CORE ENERGY SYSTEMS P.LTD,DOMBIVALI vs. ASST CIT CIR 1, KALYAN

This is an appeal filed by the assessee. The relevant assessment year is 2011-12. The appeal is directed against the order of the Commissioner of Income Tax (Appeals)-2 [in short ‘CIT(A)’], Thane and arises out of the assessment order u/s 143(3) r.w.s. 147 of the Income Tax Act 1961, (the ‘Act’).

The grounds of appeal

Without prejudice to the above ground, the AO has erred in law and in facts in alleging that the appellant company has made bogus purchases by completely ignoring various information and documentary evidence such as purchase invoice submitted in support of the alleged non genuine purchase transactions. 4. Without prejudice to the above ground, on facts and circumstances of the case and in law, the A.O. has erred in making addition of the entire alleged bogus purchase of Rs. 36,73,2177- and not restricting it to the extent of gross profit embedded in the alleged bogus purchase transaction that is 34,85%.” 3. Briefly stated, the facts of the case are that the Assessing Officer (AO) received information from the Sales tax Deptt. , Govt. of Maharashtra that the appellant had obtained bogus purchase bills from the following three entry providers :- Sr.No. Name of party TIN Amount (Rs.) 1. Nimesh Steels Pvt.Ltd. 27180686997V 460325 2. Ridhi Sales Corpn. 273440725515V 1834119 3. Naina Multitrade Pvt.Ltd. 27520731818V 1378773 TOTAL 3673217 During the course of assessment proceedings, the AO asked the appellant to produce details in respect of purchases made from the above mentioned parties. The AO noted that the said transactions were not properly supported by relevant documents such as transportation bills, delivery challans, goods received notes, octroi receipts etc. During the course of assessment proceedings, the statement of Shri Nagesh Narayan Basarkar, director of M/s. Core Energy Systems Pvt. Ltd. (the assessee company) was recorded u/s. 131(1) of the Act. Thereafter, the AO issued notice u/s. 133(6) to the above three parties asking them to produce details of transactions they had with the assessee. One notice remained 2 M/s. Core Energy Systems Private Limited unserved and from the remaining two, no reply was received till the date of assessment on 10th March, 2015. In view of the above facts, the AO came to a finding that the said purchases as claimed by the assessee from M/s. Nimesh Steels Pvt.Ltd., M/s. Ridhi Sales Corpn. and M/s. Naina Multitrade Pvt.Ltd. were on account of unsubstantiated bills and these bills were obtained by the assessee from the above entry providers to inflate its purchases, as a result of which, the income of the assessee for the year under consideration has been understated to the extent of Rs.36,73,217/-. Therefore, the AO made an addition of Rs.36,73,217/- to the income disclosed by the assessee.

Aggrieved by the order of the AO, the assessee filed an appeal before the ld. CIT(A). During the course of appellate proceedings, the ld. CIT(A) noticed that the GP rate, during the year under consideration, has gone down to 34.85% as against 42.19% shown in AY 2014-15, for which the assessee could not offer any valid explanation. The ld. CIT(A) thus arrived at a finding that the appellant has suppressed the Gross Profit by 7.34% (42.19% - 34.85%). The quantum of gross profit is thus worked out to Rs.59,15,213/- (Rs.8,05,40,841 x 42.19 /100=Rs.3,39,80,180 less GP declared of Rs.2,80,64,967/-). Also the ld. CIT(A) observed that the appellant was able to have a GP @ 39.13% in immediate next year and 42.19% in AY 2014-15, from same business, by same management as against 34.85% declared in the impugned assessment year. As the quantum of suppressed GP of Rs.59,15,213/- is more than the amount of bogus purchases of Rs.36,73,217/-, the ld. CIT(A) sustained the disallowance made by the AO.