ITO 25(3)(5), MUMBAI vs. NAYAN M SHAH (HUF), MUMBAI

The captioned appeal by revenue for Assessment Year [AY] 2009- 10 assails the order of the Ld. Commissioner of Income-Tax (Appeals)- 37 [CIT(A)], Mumbai, Appeal No. CIT(A)-37/IT-32/ITO 25(3)(5)/2015-16 order dated 23/08/2016. The assessment was framed by Ld. Income Tax Officer 25(3)(5), Mumbai on 05/03/2015 u/s 144 read with section 147 of the Income Tax Act,1961. The assesse has filed Cross Objection against the same. The revenue is aggrieved by relief given by Ld. CIT(A) to the assessee on account of certain bogus purchases. The registry has noted that the cross objection filed by the assessee has been filed with a delay of 109 days. The assessee, vide subsequent affidavit dated 06/10/2017 explaining the reasons of delay has requested for the condonation of the same. The Ld. DR raised no serious objections against the same. In the interest of justice, the delay is condoned. The only ground pressed in the cross objection is the quantum of addition to be made against alleged bogus purchases. 2.1 Facts leading to the same are that the assessee being resident HUF engaged in the business of manufacturing & reselling of copper wire, varnish, insulating material under proprietorship concern namely Padme Wire Industries was subjected to an assessment u/s 144 read with Section 147 for impugned AY on 05/03/2015 where the income of the assessee was determined at Rs.45,46,645/- after certain additions of alleged bogus purchases for Rs.39,59,761/-. The original return was filed & CO.No. 124/Mum/2017 Nayan Narendra Shah (HUF) Assessment Year 2009-10 on 15/05/2009 at Rs.5,86,884/- which was processed u/s 143(1). The solitary issue involved in the appeal is addition of certain bogus purchases. 2.2 The reassessment proceedings were initiated upon receipt of certain information from Sales Tax Department, Maharashtra regarding dealers indulging in bogus purchase bills and it was noted that the assessee stood beneficiary of such bogus purchase bills to the tune of Rs.39,59,761/- from four such parties. Consequently, notice u/s 148 dated 08/03/2014 was issued to the assessee which was followed by statutory notices u/s 143(2) and 142(1). 2.3 To confirm these transactions, requisite details were called from alleged bogus suppliers by issue of summons, but the same were returned back un-served by the postal authorities with remarks like not known or Left. The same was confronted to the assessee who could not furnish any cogent material to establish the genuineness of the same. Accordingly, Ld. AO disallowed the purchases and added the same to the income of the assessee. 3. Aggrieved, the assessee contested the same with partial success before Ld.CIT(A) vide impugned order dated 23/08/2016. The assessee, inter-alia, contended that the purchases were genuine since documentary evidences viz. purchase / sales invoices, bank statement evidencing payment to alleged bogus suppliers, ledger extracts, delivery challans etc. were submitted before the Ld. AO and further corresponding sale have been made by the assessee and therefore entire purchases could not be disallowed. The Ld. CIT(A) after considering the same and placing reliance on certain judicial ITA No.6372/M/2016 & CO.No. 124/Mum/2017 Nayan Narendra Shah (HUF) Assessment Year 2009-10 pronouncements restricted the impugned additions to 12.5% of alleged bogus purchases of Rs.39,59,761/- which came to Rs.4,94,970/-. Aggrieved, the revenue is in further appeal before us whereas the assessee, vide cross objections, assailed impugned additions.

The Ld. Departmental Representative [DR] placing reliance on the stand of Ld. AO contended that the assessee failed to prove the genuineness of impugned purchases and therefore, full disallowance was justified. Per Contra, Ld. Representative for Assessee [AR] contended that the addition was on the higher side and the benefit of VAT paid by the assessee should be granted to him.

We have carefully heard the rival contentions and perused relevant material on record. We are of the considered opinion that there could be no sale without purchase of material since the assessee was engaged in material intensive business. The sales turnover achieved by the assessee has not been disputed or disturbed by the revenue and the payments were through banking channels. The purchases were backed by invoices and corresponding sale invoices. At the same time, the assessee could not produce any confirmation from the impugned suppliers and summons issued to the said suppliers remained un- served, which cast serious doubt on assessee’s claim. Therefore, in such a situation, the addition, which could be made, was to account for profit element embedded in these purchase transactions to factorize for profit element earned by assessee against possible purchase of material in the grey market and undue benefit of VAT against such bogus purchases, which Ld. CIT(A) has rightly done so. The assessee, in his cross objections has stated that the impugned purchases of & CO.No. 124/Mum/2017 Nayan Narendra Shah (HUF) Assessment Year 2009-10 Rs.39,59,761/- includes VAT amount of Rs.1,52,299/- and the same has not been debited to the Profit & Loss Account and accordingly, the same should not be taken into account for the purposes of arriving at estimated additions. We agree with assessee’s contention to that extent and therefore, restrict the disallowance to 12.5% of net purchases of Rs.38,07,462/- which comes to Rs.4,75,933/-. The order of Ld.CIT(A) stands modified to that extent.

Resultantly, the revenue’s appeal stands dismissed whereas assessee’s cross objections stands partly allowed.