ITO 32(2)(4), MUMBAI vs. NAVIN SHANTILAL MEHTA, MUMBAI

आदेश / O R D E R PER R.C.SHARMA (A.M):

4181/Mum/2017 Navin Shantilal Mehta 1. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in restricting addition to Rs. 5,19,723/- (@12.5% or Rs. 41,57,786/-) u/s. 69C of the I.T. Act on account of bogus purchases as against addition of Rs. 41,57,786/- made by the AO without appreciating that the assessee has not produced any cogent evidence to substantiate the fact that he had taken actual delivery of goods purchased from the parties and that the notices u/s. 133(6) issued to the parties from whom alleged bills were received were returned undelivered by the postal authorities with the remark 'not available at this address' and the assessee has also failed to produce the purchase parties before the AO." 2. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in relying upon judgement in the case of CIT vs Nikunj Enterprises 373 ITR 619 and Saraswathi Oil Tnders vs CIT 254 ITR 259 (SC) without appreciating that the facts involved in the appellant's case are different from the facts of the above case laws." 3. "The appellant prays that the order of the Ld. CIT{A) on the above grounds be set aside and that of the AO be restored." 4. "The appellant craves leave to amend or alter any ground or add a new ground."

4181/Mum/2017 Navin Shantilal Mehta (b) Your appellant submits that they had furnished the requisite details and had requested for an opportunity of being heard for furnishing the details, which was not granted to the appellant and the appellant requests to accept the return of income and the documents attached therewith. (c) Your appellant prays that the order passed in violation of Natural Justice be quashed.

3. Your appellants pray for leave to add, attend, alter, delete or modify any of the above grounds.

4181/Mum/2017 Navin Shantilal Mehta 5.3 I have carefully gone through the assessment order as well as the statement of facts & grounds of appeal filed by the appellant. Some 5-6 years ago, the Sales Tax Department of the Government of Maharashtra had conducted extensive enquiries against such dealers who used to provide bills facilitating bogus purchases/sales. As a result of this inquiry, information about many assessees were forwarded to the Income Tax Department. The A.O. has stated in the assessment order that the appellant is one such person who has inflated his purchases by showing bogus purchases from such persons who appear in the list of bogus entries providers as prepared by the Sales Tax Department. During the course of assessment proceedings, the A.O. also found that the assessee had not been able to establish the genuineness of purchases in dispute. The main arguments of the AO on the basis of which he had formed his opinion were-

1. The assessee was not able to submit any lorry receipts or any details regarding transportation of goods.

2. The suppliers from whom the disputed purchases have been made are included in the list of hawala operators prepared by the Sales Tax Department.

3. The suppliers from whom the disputed purchases have been made, were not produced before the AO.

4. The suppliers from whom the disputed purchases have been made, did not comply to notice u/s 133(6). 5.4 The appellant is a trader. The AO in his order has dealt exclusively with the purchases of the appellant. However, in the case of a trader, if there are no purchases of materials there cannot be any sales also. The AO had disallowed part of purchases without at the same time questioning the receipt figure of the assessee. The AO has not brought any material on record to show that there is suppression of sales also by the appellants^ Further, the AO has not rebutted the arguments of the appellant that the payments have been made through banking channels. The fact remains that the appellant has taken care to make his purchases through banking channel and since the banks are required to follow KYC norms the identity of the supplier cannot be doubted, As far as the issue of producing the supplier before the AO is concerned, the assessee cannot be reasonably expected to force the supplier to reply to the AO or to appear before the AO. 5.5 In a judgment given by the Allahabad High Court in the case of CIT Vs Jagdish Prasad Tewari 220 Taxmann 0141 (2014), it has been held that if the payments have been made by cheques and are reflected in the books of account of the assessee, no adverse inference can be drawn. 5.6 It has been held in the case of M/s. Nikunj Enterprises 372 ITR 619 (Bom) by the Hon'ble Bombay High Court that merely because the suppliers have not appeared before the Assessing Officer or the CIT(A), one cannot conclude that the purchases were not made by the respondent-assessee. Further it has been held in the case of Saraswathi 4181/Mum/2017 Navin Shantilal Mehta Oil Traders vs. CIT 254 ITR 259 (Supreme Court) that when the sales have not been doubted then there was no question to doubt the purchases and the addition should have been made only to the extent of gross profit. To this extent, I arn in agreement with the appellant that if the appellant has fulfilled his onus of making the payments by banking channels and has supplied the address of the sellers, then it cannot be presumed that the sellers were bogus simply because the sellers were not found at the given addresses. However, at the same time it cannot be said that the information provided by the sales tax department should not be taken cognizance of by the A.O. Therefore, after considering the totality of facts and after following the ratio of Saraswathi Oil Traders vs. CIT(SC) cited supra, I am of an opinion that it is the profit element on the total component in dispute which needs to be added to the income of the appellant. During the year, the total sales of the appellant was Rs.5.25 crores while the total purchases was Rs 4.94 crores. The appellant has however shown a GP rate of 5.9% which seems to be low considering the nature and scale of appellant's business. The additional profit which should have arisen to the appellant on the disputed purchases is therefore taken as 12.5% of the disputed purchases. The total amount which is being treated as bogus by the AO is Rs 41,57,786/-. Thus 12.5% of Rs. 41,57,786/- which is Rs. 5,19,723/- is taken as profit of the appellant on purchases that are not fully and properly explained. Addition of Rs. 5,19,723/- is accordingly confirmed out of an addition of Rs. 4l,57,786/-and the balance is deleted. Grounds of appeal

No.l is therefore partly a lowed.

6. In the grounds of appeal no.2 the appellant has raised the issue of violation of natural justice. It is stated that the assessment order was passed without providing adequate opportunity of being heard. However, it is seen from the assessment order that during the course of assessment proceedings, the AR of the appellant appeared before the AO on several, occasions and filed various details called for. Thus, there is no merit in the argument that adequate opportunity of being heard was not given by the AO. Grounds of appeal no. 2 is dismissed.

7. The grounds of appeal no. 3 is general in nature and therefore does not require any comments.

8. In the result, the appeal is partly allowed.

7. I have considered the contention of learned DR and found that full opportunity was given to the assessee both by AO and CIT(A) for substantiating its claim that there is no bogus purchases. The AO has also made independent enquiry by issuing notice u/s.133(6). The CIT(A) after considering the various judicial pronouncements as well