OSIAN'S CONNOISSEURS OF ART PRIVATE LIMITED,MUMBAI vs. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-3(2)(2), MUMBAI

Whether on the facts and circumstances of the case and in law the Ld. CIT(A) has erred in restricting the disallowance made on account of unconfirmed purchases to 25% of such unconfirmed purchases based on appellate orders for earlier years, without appreciating that during the set aside proceedings, the assessee was not able to produce even one confirmation in respect of the purchase which were treated as unconfirmed purchases by AO.

Brief facts relating to the main issue was disallowance of unverified purchases amounting to 21,03,67,319/- The CIT(A) allowed relief of ₹ 15,91,06,139/- After giving effect to the order of CIT(A) dated 24.09.2013, the total income was revised at Rs. 2,98,25,401/-. The ITAT in appeal No. order dated 28/21/2014 remitted the issue back to the file of assessing officer for adjudication of the issue of purchase as directed in the order. The ITAT considered the facts as under: - “Out of the above, AO made addition of ₹ 21,03,67,319/- and breakup of the same qua the filing of the confirmations, old suppliers, new suppliers application of the assessee before the Revenue Authorities are as under:

Finally, the ITAT directed the AO to allow assessee to file the confirmations and accordingly examine the same after granting reasonable opportunity of being heard to the assessee. The ITAT directed as under: - “Similarly, there is another set of old suppliers, which were also examined earlier years, which accounts for Ps. 1,01,96,250/-. These are the group of suppliers which were also accepted by the Revenue in the past as genuine suppliers However, the assessee has failed to file confirmations in support of those purchases. It is clear as to why the confirmations should not be furnished meaning thereby assessee (ailed to discharge the preliminary onus const onhim in matters of the purchases of this kind. AO should examine the same alter granting a reasonable ITAs No.422/Mum/2018 & 7265/Mum/2017 opportunity of being heard to the assessee and AO should specify the party wise reasons for failure to furnish the confirmations in accordance with the law. So far as the balance of purchases amounting to Rs. 2,81,14,5001-, we are of the opinion that it is an admitted position that the assessee does not have confirmations in this regard. They are the new suppliers. AO may examine the claim of the assessee and grant him an opportunity to substantiate the claim. We accordingly remand this matter to the files of the AO with above directions".”

The AO during the second round noted with regard to purchases amounting to ₹ 1,01,96,250/- and ₹ 2,81,14,500/- that no confirmation were filed by the assessee regarding verification of purchases and hence, the AO confirmed the unverifiable purchases amounting to ₹ 1,01,96,250/- and ₹ 2,81,14,500/-. As no confirmation were filed by the assessee regarding verification of purchases and the AO made addition of unverifiable purchases amounting to ₹ 3,83,10,750/-. Aggrieved, assessee preferred the appeal before CIT(A). The CIT(A) noted that the assessee is unable to file confirmations in respect of unverifiable purchases in regard to old suppliers amounting to ₹ 1,01,96,250/- and new suppliers the disallowance to the extent of amounting to ₹ 2,81,14,500/-. Therefore, the CIT(A) restricted the disallowance at 25% of ITAs No.422/Mum/2018 & 7265/Mum/2017 unverifiable purchases of ₹ 3,83,10,750/- by observing in Para 5.1.1 to 5.1.3 as under: - “5.1.1 This relates to addition of Rs. 3,83,10,750/- on account of unverifiable purchase. In the instant case, the assessment was completed making addition on Rs 21,03,67,319/- on account of unverifiable purchases. The CIT(A) allowed a relief of Rs. 15,91,06,139/- vide order dated 24/09/2013. On appeal, the Hon’ble ITAT vide order dated 28.02.2014 in (copy placed on record) directed the Assessing Officer to give an opportunity to substantiate old suppliers amounting to Rs. 1,01,96,250/- and new suppliers amounting to Rs. 2,81,14,500/-. The Assessing Officer has quoted the relevant extract of order of Hon'ble ITAT at page 2-3 of his order. Thereafter, the Assessing Officer has observed that no confirmations were filed in respect of the two categories of purchases restored to him by Hon'ble ITAT and hence added back the amount again.