld. CIT(A) and dismiss the appeal filed by the revenue.

7.

In the result, appeal of the revenue is dismissed.

Order pronounced in the open court on 04-12-2019.

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