SUNIL MOHAN LAHORI,MUMBAI vs. ASSISTANT COMMISSIONER OF INCOME TAX 21(3), MUMBAI

Per Manoj Kumar Aggarwal (Accountant Member) 1. The captioned appeal by assessee for Assessment Year [AY] 2009-10 contest the order of Ld. Commissioner of Income-Tax (Appeals)-33 [CIT(A)], Mumbai, Appeal No.CIT(A)-33/Rg.21/212/2015- 16 dated 04/08/2017 by raising the following effective Grounds of Appeal: -

2. On the facts and circumstances of case and in law, Ld. CIT(A) erred in confirming disallowance u/s 37 amount Rs.2,07,54,611/- being 50% purchases by treating same as bogus purchase on assumptions basis.

3. On the facts and circumstances of case and in law, Ld. CIT(A) erred in confirming addition u/s 68 amount Rs.2,50,000/- by treating same as unexplained Cash Credit.

4. On the facts and circumstances of case and in law, Ld. CIT(A) erred in confirming addition u/s 41 amount Rs.21,10,711/- of account of cessation of liability. The assessment for impugned AY was framed by Ld. Assistant Commissioner of Income Tax-18(2) Mumbai [AO] u/s 144 read with Section 147 of the Income Tax Act, 1961 on 26/03/2015 wherein the income of the assessee was determined at Rs.4,40,27,800/- after certain additions / disallowances as against returned income of Rs.7,80,546/- filed by the assessee on 08/09/2009.

2. The case of the assessee was subject to reassessment proceedings upon receipt of certain information from DGIT (Investigation) / Sales Tax Department, Maharashtra that the assessee stood beneficiary of bogus purchase bills from certain entities. Accordingly, notice u/s 148 dated 03/02/2014 was issued to the assessee. However, the assessee failed to comply with proceedings in ITA.No.5948/Mum/2017 Sunil Mohan Lahori Assessment Year-2009-10 any manner, which resulted into determination of income on best judgment basis u/s 144. The assessee carried on the business of Garments, Textiles, Metals, Computers, Export-Import etc. under proprietorship concern namely Om Enterprises where the assessee has reflected Gross Profit / Net Profit Rates of 4.17% & 1.77% respectively on turnover of Rs.433.90 Lacs. The gross purchases were shown as Rs.462.82 Lacs. The Ld. AO, in the quantum assessment, has made the following additions:- No. Head Amount (Rs.) 1 On account of bogus purchases 47,73,033/- 2 Unexplained cash credit u/s 68 49,02,971/- 3 Remission of Liability u/s 41(1) 1,21,21,581/- 4 50% of balance purchases 2,07,54,611/- 5 Out of Expenses 5,95,058/- Total 4,31,47,254/-

3. Aggrieved, the assessee contested the same with partial success before Ld. CIT(A) vide impugned order dated 04/08/2017 where, after considering various remand reports, additions on account of bogus / other purchases have been confirmed whereas partial relief has been granted against addition made u/s 68 & u/s 41(1) whereas expenses disallowance has been deleted altogether. Aggrieved the assessee is in further appeal before us.

ITA.No.5948/Mum/2017 Sunil Mohan Lahori Assessment Year-2009-10 5. We have carefully heard the rival contentions and perused relevant material on record. So far as the addition on account of alleged bogus purchases & other purchases is concerned, we find that the assessee has been saddled with purchases disallowance of Rs.255.27 Lacs, which is roughly 55% of gross purchases reflected by the assessee. It is to be noted that the assessee was a trader and could not achieve turnover without purchase of actual material and therefore such higher disallowance was not justified. Upon perusal of impugned order, we find that the addition has been sustained primarily in view of the fact that the notices u/s 133(6) to confirm the transactions either remained un-served or elicited no response. However, the sales turnover achieved by the assessee has not been disputed by the revenue and the purchases were backed by invoices. At the same time, the assessee could not produce any confirmation from any of the suppliers despite being provided with adequate opportunity and notices issued u/s 133(6) elicited no response, which cast serious doubts on assessee’s claim. It is also evident from perusal of Tax Audit Report that the assessee was not maintaining adequate stock records. 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 Value Added Tax [VAT] against such bogus purchases. The Ld. AR has contended that addition of alleged bogus purchases could not be made u/s 69C since the payments were through banking channels with which we are not convinced since we have already observed that the purchases reflected by the assessee were in grave ITA.No.5948/Mum/2017 Sunil Mohan Lahori Assessment Year-2009-10 doubt and the assessee miserably failed to prove the same. This fact leads us to the logical conclusion that since the 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, after considering the factual matrix, we estimate the impugned additions in the following manner:-

No. Head Estimation of Additions Amount (Rs.) 1. Alleged Bogus Purchases 5% of Rs.47,73,033/- 2,38,652/- 2 Balance Purchases 1% of Rs.4,15,09,222/- 4,15,092/- Total 6,53,744/- Consequently, Ground Numbers 1 & 2 stands partly allowed.