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Income Tax Appellate Tribunal, MUMBAI BENCHES “A”, MUMBAI
Before: SHRI G.S. PANNU (AM) & SHRI RAM LAL NEGI (JM)
O R D E R
PER RAM LAL NEGI, JM
This appeal has been filed by the revenue against order dated 19/10/2015 passed by the Ld. Commissioner of Income Tax (Appeals)-3, Thane, for the assessment year 2010-11, whereby the Ld. CIT (A) has partly allowed the appeal filed by the assessee against assessment order passed u/s 143 (3) of the Income Tax Act, 1961 (for short ‘the Act’).
2. Brief facts of the case are that the assessee engaged in the business of manufacturing of Steel Nuts Bolts, Plates etc., filed its return of income for the assessment year under consideration declaring the total income of Rs. 3,73,87,220/-. The case was selected for scrutiny and notices u/s 143 (2) and 142 (1) were issued. In response thereof the authorized representative appeared 2 Assessment Year: 2010-11 before the AO and also filed hard copy of return of income, Form-3CA/3CD, Tax Audit Report, copy of annual accounts including balance sheet, P&L Account and bank statements etc. The AO inter alia made disallowance of Rs. 2,96,38,387/- on account of bogus purchases holding that the assessee has failed to establish the genuineness of purchase of consumables/stores and determined the total income of the assessee at Rs. 7,43,90,010/-. 3. The assessee challenged the assessment order inter alia on the ground that the AO has wrongly made addition of Rs. 2,96,38,387/- without appreciating the fact that the assessee has submitted bills issued by the parties, confirmation of accounts, bank statements, evidence of receipt of material at factory premises, inspection-cum- receipt report etc. in order to establish the genuineness of the transaction. The Ld. CIT (A) after hearing the assessee in the light of the documents on record restricted the disallowance @ 15% of the total amount of bogus purchases worked out by the AO. The revenue is in appeal against the aforesaid findings of the Ld. CIT (A). 4. The revenue has preferred this appeal before the Tribunal on the following effective grounds:- 1. “On the facts and in the circumstances of the case and in law, the ld. CIT (A)-3, Thane erred in deleting the addition of Rs. 2,39,92,057/- out of the total addition of Rs. 2,96,38,387/- made on account of bogus purchases, despite holding that the purchases were not genuine and the assessee failed to prove genuineness of the transactions.
On the facts and in the circumstances of the case and in law, Ld. CIT (A)-3, Thane erred in deleting the above addition despite the fact that the assessee failed to discharge his onus proving the purchases.” 5. Before us, the Ld. Departmental Representative (DR) submitted that since the assessee has failed to prove the genuineness of the transactions, the 3 Assessment Year: 2010-11 Ld. CIT (A) has wrongly restricted the addition to 15% of the total amount of bogus purchases made by the assessee. 6. On the other hand, the Ld. counsel for the assessee submitted that since, the Ld. CIT(A) has sustained the addition keeping in view the element of profit embedded in the questioned purchases in accordance with the law laid down by the High Courts and the Tribunals, there is no infirmity in the order of the Ld. CIT (A). 7. We have heard the rival submissions and also gone through the orders passed by the authorities below. The Ld. CIT (A) has restricted the addition to 15% holding as under:- “(v) There are various reasons as to why the Hawala dealers were absconding and also not appeared before the Assessing Officer for cross examination during assessment proceedings, whereas in other purchases no such anomaly have been found by the Assessing Officer. At least, the appellant could have produced copy of return filed along with P & L a/c and B/S of Hawala dealer before Assessing Officer but failed to do so. (vi) From the above discussion, it can be concluded that, it is case where the goods were received from the parties other than the persons who had issued the bills of such goods. Though the purchases were shown to have been made by making payment to Hawala dealers but goods must have come from grey market, therefore, such circumstances, the chances of purchase cost being inflated could not be ruled out.
(vii) Considering the totality of the facts of the case and also various courts have up held the disallowance on such purchases from 12.5% to 25%, therefore, I am of the considered opinion to disallow 15% as inflated purchases on the total purchases made from unverifiable parties. The purchases made from M/s Ami Traders of Rs. 14,12,438/- is added as bogus purchases because they have denied having any transaction with the assessee in reply to notice issued u/s 133(6) of the Act. Therefore, the disallowance @ 15% will be on Rs. (2,96,387- 14,12,438)= 2,82,25,949/-.”