SANJAY KAILASH GUPTA,KALYAN vs. ITO WD 3(4), KALYAN

This appeal has been filed by the assessee against order dated 13/07/2016 passed by the Ld. Commissioner of Income Tax (Appeals)-1, Mumbai, for the assessment year 2009-10, whereby the Ld. CIT (A) has partly allowed the appeal filed by the assessee against assessment order passed u/s 143 (3) read with section 147 of the Income Tax Act, 1961 (for short ‘the Act’).

Brief facts of the case are that the assessee engaged in the business of trading in Steel and Scrap in the name of his proprietary concern M/s Shree Kailash Engineering Works, filed its return of income for the assessment year under consideration declaring the total income of Rs. 2,21,070/-. The return was processed u/s 143 (1) of the Act. Subsequently, on the basis of information received from the Director General Income Tax (Inv.), Mumbai to the effect that during the financial year relevant to the assessment year under consideration, 2 Assessment Year: 2009-10 the assessee has taken accommodation entries from four bogus entities to inflate purchases, the assessment was reopened u/s 147 of the Act by issuing notice u/s 148 of the Act. During the reassessment proceedings, the assessee was asked to furnish the details including books of account bills and vouchers and other documents to verify the genuineness of the transaction. In response thereof the assessee furnished some of the documents including purchase invoices, copies of bank statements, stock register and quantitative tally etc. and submitted that the said documents prove the genuineness of the transaction. However, the AO after taking into consideration the details submitted and the submissions made by the assessee treated the purchases amounting to Rs. 50,30,121/- as bogus and made addition of the said amount to the income of the assessee thereby determining the total income of the assessee at Rs. 52,62,950/- (rounded off).

Aggrieved by the assessment order, the assessee challenged the same before the First Appellate Authority. The Ld. CIT (A) after hearing the assessee held the transaction bogus, however, restricted the addition to 12.5% taking into consideration the element of profit embedded in the said purchases in accordance with the principles of law laid down by the Hon’ble Gujarat High Court in CIT vs. Simit P. Sheth 356 ITR 451. Still aggrieved, the assessee is in appeal before the Tribunal.

The assessee has challenged the impugned order passed by the Ld. CIT

This case was fixed for hearing on 09/011/2017. On the said date, when the case was called for hearing neither the assessee in person nor his authorized representative appeared before the Bench nor any application for adjournment of case was received on behalf of the assessee. Since, the assessee did not appear despite service of notice we decided to dispose of the appeal on the basis of material on record after hearing the departmental representative (DR).

The Ld. DR relying on the order passed by the Ld. CIT (A) submitted that the Ld. CIT (A) has rightly restricted the addition to 12.5% of the total amount of bogus purchases made by the assessee during the year relevant to the 4 Assessment Year: 2009-10 assessment year under consideration. The Ld. DR further pointed out that the findings of the Ld. CIT (A) are based on the decision of the Hon’ble Gujarat High Court rendered in CIT vs. Simit P. Sheth (supra). Therefore, there is no merit in the appeal of the assessee and the same is liable to be dismissed.

We have carefully gone through the orders passed by the authorities below. Basically, the assessee has challenged the impugned order on two grounds i.e. 1 that the Ld. CIT (A) has wrongly confirmed reopening the assessment u/s 147 of the Act because the notice u/s 148 of the Act was issued by the AO without any valid reasons and that the AO has failed to give reasons for reopening of the assessment and that mere mention of names of the entities from whom, the appellant had purchased goods by Sales Tax Department does not constitute an information within the meaning of section 147 of the Act. 2. That the Ld. CIT (A) has wrongly sustained the addition of 12.5% of the total amount of bogus purchases.

We do not find any infirmity in the findings of the Ld. CIT(A) on the issue of reopening of the assessment. In our considered opinion information from DGIT was sufficient for the AO to form the belief that part of the income of the assessee has escaped assessment. The fact that during reassessment proceedings the assessee failed to establish the genuineness of the transaction confirms that the belief of the AO was based on tangible material. Hence, we uphold the findings of the Ld CIT(A) on this issue and dismiss this ground of appeal of the assessee.

So far as the second issue which pertains to addition of 12.5% of the amount of bogus purchases is concerned, we notice that the Ld. CIT (A) has based his findings on the decisions rendered by the various Benches of the Income Tax Appellate Tribunal and the Hon’ble High Court of Gujarat rendered 5 Assessment Year: 2009-10 in CIT vs. Simit P. Sheth (supra). Since, the assessee has failed to establish the genuineness of the transaction, the Ld. CIT (A) has rightly held the purchases in question as bogus. On the other hand, the AO has not disputed the sale, the entire amount of purchases in question cannot be added to the income of the assessee as there cannot be sale without any purchases. Under these circumstances, it can be concluded safely that if the assessee had not purchased the goods from the parties mentioned in the books of account, the goods were purchased from grey market and evaded the sales Tax/ VAT applicable during the relevant period. Hence, in accordance with the principles law laid down by the Hon’ble Gujrat High Court in CIT vs. Simit P. Sheth (supra) and rightly restricted the addition to 12.5% of the bogus purchased made by the assessee during the relevant financial year keeping in view the taxes evaded by the assessee and the profit earned form the bogus purchases. Hence, we do not find any infirmity in the order passed by the Ld. CIT (A) to interfere with. We accordingly uphold the findings of the Ld. CIT (A) and dismiss this ground of appeal of the assessee.