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Income Tax Appellate Tribunal, MUMBAI BENCH “C” MUMBAI
Before: SHRI MAHAVIR SINGH & SHRI N.K. PRADHAN
ORDER
PER N.K. PRADHAN, AM
This is an appeal filed by the assessee. The relevant assessment year is 2009-10. The appeal is directed against the order of the Commissioner of Income Tax (Appeals)-42 [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
filed by the assessee read as under:
1. The Ld. CIT(A) erred in confirming validity of reopening of assessment u/s.147 without properly appreciating the fact that at the time of Pravin V. Mehta Assessing Officer did not have any material to record its satisfaction that purchases effected by the appellant from the 3 parties is not genuine and appellant has thereby understated its income. The Assessing Officer just based its satisfaction on intimation as given by investigation wing without any independent application of mind.
2. The Ld. CIT(A) erred in confirming addition as made by AO to the income of the appellant of Rs.11,29,914/-, being the purchases effected by the appellant from the 3 parries, without properly appreciating the facts of the case and law applicable thereto.
3. The Ld. CIT(A) erred in not properly appreciating evidences produced during the assessment proceedings, such as bills issued by the supplier, suppliers being duly registered with VAT Authorities, suppliers being on PAN of I.T. Department, all payments being made by A/c, payee cheques being duly encashed in appellant’s bank account and suppliers having duly filed their VAT Returns for the year under consideration,
4. The Ld. CIT(A) erred in not considering the fact that merely non-service of notice u/s.133(6) as issued to 3 suppliers, should not have been the basis for making addition, without making any further enquiry when the said suppliers are on PAN of IT, Department and payments having been made by A/c. payee cheques.
5. The Ld. CIT(A) erred in upholding that purchases made by the appellant from the 2 suppliers, i.e. M/s Aryen Sales Corporation, from whom the purchases effected are of Rs.1,62,302/- and M/s. Navdeep Trading Corporation from whom purchases effected are of Rs.9,12,600/- is ingenuine, based on visit report of VAT Inspector in case of NavdeepTrading Corpn and statement of Aryen Sales Corporation without appreciating the fact that none of the 2 parties have stated that sales effected by them are ingenuine. Merely the 2 suppliers not being available on their addresses at a later date cannot be a basis for rejection.
6. The Ld. CIT(A) erred in not property appreciating the fact that book results not being rejected and rate of gross profit as declared by the appellant during the year compares favourably in comparison to earlier 2 years, hence no further addition is called for.
7. The Ld. CIT(A) erred in distinguishing various decisions of I.T. Tribunal On the issue on its own reasoning. 8. Appellant prays that assessment made be directed to be cancelled, as notice issued u/s, 148 is bad in law and the addition made be deleted. 3. Briefly stated, the facts of the case are that the assessee filed its return of income for the assessment year (AY) 2009-10 on 30.09.2009 declaring total income of Rs.82,24,531/-. The Assessing Officer (AO) received information from the Sales Tax Department, Government of Maharashtra that the assessee had made purchases amounting to Rs.11,29,914/- from three parties who were involved in providing accommodation entries without doing any actual business. Accordingly, the AO issued notice u/s 148 of the Act to the assessee. During the course of reassessment proceedings, the AO issued notices u/s 133(6) to the three parties in order to verify the purchases. However, the notices were returned by the postal authorities with the remark “not known” and “unclaimed”. The AO observed that the assessee also failed to file the details as per the questionnaires issued by him u/s 142(1) of the Act on 12.08.2014. Therefore, the AO again asked the assessee to furnish day to day quantitative details of the manufacturing activity and also to produce the said three parties with books of accounts and bills of purchases for examination. However, the assessee failed to produce the required details and also the three parties for examination.
Pravin V. Mehta The AO noted that the assessee filed only a reply vide letter dated 27.10.2014 before him, which has been extracted at page 5 of the assessment order dated 14.11.2014. The AO was not convinced with the said reply as the assessee failed to file the relevant documents before him and also failed to produce the parties along with books of accounts for examination. Therefore, the AO made an addition of Rs.11,29,914/- as bogus purchases.
Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). We find that the Ld. CIT(A) agreed with the reasons given by the AO and confirmed the addition of Rs.11,29,914/-.
Before us, the Ld. counsel of the assessee submits that the assessee has purchased various goods from these parties and which are used in production and packing of manufactured goods. The assessee has made payment by account payee cheques only. It is stated that the purchases effected by the assessee are genuine and such expenditure has been incurred for the purpose of business only. Corresponding sales have been recognized in the books of accounts and whatever profit was earned, has been offered as income in the income tax return filed by the assessee. It is stated that there was no evidences to suggest that the assessee had made the payments to these parties and received money or money’s worth back.
On the other hand, the Ld. DR submits that the assessee failed to file complete details before the AO in response to notice u/s 142(1) issued by him on 12.08.2014. Also the assessee failed to produce the said three Pravin V. Mehta AO along with books of accounts for examination. Thus the Ld. DR submits that the order passed by the Ld. CIT(A) be confirmed.
We have heard the rival submissions and perused the relevant materials on record. As regards the 1st ground of appeal regarding validity of reopening of assessment by issuing notice u/s 148, we agree with the findings of the Ld. CIT(A) recorded at para 7 of his appellate order dated 27.01.2017 and dismiss the above ground of appeal. However, we find that the assessee has made payment by account payee cheques. And corresponding sales pertaining to the purchases have been recognized in the books of accounts. In the instant case, the AO has not found any fault with the sales shown by the assessee in the books of accounts. In the case of CIT vs. Simit P. Sheth (2013) 38 taxmann.com (Guj), the Hon’ble Gujarat High Court has held that where purchases were not bogus but were made from parties other than those mentioned in the books of account, not entire purchase price but only profit element embedded in such purchases can be added to income of the assessee. The Hon’ble High Court referred to a similar view taken in the case of CIT vs. Vijay M. Mistry Construction Ltd. [2013] 355 ITR 498 (Guj) and CIT vs. Bholanath Poly Fab (P) Ltd. [2013] 355 ITR 290 (Guj). That being the position, not the entire purchase price but only the profit element embedded in such purchases can be added to the income of the assessee. Following the above decisions, we set aside the order of the Ld. CIT(A) and direct the AO to restrict the disallowance to 12.5% of the disputed purchases of Rs.11,29,914/- only.