ITO 20 (2)(1), MUMBAI vs. SHRI JAIRAM P. GUPTA, MUMBAI

आदेश / O R D E R महावीर ससुंह, न्याययक सदस्य/ PER MAHAVIR SINGH, JM:

ITAs No. 3455 & 3456/Mum/2018 The Assessments were framed by the Income Tax Officer, Ward-20(2)(1), Mumbai (in short ITO/ AO) for the A.Ys. 2009-10, 2010-11 vide order dated …12/2016, under section 143(3) read with section 147 of the Income-tax Act, 1961 (hereinafter ‘the Act’).

2. The only issue in these Revenue of assessee is against the order of CIT(A) restring the disallowance made by AO applying the profit rate at 6.65% of the bogus purchase. For this assessee has raised identically worded grounds in both the years except the quantum. The facts and circumstances are exactly identical in both the years and hence, we will take the facts from AY 2009-10 and will decide the issue. The ground in AY 2009-10 raised as under: - “1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in granting relief of Rs. 4,58,497/- by restricting the addition to 6.65% of the alleged bogus purchases from hawala parties.

3. On the facts and in the circumstances of the case and in law, the Id. ClT(A) has failed to appreciate that the hawala dealers have admitted on oath before the Sales Tax Authorities that they have not sold any material to anybody.

ITAs No. 3455 & 3456/Mum/2018 4. On the facts and in the circumstances of the case and in law, the Id, CIT(A) erred in concluding that assessee had made cash purchases from other parties which were not recorded in the books without mentioning how this and with what evidence before him such finding was arrived at. If such evidence of cash purchases was given the same should have been remanded to the A.O. for his examination and comments.

5. On the facts and in the circumstances of the case and in law, the Id, CIT(A) erred in allowing the appeal on the ground of disallowance u/s41(1) in respect of creditors of Rs. 56.15.817/- even when the assessee failed to produce the creditors or give their current addresses. On one side, CIT(A) erred in relying on the decision in the case of Simit Sheth wherein it was held that that the purchases were not bogus but were made from parties other than those mentioned in books of accounts, not entire purchase price but only profit element embedded in such purchase can be added to income, erred n observing that assessee had made cash purchases from other parties which were not recorded in the books, the assessee took only bills from these 6 parties as accommodation to explain purchases and on the other side finding creditors as genuine

ITAs No. 3455 & 3456/Mum/2018 without mentioning how and with what evidence before him such finding was arrived at. If such evidence of cash purchases was given, the same Should have been remanded to the A.O. for his examination and comments.”

ITAs No. 3455 & 3456/Mum/2018 Shiv Industries 20,70,220 Total 50,18,203 4. During the course of assessment proceedings and during appellate proceedings, the assessee submitted documentary evidences such as payment received against such sales, receipt of material purchases, account payee cheque. According to the AO, the assessee failed to establish the genuineness of the purchase and accordingly, he made addition of unproved purchase at 12.5% of ₹ 9,79,694/- for AY 2009-10 & ₹ 6,27,275/- for AY 2010-11 to the returned income of the assessee. Aggrieved, assessee preferred the appeal before CIT(A), who restricted the disallowance by 6.65% of ₹ 5,21,197 for AY 2009-10 and 6.70% of ₹ 3,36,220/- for AY 2010-11 by observing in para 5.8 by observing as under: - “5.8 In the instant case, the appellant is not in a position to prove the existence of suppliers. There is enough circumstantial evidence casting a doubt on the nature of the transaction. I am of the firm belief that the appellant had made cash purchases from other parties which were not recorded in the books. The Appellant took only bills from other parties which were not recorded in the books. The appellant took only bills from these 7 parties as accommodation to explain the purchases. The AO has made addition ₹ 9,79,694/- @ 12.5% on 78,37,553/- by treating bogus purchases in which payment made. Given the fact that the appellant has already recorded GP of 6.65% in his books, and the sales have not been doubted, I am of the ITAs No. 3455 & 3456/Mum/2018 opinion that the disallowance be restricted to the GP recorded by the appellant in his books of for the year which is 6.65%. Therefore, I direct the AO to estimate profit of 6.65% on the total alleged bogus purchases of ₹ 78,37,553/- wherein payment was made by appellant by cheque which works out to ₹ 5,21,197/-. The AO is directed to consider the addition of ₹ 5,21,197/- on account of bogus purchases. Accordingly, this ground is partly allowed.

The AO further made addition of ₹ 46,29,678/- on account of creditors. Opportunities given to the appellant by the AO, the appellant has not filed any details. I found that the appellant having trading liability and not with any other type of liability. It has not been written off in the books of accounts it is recoverable in future. I rely on the following judicial decision which is as under:

As per decision of the Hon'ble Supreme Court in the case of CIT vs. Seagull Sugar Works P. Ltd. 119991 236 ITR 518 the unilateral action of the assessee in writing off his trading liability incurred by him in his books does neither amount to remission nor amount to cessation of such liability or cessation merely because the period of limitation of recovery of such sum by the concerned person has expired.

ITAs No. 3455 & 3456/Mum/2018 The appellant says you honor may also rely upon the judgment in the ITAT Mumbai Bench DSA Engineers (Bombay) V/s ITO ward 19(1)-3, Mumbai in the IT Appeal No. 5354 (Mum)of 2007 dated : March 12,2009 standing in the balance sheet cannot be presumed to be trading liability where the assessee has not written off a trading liability in its books then the assessing officer cannot invoke section 41(1) merely because the liabilities standing in the books are old or they could not be proved to be genuine by the assessee. I found from the submission that neither appellant had obtained in the year consideration nor the sundry creditors parties have allowed to the appellant to discharge from payment liabilities. On the basis of above discussion and decisions mentioned above, I delete the addition made on account of outstanding payment.”