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Income Tax Appellate Tribunal, “J” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI RAJESH KUMAR
Date of Hearing –19.03.2019 Date of Order – 19.03.2019
O R D E R PER SAKTIJIT DEY, J.M.
Aforesaid appeal has been filed by the assessee challenging the order dated 23rd January 2017 passed by the learned Commissioner (Appeals)–17, Mumbai, pertaining to the assessment year 2009–10.
The dispute in the present appeal is confined to the decision of the learned Commissioner (Appeals) in sustaining the addition to the extent of 25% of the non–genuine purchases of ` 1,01,40,000.
2 Nivedita Chemicals Pvt. Ltd.
Brief facts are, the assessee company is engaged in manufacturing of drugs and chemicals. For the assessment year under dispute, the assessee filed its return of income on 17th September 2009 declaring total income of ` 63,04,978. Subsequently, the Assessing Officer re–opened the assessment under section 147 of the Income Tax Act, 1961 (for short “the Act”). In the course of assessment proceedings, the Assessing Officer, on the basis of material available on record, found that as per the information obtained from the Sales Tax Department, Government of Maharashtra, purchases worth ` 1,01,40,000, claimed to have been made by the assessee from six parties are not genuine, as such selling dealers have been identified as hawala operators providing accommodation entries only. He, therefore, called upon the assessee to prove the genuineness of the purchases made. As observed by the Assessing Officer, the assessee could not prove the genuineness of purchases made from the concerned parties through proper documentary evidences. He observed, though sales of goods have been effected by the assessee, however, the assessee could not establish the fact that sales of goods effected were out of the goods purchased from the concerned parties. Therefore, by treating the purchases made of ` 1,01,40,000, as non– genuine, the Assessing Officer added back to the income of the 3 Nivedita Chemicals Pvt. Ltd.
assessee. The assessee challenged the aforesaid addition before the first appellate authority.
After considering the submissions of the assessee, though learned Commissioner (Appeals) held that the assessee has failed to prove the genuineness of purchases made, hence, the book result is not reliable, however, relying upon a number of judicial precedents, he held that 25% out of the non–genuine purchases should be disallowed.
The learned Authorised Representative submitted, before the Assessing Officer the assessee has furnished the books of account and all other relevant details including quantitative tally of purchases, material consumed in manufacturing process and sale of finished goods. He submitted, no discrepancy was found in the turnover of purchase, consumption and sale of finished products. He submitted, merely relying upon the information obtained from the Sales Tax Authorities and the fact that the assessee could not substantiate its claim of purchase to his satisfaction, the Assessing Officer has disallowed the entire purchases. He submitted, though learned Commissioner (Appeals) has accepted assessee’s claim that the entire purchases cannot be disallowed, however, estimation of profit @ 25% is unreasonable, high and excessive. He submitted, the assessee has declared gross profit rate of 17%. If another 25% is added to the 4 Nivedita Chemicals Pvt. Ltd.
gross profit declared, the gross profit rate will shoot up to 42% which is impossible to achieve in the manufacturing activity undertaken by the assessee. Thus, he submitted, disallowance made on account of bogus purchase should be scaled down to a reasonable amount.
The learned Departmental Representative submitted, since the learned Commissioner (Appeals) has passed a well reasoned order and the assessee is a manufacturer, there is no need to interfere with the decision of the learned Commissioner (Appeals).
We have considered rival submissions and perused material on record. Undisputedly, before the Assessing Officer, the assessee was unable to conclusively prove the genuineness of purchases claimed to have been made from the declared source. However, it is also a fact on record that the Assessing Officer has not doubted either the consumption of material in manufacturing process or the sales turnover declared by the assessee. That being the case, it can be presumed that the assessee, to suppress the profit to some extent, has purchased the goods from unknown sources. In such circumstances, entire purchases, though, held as non–genuine cannot be disallowed. Therefore, to that extent, learned Commissioner (Appeals) was justified in modifying the decision of the Assessing Officer. Having held so, we have to examine the reasonableness of the 5 Nivedita Chemicals Pvt. Ltd.
learned Commissioner (Appeals)’s decision in estimating the disallowance @ 25% of the non–genuine purchases. It is submitted before us by the learned Authorised Representative that in the impugned assessment year the assessee has declared gross profit at 17%. Therefore, looking at the gross profit rate already declared by the assessee, in our considered opinion, disallowance should be restricted to 12.5% of the non–genuine purchases. Our aforesaid decision is also in consonance with the decision cited by the learned Authorised Representative in case of V & V Pharma Industries v/s ACIT, & 6057/Mum./2016, dated 28th November 2017. Accordingly, we direct the Assessing Officer to restrict the disallowance to 12.5% of the non–genuine purchases. Grounds are partly allowed.
In the result, appeal is partly allowed. Order pronounced in the open Court on 19.03.2019