INDIGO METALOOYS P.LTD,MUMBAI vs. ITO 5(2)(1), MUMBAI

The present appeal filed by the assessee is directed against the order passed by the CIT(A)-10, Mumbai, dated 25.11.2016, which in itself arises from the order passed by the A.O under Sec.147 r.w. Sec.143(3) of the Income Tax, 1961 (for short „Act‟), dated 13.03.2015. The assessee assailing the order of the CIT(A) had raised before us the following grounds of appeal: “1. On the facts and circumstances of the case and in law the Commissioner of Income tax (Appeals) CIT(A) erred in upholding the assessment where the Assessing Officer (A.O) has added12.5% of the alleged bogus purchases to the income of the Appellant.

Briefly stated, the facts of the case are that the assessee which is engaged in the business of trading in ferrous and non-ferrous metals had filed its return of income for A.Y. 2009-10 on 24.09.2009, declaring total income of Rs.23,08,144/- . On the basis of information received from the Sales tax department, Mumbai that the assessee had taken accommodation entries of Rs.3,30,42,768/- without taking actual delivery of goods, the case of the assessee was reopened under Sec. 147 of the Act.

During the course of the assessment proceedings, the A.O called upon the assessee to substantiate the authenticity of the purchases made from the following parties:

JINALAY TRADING AACCJO495P 2008-09 27950675467V 2,669,966 PRIVATE LIMITED 5. AVION SALES PRIVATE AAHCA2114M 2008-09 27360675452V 3,259,202 LIMITED 6. RAJESHWARI TRADING AACCR7829M 2008-09 27480388751V 4,150,864 PVT. LTD.

SUNSHINE METAL 2008-09 27700589808V 1,222,776 INDUSTRIES AEWPV0725R 8. SWASTIK SALES AAKCS1682F 2008-09 27290563504V 1,445,441 AGENCY PVT LTD 9, NAVKAR METAL AACCN5588P 2008-09 27840624457V 6,204,072 PRIVATE LIMITED 10. NAKODA TUBES PVT. AACCN5589N 2008-09 27740624415V 8,337,678 LTD Total 33,042,768 However, the assessee failed to prove the genuineness and veracity of the purchases claimed to have been made from the aforementioned parties to the satisfaction of the A.O. It was observed by the A.O that despite specific directions, the assessee had failed to place on record the copy of the delivery challans, lorry receipts, weighment slips, octroi challans etc. pertaining to P a g e | M/s Indigo Metalloys P. Ltd. Vs. Income Tax Officer-5(2)(1) the aforesaid purchase transactions. Still further, the assessee also failed to comply with the specific directions of the A.O and neither produced the aforementioned parties for necessary verifications nor submitted any documentary evidence in support of the purchases claimed to have been made from them. Rather, the assessee tried to prove the authenticity of the purchase transactions by placing on record copies of the purchase bills of the aforementioned parties and taking support of the fact that the payment of the purchase consideration were made to the said parties through account payee cheques. The A.O in the backdrop of the aforesaid facts concluded that though the assessee had failed to substantiate the genuineness and veracity of the purchase transactions claimed to have been made from the aforementioned parties, but a perusal of the facts revealed that in fact purchases of the goods under consideration were made by the assessee. The A.O held a conviction that the assessee by procuring the purchase bills from the aforementioned parties, had tried to inflate the purchases as against the value for which the goods were actually procured from the open/grey market. On the basis of his aforesaid observations, the A.O relying on the judgement of the Hon‟ble High Court of Gujarat in the case of CIT Vs. Simit P. Sheth (2013) 356 ITR 451 (Guj) made an addition of 12.5% of the total purchases of Rs.3,30,42,768/- and added an amount of Rs.41,30,346/- to the income of the assessee.

The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. The ld. Authorized Representative (for short P a g e | M/s Indigo Metalloys P. Ltd. Vs. Income Tax Officer-5(2)(1) „A.R‟) at the very outset of the hearing of the appeal submitted that the lower authorities had erred in characterising the genuine purchases claimed by the assessee to have been made from the aforementioned parties as bogus. The ld. A.R in order to drive home his aforesaid contention submitted that as the documentary evidence substantiating the authenticity of the purchase transactions to the hilt were placed on the record of the A.O, therefore, there was no reason for him to have held the same as bogus. It was submitted by the ld. A.R that even if the purchase transactions were to be held as bogus, the addition of 12.5% of the value of the purchase transactions under consideration, in the backdrop of the GP Rate of 6.88% shown by the assessee for the year under consideration, was highly exorbitant and could not be sustained. The ld. A.R further relied on the following case laws:- (i) Geo Life Organic and Ors. Vs. ACIT, Mumbai (ITA No. 3699/Mum/2016, dated 05.05.2017); (ii) ACIT-19(3), Mumbai Vs. M/s Steel Line (India), Mumbai (ITA No. 1321-1323/Mum/2016, dated 29.08.2017). The ld. A.R referring to the aforesaid case laws submitted that the Tribunal in the aforementioned cases involving identical facts, had in all fairness restricted the addition in the hands of the assessee to the extent of 2% of the value of the purchase transactions. On the basis of the aforesaid submissions, it was claimed by the ld. A.R that in all fairness the addition in the case of the assessee may also be restricted to the extent of 2% of the value of the purchase transactions under consideration. Per contra, the ld. Departmental Representative (for short „D.R‟) relied on the orders of the lower authorities. The ld. D.R submitted that as the respective parties from whom the assessee had claimed to have made purchases were not found available at their respective addresses, therefore, the notices under Sec.133(6) could not be served on them. The ld. D.R in his contention that the addition made by the A.O and sustained by the CIT(A) at the rate of 12.5% of the value of the bogus purchases under consideration was well in order, relied on the order of a coordinate bench of the Tribunal, viz. ITAT “C” Bench, Mumbai in the case of Soman Sun Citi Vs. JCIT (ITA No.

We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record. We find from a perusal of the orders of the lower authorities that it remains as a matter of fact that the assessee had failed to substantiate the genuineness and veracity of the purchase transactions claimed to have been made from the aforementioned parties. We may herein observe that the copies of purchase bills produced by the assessee before the lower authorities and the fact that payment of the purchase consideration were made to the aforementioned parties by account payee cheques, cannot be held as sacrosanct for proving the authenticity of the purchase transactions. We find that it remains as a matter of fact that the assessee despite specific directions by the A.O had failed to place on record the requisite documentary evidence, viz. delivery challans, octroi receipts, weighment slips etc, which thus conclusively proved that the assessee had failed to substantiate the genuineness and veracity of the purchase transactions under consideration. We are of the considered view that the lower authorities in the backdrop of the facts of the case, observing that the assessee which had purchased the goods under consideration, though not from the aforementioned parties as claimed by it, but rather from the