ASIAN CHEMTECH PRIVATE LIMITED,MUMBAI vs. ITO 9(1)(4), MUMBAI

Asian Chemtech Pvt.Ltd. Assessment Year-2011-12 dated 30/11/2018 qua confirmation of certain additions on account of alleged bogus purchases. Although the assessee, in its grounds of appeal, has also challenged the validity of reassessment proceedings u/s 147, however, these grounds have not been pressed during hearing before us. Therefore, the same are not considered while adjudicating the appeal. 2.1 The assessment for impugned AY was framed by Ld. Income Tax Officer-9(1)(4), Mumbai [AO] u/s 143(3) read with Section 147 of the Act on 23/03/2016 wherein the income of the assessee was determined at Rs.114.92 Lacs after certain additions as against returned income of Rs.42.87 Lacs e-filed by the assessee on 30/09/2011 which was processed u/s 143(1). The estimated addition of Rs.72.03 Lacs on account of alleged bogus purchases is the sole subject matter of present appeal before us. The assessee being resident corporate assessee was stated to be engaged in trading of ferrous and non-ferrous metal products during impugned AY. 2.2 The reassessment proceedings got triggered by issuance of notice u/s 148 dated 30/03/2015 pursuant to receipt of certain information from Sales Tax Authorities that the assessee stood beneficiary of alleged bogus purchases aggregating to Rs.393.92 Lacs from 4 parties, the details of which have already been extracted in the reasons recorded for reopening. One more supplier namely Aadeshwar Trading Co. was later on added to the said list during the course of hearing taking the aggregate alleged bogus purchases to Rs.576.31 Lacs. 2.3 During the course of assessment proceedings, statutory notices were issued u/s 142(1) as well as u/s 143(2) wherein the assessee was directed Asian Chemtech Pvt.Ltd. Assessment Year-2011-12 to substantiate the purchase transactions with documentary evidences. In support, the assessee filed copies of sale / purchase invoices and submitted that adequate stock details were maintained and further, the payments to the suppliers were though banking channels and therefore, the purchases could not be treated as bogus purchases. However, discrepancies were found in the details submitted by the assessee. Notices sent u/s 133(6) to the suppliers elicited no satisfactory response and the same were returned back by postal authorities with remarks not known. Although the assessee defended its stand vide replies dated 24/02/2016 & 22/03/2016, however, the same could not find favor with Ld. AO who estimated the additions against these purchases @12.5% in terms of the judgment of Hon’ble Gujarat High rendered in CIT Vs. Simit P.Sheth [356 ITR 451]. The same resulted into impugned addition of Rs.72.03 Lacs in the hands of the assessee.

The Ld. Authorized Representative for Assessee [AR], Shri Vimal Punmiya, drawing our attention to the documents placed in the paper-book submitted that the assessee was engaged in trading activities and adequate stock details were being maintained and therefore, the additions were not justified. Our attention has been drawn to the fact that the assessee was Asian Chemtech Pvt.Ltd. Assessment Year-2011-12 dealing in low margin item like metal and the assessee has already declared Gross profit of Rs.3.84% in the impugned AY. Reliance has been placed on various decision of Tribunal to submit that additions were on higher side keeping in view the assessee’s nature of business. Per Contra, Ld. DR submitted that the estimate made by lower authorities was quite reasonable and would require no interference keeping in view the factual matrix.

We have carefully heard the rival submissions and perused relevant material on record including judicial pronouncements cited before us. 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 maintained adequate stock records to reconcile the quantitative details. The payments to the suppliers were through banking channels. The books of accounts were duly audited. The sales turnover has not been disputed by the revenue. At the same time, the assessee failed to conclusively substantiate the delivery of material. Notices issued u/s 133(6) to all the 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 lower authorities have rightly done. However, it is noticed that the assessee is dealing in a low margin item like metals which is Asian Chemtech Pvt.Ltd. Assessment Year-2011-12 subjected to lower VAT Rate. Another factor to be noted is that the assessee has reflected a Gross Profit Rate of 3.84% in the impugned AY. Therefore, keeping in view the totality of facts and circumstances, we reduce the estimated additions to 2% of alleged bogus purchases of Rs.5,76,31,450/- which comes to Rs.11,52,629/-. The balance addition stands deleted. The impugned order stand modified to that extent.

The appeal stands partly allowed in terms of our above order.