M/S UNITED STEELS,MUMBAI vs. ITO 20 (3) (5), MUMBAI

The first common issue arising in all these appeals relates to addition made on account of non–genuine purchases.

Brief facts are, the assessee, a partnership firm, is engaged in manufacturing and sale of iron and steel goods such as M.S. and S.S. forged IVR and non IVR flanges and site glow indicator. For the assessment years under dispute the assessee had filed its return of 3 United Steels incomein regular course under section 139(1) of the Income Tax Act, 1961 (for short “the Act”). The returns of income so filed were also processed under section 143(1) of the Act. Subsequently, on the basis of information received from DGIT (Inv.), Mumbai and the Sales Tax Department that certain purchases shown by the assessee in the relevant financial years are not genuine, since, the parties from whom the assessee claimed to have made such purchases have been identified as accommodation bill provider, the Assessing Officer re– opened the assessment under section 147 of the Act. In the re– assessment proceedings, the Assessing Officer called upon the assessee to prove the genuineness of purchases by furnishing documentary evidences. Further, to verify the genuineness of purchases claimed to have been made by the assessee, the Assessing Officer issued notices under section 133(6) of the Act to the concerned parties calling for various information. As observed by the Assessing Officer, the notices issued under section 133(6) of the Act returned back un–served. Therefore, the Assessing Officer called upon the assessee to produce the concerned parties. However, except furnishing purchase bills the assessee was unable to furnish any other evidence to prove the genuineness of purchases.Even, the assessee was unable to produce the concerned parties.Therefore, the Assessing Officer concluded that purchases in different assessment years, as detailed below, are not genuine.

However, considering the fact that the assessee has furnished the details of allocation of raw materials to manufacture of goods and sales of finished products, the Assessing Officer held that only the profit element embedded in the non–genuine purchases has to be disallowed.Estimating the profit element at 12.5% he made the following disallowances in the different assessment years.

Though, the assessee challenged the aforesaid disallowances by filing appeals before the learned Commissioner (Appeals), however, it was unsuccessful.

The learned Authorised Representative relying upon certain judicial precedents submitted that during the assessment proceedings the assessee has produced supporting evidences to prove the genuineness of the purchases. He submitted, not only the purchase bills were produced but details of payment made through banking channel was also furnished. Therefore, he submitted, the purchases

The learned Departmental Representative relied upon the observations of the learned Commissioner (Appeals) and the Assessing Officer.

We have considered rival submissions and perused material on record. Though, the assessee has raised grounds challenging the re– opening of assessment, however, no specific submission was advanced in this regard by the learned Authorised Representative in the course of hearing of appeal before us. Be that as it may, facts on record reveal that the returns of income filed by the assessee were processed under section 143(1) of the Act. No scrutiny assessment was made earlier in any of these assessment years. It is also a fact that the Assessing Officer received specific information from the office of the DGIT (Inv.), Mumbai, and the Sales Tax Department revealing that certain purchase made by the assessee in the aforesaid assessment yearsare not genuine. Accordingly, on the basis of such information he re–opened the assessments. Thus, from the aforesaid facts, it is very much clear that re–opening of assessments by the Assessing Officer was on the basis of specific information / material available on record revealing escapement of income. That being the case, validity of re–

As regards the merits of the additions made, facts on record indicate that the assessee was unable to conclusively prove through proper documentary evidences that the purchases were made from the declared source. Except purchase bills and payment details, the assessee could not furnish any other evidence like transportation details, delivery challans, etc., to demonstrate that goods were purchased from the declared source.Even, the notices issued under section 133(6) of the Act to the selling dealers returned back un– served. The assessee was unable to produce the concerned parties or any confirmation from them. In the aforesaid circumstances, it cannot be said that the assessee was able to establish the genuineness of purchases. Therefore, in our view, the departmental authorities were justified in holding the purchases to be non–genuine. However, it is a fact on record that the assessee has furnished the quantitative details of purchases made and utilization of raw materials in manufacturing and sale of finished products. This fact proves that the assessee must have purchased the goods from other sources. For that reason alone, the Assessing Officer has added the profit element embedded in the non–genuine purchases by estimating it at 12.5%. Considering the facts of the present appeals as well as the nature of business carried on by the assessee, in my view, estimation of profit @ 5% would be 7 United Steels reasonable. Accordingly, the Assessing Officer is directed to restrict the addition to 5% of non–genuine purchases in the all the years under appeal.

The next common issue which arises in assessment year 2010– 11 and 2011–12 is with regard to ad–hoc disallowance made out of certain expenditures claimed by the assessee.

During the assessment proceedings, the Assessing Officer noticing that the assessee has claimed expenditure of ` 3,19,126, in assessment year 2010–11 and ` 6,95,217 in assessment year 2011– 12towards telephone, conveyance, staff welfare, travelling, etc., called for necessary details and after verifying them observed that part of the expenses was made in cash through self–made vouchers. Accordingly, he disallowed 15% of the expenditure claimed in both the assessment years.

The learned Commissioner (Appeals) also sustained such disallowance.

We have considered rival submissions and perused material on record. As could be seen, part disallowance of expenditure claimed by the assessee was made on the ground that they were incurred in cash through self–made vouchers. However, considering the nature of 8 United Steels expenses I am of the view that disallowance of expenditure @ 15% is on a higher side, hence, should be restricted to 10%.

In the result, appeals are partly allowed. Order pronounced in the open Court on 30.01.2019