ACIT, CIR.-7(1)(1), MUMBAI vs. GOPANI METAL INDUSTRIES PVT. LTD., MUMBAI

This appeal has been filed by the revenue against order dated 09/02/2016 passed by the Ld. CIT (A)-13, Mumbai pertaining to the Assessment Year 2011-12, whereby the Ld. CIT (A) has allowed the appeal of the assessee filed against assessment order passed u/s 143 (3) of the Income Tax Act, 1961 (for short ‘the Act’).

The revenue has raised the following effective ground of appeal against the impugned order passed by the Ld. CIT (A):-

Before us, the Ld. Departmental Representative (DR) submitted that according to the assessee, the purchases in question were made from M/s Bhumi and M/s Nilofer but the goods were received from M/s Bombay Oil Company. Since, the notices issued u/s 133 (6) of the Act were received back un-served and since the assessee failed to produce the parties before AO for verification, the Ld. CIT (A) ought to have confirmed the addition made by the AO. The Ld. DR further pointed out that there is no evidence of payments by M/s Bhumi and Nilofer to Bombay Oil Company. Hence, the findings of the Ld. CIT (A) are contrary to the evidence on record, therefore liable to be set aside.

On the other hand, the Ld. Counsel for the assessee relying on the findings of the Ld. CIT (A) submitted that since the assessee has submitted copy of delivery challan, way bridge slip and other documents and has proved that the payments to M/s Bhumi and Nilofer were made through banking channels, the Ld. CIT (A) has rightly set aside the order passed by the AO and deleted the addition. Relying upon the judgment of Hon’ble Bombay High Court delivered in CIT vs. Nikunj Eximp Enterprises (supra). The Ld. Counsel further submitted that merely because suppliers have not appeared before the AO, it cannot be concluded that purchases were not made. Since, the AO has not rejected the books of account and accepted the sales, the purchases cannot be treated as bogus.

We have heard the rival submissions and perused the material on record including the cases relied upon by the authorities below. The only grievance of the revenue is that the Ld. CIT (A) has wrongly deleted the addition made by the AO on account of bogus purchases made by the assessee. The contention of assessee is that it had purchased the goods from M/s Bhumi and Nilofer and received goods from M/s Bombay Oil Company.

The assessee has not explained as to how the Bombay Oil Company came into picture. The notices issued to the parties were received back un- served. The assessee also failed to produce the parties before the AO for verification. No evidence was produced to establish that M/s Bhumi and Nilofer paid money to M/Bombay Oil Company in order to supply goods to the assessee. These facts give rise to the conclusion that the assessee had purchased the goods from the party/parties other than the parties mentioned in its books of account. Since, the assessee has failed to establish the genuineness of the transaction by producing the parties before the AO, we are of the considered view that the AO has rightly held the transactions as bogus. Now the question arises as to whether the AO has rightly made the addition of entire amount in question or the AO was required to make addition taking into consideration, the profit element embedded in the transaction.

While upholding the decision of Mumbai Tribunal the Hon’ble Bombay High Court In CIT Vs. Nikunj Eximp Enterprises Pvt. Ltd. (supra) has held that merely because the suppliers had not appeared before the Assessing Officer or the CIT (A) one could not conclude that the purchases were not made by the respondent/assessee. But in the present case the evidence on record suggest that the purchases were made by the party/parties other than by doing so the assessee has evaded VAT and other taxes applicable during the relevant period. So in our view, the estimated profit earned by the assessee should be added to the income of the assessee.

The Hon’ble Gujrat High Court in CIT vs. Simit P. Seth 356 ITR 451(Guj) has upheld the decision of the Tribunal and sustained the addition 12.5% of the total bogus purchases holding that only profit element embedded in such purchases can be added to income of the assessee. In the light of the aforesaid judgment, we set aside the impugned order passed by the Ld. CIT (A) and sustain the addition of 12.5% of the total bogus purchases determined by the AO. We accordingly direct the AO to make addition of 12.5% of the total bogus purchases made by the AO.