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Income Tax Appellate Tribunal, MUMBAI BENCH “D”, MUMBAI
Before: SHRI RAJENDRA, HONBLE & SHRI C.N. PRASAD, HONBLE
Date of Hearing : 12.06.2018 Date of Pronouncement : 22.06.2018 O R D E R PER C.N. PRASAD (JM) 1. These three appeals are filed by the assessee against different orders of the Learned Commissioner of Income Tax (Appeals)-2, Thane dated 24.10.2016 for the Assessment Years 2010-11, 2011-12 & 2012-13.
In so far as the Assessment Years 2010-11 & 2011-12 are concerned the first issue is in respect of the partly sustaining the addition made towards bogus purchases.
2 TO 7328/MUM/2016 M/s. Dhanlaxmi Fabrics Ltd 3. Briefly stated the facts are that, the Assessing Officer noticed that assessee made certain purchases from dealers which are reported by the Sales Tax Department that they are all hawala dealers and only entry providers. The assessee was required to substantiate the purchases made from the above parties. The Assessing Officer also issued letters/notices u/s.133(6) of the Act to the parties mentioned in the Assessment Order and they were all returned unserved. The Assessing Officer observed that no proper documentary evidences were produced by the assessee substantiating the purchases made from these parties. The purchases were treated as income of the assessee observing that the assessee under stated the income.
Ld.CIT(A) noticed that for the Assessment Year 2010-11 the assessee though made purchases of ₹.1,27,33,680/- but debited ₹.80,61,938/- only to the Profit and Loss Account and after analyzing the Gross Profit ratios of the Assessment Years 2008-09 to 2013-14 vis-à-vis production of goods and consumption of the materials, sustained the addition observing that even after disallowance of these purchases for the Assessment Years 2010-11 & 2011-12, the Gross Profit rate shown by the assessee is still less than the Gross Profit shown for the Assessment Year 2008-09.
3 TO 7328/MUM/2016 M/s. Dhanlaxmi Fabrics Ltd 5. However, in so far as the balance purchases of ₹.46,71,742/- was concerned which was debited to plant and machinery and capitalized by the assessee, the Ld.CIT(A) directed the Assessing Officer to disallow the depreciation on such amount which was capitalized to plant and machinery.
Learned Counsel for the assessee submitted that in the course of the Assessment Proceedings assessee submitted ledger copies of all suppliers clearly showing that the payments are made to the suppliers by account payee cheques, highlighting the payments of these parties. Stock purchases were duly recorded in the stock register and they were produced. It was also submitted that delivery challans were furnished along with copies of invoices and proof of delivery of goods. He further submitted that the Assessing Officer treated the purchases as bogus merely on the basis of information from Sales Tax Department without conducting any independent enquiries on the details and evidences furnished by the assessee during the Assessment Proceedings. It was further submitted that sales have been accepted by the Assessing Officer and without there being purchases there cannot be any sales. It is also submitted that when the sales are accepted entire purchases cannot be treated as unaccounted income of the assessee. The Ld. Counsel for the
With regard to the purchases which were capitalized by the assessee to plant and machinery the Ld. Counsel for the assessee submitted that the assessee purchased plant and machinery which was put to use by the assessee and this was verified by the Assessing Officer and depreciation was allowed. Therefore, he submits that there is no justification in directing the Assessing Officer to disallow depreciation on these purchases. However, the Learned Counsel for the assessee submitted that subject to verification the claim of the assessee may be allowed and a direction to that extent may be given.
Ld.DR vehemently supported the orders of the authorities below.
We have heard the rival submissions, perused the orders of the authorities below and the material available on record. It is very much apparent from the assessment order that the basis for treating the purchases made by the Assessee from certain parties as mentioned in the assessment orders is only the information obtained by the Assessing Officer from Sales Tax department. We find that this information was not parted to the Assessee by the Assessing Officer. It is also not known as to what kind of information Assessing Officer has got from the Sales Tax department relating to the present Assessee before us. Solely based on 5 TO 7328/MUM/2016 M/s. Dhanlaxmi Fabrics Ltd this information obtained from Sales Tax department, Assessing Officer made addition. Thus, it is apparent that sole basis of addition is only the information obtained from the Sales Tax department by the Assessing Officer. The Assessee for whatever reason might not have produced the parties for verification may be due to lapse of time or may be due to the dealers shifting from their business premises etc., but he has produced the copies of bank statements, where the payments were made through cheques and the ledger copies of the books of the Assessee of the parties etc. to prove the genuineness of the purchases. The Assessing Officer never doubted the sales made by the Assessee for such purchases, in fact, he has accepted the sales. Without there being any purchases, there could not be any sales. It is also not proved by the Assessing Officer that the amounts paid by the Assessee to the dealers were returned back to the Assessee and the purchase bills issued are only accommodation entries. Simply because the Assessee could not produce the dealers, the entire purchases cannot be treated as bogus purchases. The Assessing Officer could have made further investigations to ascertain the genuineness of the transactions.
We find that on identical situation and facts, the Coordinate Bench of the Tribunal in the case of ITO Vs. Sanjay V Dhruv in dated 29.02.2016 held that the purchases cannot be Section 69C observing as under: -
“We have considered the submissions of the parties and perused the material available on record. It is evident from the assessment order that on the basis of information obtained from the Sales Tax Department, Assessing Officer issued notices under section 133(6) to three parties out of which two notices were returned unserved by the postal authorities and in case of one of the parties through notice was served, there was no response. Therefore, he called upon the assessee to produce the concerned parties. As the assessee failed to produce the concerned parties, the Assessing Officer, therefore, primarily relying upon the information obtained from the Sales Tax Department, held the purchases to be bogus and made addition under section 69C of the Act. Though, it may be a fact that assessee was not able to produce the concerned parties before the Assessing Officer, for whatever may be the reason, fact remains during assessment proceedings itself the assessee had produced confirmed ledger copies of concerned parties, bank account statement, purchase bills, delivery challans, etc., to prove the genuineness of the purchases. It is also a fact on record that the Assessing Officer has not doubted the sales effected by the assessee. Thus, it is logical to conclude that without corresponding purchases being effected the assessee could not have made the sales. Moreover, the Assessing Officer has not brought any material on record to conclusively establish the fact that purchases are bogus. Merely relying upon the information from the Sales Tax Department or the fact that parties were not produced the Assessing Officer could not have treated the purchases as bogus and made addition. If the Assessing Officer had any doubt with regard to purchases made, it was incumbent upon him to make further investigation to ascertain the genuineness of the transactions. Without making any enquiry or investigation the Assessing Officer cannot sit back and make the addition by simply relying upon the information obtained from the Sales Tax Department and issuing notices under section 133(6) of the Act. As the Assessing Officer has failed to make any enquiry or investigation to prove the fact that the purchase transactions are not genuine whereas the assessee has brought documentary evidences on record to prove genuineness of such transactions which are not found to be fabricated or non–genuine, the action of the Assessing Officer in ignoring them cannot be accepted. Moreover, as rightly observed by the learned Commissioner (Appeals), when the payment to the concerned parties are through proper banking channel and there is no evidence before the Assessing Officer that the payments made were again routed back to the assessee, the addition made under section 69C cannot be sustained. Moreover, the decisions relied upon by the learned A.R. on careful analysis were found to be squarely applicable to the facts of the present appeal. Therefore, finding no infirmity in the order of the first appellate authority, we uphold the same by dismissing the grounds raised by the Department.”
7 TO 7328/MUM/2016 M/s. Dhanlaxmi Fabrics Ltd 11. Further, the Hon'ble Gujarat High Court in the case of Bholanath Polyfab Pvt. Ltd [355 ITR 290] held that when the assessee made purchases and sold the finished goods as a natural corollary not the entire amount covered under such purchases would be subject to tax but only the profit element embedded therein. Similar view has been taken by the Hon'ble Gujarat High Court in the case of CIT v. Simit P. Seth [38 taxman.com 385]. Simply because the parties were not produced the entire purchases cannot be added as held by the Bombay High Court in the case of CIT v. Nikunj Eximp [216 Taxman.com 171]. Thus, following the above decision of the Hon'ble Gujarat High Court in the case of Bholanath Polyfab Pvt. Ltd (supra), We direct the Assessing Officer to restrict the disallowance to 12.5% of the purchases treated as non-genuine by estimating profit element in such bogus purchases.
In so far as the purchases relating to plant and machinery are concerned, we restore this issue to the file of the Assessing Officer who shall examine as to whether the assessee purchased the machinery and put to use. If the assessee proves that the machinery was purchased and put to use no disallowance of depreciation is required to be made. The Assessing Officer shall pass orders accordingly. Grounds raised by the assessee are partly allowed.
8 TO 7328/MUM/2016 M/s. Dhanlaxmi Fabrics Ltd 13. Coming to the appeal for the Assessment Year 2012-13 is concerned the only ground is regarding disallowance of deprecation on purchases made towards plant and machinery. Since the issue has been restored to the file of the Assessing Officer for the Assessment Years 2010-11 & 2011-12, we restore this issue to the file of the Assessing Officer for fresh adjudication, in the light of our observations made above. This ground is partly allowed for statistical purpose.
In the result, appeals of the assessee are partly allowed as indicated above.
Order pronounced in the open court on the 22nd June, 2018.