ITO 32(2)(3), MUMBAI vs. MEHUL JAYANTILAL SHAH, MUMBAI

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ITA 1317/MUM/2016Status: DisposedITAT Mumbai04 April 2018AY 2010-116 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the reassessment proceedings were valid as they were initiated within the prescribed time frame with sufficient material. It also upheld the CIT(A)'s decision to restrict the addition to the profit element, considering the assessee's inability to substantiate the purchases and the fact that payments were made through banking channels.

What were the facts?

The assessee was subjected to reassessment proceedings for AY 2010-11 based on information regarding bogus purchase bills. The AO added the entire amount of alleged bogus purchases of Rs.74,65,360/- under Section 69C. The CIT(A) restricted the disallowance to the gross profit rate of 18.22%, amounting to Rs.13,60,188/-.

What were the issues?

The key issues were the validity of reassessment proceedings and the applicability of Section 69C for bogus purchases where the profit element was considered.

Which sections of the Income-tax Act were involved?

Section 69C,Section 147,Section 143(3),Section 148,Section 133(6)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “I” BENCH, MUMBAI

Before: SHRI SAKTIJIT DEY, JM & SHRI MANOJ KUMAR AGGARWAL, AM

For Respondent: DR Assessee by :

Heard together (2 matters)

I.T.A. No.1317/Mum/2016
I.T.A. No.2738/Mum/2016

Read from the judgment's own cause title. This page is filed under one of them.

आदेश / O R D E R

Per Manoj Kumar Aggarwal (Accountant Member)

1.

These are cross appeals for Assessment Year [AY] 2010-11 which contest the order of the Ld. Commissioner of Income-Tax (Appeals)-44 [CIT(A)], Mumbai, Appeal No.CIT(A)-44/ITO32(2)(3)/ITA149/14-15 dated 29/01/2016 qua certain additions on account of alleged bogus purchases. The assessment for impugned AY was framed by Ld. Income Tax Officer- 32(2)(3),Mumbai [AO] u/s 143(3) read with section 147 of the Income Tax Act,1961 on 28/02/2015 wherein the income of the assessee has been assessed at Rs.78.30 Lacs after certain additions u/s 69C on account of alleged bogus purchases as against returned income of Rs.3.65 Lacs filed by the assessee on 30/08/2010. None has appeared for assessee despite notice and no valid adjournment application is on record. Left with no option we proceed to decide the appeals on the basis of material available on record and after hearing Ld. Departmental Representative [DR]. 2.1 Facts leading to the same are that the assessee being resident individual engaged in the business of trading of building construction material under proprietary concern namely Mehul Traders was subjected to reassessment proceedings for impugned AY vide issuance of notice u/s 148 dated 03/03/2014 which was followed by statutory notices u/s 143(2) &2738/Mum/2016 Mehul Jayantilal Shah Assessment Year 2010-11 and 142(1). The original return of income was filed by the assessee at Rs.3,65,239/-, which was processed u/s 143(1). 2.2 The reassessment proceedings were initiated upon receipt of certain information from Sales Tax Department, Maharashtra & DGIT (Investigation) regarding dealers indulging in bogus purchase bills and it was noted that the assessee stood beneficiary of such bogus purchase bills to the tune of Rs.74,65,360/- from seven such parties. The assessee defended the purchases made by him but notices issued u/s 133(6) to these parties to confirm the transactions either remained un-served or remained un-complied with. After considering assessee’s submissions, documentary evidences and certain judicial pronouncements, Ld. AO came to conclusion that the said purchases were not genuine and therefore, Ld. AO added the same u/s 69C. 3. Aggrieved, the assessee contested the same with partial success before Ld. CIT(A) vide impugned order dated 29/01/2016 where Ld. CIT(A) restricted the disallowance to 18.22% of alleged bogus purchases, being gross profit rate reflected by the assessee which resulted into confirmation of disallowance to the extent of Rs.13,60,188/-. Aggrieved, the assessee as well as revenue is in appeal before us. 4. The Ld. Departmental Representative [DR] submitted that the relief provided by Ld.CIT(A) was not justified since the assessee did not maintained adequate stock records.

ITA Nos.1317&2738/Mum/2016 Mehul Jayantilal Shah Assessment Year 2010-11 5. After considering the same, we find that the assessee was engaged in trading activities and could not achieve the sales turnover without actual purchase of material. The turnover of the assessee has not been doubted by the revenue and the assessee is in possession of primary purchase documents & further, the payments are through banking channels. The assessee has already reflected gross profit rate of 18.22%. At the same time, the assessee could not produce any single party to confirm the transactions and notices issued u/s 133(6) were returned back un-served which cast a serious doubt on assessee’s claim. The assessee did not maintain adequate stock records and could not substantiate the delivery of material. Therefore, in such a situation, the addition, which could be made, was to account for profit element embedded in these purchase transactions to factorize for profit element earned by assessee against possible purchase of material in the grey market and undue benefit of VAT against alleged bogus purchases, which Ld.CIT(A) has rightly done. Therefore, finding the same to be quite fair and reasonable, we see no reason to interfere with the same. Resultantly, the grounds raised by the assessee as well as revenue in this regard are dismissed.

6. The assessee, in his appeal, has raised another ground of appeal which challenges the reassessment proceedings. However, we find the reassessment proceedings to be perfectly valid since the original return was processed u/s 143(1) and reassessment has been initiated within a period of four years from end of relevant AY and therefore, the only Mehul Jayantilal Shah Assessment Year 2010-11 requirement to be fulfilled in such a scenario was that Ld. AO had reasons to believe that certain income chargeable to tax had escaped assessment and nothing more. The Ld. AO came to in possession of sufficient / adequate tangible material suggesting escapement of income in the form of information from DGIT (Investigation) so as to trigger reassessment proceedings and therefore, this ground of assessee’s appeal stands dismissed.

7. The assessee has by way of another ground has contested that the provisions of Section 69C had no applicability on the facts of the case. We are not convinced with the same since we have already observed that the purchases being reflected by the assessee in his books of accounts were in grave doubt and the assessee miserably failed to prove the same. This fact leads us to the logical conclusion that since assessee was engaged in trading activities, the goods must have been sourced by the assessee from somewhere else, the source of investment of which remained unexplained. Therefore, this ground of assessee’s appeal also stands dismissed.

8. Resultantly, both the appeals stands dismissed. Order pronounced in the open court on 04th April, 2018.

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