ITO WD 25(1)(5), MUMBAI vs. YOGESH M. MODI, MUMBAI

The dispute in the present appeal is confined to the decision of learned Commissioner (Appeals) in restricting the disallowance to 12.5% of non–genuine purchases.

When the appeal was called for hearing, no one was present on behalf of the assessee to represent the case despite hearing notice having been issued to the assessee. Accordingly, I proceed to dispose off the appeal ex–parte qua the assessee after hearing the learned Departmental Representative and on the basis of material on record.

Brief facts are, the assessee, an individual, is engaged in the business of manufacture and sale of hardware fittings. For the assessment year under consideration, the assessee filed his return of income on 10th July 2009, declaring total income of ` 6,82,450. The return of income was initially processed under section 143(1) of the Income-tax Act, 1961 (for short "the Act"). Subsequently, on the basis of information received from DGIT (Inv.), Mumbai, and the Sales Tax Department that purchases made from certain parties are not genuine, the Assessing Officer re–opened the assessment under section 147 of the Act. During the re–assessment proceedings, the Assessing Officer called upon the assessee to prove the genuineness of purchases made of ` 422, from Chirag Corporation. Alleging that the assessee was unable to prove the genuineness of such purchase, he added back the amount of ` 422. Further, he proceeded to verify the genuineness of purchases made from four other parties representating purchases of ` 21,75,790 on test check basis in respect parties in whose cases notices issued under section 133(6) of the Act returned back un–

After considering the submissions of the assessee in the context of facts and material on record, learned Commissioner (Appeals), though, agreed with the Assessing Officer that the assessee had failed to prove the fact that purchases were made from concerned parties, however, he observed that the Assessing Officer had not doubted the sales effected by the assessee. Thus, he observed, in such circumstances, the entire purchases cannot be considered for addition but the profit element embedded therein has to be added. Relying upon the decision of the Hon’ble Gujarat High Court in CIT v/s Simit P. Sheth, [2013] 356 ITR 451 (Guj.), learned Commissioner (Appeals) directed the Assessing Officer to restrict the addition to 12.5% of the non–genuine purchases of ` 21,75,790.

The learned Departmental Representative strongly relied upon the grounds raised and the observations of the Assessing Officer. He

I have considered the submissions of learned Departmental Representative and perused the material on record. As could be seen from the facts on record, on the basis of information received from the Sales Tax Department and the DGIT (Inv.), Mumbai, that purchases worth ` 422, made from Chirag Corporation is not genuine, the Assessing Officer re–opened the assessment under section 147 of the Act. However, in the course of re–assessment proceedings, the Assessing Officer thought it prudent to verify the genuineness of all other purchases as well. Out of the notice issued under section 133(6) of the Act on test check basis to some parties, notices in respect of four parties representing total purchase value of ` 21,75,790, returned back un–served. Therefore, the Assessing Officer treated such purchases as non–genuine and added back to the income of the assessee. As rightly observed by learned Commissioner (Appeals), the Assessing Officer has not disputed the sales effected by the assessee. Therefore, it would be logical to conclude that in the absence of purchases, the assessee could not have manufactured the finished products and effected corresponding sales. Therefore, what the assessee has failed to prove is the source of purchase. This may lead to a logical conclusion that the assessee must have purchased the 5 Yogesh M. Modi goods from grey market. In such circumstances, the profit element embedded in such purchases has to be treated as income of the assessee. The decision of learned Commissioner (Appeals) in restricting the addition to 12.5% of non–genuine purchases, therefore, is correct and in conformity with various decisions of the Tribunal and different High Courts on similar issue. That being the case, I do not find any reason to interfere with the decision of learned Commissioner (Appeals) on the issue. Insofar as the decisions relied upon by the learned Departmental Representative, on careful examination, I found these decisions to be factually distinguishable, hence, not applicable to the facts of the present case. Accordingly, grounds are dismissed.

In the result, Revenue’s appeal is dismissed. Order pronounced in the open Court on 13.09.2019