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Income Tax Appellate Tribunal, “SMC” Bench, Mumbai
O R D E R
PER RAVISH SOOD, JM
The present appeal filed by the assessee is directed against the order passed by the CIT(A)-2, Mumbai, dated 01.02.2018, which in turn arises from the order passed by the A.O under Sec.143(3) r.w.s 147 of the Income Tax Act, 1961 (for short „I.T Act‟), dated 05.03.2015. The assessee 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 and in law the learned CIT(A) erred in not holding the assumption of jurisdiction by the learned Assessing Officer as bad in law as the conditions laid down under the Act for initiating reassessment proceeding u/s 147 of the Act were not fulfilled.
The learned CIT(A) has erred on facts and in law in not holding that the assessment order passed by the Assessing Officer u/s 143(3) r.w.s. 147 of the Act was bad in law and was also in violation of principles of natural justice.
3. On the facts and circumstances of the case and in law the learned CIT(A) erred in confirming the addition made by the Ld. A.O of Rs.9,81,657/- being 12.5% of the purchases of Rs.78,53,253/- by treating genuine purchases as non genuine purchases.
P a g e | Nilesh S. Doshi Vs. ITO-19(2)(4) 4. The appellant craves leave to add to, amend, alter or delete all or any of the foregoing grounds of appeal
.”
2. Briefly stated, the assessee who is engaged in the business of trading in ferrous and non-ferrous metals had filed his return of income for A.Y.2007-08 on 22.10.2007, declaring total income of Rs.3,03,590/-. 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 by the A.O from the DGIT (Inv.), Mumbai, that as per the information unearthed on the basis of investigations carried out by the Sales Tax Department, Maharashtra, the name of the assessee had figured in the list of the beneficiaries who had obtained bogus 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.78,53,253/- from the following two parties:
Sr. No. Name of the hawala parties Amount 1. Tej Corporation 26,96,195/- 2. Hari Om Traders 51,57,058/- Total 78,53,253/- The A.O in order to verify the genuineness and veracity of the aforesaid purchase transactions directed the assessee to place on record documentary evidence supporting the authenticity of the said purchase transactions viz. (i) complete addresses of the supplier parties; (ii) purchase bills; (iii) invoices/bills; (iv) copies of ledger accounts of the parties; (v) details of transportation of goods i.e lorry receipts etc; (vi) documentary evidence corroborating receipt of goods in the premises of the assessee; (vii) documentary evidence substantiating consumption of goods; and (viii) details of payments made to the aforementioned parties. In reply, the assessee furnished the addresses of the abovementioned parties in order to fortify his P a g e | Nilesh S. Doshi Vs. ITO-19(2)(4) claim that genuine purchases of material was made by him from the aforementioned parties. The AO issued notices under Sec.133(6) to the aforesaid parties at the addresses provided by the assessee by registered post, which however were returned back unserved by the postal authorities with the remarks „not known‟, „no such address‟ or „left etc‟. In the backdrop of the aforesaid facts, the A.O directed the assessee to place on record documents supporting the authenticity of the aforesaid purchase transactions, and also to produce the parties before him for necessary verification. In compliance, the assessee filed with A.O certain documents viz. (i) copies of ledger accounts of the parties; (ii) copies of invoices of the aforementioned parties; (iii) copies of bank statements reflecting payments made to the aforesaid parties through proper banking channels by issuing account payee cheques; (iv) chart showing the details of purchases made from the aforementioned parties; and (v) details in respect of the purchases made from the parties and their corresponding sales. However, the A.O not finding favour with the documents produced by the assessee declined to accept his claim that he had made genuine purchases from the aforementioned parties. On the basis of his aforesaid deliberations the A.O rejected the books of accounts of the assessee by invoking the provisions of Sec.145(3). The A.O held a conviction that the assessee had indulged in booking of purchases on the basis of „bills‟ obtained from the aforementioned bogus parties with an intent to suppress its true profits and reduce its tax liability. In the backdrop of the aforesaid facts, the A.O being of the view that the assessee by indulging in the aforesaid purchase transactions would have benefitted by procuring the goods at a discounted value, thus made an addition of Rs.9,81,657/- i.e @ 12.5% of the aggregate value of the purchases of Rs.78,53,253/- which were claimed by the assessee to have been made from the aforementioned parties.
P a g e | Nilesh S. Doshi Vs. ITO-19(2)(4) 4. Aggrieved, the assessee carried the matter in appeal before the CIT(A). The CIT(A) after deliberating on the facts of the case was however not persuaded to subscribe to the contentions advanced by the assessee and dismissed the appeal.
The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. 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 keeping in view the fact that the overall G.P. rate of the assessee during the year was 2.57%, therefore, the lower authorities had erred in making an exorbitant addition/disallowance @ 12.5% of the aggregate value of purchases made by the assessee from the aforementioned parties. In order to buttress his aforesaid contention that no addition/disallowance was liable to be made in the hands of the assessee, the ld. A.R placed on record a “Chart” reflecting the bifurcated details of its total turnover viz. (i) turnover corresponding to the alleged bogus purchases; and (ii) turnover corresponding to the genuine purchases. The Ld. A.R drawing support from the aforesaid „Chart‟ submitted that the overall G.P. rate of the assessee during the year under consideration worked out at 2.57%. It was further averred by him that as was discernible from the details provided in the „Chart‟, as its G.P. rate insofar the alleged „bogus purchases‟ were concerned, was substantially high as in comparison to the G.P. rate pertaining to its genuine purchases, therefore, no further addition/disallowance in context of such alleged bogus purchases was liable to be made in the hands of the assessee. In the backdrop of the aforesaid facts, it was averred by the ld. A.R that the exorbitant additions/disallowances @ 12.5% of the aggregate value of the purchases claimed by the assessee to have been made from the aforementioned parties was unjustified and liable to be vacated. Alternatively, it was submitted by him that in P a g e | 5 A.Y. 2007-08 Nilesh S. Doshi Vs. ITO-19(2)(4) all fairness the addition towards the profit embedded in the purchases made by the assessee from the aforementioned parties may be restricted to the extent of 4% of the aggregate value of such purchases.
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 had failed to substantiate the authenticity of the purchase transactions under consideration, therefore, the CIT(A) had rightly sustained the addition made by the A.O to the extent of 12.5% of the aggregate value of purchases which were claimed by the assessee to have been made from the aforementioned parties.
We have heard the authorized representatives for the both the parties, perused the orders of the lower authorities and the material available on record as well as the judicial pronouncements relied upon by them. Admittedly, as is discernible from the orders of the lower authorities, the assessee had failed to discharge the onus cast upon him as regards proving the authenticity of the purchases aggregating to Rs.78,53,253/- which were claimed to have been made from the aforementioned two parties viz. (i) Tej Corporation (Rs.26,96,195/-); and (ii) Hariom Traders (Rs.51,57,058/-). As observed hereinabove, the notices which were issued by the A.O under Sec. 133(6) to the aforementioned parties in order to verify the genuineness of the purchase transactions were returned back with the endorsement „not known‟, „no such address‟ or „left‟ etc. Further, the assessee also could not substantiate the genuineness of the purchases claimed to have been made from the aforementioned parties on the basis of irrefutable documentary evidence, to the satisfaction of the A.O. Apart there from, the assessee despite specific directions by the A.O also failed to P a g e | 6 ITA No.3928/Mum/2018 A.Y. 2007-08 Nilesh S. Doshi Vs. ITO-19(2)(4) produce the aforementioned parties for necessary verification before the A.O. Insofar the observations of the lower authorities that the assessee could not prove the authenticity of the purchase transactions under consideration is concerned, we are of the considered view that though the assessee in order to buttress his claim that he had made genuine purchases from the aforementioned parties had to some extent produced documentary evidence in the course of the assessment proceedings, however, he had failed to conclusively prove the authenticity of the purchase transactions to the satisfaction of the A.O. In the totality of the facts involved in the case before us, we are of the considered view that as the assessee had failed to substantiate the genuineness of his claim of having made purchases from the aforesaid parties, therefore, it can safely be presumed that he had purchased the goods under consideration not from the aforementioned hawala parties, but from the open/grey market. We are persuaded to subscribe to the observations of the lower authorities that the assessee by making the purchases of the goods under consideration from the open/grey market at a discounted value would have been monetarily benefitted by doing so. Insofar the quantification of the profit embedded in making of such purchases from the open/grey market is concerned, we are of the considered view that the assessee by carrying out the purchases from the unregulated sector in the open/grey market would have saved on VAT etc. As is discernible from a perusal of the copies of the “purchase bills” filed by the assessee before us, we find that the VAT rate of 4% was applicable in respect of the goods that were traded by the assessee. We thus are of the considered view, that the addition in the hands of the assessee can safely be restricted to the extent of 4% of the aggregate value of purchases which are claimed by the assessee to have been made from the aforementioned parties. We thus in terms of our aforesaid