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Facts
The assessee declared a total income of Rs. 7,19,520/- for AY 2010-11. Information was received regarding bogus purchase bills from five parties totaling Rs. 47,80,919/-. The Assessing Officer disallowed the entire purchase amount as the genuineness of transactions could not be verified. The CIT(A) restricted the addition to 10% of the bogus purchases.
Held
The Tribunal held that while the assessee failed to prove the genuineness of purchases and presented inadequate documentary evidence, the revenue also did not doubt the sales declared by the assessee. It was acknowledged that purchases are necessary for sales, suggesting a possibility of material being procured elsewhere at a lower cost. Therefore, restricting the disallowance to 10% of the disputed purchases, representing the profit element, was considered appropriate.
Key Issues
Whether the disallowance of entire bogus purchases is justified when sales are not doubted and payments were made via account payee cheques?
Sections Cited
69C, 133(6), 148, 40A(3)
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Income Tax Appellate Tribunal, MUMBAI BENCH “G”, MUMBAI
Before: SHRI PAVAN KUMAR GADALE & SHRI AMARJIT SINGH
O R D E R
PER AMARJIT SINGH, ACCOUNTANT MEMBER:
The appeal filed by the revenue is directed against the order passed by the ld. CIT(A) NFAC, Delhi dated 09.02.2023. Since the appeal filed by the revenue and cross objection filed by the assesse are based on identical facts on similar issue, therefore, for the sake of convenience both these appeals are adjudicated together.
Fact in brief is that return of income declaring total income of Rs. 7,19,520/- was filed on 08.09.2010. In this case information was received from DGIT(Inv.), Mumbai that assessee has taken bogus purchase bills without taking any delivery of goods from the following parties:
Sl No. Name Particulars of transaction F.Y. Amount in (Rs.) 1 Darshat Trading Pvt. Ltd. 2009-10 649334 2 Akshar Distributors Pvt. Ltd. 2009-10 1182809 3 Mukta Steel 2009-10 436519 4 Vandana Metal Syndicate 2009-10 560102 5 Vishesh Steel Suppliers 2009-10 1952155 Total 4780919/-
Based on the information received, the case of the assessee was reopened by issuing of notice u/s 148 of the Act on 30.03.2017. During the course of assessment proceedings, the assessing officer issued notices u/s 133(6) of the Act to the aforesaid parties for verification of the genuineness of the transactions. However, the notices issued were returned unserved by the postal authority. Even the assessing officer could not get the verification while deputing Inspector of the Department. Further the assessee has not brought any material on record to prove the genuineness of the purchases at the time of assessment proceedings before the assessing officer. Therefore, the assessing officer concluded that the source of purchase made from gray market was not explained. Therefore, whole amount of purchases made from the above parties of Rs. 47,80,919/- was disallowed u/s 69C of the Act and added to the total income of the assessee.
The assessee filed appeal before the ld. CIT(A). The ld. CIT(A) after following the decisions of ITAT, Mumbai has restricted the addition to
Heard both the sides and perused the material on record. Based on information received that assessee had taken accommodation entries of purchases without any actual delivery of goods from the parties who had been engaged in the activity of providing accommodation entries as discussed above in this order, the case of the assessee was reopened. The assessee furnished copies of invoices received from the sale parties, bank statement reflecting payment to the said parties and statement showing sale of goods received from the said parties. However, the AO could not verify the genuineness of the transactions since no compliance to the notice issued u/s 133(6) of the Act were made and parties were not produced before the assessing officer. Further, the assessee has not produced documentary evidences such as lorry sheet, delivery challan, transport bills etc, therefore, the AO has treated the purchases made from the said parties bogus and disallowed Rs. 47,80,919/- u/s 69C of the Act. However, the ld. CIT(A) after following the decision of ITAT, Mumbai in similar case in the case of Leelaben Kantilal Parekh vs ITO (ITA 2926/Mum/2023) Hon’ble ITAT SMC bench, Mumbai relying on the decision of Hon’ble Jurisdictional High Court in the case of PCIT vs Paramshakti Distributors Ltd. restricted the disallowance to10% of bogus purchases of Rs. 47,80,919/- i.e. Rs. 4,78,091/-. The relevant extract of the decision of CIT(A) is reproduced as under:
"21. We have considered the submissions of both sides and perused the material available on record. In the present case, on the basis of the information received from the DGIT (Investigation), Mumbai that the assessee is the beneficiary of bogus purchases, reassessment proceedings in the case of the assessee were initiated. Further, notice issued under section 133(6) by the AO to the entity was also returned unserved. The AO made an addition of the entire amount of the alleged C.O. No. 144/Mum/2024 Sameer Mahesh Sachde A.Y. 2010-11 bogus purchases made from the said supplier. In support of his claim that the purchases are genuine, the assessee furnished copies of bills, and delivery challan issued by the supplier. Further, it is the claim of the assessee that all the payments were made by account payee cheque. However, we find that before the lower authorities, the assessee was unable to produce the parties. Even before us, no such detail is available on record. Therefore, from the material available on record it is evident that the assessee has failed to prove the genuineness of the purchases made from the supplier. However, at the same time, the Revenue has not doubted the sales declared by the assessee. Further, it cannot be doubted that without the purchase of material, the assessee cannot carry out the sales. Therefore, it appears to be a case of bogus bills arranged from the aforesaid entity and material purchased from somewhere else at a lower cost. Thus, we are of the considered view that entire bogus purchases cannot be added in such a case. We are of the considered view that a reasonable disallowance of the purchases would meet the possibility of revenue leakage. Therefore, in view of the above findings, we deem it appropriate to restrict the disallowance to 10% of the disputed purchases. We find that the same is also in line with the judgment of the Hon'ble jurisdictional High Court in PCIT Vs Paramshakti Distributors Ltd. in of 2017 decided on 15/07/2019. As a result, revised grounds no. 3 and 4 raised by the assessee are partly allowed.
I find that in the present case also the appellant has failed to establish the purchases of Rs.47,80,919/- from the five parties mentioned by the Assessing Officer. However, the Assessing Officer has not made any comments on the stock tally has not rejected the books of accounts which are audited and has not doubted sales by the appellant. Therefore, following the above decision I hold that a reasonable disallowance of purchases would meet the possibility of revenue leakage as in similar cases Hon'ble Tribunal has held that the possibility is that material was purchased from other party on other rates. The disallowance is restricted to 10% of bogus purchases of Rs.47,80,919/- that is Rs.4,78,091/-.
It is also pertinent to mention here that the Assessing Officer also disallowed this amount of Rs.47,80,9119/- u/s 40A(3) of the Act on the ground that the payment were made in cash only. The appellant has submitted copy of reply file during the assessment proceedings that the payments were through account payee cheque. Therefore, the addition on this ground is not sustainable. In view of the above discussion the ground of appeal is partly allowed.”
C.O. No. 144/Mum/2024 Sameer Mahesh Sachde A.Y. 2010-11 6. In the light of the above facts and findings, it is evident that assessing officer not has disputed the corresponding sales made by the assessee. The ld. CIT(A) after following the decision of ITAT has restricted the addition to the extent of 10% being the profit element embedded in such purchase transactions made from the parties. Therefore, we do not find any reason to interfere in the decision of ld. CIT(A) accordingly, the appeal of the revenue is dismissed.
The assessee in the cross-objection has stated that ld. CIT(A) erred in confirming the addition @ 10% amounting to Rs. 4,78,092/-. In this regard the assessee has referred the various judicial pronouncement wherein the addition amount was restricted lower than the 10% however, we find that ld. CIT(A) has restricted the disallowance to the extent of 10% after relying upon the similar decision of ITAT as discussed above in this order. Looking to the above facts and circumstances, we do not find any infirmity in the decision of ld. CIT(A) therefore the appeal of the revenue and cross-objection filed by the assessee are dismissed.
In the result, appeal of the revenue and cross-objection filed by the assessee are dismissed.
Order pronounced in the open court on 29.08.2024.