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Income Tax Appellate Tribunal, MUMBAI BENCHES “SMC”, MUMBAI
Before: SHRI G.S. PANNU (AM) & SHRI RAM LAL NEGI (JM)
PER RAM LAL NEGI, JM The assessee has preferred the present appeal against the order dated 27/01/2015 passed by the Commissioner of Income Tax (Appeals)-2, Pune, for the assessment year 2009-10, whereby the Ld. CIT (A) has partly allowed the appeal filed by the assessee against assessment order passed u/s 143 (3) read with section 147 of the Income Tax Act, 1961 (for short ‘the Act’) and confirmed the addition of Rs. 6,18,801/- made by the AO on account of unverifiable purchases.
Brief facts of the case are that the assessee filed its return of income for the assessment year under consideration declaring the total income of Rs. 7,39,420/- and the same was processed u/s 143 (1) of the Act. Subsequently, on the basis of information received from the Sales Tax Department, Govt. of Maharashtra that certain bogus entities issued accommodation bills to a large number of tax payers including the assessee during the year relevant to the 2 Assessment Year: 2009-10
assessment year under consideration, the assessment was re-opened after issuing notice u/s 148 of the Act. As per the information, the assessee had obtained bogus bills from two bogus entities namely M/s Shardha Trading Company and M/s Somnath International to the tune of Rs. 6,18,801/-. In response to the notice u/s 148 of the Act, the assessee filed objection and submitted that the department has not examined the parties to verify the allegations that the purchases made from the said parties were bogus. Accordingly, the AO issued notice u/s 142 (1) and asked the assessee to furnish the details to substantiate its claim. In response thereof the assessee filed copies of purchase bills, details of account payee cheques and name and addresses of the parties. The AO issued notices u/s 133 (6) of the Act, however, the same were returned back by the postal authorities. The AO also deputed one of the Inspectors working under him to find out the whereabouts of the assessee but the parties were not found at their respective addresses. The AO asked the assessee to produce the parties and further asked to show cause as to why the purchases claimed to have been made from the said parties should not be treated as bogus. However, the assessee failed to produce the parties, and contended that the purchases were genuinely made. The AO rejecting the contention of the assessee held the purchases as bogus and added the total amount of bogus purchases to the income of the assessee.
In the first appeal, the Ld. CIT(A) after hearing the assessee confirmed the addition made by the AO on account of bogus purchases made by the assessee. The assessee is in appeal against the said findings of the Ld. CIT(A)
The assessee has challenged the impugned order passed by the Ld. CIT(A) on the following effective grounds:-
“The learned assessing officer erred in assuming juri iction U/s 148, without bringing out any tangible material based
3 Assessment Year: 2009-10
on which the reason to believe that income has escaped assessment was formed.
The learned assessing officer erred in passing assessment order U/s 143 (3) r.w.s. 147 without issuing valid notice U/s 143 (20 and therefore the assessment order passed in consequent to the same is bad in law.
The learned Commissioner of Income Tax-Appeals erred in confirming the addition based on the statement recorded by the sales tax department of so called hawala dealers without even providing the copy of statement to the Appellant and opportunity to cross examine, and therefore the same is against the principles of natural justice and deserves to be annulled.
The learned Commissioner of Income Tax – Appeals erred in confirming the addition under section 69C, without appreciating that the purchased were fully recorded in books of accounts and the source thereof was explained and recorded in the books itself and therefore rigours of Section 69C is not applicable itself.
On the facts of the case and in the circumstances present & in law, the learned Commissioner of Income-Tax -Appeals erred in confirming the addition of Rs. 6,18,801/- towards unverifiable purchases.”
Before us, the Ld. counsel for the assessee submitted that he does not want to press ground No 1 & 2 of the appeal. Hence, we dismiss both the grounds as not pressed. Vide ground No 3 to 5, the assessee has challenged the action of the Ld. CIT(A) in confirming the addition made by the AO on account of bogus purchases made by the assessee during the year relevant to the assessment year under consideration. The Ld. counsel submitted that since the assessee has submitted the ledger account of the parties, confirmation of amount received copies of invoice along with delivery challan,
4 Assessment Year: 2009-10
relevant abstract of bank statement the assessee has discharged the onus of proving the genuineness of the transaction. The Ld. counsel further submitted that since, the AO has not rejected the sale the Ld CIT(A) ought to have deleted the addition. Relying on the judgment of the Hon’ble Bombay High Court delivered in CIT vs. Nikunj Eximp Enterprises Ltd., 372 ITR 619 (Bom), the Ld. counsel further submitted that the Ld. CIT(A) has wrongly confirmed the addition merely because the suppliers had not appeared before the Assessing Officer. Moreover, there cannot be a sale without any purchase and since the AO has not rejected the sale, the purchases cannot be treated as bogus.
On the other hand, the Ld. Departmental Representative (DR) submitted that since, the assessee has failed to submit the details of vehicle expense, vehicle number, type of vehicle and transport receipt for verification, the assessee has failed to discharge the onus of proving genuineness of the purchases. Moreover, the independent verification made by the Inspector has established that the purchases in question are not genuine. Hence, the Ld. CIT (A) has rightly confirmed the addition made by the AO and there is no merit in the contention of the assessee.
We have heard the rival submissions and also perused the material on record. In light of the evidence on record we are of the considered view that the evidence on record is not sufficient to hold that the purchases in question are genuine. However, since the AO has not disputed/rejected the sale, the entire amount of the bogus purchases cannot be added to the income of the assessee in view of the ratio laid down by the Hon’ble Gujarat High Court in the case of CIT vs. Simit P. Sheth 356 ITR 451 (Guj). In the said case, the Hon’ble Gujarat High Court has held that in the case of bogus purchases it is necessary to ascertain the fact as to whether purchases were not made at all or purchases were made but from grey market. Once it is established that the purchases
5 Assessment Year: 2009-10
were actually made then only profit embedded in the same could be added in the income of the assessee. The Hon’ble High Court accordingly upheld the decision of the Tribunal and sustained the addition 12.5% of the total bogus purchases. In the present case since, the AO has not rejected the sales made by the assessee during the previous year, there is no reason to make addition of the entire amount of bogus purchases. Hence, following the ratio laid down by the Hon’ble Gujrat High Court in CIT vs. Simit P. Seth (supra) we partly allow this ground of appeal of the assessee and accordingly modify the order of the Ld. CIT (A) and restrict the addition to 12.5% of the total amount of bogus purchases. We, therefore, direct the AO to make addition of 12.5% of the total amount of bogus purchases made by the assessee during the previous year.
In the result, appeal filed by the assessee for assessment year 2009- 2010 partly allowed.
Order pronounced in the open court on 25th April, 2018. (G.S. PANNU) (RAM LAL NEGI) ACCOUNTANT MEMBER JUDICIAL MEMBER म ुंबई Mumbai; दिन ुंक Dated: 25/04/2018 Alindra, PS
आदेश प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपील र्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आय क्त(अपील) / The CIT(A)- 4. आयकर आय क्त / CIT 5. दिभ गीय प्रदिदनदि, आयकर अपीलीय अदिकरण, म ुंबई / DR, ITAT, Mumbai 6. ग र्ड फ ईल / Guard file.
6 Assessment Year: 2009-10
आदेशानुसार/ BY ORDER, सत्य दपि प्रदि //// उि/सहायक िंजीकार (Dy./Asstt.