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Income Tax Appellate Tribunal, “H” Bench, Mumbai
O R D E R Per B.R. Baskaran (AM) :-
The assessee has filed this appeal challenging the order dated 3.4.2017 passed by the learned CIT(A)-41, Mumbai and it relates to A.Y. 2012-13. The assessee is aggrieved by the decision of the learned CIT(A) in confirming the disallowance of purchases to the extent of 30% and also in confirming the addition made by the Assessing Officer to the value of closing stock.
The assessee is engaged in the business of trading in iron and steel. The first issue relates to disallowance made out of purchases. The assessee had made purchase of ` 488.48 lakhs during the year under consideration. In order to verify the genuineness of purchases, the Assessing Officer issued notices u/s. 133(6) of the Act to some of the suppliers. In the following cases, notices were returned back unserved: a) M/s. Pride Steels Pvt. Ltd. b) M/s. Madhur Industries c) M/s. Jet Exim Corporation
In respect of another party M/s. Om Traders, the Assessing Officer did not receive any reply. During the course of assessment proceedings, the 2 Mr. Kamal Prakash Agarwal assessee accepted that M/s. Om Traders is one of the hawala parties identified by Sales Tax Department and also informed that VAT credit of this party was disallowed by the Sales Tax Department. In respect of M/s Jet Exim Corporation and M/s. Madhur Industries, the assessee furnished copies of bank statements to contend that payments were actually made to those parties. The Assessing Officer was not convinced with the contentions of the assessee. Accordingly he rejected the books of account and disallowed entire purchases made from above said parties aggregating to ` 83.69 lakhs.
In the appellate proceeding, the learned CIT(A) was satisfied with the contentions of the assessee that it could not have sold the goods without purchasing them. Accordingly, he took the view that profit embedded on such transactions of purchase shall alone be assessed as per decisions rendered by Hon'ble Gujarat High Court in the case of Vijay Proteins Ltd. Vs CIT (2015) 58 taxmann.com 44 and CIT Vs. Simit P Sheth (2013) 356 ITR 451. Accordingly, the learned CIT(A) estimated the profit at 30% of the alleged bogus purchases. Accordingly, he sustained the addition to the extent of 25.10 lakhs and granted relief for the remaining amount.
At the time of hearing, the learned AR furnished certain documents in the form of additional evidences to show that three parties namely M/s. Pride Steels Pvt. Ltd., M/s. Madhur Industries & M/s. Jet Exim Corporation are existing on the records of the Income tax department as on today also. Evidences were furnished were in the form of income tax acknowledgment of those parties and information collected from Ministry of Corporate Affairs site. The Learned AR, accordingly, contended that these documents collected from public domain proves that these parties are existing even as on today and hence there is no reason for disbelieving purchases made from them.
On the contrary, learned DR submitted that the assessee has failed to produce the parties before the Assessing Officer nor did he file any confirmation letter obtained from them. Even though the assessee now claims
3 Mr. Kamal Prakash Agarwal that three of the parties are existing, yet they did not respond to the notice issued by the AO u/s 133(6) of the Act. Accordingly, the learned DR submitted that the assessee has failed to prove the genuineness of purchase.
The Learned AR submitted that the Assessing Officer had made identical additions in earlier years also on the basis of information received from the Sales Tax Department and the Tribunal, vide its order dated 31.7.2017 passed in 3538 & 3540/Mum/2016, has restricted addition to 4% of the value of purchases. He submitted that the above said decision of Tribunal may be followed in the case of M/s Om Traders and pleaded that the entire addition relating to the three parties cited above be deleted.
We have heard the parties and perused the record. The assessee has filed copies of income tax returns and information obtained from the site of Corporate Affairs and Sales tax department in respect of three parties to prove that they are still continuing on the record of Income Tax Department/ Sales tax department, i.e., it is the contention of the Ld A.R that these parties cannot be considered as hawala dealers. Accordingly, it was contended that purchases made from those parties should be accepted as genuine. However, it is a fact that notices issued by the Assessing Officer to the impugned parties have been returned back unserved. The assessee also could not produce them before the AO. In the additional evidences, it is stated that confirmation letters have been obtained from some of the parties. However, we notice that they are in the form of signature obtained on the ledger account and the signature does not bear date also. There should not be any doubt that the initial burden to prove the genuineness of expenses is placed upon the shoulders of the assessee. Hence the proof of availability of parties, in our view, may not support the genuineness of purchases.
Since the assessee has furnished stock register showing receipts and sale of materials, the Ld CIT(A) has rightly observed that the profit element embedded therein alone should have been taxed by the AO. However, the 4 Mr. Kamal Prakash Agarwal profit percentage of 30% adopted by the Ld CIT(A) is very much on the higher side, when we consider the order passed by the Tribunal in the hands of the assessee in the earlier years. We have noticed that the Tribunal has sustained the addition to the extent of 4% of the value of alleged bogus purchases. Accordingly, consistent with the view taken by the Tribunal in the earlier years in the assessee’s own case, we modify the order passed by the Ld CIT(A) and direct the AO to sustain addition to the extent of 4% of the value of purchases made from the above said four parties.
The next ground urged by the assessee relates to the enhancement of value of closing stock with proportionate direct expenses. We notice that the assessee had agreed for enhancement, but the difference between the assessee and the AO was with regard to the quantum of amount to be added to the value of closing stock. Before us, the assessee could not prove that the amount determined by the AO was wrong. Accordingly we reject this ground of the assessee.
In the result, the appeal of the assessee is partly allowed. Order has been pronounced in the Court on 31.10.2018.