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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY, JM & SHRI MANOJ KUMAR AGGARWAL, AM
आदेश / O R D E R Per Manoj Kumar Aggarwal (Accountant Member):- 1. Aforesaid cross-appeals for Assessment Year [AY] 2009-10 contest the order of Ld. Commissioner of Income-Tax (Appeals)-25, Mumbai [CIT(A)], Appeal No. CIT(A)-25/IT-130/2015-16 dated 02/01/2018 on common ground of appeal viz. estimation on account of alleged bogus purchases. The assessee is aggrieved by estimation of 12.5% on account of alleged bogus purchases as made by Ld. CIT(A) whereas the revenue is aggrieved by the fact that disallowance of Rs.64.57 Lacs as worked out by Ld.AO has been restricted by Ld. first appellate authority to 12.5%. 2.1 Facts leading to the cross appeals are that the assessee being resident individual stated to be engaged in trading of chemicals under proprietary concern namely M/s Suvidhi Enterprises [wrongly been referred to as M/s Sapphire Micro system by Ld. AO] was reassessed for impugned AY u/s 143(3) read with section 147 on 21/03/2015 by Ld. Income Tax Officer-27(1)(1), Mumbai [AO] wherein the income of the assessee was determined at Rs.67.78 Lacs after certain disallowances as against returned income of Rs.2.94 Lacs filed by the assessee which was processed u/s 143(1). The addition of Rs.64.57 Lacs as made by Ld. AO on account of alleged bogus purchases is the sole subject matter of present appeal before us. 2.2 The reassessment proceedings got triggered pursuant to receipt of certain information from Sales Tax Department, Maharashtra wherein it transpired that the assessee stood beneficiary of accommodation purchase bills aggregating to Rs.96.73 Lacs from two entities. Accordingly, the case was reopened u/s 147 by issuance of notice u/s 148 which was followed by statutory notices u/s 143(2) and 142(1) wherein the assessee was directed to substantiate the aforesaid purchases. 2.3 Although the assessee defended the purchases made by him, however, notices issued u/s 133(6) to both the entities to confirm the transactions, were returned undelivered by the postal authorities. The physical inspection by ward inspector reported that none of the party existed at the given address. The assessee failed to produce any of the supplier to confirm the transactions and also failed to substantiate the delivery of material. The factual matrix led the Ld. AO to disbelieve the purchases made by the assessee and accordingly, the disallowance was estimated at Rs.64.57 Lacs, being peak of the cumulative outstanding of the two suppliers.
3. Aggrieved, the assessee agitated the same with partial success before Ld. CIT(A) vide impugned order dated 02/01/2018, wherein, inter- alia relying upon the judgement of Hon’ble Gujarat High Court rendered in CIT Vs. Simit P.Sheth [356 ITR 451], the estimation were restricted to 12.5% of alleged bogus purchases. The stand of Ld. first appellate authority has given rise to cross-appeals before us.
The Ld. Authorized Representative for Assessee [AR], Shri Mehul Shah, drawing our attention to assessee’s financial statements submitted that the assessee procured goods only from these two suppliers during impugned AY and achieved turnover against these purchases. Therefore, the substantial additions were not justified keeping in view the Gross / Net Profit already declared by the assessee. The Ld. DR controverted the same by submitting that the assessee made purchases from non-existent parties.
We have carefully heard the rival submissions and perused relevant material on record. We are of the considered opinion that there could be no sale without actual purchase of material keeping in view the fact that the assessee was engaged in trading activities. The assessee was in possession of primary purchase documents and the accounts were subjected to audit. The payments to the suppliers were through banking channels. The sales turnover has not been disputed by the revenue. The purchases made by the assessee from two suppliers constitute gross purchase of the assessee. At the same time, the assessee failed to conclusively substantiate the delivery of material. Notices issued u/s 133(6) to the two suppliers did not elicit satisfactory response. 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, which Ld. first appellate authority has rightly done. However, keeping in view the fact that the assessee already declared net profit rate of 1.69% during the impugned AY and these were the only purchases made by the assessee, we restrict the impugned additions to 3% of alleged bogus purchases which comes to Rs.2,89,126/-. The impugned order stand modified to that extent.
The revenue’s appeal stands dismissed. Ground No. 3 of assessee’s appeal stand partly allowed. No arguments have been raised with respect to other grounds. 6. The revenue’s appeal stands dismissed whereas the assessee’s appeal stand partly allowed in terms of our above order. Order pronounced in the open court on 23rd April, 2019.
Sd/- Sd/- (Saktijit Dey) (Manoj Kumar Aggarwal) �ाियक सद� / Judicial Member लेखा सद� / Accountant Member मुंबई Mumbai; िदनांकDated : 23/04/2019 Sr.PS:-Jaisy Varghese आदेश की �ितिलिप अ�ेिषत/Copy of the Order forwarded to : अपीलाथ�/ The Appellant 1. ��थ�/ The Respondent 2. आयकरआयु�(अपील) / The CIT(A) 3. आयकरआयु�/ CIT– concerned 4. िवभागीय�ितिनिध, आयकरअपीलीयअिधकरण, मुंबई/ DR, ITAT, Mumbai 5. गाड�फाईल / Guard File 6.