SURESH DEVJI VAVIYA,MUMBAI vs. ITO 17(3)(4), MUMBAI

The present appeal filed by the assessee is directed against the order passed by the CIT(A)-38, Mumbai, dated 14.02.2018, 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 03.03.2015 for A.Y. 2009-10. The assessee assailing the order of the CIT(A) has raised before us the following grounds of appeal: “1. The Learned Assessing Officer (here-in-after referred to as the A.O.”) erred in law and on the facts, by making an addition of Rs. 7,40,713/- u/s 69C of the Act on the presumption that the appellant has made bogus purchases in cash from these six (6) parties P a g e | Suresh Devji Vaviya Vs. Income Tax Officer-17(3)(4)

During the course of the assessment proceedings the A.O in the backdrop of the aforesaid information observed that the assessee had during the year made purchases aggregating to Rs.15,61,137/- from 14 parties which were blacklisted as hawala dealers by the Maharashtra Sales Tax Department, as under :

In the backdrop of the aforesaid facts the A.O held a conviction that the assessee had failed to discharge the onus as was cast upon him to prove the authenticity of the purchases which were claimed have been made from the aforementioned parties. In fact, the A.O on a perusal of the purchase transactions compartmentalised the same into three categories viz. (i) purchases made by the assessee in cash from six parties: Rs.7,40,713/-(including unpaid purchases of Rs.76,887/- ); (ii) purchases made from two supplier parties who had denied of having entered into any transaction with the assessee : Rs.1,91,607/-; P a g e | Suresh Devji Vaviya Vs. Income Tax Officer-17(3)(4) and (iii) purchases which the assessee could not substantiate to have been made from the remaining six parties: Rs.6,28,816/-. Insofar the purchases of Rs.7,40,713/- (including unpaid purchases of Rs.76,887/-) were concerned, it was observed by the A.O that the assessee had failed to furnish any valid and bonafide explanation in respect of the said bogus purchases. Interestingly, it was observed by him that the assessee had failed to furnish any evidence or documents in support of his claim that he had actually incurred the aforesaid expenditure. On the basis of his aforesaid observations the A.O brought the aforesaid sum of Rs.7,40,713/- to tax as an unexplained expenditure incurred by the assessee under Sec. 69C of the I.T act. As far as the purchases of Rs. 1,91,607/- which were claimed by the assessee to have been made from two parties viz.(i). M/s Mihir Sales Pvt. Ltd.; and (ii). M/s Motion Traders Pvt. ltd. but were denied by the said parties were concerned, the same too were disallowed by the A.O under Sec. 69C. In respect of the remaining purchase transactions of Rs. 6,28,816/- which the assessee could not substantiate on the basis of supporting documents, the A.O held a conviction that the assessee had only obtained accommodation bills from the said parties and had procured the goods from the open/grey market. On the basis of his aforesaid observation, the A.O restricted the addition to the extent of the profit element of 12.5% of the value of the said unsubstantiated purchases of Rs. 6,28,817/-, resulting to an addition of Rs.78,602/- in the hands of the assessee.

Aggrieved, the assessee carried the matter in appeal before the CIT(A). Insofar the addition/disallowance of the purchases of Rs.9,32,320/- [Rs.7,40,713/- (+) Rs.1,91,607/-] made by the A.O under Sec. 69C was concerned, the CIT(A) being of the view that as the ‘source’ of the said purchases was not in doubt, therefore, the addition P a g e | Suresh Devji Vaviya Vs. Income Tax Officer-17(3)(4) could not have been made under Sec. 69C. The CIT(A) was of the view that as the genuineness of the purchases was not proved, therefore, the same were liable to be disallowed u/s 37(1) of the I.T Act. On the basis of his aforesaid observations the CIT(A) upheld the addition of Rs.9,32,320/- under Sec.37(1), as against that made by the A.O under Sec.69C. As regards the addition of Rs.78,602/- that was made by the A.O towards the profit which the assessee would had made from carrying out the purchases of Rs.6,28,817/- from the open/grey market, the same was not assailed by the assessee in appeal before the CIT(A). The CIT(A) while upholding the aforesaid addition/disallowance of Rs.9,32,320/- under Sec.37(1) observed that as it was a case where the assessee had booked ‘bogus purchases’ and not a case of ‘bogus billing’, therefore, the addition/disallowance of the entire amount of the said expenditure debited in the profit and loss account was liable to be made. Apart there from, the CIT(A) was also not persuaded to subscribe to the contention of the assessee that now when the sales corresponding to the purchases claimed to have been made from the aforementioned parties had not been disproved or dislodged, therefore, the addition of the entire value of purchases could not have been made in the hands of the assessee. In the backdrop of his aforesaid observations the CIT(A) upheld the addition/disallowance of the entire amount of the impugned purchases of Rs.9,32,320/- [Rs.7,40,713/- (+)Rs.1,91,607/-] and dismissed the appeal.

The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. The assessee Shri Suresh D. Vaviya has appeared in person in the course of the proceedings before us. It was averred by the assessee that he had made genuine purchases from the aforementioned parties. It was submitted by him P a g e | Suresh Devji Vaviya Vs. Income Tax Officer-17(3)(4) that as the said parties were not traceable in the course of the assessment proceedings, therefore, the lower authorities had drawn adverse inferences as regards the genuineness of the purchase transactions under consideration. It was the contention of the assessee that merely for the reason that the aforementioned supplier parties/agents from whom goods were procured by him could not be produced before the A.O for reasons beyond his control, the purchases could not have been characterised as bogus. Apart there from, it was submitted by the assessee that the genuineness of the purchases can be gathered from the fact that the sales corresponding to the same had duly been accounted for in the books of accounts for the year under consideration.

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 genuineness and veracity of the purchases claimed to have been made from the aforementioned parties, therefore, the same had rightly been disallowed by the lower authorities.

We have heard the assessee and the ld. D.R, perused the orders of the lower authorities and the material available on record. Admittedly, the assessee despite sufficient opportunity afforded to him by the lower authorities, had failed to substantiate the veracity of the purchases claimed to have been made from the aforementioned parties. In fact, we find that though the CIT(A) had in the course of the appellate proceedings afforded another opportunity to the assessee to produce the aforementioned parties and place on record their confirmations, however the assessee failed to do so. We are persuaded to subscribe to the observations of the lower authorities that the assessee had failed to prove the authenticity of the purchase P a g e | Suresh Devji Vaviya Vs. Income Tax Officer-17(3)(4) transactions claimed to have been entered into with the aforementioned parties. As observed by us hereinabove, the additions of Rs.7,40,713/- and Rs.1,91,607/- made by the A.O under Sec.69C was thereafter on appeal upheld by the CIT(A) under Sec.37(1) of the I.T Act.

We have given a thoughtful consideration to the observations of the CIT(A) and are unable to persuade ourselves to accept the same. Insofar the purchases aggregating to Rs. 9,32,320/- [Rs.7,40,713/- (+)Rs.1,91,607/-] claimed by the assessee to have been made from the aforementioned parties are concerned, we find that the sales corresponding to the same has not been dislodged by the lower authorities. In fact, no observation of the lower authorities is discernible from the records from where we may infer that the purchases claimed by the assessee to have been made from the aforementioned parties did not form part of his ‘sales’ or ‘closing stock’ for the year under consideration. Be that as it may, in the absence of any observation of the lower authorities that the purchases of the goods under consideration did not form part of the sales/closing stock of the assessee for the year under consideration, it is beyond our comprehension as to how the aggregate value of such purchases could have been disallowed. The assessee could not have sold/stocked the material without carrying out the corresponding purchases during the year. Rather, there is no such observation of the lower authorities that the trading results of the assessee had witnessed a substantial downward fluctuation during the year under consideration as in comparison to the earlier years, which fact would had supported the observations of the lower authorities that the assessee had merely debited the ‘bogus purchases’ in his profit and loss account for the year under consideration.

The appeal of the assessee is partly allowed in terms of our aforesaid observations. Order pronounced in the open court on 15.03.2019 (M.Balaganesh) (Ravish Sood) ACCOUNTANT MEMBER JUDICIAL MEMBER भ ुंफई Mumbai; ददन ुंक 15.03.2019 Ps. Rohit P a g e | Suresh Devji Vaviya Vs. Income Tax Officer-17(3)(4)