ROYAL SYNTHETICS,MUMBAI vs. ADDL CIT 24(1), MUMBAI

The first ground of appeal is in respect of confirming the disallowance of purchases made from M/s. Yash Enterprises at ₹.8,54,100/- treating them as bogus purchases.

Briefly stated the facts are that, the assessee is a firm engaged in the business of trading in Chemicals filed its return on 21.09.2010

On appeal the Ld.CIT(A) sustained the disallowance. Before us Learned Counsel for the assessee submitted that these purchases were disallowed based on the information from the Sales Tax Department website. The Ld. Counsel for the assessee submits that the assessee had made purchases and filed proof of invoices, stock register and bank statements etc. before the Assessing Officer to prove the genuineness of the purchases. He also invited our attention to the Page No. 7 of the Paper Book containing both purchases and sales made by the assessee and stated that Gross Profit was shown at 12.35%. He further submitted that out of total purchases of ₹.91 Crores this is the only party where the Assessing Officer doubted the genuineness of the purchases. Ld. Counsel for the assessee submits that without there being any purchases there cannot be any corresponding sales, therefore it is submitted that entire purchases cannot be treated as bogus and no addition is warranted.

We have heard the rival submissions, perused the orders of the authorities below. It is the finding of the Ld. Assessing Officer that in the course of Assessment Proceedings notice u/s. 133(6) of the Act was issued to the supplier M/s. Yash Enterprises and the Proprietor Shri. Bhavesh Pujara admitted that the firm has discontinued business in August, 2007 due to the financial problems and no bills have been issued to the assessee during the Financial Year 2009-10. He also finds that the assessee could not prove the movement of goods for the actual delivery though the Assessing Officer required the assessee to submit the actual delivery of goods. It is also the finding of the Assessing Officer that assessee vide submission dated 29.01.2013 submitted that it does not known Shri. Bhavesh Pujara of M/s. Yash Enterprises personally and also not aware that M/s. Yash Enterprises was issuing bogus bills without actual sales of goods. However, it was contended that purchases were made through the broker who arranged for delivery of goods and invoices. This fact would make it clear that the broker purchased material in the gray market and supplied to the assessee without delivery challans and also by obtaining bogus bills from certain concerns. The fact of the matter is the assessee received the goods and the same were sold by the assessee. The Assessing Officer did not dispute the sales of goods

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]. However, at the same time keeping in view the nature of business of the assessee and the fact that the assessee is making some local purchases without any transportation bills lorry receipts etc, the possibility of making purchases in gray market on cash cannot be ruled out. Therefore, keeping in view the gross profit rate shown by the assessee at 12.35% from these purchases and the totality of facts and circumstances into consideration we direct the Assessing Officer to restrict the disallowance to 5% of the above purchases to meet the anomalies and to cover up the leakages of Revenue. Thus Ground No.1 is partly allowed.

Ground No. 2 raised by the assessee is in respect of not allowing the claim for set off of unabsorbed business loss.

In the result, appeal of the assessee is partly allowed for statistical purposes.