MR.KAMLESH AMARLAL KEWALRAMANI,MUMBAI vs. INCOME TAX OFFICER WARD 2(2), KALYAN

The present appeals filed by the assessee for A.Y(s) 2010- 11 and 2011-12 are directed against the respective orders of the CIT(A)-3, Thane, dated 04.12.2014, which in turn arises from the respective assessment orders passed under Sec.143(3) r.w.s 147 of the Income Tax Act, 1961 (for short „I-T. Act‟), dated 16.10.2014. As the issues involved in the captioned appeals are inextricably interlinked and interwoven, therefore, the same are being taken up and disposed off together by way of a consolidated order. We shall first advert to the appeal of the assessee for A.Y 2010-11. The assessee assailing the P a g e | 2 & 4117/Mum/2018 AYs. 2010-11 & 2011-12 Mr. Kamlesh Amarlal Kewalramani Vs. ITO, Ward 2(2) order of the CIT(A) has raised before us the following grounds of appeal :

Briefly stated, the assessee who is engaged in the business of trading and repacking of pharmaceutical and consumer products had e-filed his return of income for A.Y. 2010-11 on 28.09.2010, declaring total income of Rs.1,92,390/-. The return of income filed by the assessee was processed as such u/s 143(1) of the I-T Act. Subsequently, on the basis of information received by the A.O from the Maharashtra Sales Tax Department, Mumbai, that the name of the assessee had figured in the list of the beneficiaries who had obtained bogus purchase bills from certain hawala parties, his case was reopened under Sec.147 of the I-T Act.

In the course of the assessment proceedings, it was observed by the A.O that the assessee had claimed to have made purchases aggregating to Rs. 8,20,560-/- from the following tainted parties:

Aggrieved, the assessee carried the matter in appeal before the CIT(A). The assessee in order to buttress his claim as regards the genuineness of the purchases claimed to have been made from the aforementioned parties, furnished the copies of the purchase bills along with extracts of the bank statements evidencing the payments of the purchase consideration to the aforementioned parties. Further, the assessee in order to rebut the observations of the A.O that no documentary evidence to prove the actual movement of goods was placed on record, therein filed the copy of the delivery challans pertaining to one of the party viz. M/s Chemi Age Enterprises. It was submitted by the assessee that as he was trying to locate the copies of the transport receipts pertaining to the purchases under consideration, therefore, some further time for doing the needful may be given. However, the CIT(A) was not persuaded to subscribe to the claim of the assessee that he had made genuine purchases from the P a g e | 4 & 4117/Mum/2018 AYs. 2010-11 & 2011-12 Mr. Kamlesh Amarlal Kewalramani Vs. ITO, Ward 2(2) aforementioned parties. As the assessee had failed to furnish the necessary documentary evidence in the course of the assessment proceedings, therefore, the CIT(A) remanded the matter of the A.O. However, the assessee in the course of the remand proceedings also could not justify the genuineness of the purchase transactions. Apart there from, as the assessee had not maintained any stock register, therefore, the CIT(A) was of the view that the quantitative details with regard to the opening stock, purchases, sales and closing stock could not be substantiated by the assessee. In sum and substance, it was concluded by him that the purchases and the sales could not be correlated by the assessee with the quantitative details. The CIT(A) was of the view that the assessee in order to support the authenticity of the purchases, had even failed to do the least possible that was required on his part i.e produce the copy of the income tax returns, profit and loss account, balance sheet and bank statements of the aforesaid parties. Accordingly, the CIT(A) considering the totality of the facts of the case rejected the book results of the assessee under Sec.145(3) of the I.T Act. In the backdrop of the aforesaid facts, the CIT(A) not finding any infirmity in the addition made by the A.O towards bogus/inflated purchases, upheld the disallowance and dismissed the appeal.

The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. It was submitted by the ld. A.R that the lower authorities had grossly erred in disallowing the total value of purchases claimed by the assessee to have been made from the aforementioned parties. It was the claim of the ld. A.R that the A.O had merely acted on the basis of the information received from the Sales tax authorities, Maharashtra, and without making any independent investigations had disallowed the purchases made by the assessee from the aforementioned parties. In order to impress upon us P a g e | 5 & 4117/Mum/2018 AYs. 2010-11 & 2011-12 Mr. Kamlesh Amarlal Kewalramani Vs. ITO, Ward 2(2) that genuine purchase of material was made by the assessee from the aforementioned parties, it was submitted by the ld. A.R that the payments towards the purchase consideration to the aforementioned supplier parties was made through banking channel and the material purchased from them was sold. Further, it was submitted by him that the assessee had in the course of the proceedings before the CIT(A) placed on record the copies of the purchase bills, along with the extracts of the bank statements evidencing the payments made to the aforesaid supplier parties. The ld. A.R submitted that as the G.P rate of 8.91% of the assessee for the year under consideration viz. A.Y. 2010-11 was in conformity with that of the immediately 4 succeeding years, therefore, it could safely be concluded that the sales corresponding to the purchases under consideration were duly accounted for in the „books of accounts‟. It was further submitted by him that addition, if any, in respect of the aforesaid purchase transactions was liable to be restricted to the extent of the profit element embedded in the same.

Per contra, the ld. Departmental Representative (for short „D.R‟) relied on the orders of the lower authorities. It was submitted by the ld. D.R that as the assessee could not place on record any material which could prove that the goods under consideration were actually purchased by him, therefore, the lower authorities had rightly disallowed the entire amount of purchases of Rs.8,20,560/-.

We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record. Admittedly, the assessee had in the course of the assessment proceedings failed to discharge the onus as was cast upon him as regards proving the genuineness of the purchase transactions under consideration. In fact, we are of the considered view that as the P a g e | 6 & 4117/Mum/2018 AYs. 2010-11 & 2011-12 Mr. Kamlesh Amarlal Kewalramani Vs. ITO, Ward 2(2) assessee had claimed to have made purchases from the aforementioned tainted parties, therefore, a very heavy onus was cast upon him to substantiate the authenticity of the said transactions, which we find he had failed to discharge. Apart there from, we find that it is a matter of fact that the assessee in the course of the assessment proceedings also could not substantiate the authenticity of the purchases claimed to have been made by him from the aforementioned parties on the basis of any clinching documentary evidence. At the same time, we also cannot remain oblivious of the fact that the assessee had in the course of the proceedings before the CIT(A) placed on record copies of the purchase bills, bank statements evidencing payments to the aforementioned parties through banking channel and copies of some delivery challans pertaining to one of the party viz. M/s Chemi Age Enterprises. In our considered view, the CIT(A) taking cognizance of the aforesaid documents had though in all fairness remanded the matter back to the A.O, however, the assessee still failed to substantiate the genuineness of the purchases on the basis of clinching documentary evidence. Insofar, the observations of the lower authorities that the assessee had failed to prove the authenticity of the purchase transactions is concerned, we concur with the same. At the same time, we are of the considered view that to the extent certain documents viz. purchase bills, bank statements, delivery challans (in part) were produced by the assessee, the same substantiates the fact that the material/goods under consideration was purchased by the assessee. In fact, in case the assessee would had debited bogus purchases only with an intent to suppress its true income, then the same would had witnessed a sharp decline in the G.P rate during the year, which we find is not the case. As a matter of fact, the G.P rate of 8.91% of the assessee for the year under P a g e | 7 ITA Nos. 4116 & 4117/Mum/2018 AYs. 2010-11 & 2011-12 Mr. Kamlesh Amarlal Kewalramani Vs. ITO, Ward 2(2) consideration is found to be very much in conformity with that of the immediately succeeding four years, as under:

We shall now deliberate on the aspect of quantification of the profit element involved in making of such purchases by the assessee from the open/grey market. Admittedly, by procuring the goods from the open/grey market, the assessee would have saved on VAT, as well as availed certain other benefits viz. cash discount etc. We find that the Hon’ble High Court of Bombay recently in the case of Pr. Commissioner of Income Tax-17 Vs. Mohommad Haji Adam and Company (ITA No.1004 of 2016, dated 11.02.2019), while disposing off the appeal of the assessee who was a trader of fabrics, P a g e | 8 & 4117/Mum/2018 AYs. 2010-11 & 2011-12 Mr. Kamlesh Amarlal Kewalramani Vs. ITO, Ward 2(2) had observed, that the Tribunal had correctly restricted the addition as regards the purchases which were found to be bogus, to the extent of bringing the G.P rate of such purchases at the same rate of other genuine purchases. We thus respectfully following the aforesaid judgment of the Hon‟ble jurisdictional High Court, are of the considered view that the addition as regards the bogus purchases of Rs.8,20,560/- in the case of the assessee before us is liable to be restricted by bringing the G.P rate of such bogus purchases in conformity with the G.P rate of the other genuine purchases. We thus in terms of our aforesaid observations restore the matter to the file of the A.O, who is directed to restrict the addition in the case of the assessee in terms of our aforesaid observations. Needless to say, the assessee shall in the course of the set aside proceedings furnish the requisite details with the A.O, in order to facilitate him to give effect to our aforesaid observations.

The appeal of the assessee is allowed for statistical purposes in terms of our aforesaid observations. A.Y. 2011-12 10. We shall now advert to the appeal of the assessee for A.Y. 2011- 12. The assessee assailing the order of the CIT(A) has raised before us the following grounds of appeal :

Briefly stated, the assessee had e-filed his return of income for A.Y. 2011-12 on 21.09.2011, declaring total income of Rs.4,64,600/-. 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 Maharashtra Sales Tax Department, Mumbai, that the name of the assessee had figured in the list of the beneficiaries who had obtained bogus purchase bills from certain hawala parties, the case of the assessee 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 purchases aggregating to Rs.12,62,873/- from the following tainted parties: Sr. No. Name of the Entry Provider Amount of purchase bills taken by the assessee (in Rs.) 1. JMD Orgenic 6,18,187/- 2. Bhavna Enterprises 6,44,686/- Total 12,62,873/- As the assessee failed to substantiate the authenticity of the aforesaid purchase transactions, therefore, the A.O disallowed the entire amount of purchases. Aggrieved, the assessee unsuccessfully carried the matter in appeal before the CIT(A), who upheld the addition/disallowance made by the A.O.

The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. We find that as the facts and the issue involved in the present appeal remains the same as were there before us in his appeal for the immediately preceding year i.e A.Y. 2010- 11 in , therefore, our order passed while P a g e | 10 & 4117/Mum/2018 AYs. 2010-11 & 2011-12 Mr. Kamlesh Amarlal Kewalramani Vs. ITO, Ward 2(2) disposing off the said appeal for A.Y. 2010-11 shall apply mutatis mutandis for the disposal of the present appeal for A.Y. 2011-12.

The appeal of the assessee for A.Y. 2011-12 is on the same terms allowed for statistical purposes. 15. That both the appeals of the assessee i.e A.Y. 2010-11 viz. A.Y. 2011-12 viz. ITA No.4117 /Mum/2018 are allowed for statistical purposes in terms of our aforesaid observations.