ACIT CIR. 1, KALYAN, KALYAN vs. THAKOR ELECTRONIC LTD., BHIWANDI

The first common issue raised in the assessee’s appeal relates to validity of reopening u/s. 147 of the Act. At the outset, the ld. Counsel of the assessee submitted that he shall not be pressing for this ground, hence, ground relating to the validity of reopening is dismissed as not pressed.

The second common issue raised relates to sustenance of addition out of the alleged bogus purchases by the ld. Commissioner of Income Tax (Appeals).

In Revenue’s appeal, the issue raised is that the ld. Commissioner of Income Tax (Appeals) erred in reducing the addition made by the Assessing Officer.

Brief facts of the case are as under:

In this case, the Assessing Officer had received information from the Sales Tax Department that the assessee had affected purchases from certain parties, who have been declared as suspicious. These parties, in their statements/on the basis of sport verification/survey action, duly admitted the fact that they have not actually delivered any goods but have merely provided the bills and refunded back cash to the buyers, after deducting their nominal commission. The details of such parties were as under:

During the course of assessment proceedings, it was noticed that the purchases from above referred hawala parties were not supported by credible documentary evidence such as transportation bills, delivery challans, goods receipt note, other receipts, etc. In substantiate the above purchases as well as the quantitative details of raw material vis-a- vis the finished goods to establish the genuineness of the above purchases. The assessee however, contended that he was engaged in the business of manufacturing and sale of electric resistance, and the raw material purchased from these parties was used in the manufacturing of goods. In order to verily the genuineness of purchases, the Assessing Officer issued letters u/s 133(6) of the Act to all the above referred parties, however, the notices were returned un-served, without being served. These parties had admitted before the Government authorities (S. T Department), that they were issuing bills, without effecting sales or purchases, nor given / taken physical delivery of goods. The Assessing Officer observed that since the assessee failed to furnish the confirmed copies of ledger account, current mailing addresses, confirmation from the said parties, etc. therefore, the genuineness of the purchases could not be verified. In view of the above facts, the Assessing Officer concluded that the assessee had inflated its expenses by booking bogus purchases, therefore, the entire purchases of Rs.77,73,415/- and Rs.36,62,945/-, from these parties, were added back to the income of the assessee in A Ys 2009-10 and 2010- 11, respectively.

Against the above order, the assessee appealed before the ld. Commissioner of Income Tax (Appeals). the Assessing Officer. For assessment year 2009-10, the ld. Commissioner of Income Tax (Appeals) held that the disallowance of 25% out of hawala purchases should be done. For the assessment year 2010-11, he confirmed the disallowance made by the Assessing Officer.

Against the above order, for assessment year 2009-10, the assessee and the Revenue are in cross appeal and for assessment year 2010-11, the assessee is in appeal before us.

We have heard both the counsel and perused the records. As regards merits of addition, we find that credible and cogent information was received in this case by the assessing officer that certain accommodation entry provider/bogus suppliers were being used by certain parties to obtained bogus bills, assessee was found to have taken accommodation entry/bogus purchase bills during the concerned assessment year from different parties. Based upon this information assessment was reopened. The credibility of information relating to reopening remains unassailed. Furthermore it is noted that in such factual scenario Assessing Officer has made the necessary enquiry. The issue of notice to all the parties have returned unserved. Assessee has not been able to provide any confirmation from any of the party. Assessee has also not been able to produce any of the parties. The necessary evidence for transportation of goods have not been provided by the assessee. In this factual scenario it is amply that assessee has obtained bogus purchase bills. Mere preparation of documents for purchases cannot controvert there is no cogent evidence of transportation of goods. The sales tax Department in its enquiry has found the parties to be providing bogus accommodation entries. The assessing officer also issued notices to these parties at the addresses provided by the assessee. All these notices have returned unserved. Assessee has not been able to produce any of the parties. The assessing officer has noted that there is no cogent evidence of the provision of goods. Neither the assessee has been able to produce any confirmation from these parties. In such circumstances, there is no doubt that these parties are non-existent.

Hence purchase bills from these non-existent the/bogus parties cannot be taken as cogent evidence of purchases, in light of the overwhelming evidence the revenue authorities cannot put upon blinkers and accept these purchases as genuine. This proposition is duly supported by Hon’ble Apex Court decision in the case of Sumati Dayal 214 ITR 801 and Durga Prasad More 82 ITR 540. In the present case the assessee wants that the unassailable fact that the suppliers are non-existent and thus bogus should be ignored and only the documents being produced should be considered. This proposition is totally unsustainable in light of above apex court decisions.

In these circumstances learned departmental representative has referred to Hon’ble Gujarat High Court decision in the case of Apex Appeal No. 240 of 2003 in the case of N K Industries vs Dy CIT, order dated 20.06.2016, wherein hundred percent of the bogus purchases was held to be added in the hands of the assessee and tribunals restriction of the addition to 25% of the bogus purchases was set aside. It was expounded that when leave petition against this order along with others has been dismissed by the Hon’ble Apex Court vide order dated 16.1.2017.

We further note that Hon’ble Rajasthan high court has similarly taken note of decisions of the apex court on the issue of bogus purchases in the case of CIT Jaipur vs Shruti Gems in of 2009. The Hon’ble High Court has referred to the decision of CIT Jaipur vs. Aditya Gems, D. B. in ITA No. 234 of 2008 dated 02.11.2016, wherein the Hon’ble Court had inter alia held as under:

Upon careful consideration we find that sales in these cases are not doubted. When sales are not doubted, 100% disallowance for bogus purchase is not sustainable as per the decision of the Hon’ble jurisdictional High Court in the case of Nikunj Eximp Enterprises (in writ petition no 2860, order dt. 18.6.2014). However, the facts of that case were different inasmuch as sales were to the Government department. However the facts and circumstances of the present case indicate that assessee has engaged into dealings in the grey market. Dealings in the grey market give the assessee various savings at the expense of the Exchequer. Hence, on the overall consideration of facts and circumstances and 8 6484 & 6485/Mum/2016 M/s. Thakor Electronics Ltd. following the decision of Hon’ble Gujarat High Court in the case of CIT vs Simit P. Sheth [2013] 356 ITR 451 (Guj.) we hold that a disallowance of 12.5% of the bogus purchase would meet the end of justice. Accordingly, we modify the order's of authorities below and direct that the disallowance in this case should be restricted to 12.5% of the bogus purchase. The ld. Counsel of the assessee fairly agreed to the above proposition.

In the result, the appeal filed by the assessee stands partly allowed and the appeals filed by the Revenue stands dismissed. Order pronounced in the open court on 02.05.2018 Sd/- Sd/- (Ram Lal Negi) (Shamim Yahya) �या�यक सद�य / Judicial Member लेखा सद�य / Accountant Member मुंबई Mumbai; �दनांक Dated : 02.05.2018 व.�न.स./Roshani, Sr. PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : अपीलाथ� / The Appellant 1. ��यथ� / The Respondent 2. आयकर आयु�त(अपील) / The CIT(A) 3. आयकर आयु�त / CIT - concerned 4. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR, ITAT, Mumbai 5. गाड� फाईल / Guard File 6. आदेशानुसार/ BY ORDER,