INCOME TAX OFFICER 41(2)(1) MUMBAI, MUMBAI vs. ASHOKKUMAR KOTHARI, MUMBAI

The Assessing Officer noted that the TINs of the said parties were found to be cancelled by the Sales Tax Department, Maharashtra, and that statements of the said parties recorded by the Sales Tax authorities revealed that they were engaged in providing accommodation entries without actual supply of goods.

During the assessment proceedings, the assessee was called upon to substantiate the genuineness of the purchases by furnishing documentary evidence such as delivery challans, transport receipts, octroi receipts, stock records, etc. The assessee submitted that payments were made through banking channels. The Assessing Officer, however, held that mere payment through banking channels does not establish genuineness of purchases and relied upon the judgment in CIT v. Precision Finance Pvt. Ltd. (208 ITR 465).

The Assessing Officer further noted that purchases from M/s Dezens Associates amounting to Rs. 3,94,447/- had already

Aggrieved, the assessee preferred an appeal before the CIT(A). The appeal was originally filed manually on 08.07.2016 and was subsequently migrated to the e-Appeals Scheme, 2023.The CIT(A) issued several notices fixing the appeal for hearing over a period of time. However, the assessee neither appeared nor filed any written submissions or evidences before the CIT(A), despite repeated opportunities. The CIT(A), therefore, proceeded to decide the appeal on merits based on the material available on record. The CIT(A) noted that the Assessing Officer had not disputed the sales effected by the assessee and that once sales are accepted, corresponding purchases cannot be disallowed in entirety.

Relying upon judicial precedents, including the principle laid down by the Hon’ble Gujarat High Court in cases dealing with bogus purchases, the CIT(A) held that only the profit element embedded in such purchases could be brought to tax. Accordingly, the CIT(A) directed the Assessing Officer to restrict the addition to 20 percent of the alleged bogus purchases of Rs.

Aggrieved by the order of the CIT(A), the Revenue is in appeal before us raising following grounds of appeal:

The appeal came up for hearing before us on several occasions. As recorded in the order-sheet entries, this was the 13th hearing before us. Despite repeated opportunities, none appeared on behalf of the assessee. On earlier dates also, notices issued to the assessee were returned unserved with the postal remark “Left”, and directions were issued to serve notice through RPAD as well as through the learned Departmental

The learned Departmental Representative submitted that the learned CIT(A) erred in restricting the disallowance of alleged bogus purchases to 20 percent instead of confirming the 100 percent disallowance made by the Assessing Officer. He submitted that the addition was made on the basis of specific information from the Directorate of Investigation identifying the suppliers as hawala dealers or non-existent parties. It was contended that the assessee failed to establish the identity and genuineness of the purchase transactions, and that mere payment through banking channels was insufficient. The learned DR relied upon the order of the Assessing Officer and prayed that the same be restored.

We have carefully considered the said contention in the light of the facts on record.

In the present case, the Assessing Officer has proceeded on the footing that the purchase parties were accommodation entry providers. However, it is equally evident from the assessment order that the sales declared by the assessee have not been doubted, nor has the Assessing Officer recorded any adverse finding with regard to the quantitative details, stock consumption, or realization of sale proceeds. There is also no

The case of the Revenue, therefore, is not that the assessee did not carry on any trading activity or that no goods were purchased at all, but that the assessee obtained purchase bills from non-genuine parties to regularize purchases made from other sources. Once this factual position is accepted, the legal consequence cannot be the disallowance of the entire purchase amount, as that would result in taxing the gross receipts rather than the real income of the assessee.

It is a settled principle that when sales are accepted as genuine, corresponding purchases cannot be treated as entirely non-existent. In such cases, the only reasonable inference is that the assessee has made purchases from the open or grey market and has obtained accommodation bills to account for the same. The benefit derived by the assessee in such transactions is limited to suppression of profit or savings on taxes and margins, and not the entire purchase value.

The learned CIT(A) has appreciated this factual matrix and has recorded a clear finding that the purchases themselves were not bogus, but that the identity of the suppliers was not genuine. On these facts, the learned CIT(A) has restricted the addition to the profit element embedded in the impugned purchases, estimated at 20 percent, which, having regard to the nature of

The Revenue has not brought any material on record to demonstrate that the assessee had not effected purchases at all or that the estimation adopted by the learned CIT(A) is arbitrary or perverse. In the absence of such material, the contention of the learned DR that the facts warrant 100 percent disallowance cannot be accepted.

Accordingly, we find no infirmity in the approach adopted by the learned CIT(A) in restricting the addition to the profit element embedded in the alleged non-genuine purchases, and the same does not call for interference.

In the result, the appeal filed by the Revenue is dismissed, and the order of the learned CIT(A)is affirmed.