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Income Tax Appellate Tribunal, “SMC” Bench, Mumbai
Before: Shri Shamim Yahya & Shri Ravish SoodShri Kamlesh T. Bavad
Appellant by: Shri Chaitnya Anjaria, D.R Respondent by: Shri Dalpat Shah, A.R Date of Hearing: 02.05.2019 Date of Pronouncement: 10.05.2019 O R D E R
PER RAVISH SOOD, JM
The present appeal filed by the revenue is directed against the order passed by the CIT(A)-25, Mumbai, dated 22.03.2018, which in turn arises from the order passed by the A.O under Sec.144 r.w.s. 147 of the Income Tax Act, 1961 (for short „I-T Act‟), dated -/03/2015 for A.Y. 2009-10. The revenue assailing the order of the CIT(A) has raised before us the following grounds of appeal:
1. On the facts and circumstances of the case the Ld. CIT(A) erred in deleting the addition of Rs.41,22,915/- on account of bogus purchases, without appreciating the fact that the assessee had failed to produce bills, vouchers and other documentary evidences in support of his claim and without considering the latest Apex Court decision in the case of N.K Protein Ltd, wherein it is held that once it is proved that the purchases are bogus then addition should be made on entire purchases and not on profit embedded in such purchases.
P a g e | 2 A.Y.2009-10 Income Tax Officer-27(2)(1) Vs. Shri Kamlesh T. Bavad 2. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in estimating the profit from hawala purchases by disallowing only 12.5% of the bogus purchases, as even the basic onus of producing transport bills, delivery challans, etc were not fulfilled by the assessee .
3. The appellant pray that the order of the Ld. CIT(A) on the above grounds be reserved and that of the Assessing officer be restored.
The appellant craves leave to amend or alter any ground or add a new ground which may be necessary.”
Briefly stated, the assessee who is engaged in the business of trading of chemicals, dyes, printing and stationery items as a sole proprietor of a concern viz. M/s Rupa Enterprises, had filed his return of income for A.Y. 2009-10 on 29.09.2009, declaring total income of Rs.1,82,630/-. The return of income filed by the assessee was processed as such under Sec. 143(1) of the I-T Act. Subsequently, on the basis of information received from the Sales Tax Department, Maharashtra [through the office of the DGIT (Inv.), Mumbai], that the name of the assessee had figured in the list of the beneficiaries who had obtained bogus purchase bills from certain hawala dealers, his case was reopened under Sec. 147 of the I-T Act.
During the course of the assessment proceedings, it was observed by the A.O that the assessee had claimed to have made purchase of Rs. 41,22,915/- from the following tainted parties:
Sr. No. Name of the concern Financial Year Amount of purchase 1. Shreeji Sales 2008-09 2,014,305/- 2. Alpesh Trading Co. 2008-09 2,108,610/- Total Rs.41,22,915/- In order to verify the genuineness and veracity of the aforesaid purchase transactions, the A.O issued notices under Sec.133(6) to the aforementioned parties, which however were returned back unserved by the postal authorities with the endorsements “not known” and “unclaimed”. In the backdrop of the aforesaid facts, the A.O called upon the assessee to furnish the current addresses of the P a g e | 3 A.Y.2009-10 Income Tax Officer-27(2)(1) Vs. Shri Kamlesh T. Bavad abovementioned concerns or to produce the said parties alongwith the supporting details, so that the authenticity of the purchases transactions under consideration could be verified. In reply, the assessee vide his letter dated 05.03.2015 provided the current addresses of the aforementioned parties. However, the Inspector of Income-tax who was deputed to serve notices under Sec. 133(6) to the aforesaid parties at the addresses provided by the assessee, could not locate the whereabouts of the said parties. As the assessee could not substantiate the genuineness of the purchase transactions under consideration, therefore, the A.O was of the view that the assessee had not made any genuine purchases from the aforementioned parties. On the basis of his aforesaid observations, it was concluded by the A.O that the assessee had not made any purchases of the goods, and had only obtained accommodation entries from the aforementioned parties. Accordingly, the A.O characterising the aforesaid purchase transactions as unproved/non-genuine, therein added/disallowed the entire amount of purchases of Rs. 41,22,915/- to the returned income of the assessee.
4. Aggrieved, the assessee carried the matter in appeal before the CIT(A). The CIT(A) after deliberating on the contentions advanced by the assessee partly allowed the appeal, and restricted the addition to the extent of 12.5% of the aggregate value of the purchases that were claimed by the assessee to have been made from the aforementioned parties.
The revenue being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. The ld. Departmental Representative (for short „D.R‟) relied on the order passed by the A.O. It was submitted by the ld. D.R, that the assessee had failed to prove that he had made genuine purchases from the aforementioned parties.
P a g e | 4 A.Y.2009-10 Income Tax Officer-27(2)(1) Vs. Shri Kamlesh T. Bavad Accordingly, the A.O being of the view that the assessee had debited the purchases only with the purpose to inflate its expenses and suppress its true income, had thus, in the backdrop of the material deficiencies in the said purchase transactions rightly disallowed the total purchases of Rs. 41,22,915/-. It was submitted by the ld. D.R that the CIT(A) had erred in restricting the addition/disallowance to 12.5% of the aggregate value of such bogus purchases.
The ld. Authorized Representative (for short „A.R‟) for the assessee took us through the facts of the case. It was submitted by the ld. A.R that the CIT(A) had in all fairness restricted the addition/disallowance of the total amount of unverified purchases which were made by the assessee from the aforementioned parties, to 12.5% of the aggregate value of such purchases. It was averred by the ld. A.R, that as the assessee could not on the basis of irrefutable documentary evidence substantiate the authenticity of the purchase transactions to the satisfaction of the A.O, therefore, for the said standalone reason he had characterised the same as bogus purchase transactions. The ld. A.R submitted that the CIT(A) had rightly observed that though the assessee could not get the purchase transactions verified from the parties under consideration, however, on the said count the only inference that could have safely be drawn, was that the goods were purchased by him from the open/grey market. It was submitted by the ld. A.R, that as the CIT(A) in all fairness had restricted the addition to the extent of 12.5% of the aggregate value of the aforesaid unverified purchases under consideration, therefore, no infirmity did emerge from his order.
We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record. Admittedly, as is discernible from the orders of the P a g e | 5 A.Y.2009-10 Income Tax Officer-27(2)(1) Vs. Shri Kamlesh T. Bavad lower authorities, the assessee had failed to substantiate the authenticity of the purchase transactions under consideration on the basis of irrefutable documentary evidence. The assessee could not get the said purchase transactions verified on the basis of supporting documentary evidence. In fact, the notices which were issued under Sec. 133(6) by the A.O to the aforementioned tainted parties were also returned back by the postal authorities with the remarks “not known” and “unclaimed”. Apart there from, the Inspector of Income Tax who was deputed to serve the notices under Sec. 133(6) to the aforementioned parties at the addresses which were provided by the assessee also could not locate their whereabouts. In the totality of the aforesaid facts, we are of the considered view that the assessee had failed to discharge the onus as regards proving the authenticity of the purchase transactions under consideration. At the same time, we are in agreement with the view taken by the CIT(A), that in the backdrop of the reported sales/turnover of the assessee, it could safely be concluded that corresponding purchases of goods were carried out by the assessee. In sum and substance, the CIT(A) had rightly observed that the assessee after purchasing the goods from the open/grey market, had thereafter in order to over invoice the purchases had obtained bogus purchase bills from the aforementioned parties. We have perused the order of the CIT(A), and after giving a thoughtful consideration are persuaded to subscribe to the view taken by him. Accordingly, we find no infirmity in the view taken by the CIT(A) that the addition as regards the purchase transactions under consideration was liable to be restricted only to the extent of the profit element embedded in making of such purchases by the assessee from the open/grey market, which we find was fairly estimated by him @12.5% of the aggregate value of the purchases of Rs. 41,22,915/- claimed by the assessee to have been made from the aforementioned parties.