DCIT 4(1)(2), MUMBAI vs. BHAWANI KITCHENWARE P.LTD, MUMBAI

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ITA 156/MUM/2016Status: DisposedITAT Mumbai01 November 2017AY 2009-105 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal found that while the assessee failed to substantiate deliveries and provide supplier confirmation, the addition should account for the profit element. However, the CIT(A)'s estimation was considered too low, and the addition was enhanced to 5% of the alleged bogus purchases.

What were the facts?

The Revenue appealed against a CIT(A) order that reduced an addition made by the AO for bogus purchases. The AO had added back 12.5% of alleged bogus purchases, but the CIT(A) reduced it to a much smaller amount based on profit suppression and lack of cross-examination opportunity.

What were the issues?

Whether the addition for bogus purchases was correctly estimated by the AO and CIT(A), and if the profit element embedded in such purchases should be taxed.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 147,Section 148,Section 142(1)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “B” BENCH, MUMBAI

Before: SHRI D.T. GARASIA, JM & SHRI MANOJ KUMAR AGGARWAL, AM

Per Manoj Kumar Aggarwal (Accountant Member) 1. The captioned appeal by revenue for Assessment Years [AY] 2009- 10 assails the order of the Ld. Commissioner of Income-Tax (Appeals)-9 [CIT(A)], Mumbai, Appeal No.CIT(A)-9/Cir.4/347/2014-15 dated 09/10/2015 qua relief provided to the assessee against certain bogus purchases. The assessment for impugned AY was framed by Ld. Deputy Commissioner Of Income Tax, Circle-4(1)(2), Mumbai [AO] u/s 143(3) read with Section 147 of the Income Tax Act,1961 on 27/01/2015. 2.1 Facts leading to the same are that the assessee being resident corporate assessee engaged in the business of manufacturing of stainless steel utensils was subjected to an assessment u/s 143(3) read with Section 147 for impugned AY on 21/01/2015 at Rs.71,49,670/- after addition of certain bogus purchases for Rs.37,67,766/-. The original return was filed on 06/07/2009 at Rs.33,81,908/- which was processed u/s 143(1). The solitary issue involved in the appeal is addition against 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.3,01,42,129/- from an entity namely Khushi Impex. Consequently, notice u/s 148 was issued to the assessee which was followed by statutory notices u/s 143(2) and 142(1).

1.

ITA.No.156/Mum/2016 Bhawani Kitchenware Private Limited Assessment Year-2009-10 2.3 The assessee submitted copies of invoices and contended that the purchases were genuine. However, not convinced, Ld. AO noted that the assessee could not substantiate the delivery of goods and mere payment through banking channels was not sufficient to prove the purchase transactions. The Ld. AO also noted that the assessee failed to produce the said party for confirmation of accounts and hence failed to discharge the onus casted on him. Finally, Ld. AO estimated the additions against bogus purchases @12.5% which came to Rs.37,67,766/-.

3.

Aggrieved, the assessee contested the same with partial success before Ld. CIT(A) vide impugned order dated 09/10/2015 where the Ld. CIT(A) after considering assessee’s submissions and placing reliance on several judicial pronouncements noted that the opportunity to cross examine the supplier was not granted to the assessee and the turnover was not disturbed / disputed by Ld. AO. The Ld. CIT(A) also noted the Gross Profit / Net Profit rate earned by the assessee in preceding years and concluded that the assessee suppressed profit to the extent of 0.17% of turnover of Rs.17.57 crores and therefore, restricted the same to Rs.2,97,818/-. Aggrieved, the revenue is in further appeal before us.

4.

The Ld. Departmental Representative [DR] drew our attention to the fact that the assessee could not substantiate the delivery of material and therefore, Ld. CIT(A) erred in granting substantial relief to the assessee. Per Contra, Ld. Counsel for Assessee [AR] placed reliance on the stand of Ld. CIT(A) to contend that the same was fair and reasonable and therefore, no further additions were warranted.

ITA.No.156/Mum/2016 Bhawani Kitchenware Private Limited Assessment Year-2009-10 5. We have carefully heard the contentions and perused relevant material on record. We are of the considered opinion that there could be no sale without purchase /consumption of material since the assessee was engaged in manufacturing activities. The sales turnover achieved by the assessee has not been disputed by the revenue and the payments were through banking channels. The purchases were backed by invoices. At the same time, the assessee could not produce any confirmation from the impugned supplier and miserably failed to substantiate the deliveries 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. However, we find the estimation to be on the lower side keeping in view the overall facts and circumstances of the case since Ld. AO, himself, had restricted the additions to 12.5% of alleged bogus purchases and the same has further been reduced substantially by Ld. CIT(A). Hence, we enhance the same to 5% of alleged bogus purchases of Rs.3,01,42,129/- which comes to Rs.15,07,106/-. We direct so.

6.

Resultantly, the revenue’s appeal stands partly allowed. Order pronounced in the open court on 01st November, 2017.

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