B.R. STEEL PRODUCTS PVT. LTD.,NAVI MUMBAI vs. A.C.I.T.-2(1), MUMBAI

Coming to Ground No. 1 and 2, assessee is questioning the validity of the assessment made u/s. 147 of the Act.

Briefly stated the facts are that, assessment was completed originally u/s. 143(3) on 28.12.2012 assessing the income at ₹.1,93,25,670/-. Subsequently based on the information received from DGIT(Inv.) and the Sales Tax Department regarding bogus purchases made by assessee company from M/s. Jain Trading Corporation, Assessment was reopened by issue of notice u/s. 148 of the Act. Notice u/s. 148 was issued on 23.02.2013 and the assessment was completed u/s. 143(3) r.w.s. 147 of the act on 29.11.2013 determining the income of the assessee at ₹.1,97,30,792/-. Since the assessment was reopened based on the information of DGIT(Inv.) Mumbai wherein the information obtained from Sales Tax Department regarding bogus purchases made by the assessee from M/s. Jain Trading Corporation the Assessing Officer prima-facie has reason to believe that the income had escaped assessment therefore the reopening made u/s. 147 is valid.

Coming to the merits of the case, the Assessing Officer based on the information of the Sales Tax Department that the assessee purchased material from M/s. Jain Trading Corporation without any supply of goods required the assessee to prove the purchases are genuine. Assessing Officer requested the assessee to produce parties for verification of the genuineness of the purchases. Assessee failed to produce the parties, however, assessee produced invoices, bank statements as proof of payments made to the parties, therefore, the Assessing Officer treated the purchases made from M/s. Jain Trading Corporation amounting to ₹.4,05,122/- as non-genuine purchases. On appeal Ld.CIT(A) sustained the disallowance. Ld.CIT(A) observed that assessee has only procured bogus bills. He also observed that there are discrepancies in mentioning name of the material on the sales invoices. He also observed tax invoice reflects computer printouts having no reference to order No. and there is a vague reference of transportations paid. He also observed that the delivery challans reveal the mistake in name of the goods. However, he observed that delivery challan is dated on 29.01.2010 whereas invoice is dated on 12.02.2010 and therefore he concluded that assessee has prepared bogus bills or procured with a view to inflate the expenditure, sustained the disallowance.

We have heard the rival submissions, perused the orders of the authorities below. It is not in dispute that the assessee made payments through account payee cheques to these parties. Assessee could not produce these parties. On a perusal of the Ld.CIT(A) order, we find that Ld.CIT(A) observed that in the copies of invoices, delivery challans, transportations bills etc there are certain discrepancies. Therefore, it is not the case of the Revenue that the assessee has not furnished any evidences to prove the purchases. The Assessing Officer or the Ld.CIT(A) did not deny the sales recorded by the assessee against such purchases in such circumstances there cannot be any sales without the purchases and the only inference is that the assessee purchased the material in gray market and obtained the bills from the parties. In such circumstances when the sales are accepted the entire purchases cannot be disallowed as non-genuine.

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 (A.Y: 2010-11) M/s. B.R. Steel Products Pvt. Ltd. entire purchases cannot be added as held by the Bombay High Court in the case of CIT v. Nikunj Eximp [216 Taxman.com 171]. Respectfully following the above decisions, we direct the Assessing Officer to restrict the disallowance to 12.5% of the purchases treated as non-genuine by estimating the profit element in such bogus purchases.

In the result, appeal of the assessee is partly allowed.