ITO - WD- 3(3), KALYAN vs. MILAN NATWARLAL BHAYANI, DOMBIVALI

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ITA 5100/MUM/2018Status: DisposedITAT Mumbai03 October 2019AY 2009-105 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 held that while the purchases were not fully substantiated, the assessee had made payments through banking channels and possessed primary purchase documents. Therefore, the addition should represent the profit element embedded in these transactions, which the CIT(A) had correctly done.

What were the facts?

The assessee claimed purchases of Rs. 8.40 Lacs which were later found to be from non-existent vendors. The Assessing Officer added the entire amount as bogus purchases, but the CIT(A) restricted the addition to 25% of the purchases.

What were the issues?

Whether the entire amount of bogus purchases should be disallowed, or if a partial disallowance representing the profit element is justified when payments were made through banking channels.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 147,Section 148,Section 143(2),Section 142(1),Section 133(6),Section 145(3)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI

Before: HON’BLE SHRI MAHAVIR SINGH, JM & HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM

For Appellant: Shri Devendra Jain-Ld. AR
For Respondent: Shri Akhtar H. Ansari and Saurabh Kumar-Ld.DRs, Shri Devendra Jain-Ld. AR

आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member): - 1. Aforesaid appeal by revenue for Assessment Year [in short referred to as AY] 2009-10 contest the order of Ld. Commissioner of Income-Tax (Appeals)-1, Thane, [in short referred to as CIT(A)], Appeal No. & 647/14-15 dated 26/06/2018 on following grounds: - Shri Milan Natwarlal Bhayani Assessment Year 2009-10 “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?'1.

1.

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. C1T(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 25% of the purchases from the non-existent vendors? 5. Whether on the facts and in the circumstances of the case and in law, the Ld. C1T(A) has was justified in not appreciating the law correctly that once the purchases are unverifiable / not genuine / bogus, the same should have 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 by the Hon'ble Apex Court?.

6. The order of the CIT(A) may be vacated and that of the assessing officer may be restored.”

We have heard and considered the arguments advanced by both the representatives. 2.1 Facts on record would reveal that the assessee being resident individual stated to be engaged in trading of chemicals under proprietorship concern namely M/s Kalapi Chemie Pharma, was assessed for impugned AY u/s. 143(3) r.w.s. 147 on 22/07/2014 wherein the income of the assessee was determined at Rs.12.26 Lacs, after sole addition of alleged bogus purchases for Rs.8.40 Lacs as against returned income of Rs.3.86 Lacs filed by the assessee on 23/09/2009 which was processed u/s.143(1).

Shri Milan Natwarlal Bhayani Assessment Year 2009-10 2.2 Pursuant to receipt of certain information from investigation wing / Sales tax Department, Govt. of Maharashtra, it transpired that the assessee stood beneficiary of alleged bogus purchases to the tune of Rs.8.40 Lacs from 2 entities, the details of which have already been extracted in the quantum assessment order. Accordingly, as per due process of law, re- assessment proceedings were initiated against the assessee u/s 147 by issuance of notice u/s 148 followed by statutory notices u/s 143(2) & 142(1) wherein the assessee was directed to substantiate the purchase transactions. 2.3 Although, the assessee defended the purchases, however, notice issued u/s 133(6) to confirm the transactions, remained un-responded to and the assessee failed to produce any of the supplier to confirm the transactions. Therefore, the books were rejected u/s 145(3) and the stated purchases were added to the income of the assessee. 2.4 The Ld. CIT(A), after considering assessee’s submissions, various judicial pronouncements, material on record and after appreciating the Gross Profit / Net Profit Trends for various years, restricted the additions to 25% of alleged bogus purchases. Aggrieved, the revenue is in further appeal before us.

3.

We are of the considered opinion there could be no sale without actual purchase of material keeping in view the assessee’s nature of business. The assessee was in possession of primary purchase documents and the payments to the supplier was through banking channels. However, at the same time, the assessee miserably failed to substantiate the purchases Shri Milan Natwarlal Bhayani Assessment Year 2009-10 during assessment proceedings. The assessee failed to produce any of the suppliers to confirm the transactions and also failed to prove the delivery of material. Under such circumstances, the additions which could be sustained, was to account for profit element embedded in these purchase transactions to factorize for profit earned by assessee against possible purchase of material in the grey market and undue benefit of VAT against such bogus purchases, which learned first appellate authority has rightly done so. Therefore, concurring with the approach of Ld. CIT(A), we dismiss the appeal.

4.

The appeal stands dismissed. Order pronounced in the open court on 03rd October, 2019 Sd/- Sd/- (Mahavir Singh) (Manoj Kumar Aggarwal) �ाियक सद� / Judicial Member लेखा सद� / Accountant Member मुंबई Mumbai; िदनांकDated : 03/10/2019 Sr.PS:-Jaisy Varghese आदेश की �ितिलिप अ�ेिषत/Copy of the Order forwarded to : अपीलाथ�/ The Appellant 1.

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