ITO 25(3)(4), MUMBAI vs. SUNIL B. DOSHI, MUMBAI

Facts in brief are that during the course of re-assessment proceedings, AO observed that assessee had made purchases from the suppliers who were found to be bogus by the Sales Tax Department. AO asked the assessee to submit the details, to prove the genuineness of the above purchase transaction. By submitting following details, the assessee had also discharged his primary onus of proving genuineness of transaction. (i) Ledger copy of Purchases parties in consideration. Showing purchases, payments and balance at the end of the year. (ii) Copies of Purchase Bills. (iii) Copy of Bank statement showing payment of purchases made by account payee cheques. (iv) Purchase-sales tally sheet. (v) Stock register showing all transaction of purchase-sales and stock of quantity of goods. (vi) Income Tax Audit Report. (vii) VAT Audit Report showing all purchases-sales with their TIN Number.

Being not satisfied by assessee’s submission, AO added back entire purchases in assessee’s income. 5. By the impugned order CIT(A) found that suppliers were bogus but purchases were genuine, accordingly profit element to the extent of 12.5% was estimated on the same. Thus, addition was restricted to 12.5% of the purchases.

It was argued by learned AR that AO has not conducted any enquiry on his behalf, to prove the above purchases made from concerns to be non-genuine. He has merely relied on borrowed information and statements given by DIT(Inv.), Mumbai. Whereas, the jurisdictional condition precedent to reopen or reassess the case is to have a Fresh tangible material on record, which is not the case in present re- assessment made u/s. 143(3) r.w.s 147 of the Act.

As per learned AR assessee has furnished the following documents to substantiate genuineness of purchases. 1. Assessee-has all bills of purchases. 2. All payment made thought account payee cheque. 3. Supplier provided all identity to bank following KYC Norms. 4. Assessee has stock register and all quantity is recorded in stock register. 5. All Expenses are allowed in Profit 85 Loss account including transport charges 6. All sales of assessee were accepted. Without Purchases sales cannot taken place. 7. Assessee accounts duly Audited by Tax Auditor as well Vat Auditors. 8. The supplier of goods gave wrong statement to Vat department to evade Vat. 9. All purchases bills also had shown VAT Amount which is duly paid by assessee to supplier. 10. There is no evidence than cash received back by assessee. 11. If some suppliers have small place of business than it cannot assumed that assessee did hawala transaction

Reliance was also placed on the judicial pronouncements placed in the paper book for deleting the addition made on account of purchases, when the assessee has shown substantial GP.

On the other hand, learned DR relied on the order of the AO and contended that all the suppliers were found to be bogus by the Sales Tax Department, accordingly AO was justified in making 100% addition with respect to such purchases. 10. We have considered rival contentions and carefully gone through the orders of the authorities below and found from record that assessee is engaged in trading of ferrous and non-ferrous metals. On the basis of information from Sales Tax Department, AO made addition with respect to the alleged bogus purchase. By the impugned order, CIT(A) observed that where purchases are held as bogus then the corresponding sales should also be held bogus as without the material being purchased sales is not possible, therefore, without corresponding production / sales being held bogus, it cannot be the case of bogus purchases. After observing at para 5.6, CIT(A) found that it is a case of purchases from bogus parties, however, purchases itself were not bogus. The CIT(A) has observed that assessee made payment of purchases through account payee cheque duly cleared through normal banking channel. The CIT(A) found that before the AO assessee has produced documentary evidence like copies of invoices and ledger accounts of the vendors in the assessee's books of account recording these purchases to substantiate the genuineness of these purchases. Since the sales receipts was not doubted or disputed by the AO and he has accepted the sales receipts of the assessee as it is, therefore, the AO cannot deny that purchases were not made by the assessee and the material was not used for its contract work.