PRECISE ELECTRICALS,MUMBAI vs. DCIT, CIRCLE-3, THANE

The brief facts of the case extracted from 2 ITA 2622 & 2623/Mum/2016 for AY 2009-10 are that the assessee is a partnership firm engaged in the business of manufacturing transformers, filed its return of income for the assessment year 2009-10 on 30-09-2009 declaring total income at Rs.1,87,25,690. Subsequently, the assessment has been reopened u/s 147 on the basis of information received from sales-tax department of Maharashtra which suggested that the assessee is the beneficiary of bogus purchase bills issued by hawala / suspicious dealers. Accordingly issued notice u/s 148 calling for return of income. In response to notice, the assessee, vide letter dated 12-04-2013 submitted that return originally filed u/s 139 may be treated as return filed in response to notice u/s 148 of the Act. The case has been selected for scrutiny and notices u/s 143(2) and 142(1) of the Act were issued. In response to notices, the assessee submitted various details, as called for. During the course of assessment proceedings, the AO noticed that the assessee is a beneficiary of purchase bills issued by 7 parties to the tune of Rs.88,62,616. To ascertain the genuineness of purchases from those parties, the AO issued notices u/s 133(6) of the I.T. Act which were return unserved. Thereafter, the AO has directed the Ward Inspector to cause necessary enquiries about the existence of those parties. However, the Ward Inspector reported that no such parties were existed from said premises. Based on the information received from sales-tax department coupled with further enquiries conducted

Aggrieved by the assessment order, assessee preferred appeal before the CIT(A). Before the CIT(A), assessee has challenged reopening of assessment. The assessee also filed elaborate written submissions on purchases from those parties to argue that its purchases are supported by proper evidence including purchase bills and payment for such purchases has been made through cheques. The CIT(A), after considering relevant submission of the assessee and also relying upon various judicial precedents, upheld findings of the AO and rejected appeal filed by the assessee. Aggrieved by the order of CIT(A), assessee is in appeal before us.

The Ld.AR for the assessee, at the time of hearing submitted that the issue is covered in favour of the assessee by the decision of ITAT, Mumbai Bench “K” in assessee’s own case for AY 2010-11 in wherein under similar set of facts the ITAT, has restricted addition made by the AO to 12.5% of total purchases. On the other hand, the Ld.DR strongly supported the order of the Ld.CIT(A).

We have heard both the parties, perused the material available on record and gone through the orders of authorities below. The only issue to be resolved from assessee’s appeals is whether addition can be 4 ITA 2622 & 2623/Mum/2016 made towards 100% of bogus purchase or only profit element embedded in such purchases. The issue is no longer res integra. The co-ordinate bench of ITAT, Mumbai in several cases has taken a consistent view in the case of bogus purchases and held that only profit element embedded in such purchases needs to be taxed and accordingly, depending upon facts of each case estimated only net profit of 12.5% on bogus purchases. We further observe that in assessee’s own case for AY 2010-11, the ITAT, has restricted addition made towards bogus purchases @12.5% of total purchases. The relevant portion of the order is extracted below:-

Facts remain unchanged. Therefore, considering the facts and circumstances of the case and also consistent with the view taken by the co-ordinate bench, we direct the AO to restrict addition @ 12.5% on bogus purchases.

Another issue agitated by the assessee is with regard to reopening of assessment. The assessee has challenged reopening of assessment on the ground that the AO had no right to reopen the assessment on the basis of information received from third parties without arriving at a satisfaction on escapement of income. The Ld.AR for the assessee, at the time of hearing submitted that he did not want to press the ground challenging reopening of assessments; hence, the ground relating to reopening of assessment is dismissed, as not pressed.

In the result, appeal filed by the assessee is partly allowed. ITA No.2623/Mum/2016

The first issue that came up for our consideration from this appeal is addition made towards bogus purchases. The AO made addition of Rs.71,54,412 towards bogus purchases. The Ld.AR for the assessee submitted that the ITAT, Mumbai Bench “K” in for AY 2010-11 restricted addition made by the AO towards bogus purchases @12.5% on total purchases. This issue has been decided by 6 ITA 2622 & 2623/Mum/2016 us above while dealing with appeal in . Since there is no change in facts and circumstances, for the detailed reasons given therein, we direct the AO to restrict the addition to the extent of 12.5% worked out on the total bogus purchases.

The next issue that came up for our consideration is adhoc disallowance of Rs.3,80,674 towards expenses debited in the P&L Account. The AO disallowed 15% of expenses claimed under the head travelling expenses, conveyance expenses, other expenses, festival expenses, telephone expenses and repairs and maintenance on the ground that the expenses are supported by self made vouchers which are also not found to be verified from third parties. The Ld.CIT(A) scaled down adhoc disallowance from 15% to 10%. The assessee failed to bring on record any evidence to justify expenses claimed under those heads. Therefore, we are of the considered view that the CIT(A) was right in restricting adhoc disallowance @10% towards expenses. We do not find any error or infirmity in the order of the CIT(A). Hence, we are inclined to uphold the findings of the CIT(A) and reject ground raised by the assessee.

In the result, appeal filed by the assessee is partly allowed.

Since the appeals of the assessee have been decided, the stay applications filed by the assessee become infructuous and dismissed as such. With regard to SA No.47/Mum/2018, we find that this application

As a result, the appeals filed by the assessee in & 2623/Mum/2016 are partly allowed and the stay applications filed by the assessee are dismissed. Order pronounced in the open court on 21st March, 2018.