PANKAJ SABHARWAL,MUMBAI vs. INCOME TAX OFFICER 22(3)(3), MUMBAI

Assessee by : Ms. Ritika Agarwal-Ld. AR Department by : Shri Abhi Rama Kartikeyan-Ld.DR सुनवाईक"तार"ख/ : 08/05/2019 Date of Hearing घोषणाक"तार"ख / 16/05/2019 : Date of Pronouncement आदेश / O R D E R Per Manoj Kumar Aggarwal (Accountant Member):- 1. Aforesaid appeals by assessee for Assessment Years [AY] 2010-11 and 2011-12 contest the orders of first appellate authority on certain common grounds of appeal. Since common issues are involved, we proceed to dispose-off the same by way of this common order for the sake of convenience & brevity.

1. (i) BECAUSE, the Id. CIT(A) has erred in law and on facts in upholding 100% of the disallowance in respect of alleged bogus purchases amounting to Rs.592,042/- based on information from Sales Tax Department. (ii) BECAUSE, the Id. CIT(A) has erred in law and on facts in upholding the disallowance of Rs.592,042/- in spite of various details regarding ledger accounts, bank statements and bills being available on record. 2.BECAUSE, the Id. CIT(A) has erred in law and on facts in upholding the addition of Rs.2,80,000/- u/s 68 as unexplained cash credit although the same was received from the Appellant's wife and stood supported by bonafide deposits in her bank account.”

3.1 facts in brief are that the assessee being resident individual stated to be engaged as dealer of safety and industrial items under proprietorship concern namely M/s Armstrong safety was assessed for impugned AY u/s 143(3) r.w.s 147 on 28/02/2014 wherein the income of the assessee was determined at Rs.57.35 Lacs after certain additions/disallowances as against returned income of Rs.2.07 Lacs e-filed by the assessee on 14/10/2010 which was processed u/s 143(1). 3.2 The assessee was subjected to reassessment proceedings pursuant to receipt of certain information from Sales Tax Department, Maharashtra that the assessee stood beneficiary of certain accommodation purchases aggregating to Rs.5.92 Lacs stated to be made from 5 suspicious dealers, the details of which have already been extracted in Para 3.4 of the quantum assessment order. Accordingly, the case was reopened by issuance of notice u/s 148 on 15/03/2013 which was followed by notice u/s 142(1) wherein the assessee was directed to substantiate the purchase transactions. 3.3 To confirm the transactions, notices sent u/s 133(6) to the suppliers were returned back unserved by postal authorities in few cases whereas some parties did not reply to the said notice. The same was confronted to the assessee and the assessee was directed to produce the suppliers to establish the genuineness of the transactions. However, the assessee failed to do so. The failure on the part of the assessee to substantiate the purchases with conclusive documentary evidences led the Ld. AO to treat these purchases as accommodation entries obtained only for the sake of reducing the income and therefore, the same was disallowed and added back to the income of the assessee. 3.4 The second addition, which is subject matter of present appeal, is addition of unexplained cash credit u/s 68 for Rs.2.80 Lacs. The said amount represent loan taken by the assessee from his wife Smt. Teena Sabharwal. Since the assessee did not file any details, the same was added to the income of the assessee u/s 68. 4.1 Aggrieved, the assessee contested the reassessment proceedings on legal grounds which was dismissed by Ld. first appellate authority. In support of the purchase transactions, the attention was drawn to the fact that the copies of invoices, ledger extracts reflecting purchase transactions and the bank statements highlighting the payments made by the assessee to the aforesaid suppliers were submitted during assessment proceedings to Ld. AO and therefore, the primary onus to prove the genuineness of the transactions was duly discharged by the assessee. However, observing that the assessee did not produce any transport details, delivery challans or quantitative tally of stock, Ld. CIT(A) confirmed the additions. 4.2 Regarding addition u/s 68, the assessee submitted additional evidences in support of the transaction which were subjected to remand proceedings before Ld. AO wherein Ld. AO disputed the same. Finally, after considering assessee’s submissions and remand report, Ld. CIT(A) confirmed the addition in view of the fact that no commission income was reflected by the assessee’s wife in her return of income which was stated to be source of the aforesaid loan. Aggrieved, the assessee in in further appeal before us.

6.2 So far as the addition of alleged bogus purchases is concerned, we find that assessee was in possession of primary purchase documents and the payments to the suppliers was through banking channels. We are of the considered opinion that there could be no sale without actual purchase of material keeping in view the assessee’s nature of business activities. At the same time, notices u/s 133(6) did no elicit any satisfactory response and the assessee failed to produce even a single supplier to confirm the purchase transactions. Therefore, in such a situation, the addition, which could be made, was to account for profit element embedded in these purchase transactions to factorize for profit earned by assessee against possible purchase of material in the grey market and undue benefit of VAT against such bogus purchases. Keeping in view the same, we restrict the impugned additions to 12.5% of alleged bogus purchases of Rs.5,92,042/- which comes to Rs.74,005/-. The balance additions stand deleted. 6.3 Our aforesaid view is in line with the recent decision of Hon’ble Bombay High Court rendered in bunch of appeals titled as Pr.CIT Vs. M/s Mohommad Haji Adam & Co. [ITA No.1004 & others of 2016, dated 11/02/2019] wherein Hon’ble Court distinguishing the cited case law of Hon’ble Gujarat High Court rendered in N.K. Industries Ltd. Vs Dy. C.I.T. in Tax Appeal No. 240 of 2003 and connected appeals decided on 20th June, 2016 observed as under: - 8. In the present case, as noted above, the assessee was a trader of fabrics. The A.O. found three entities who were indulging in bogus billing activities. A.O. found that the purchases made by the assessee from these entities were bogus. This being a finding of fact, we have proceeded on such basis. Despite this, the question arises whether the Revenue is correct in contending that the entire purchase amount should be added by way of assessee's additional income or the assessee is correct in contending that such logic cannot be applied. The finding of the CIT(A) and the Tribunal would suggest that the department had not disputed the assessee's sales. There was no discrepancy between the purchases shown by the assessee and the sales declared. That being the position, the Tribunal was correct in coming to the conclusion that the purchases cannot be rejected without disturbing the sales in case of a trader. The Tribunal, therefore, correctly restricted the additions limited to the extent of bringing the G.P. rate on purchases at the same rate of other genuine purchases. The decision of the Gujarat High Court in the case of N.K. Industries Ltd. (supra) cannot be applied without reference to the facts. In fact in paragraph 8 of the same Judgment the Court held and observed as under- “ So far as the question regarding addition of Rs.3,70,78,125/- as gross profit on sales of Rs.37.08 Crores made by the Assessing Officer despite the fact that the said sales had admittedly been recorded in the regular books during Financial Year 1997-98 is concerned, we are of the view that the assessee cannot be punished since sale price is accepted by the revenue. Therefore, even if 6 % gross profit is taken into account, the corresponding cost price is required to be deducted and tax cannot be levied on the same price. We have to reduce the selling price accordingly as a result of which profit comes to 5.66%. Therefore, considering 5.66% of Rs.3,70,78,125/- which comes to Rs.20,98,621.88 we think it fit to direct the revenue to add Rs.20,98,621.88 as gross profit and make necessary deductions accordingly. Accordingly, the said question is answered partially in favor of the assessee and partially in favor of the revenue.” 9 In these circumstances, no question of law, therefore, arises. All Income Tax Appeals are dismissed, accordingly. No order as to costs.

Ground No. 1 stand partly allowed.

10. After careful consideration, we find that the facts are pari-materia the same in this AY. Therefore, taking the same view, we restrict the addition on account of alleged bogus purchases to 12.5% of Rs.11,80,166/- which comes to Rs.1,47,521/-. The balance addition stands deleted. Ground No.1 stand partly allowed. The addition of Rs.4.59 Lacs u/s 68, being loan taken by the assessee from his wife stands deleted on the same logic. Ground No. 2 stand allowed.

11. In ground No. 3, the assessee is aggrieved by disallowance of interest paid on housing loan for Rs.65,651/- under the head income from house property. No details were furnished by the assessee during assessment proceedings. No request for admission of additional evidence, in this regard, was made during appellate proceedings. The Ld. AR pleaded for another opportunity in view of that fact that the assessee was in possession of the requisite interest certificate to establish his claim in this regard. Keeping in view the submissions made by Ld. AR, Ld.AO is directed to verify the assessee’s claim, in this regard and allow the deduction, if found admissible under law. This ground stand allowed for statistical purposes. The appeal stands partly allowed. Conclusion

12. Both the appeals stand partly allowed in terms of our above order.

Order pronounced in the open court on16/05/2019. (Saktijit Dey) (Manoj Kumar Aggarwal) "ाियक सद" / Judicial Member लेखा सद" / Accountant Member