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Income Tax Appellate Tribunal, MUMBAI BENCH “I” MUMBAI
Before: SHRI D.T. GARASIA & SHRI N.K. PRADHAN
ORDER PER N.K. PRADHAN, A.M. This is an appeal filed by the Revenue. The relevant assessment year is 2010-11. The appeal is directed against the order of the Commissioner of Income Tax (Appeals)-5, Mumbai and arises out of the assessment completed u/s 143(3) r.w.s 147 of the Income Tax Act 1961, (the ‘Act’). 2. The grounds of appeal filed by the Revenue read as under:
1. The order of the CIT(A) is opposed to law and facts of the case.
2. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in restricting the addition on account of bogus purchases to the element of profit embedded in the purchase, when the whole of the transaction was bogus.
3. Briefly stated, the facts of the case are that the assessee filed its return of income for the AY 2010-11 on 15.10.2010 declaring total income of Rs.26,81,157/-. The Assessing Officer (AO) made the assessment u/s 143(3) on 31.01.2013 determining the total income at Rs.27,47,680/-. Thereafter, the AO received information that the assessee was involved in booking bogus purchases of Rs.54,79,885/- during the impugned assessment year from the hawala operators (bogus bill issuer) who were detected by the Sales Tax Department, Government of Maharashtra. Therefore, the AO issued notice u/s 148 proposing to reopen the assessment completed u/s 143(3) on 31.01.2013. The assessee vide letter dated 20.03.2013 stated before the AO that the return of income filed u/s 139 be treated as return filed u/s 148. The dispute here is the purchase of computer valuing at Rs.54,79,885/- by the assessee from M/s Akshat Enterprises. During the course of reassessment proceedings the AO noticed that (i) the notice issued u/s 133(6) to M/s Akshat Enterprises from whom computer valuing at Rs.54,79,885/- was purchased by the assessee was not replied by them, (ii) the assessee failed to furnish any confirmation from M/s Akshat Enterprises with regard to the purchases from them. Therefore, the AO made an addition of Rs.54,79,885/- as unexplained expenditure u/s 69C of the Act.
4. Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). We find that the Ld. CIT(A) has followed the judgment of the Hon’ble Gujarat High Court in the case of CIT vs. Simit P. Sheth (2013) 38 taxmann.com (Guj) and held 12.5% of the purchases of Rs.54,79,885/- as bogus. Thus the Ld. CIT(A) restricted the disallowance of Rs.54,79,885/- made by the AO to Rs.6,84,985/-.
5. Before us, the Ld. DR submits that the notice u/s 133(6) issued by the AO to M/s Akshat Enterprises has not been replied. Also the assessee failed to file any confirmation of the above party before the AO. Therefore, it is submitted by him that the addition of Rs.54,79,885/- made by the AO u/s 69C be fully confirmed. 6. The case was fixed for hearing on 14.09.2017. There was no compliance by the assessee before the Tribunal on the above date. 7. We have heard the Ld. DR and perused the relevant materials on record. In the case of Simit P. Sheth (supra), the Hon’ble Gujarat High Court has held that where purchases were not bogus but were made from parties other than those mentioned in the books of account, not entire purchase price but only profit element embedded in such purchases can be added to income of the assessee. That being the position, not the entire purchase price but only the profit element embedded in such purchases can be added to the income of the assessee. The Hon’ble High Court referred to a similar view taken in the case of CIT vs. Vijay M. Mistry Construction Ltd. [2013] 355 ITR 498 (Guj) and CIT vs. Bholanath Poly Fab (P) Ltd. [2013] 355 ITR 290 (Guj).