RAHUL IMPEX,MUMBAI vs. COMMISSIONER OF INCOME TAX APPEALS, MUMBAI

3. On the facts and circumstances of the case and in law, the Commissioner of Income Tax (Appeals) erred in confirming the order of the assessing officer in disallowing an amount of Rs. 49,13,180/- on account of alleged bogus purchase without appreciating the facts of the case.6. The Learned Assessing Officer erred in initiating penalty proceedings under Section 271(1)(c) of the Act.

The return filed by the assessee was processed under section 143(1) of the Act. Reassessment proceedings under section 147 of the Act, were initiated in the case of the assessee based on information received from the Sales Tax Department through DGIT (Investigation), Mumbai that the assessee & 3604/Mum/2023 Rahul Impex has taken entries of non-genuine purchases to the tune of INR 49,13,180, and accordingly, notice under section 148 of the Act was issued and served on the assessee. In response to the statutory notices issued under section 143(2) as well as section 142(1) of the Act, the assessee submitted a copy of the return of income along with its annexures, tax audit report and part details. The assessee also submitted the ledger account of the alleged parties, purchase bills, and bank statements reflecting payments. The assessee submitted that the purchases were genuine and from parties who had valid VAT and CST registration at the time of purchase. It was further submitted that the payments have been made by cheque and all are genuine purchases. During the assessment proceedings, in order to ascertain the genuineness of the transaction of purchases of goods by the assessee, independent enquiry was conducted by issuing notice under section 133 (6) of the Act to the parties concerned. However, the notices were either remained unanswered or were returned unserved by the postal authorities. It was further noticed that the assessee has not produced any documentary evidence of the mode of receipt of goods to establish that the assessee has received actual delivery of goods from the alleged parties.

Further, the assessee also did not produce the parties for verificationand also did not file any supporting evidence like delivery challans, transport bills, etc.

However, these notices were returned unserved. Further, the assessee failed to produce any document to substantiate the mode of receipt of the goods and to establish that the assessee has received actual delivery of goods from the alleged parties. Further, the assessee also could not coordinate the purchases with the corresponding sales. Accordingly, the AO treated the entire purchase transaction as bogus and held that the assessee did not purchase the material from the parties mentioned in the sale bills. The AO further held that the assessee has failed to correlate the purchases with corresponding sales. At this stage, it is pertinent to note that the AO has only doubted the purchases from the alleged bogus parties in the absence of documentary evidence and the entire sales are not in dispute. We find that before the lower authorities, the assessee was neither able to produce the parties nor could furnish the documents as directed by the AO. Even before us, no such details are 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. Thus, it appears to be a case of bogus bills arranged from the aforesaid entities and materials purchased from somewhere else at a lower cost. Thus, we are of the considered view that a reasonable disallowance of the purchases would meet the possibility of revenue leakage.

& 3604/Mum/2023 Rahul Impex 9. During the hearing, the learned AR relied upon the decision of the coordinate bench in the case of the assessee firm's own partner, wherein the coordinate bench vide order dated 17/12/2020 passed in Smt. Vijalaxmi Ramesh Upadhyay v/s ACIT, restricted the disallowance to 5% of the alleged bogus purchases by following the decision of the Hon’ble Jurisdictional High Court in PCIT v/s Mohammad Haji Adam, IT no.1004 of 2016, judgment dated 11/02/2019. Accordingly, the learned AR submitted that in the present case disallowance should be restricted to 5% of the alleged bogus purchases. However, we find that in the present case, the assessee has declared a gross profit @25.10%, therefore following the aforesaid decisionof the Hon’ble Jurisdictional High Court the addition in the present case cannot be restricted to 5% of the alleged bogus purchases.Thus, respectfully following the decision of the Hon’ble Jurisdictional High Court in PCIT v/s Mohammad Haji Adam, IT no.1004 of 2016, judgment dated 11/02/2019, we set aside the impugned order passed by the learned CIT(A) and restore the matter to the file of the jurisdictional AO with the direction to restrict the addition as regard the bogus purchases by bringing the gross profit rate on such bogus purchases at the same rate as that of the genuine purchases. We further direct that if the gross profit rate on bogus purchases is higher than the genuine purchases and the same has already been offered to tax by the assessee then no further addition be made. No order shall be passed without affording a reasonable opportunity of being heard to the assessee. Accordingly, the grounds no. 3-5 raised in the assessee’s appeal are allowed for statistical purposes.

./2023 Assessee’s appeal – A.Y. 2011-12

“1. On the facts and circumstances of the case and in law, the Commissioner of Income Tax (Appeals) erred in confirming the order of the assessing officer u/s 143(3) r.w.s. 147 of the Act without appreciating the facts of the case.

2. The Learned Assessing Officer erred in exercising jurisdiction u/s 147 of the Act, without confronting the evidences relied upon by him to the Assessee.

3. On the facts and circumstances of the case and in law, the Commissioner of Income Tax (Appeals) erred in confirming the order of the assessing officer in disallowing an amount of Rs. 57,03,572/- on account of alleged bogus purchase without & 3604/Mum/2023 Rahul Impex appreciating the facts of the case. 6. The Learned Assessing Officer erred in initiating penalty proceedings under Section 271(1)(c) of the Act.”