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Income Tax Appellate Tribunal, MUMBAI BENCH “A”, MUMBAI
Before: SHRI D.T. GARASIA & SHRI MANOJ KUMAR AGGARWAL
Per D.T. GARASIA, Judicial Member:
The above titled appeals-one by the Department and the other by the assessee have been preferred against the order dated
2 Shri Narsi Devji Patel & ITA No.540/M/2017 08.11.2016 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2011-12.
(Assessee’s appeal) 2. The brief facts of the case are that the assessee is an individual engaged in business of trading in readymade garments. During the year the Assessing Officer (hereinafter referred to as the AO) found that assessee had made bogus purchases from following parties: Sr. Name of the party Amount of No. Purchase (Rs)
Boardway Inclave 723514 2. Fairo Enterprises (Chembur) 2308791 3. Gami Enterprises (Jogeshwari) 3536493 4. Jai Mata Ji (Santacruz) 1860245 5. Krupa Creations (Malad) 3078392 6. Mayank Apparels (Santacruz) 1041656 7. Mupduch clothing (Jogeshwari) 4572978 8. Patel Garments (Goregaon) 11565255 9. Printol Enterprises Pvt. Ltd. 1682637 10. Rajdeep International (Goregaon) 3763850 11. Rithik Creations (Mumbai) 1636781 12. Shree Kashi Enterprises (Santacruz) 2812101 13. Swastik Creation (Santacruz) 1778666 14. Tiliyas Garments (Santacruz) 1487932 15. Veer Creation (Ghatkopar) 9455720 16. Young Fashion (Santacruz) 2194478 Total 5,34,99,489
The assessee was asked to produce the above parties for verification. There was no compliance of notice under section 133(6). Therefore, the AO has made the addition on account of bogus purchases @ 25% of Rs.5,34,99,489/- which comes to Rs.1,33,74,872/-.
3 Shri Narsi Devji Patel & ITA No.540/M/2017 4. Matter carried to the Ld. CIT(A) and the Ld. CIT(A) has partly allowed the appeal by observing as under: “4.8 I have considered the facts of the case, the appellant's submissions, AO’s Remand Report and appellant’s rejoinder thereon. There is no dispute that the appellant did not produce the parties before the Assessing Officer. What is pertinent to examine here will be whether the appellant had sufficiently discharged its onus of proving the genuineness of the transactions even though the parties were not produced. Perusal of the details on record submitted before the Assessing Officer shows that the appellant had submitted copies of Income Tax Returns, confirmed ledger accounts and bank account statements of the following parties.
Sr. Name of the party Amount of No. Purchases (Rs) 1. Boardway Inclave 723514 5. Krupa Creations (Malad) 3078392 7. Mupduch clothing (Jogeshwari) 4572978 8. Patel Garments (Goregaon) 11565255 9. Printol Enterprises Pvt. Ltd. 1682637 10. Rajdeep International (Goregaon) 3763850 11. Rithik Creations (Mumbai) 1636781 12. Shree Kashi Enterprises (Santacruz) 2812101
As the appellant had sufficiently discharged the onus of proving the genuineness of the transactions with relevant evidences, the addition made by the Assessing Officer in respect of the above mentioned parties are deleted.”
4.9 In respect of the following parties, I find that the appellant had either not submitted any details or furnished only copies of ITR with ledger accounts and no bank statements.
Sr. Name of the party Amount of No. Purchases (Rs) 3 Gami Enterprises (Jogeshwari) 3536493/- 4 Jai Mata Ji (Santacruz) 1860245/- 6 Ma yank Apparels (Santacruz) 1041656/- 13 Swastik Creation (Santacruz) 1778666/- 14 Tiliyas Garments (Santacruz) 1487932/- 15 Veer Creation(Ghatkopar) 9455720/- 16 Younq Fashion (Santacruz) 2194478/-
The Assessing Officer had specifically called for copies of ITR along with bank statements which are crucial requirements to establish the 4 Shri Narsi Devji Patel & ITA No.540/M/2017 genuineness of the transactions which the appellant has not complied with. These complete details were not submitted neither at the time of assessment proceedings nor during appellate proceedings. The appellant, therefore, has not fully discharged the onus of proving the genuiness of transactions with these parties. Considering this and the fact of the notices u/s 133(6) being returned unserved/unclaimed and the non producing of the parties before the Assessing Officer, the disallowance made by the Assessing Officer in respect of the purchases made from the above mentioned parties is upheld. 4.10 Regarding the disallowance made in respect of purchases made from Fairo Enterprises (Chembur) of Rs.23,08,791/-, I find that reply was received in response to notice u/s 133(6) issued by the Assessing Officer. The A.O. has simply stated that there was discrepancy in the reply submitted and disallowed part of the purchases made from the party by holding it to be non-genuine. During Appellate proceedings, the appellant has contended that it was no asked to explain / clarify the same. In support of its claim regarding the genuineness of transactions with the said party, the appellant had submitted additional evidences consisting of Income Tax Return Acknowledgement, Ledger Account, Invoices and bank statement which was remanded to the Assessing Officer for necessary verification and report. The remand report submitted by AO is silent on this issue. As the genuineness of purchases made from this party stands substantiated by the said additional evidences, the disallowance made by the Assessing Officer in respect of the purchases made from this party is deleted.”
The Department is in appeal against deletion of purchases made from 9 parties and assessee is in appeal in respect of the addition as confirmed by the Ld. CIT(A) against 7 parties.
Ld. D.R. relied upon the decision of the Ahmedabad Bench, ITAT in the cases of Shwetambar Steels vs. ITO Ahmedabad and Ganesh Rice Mills vs. CIT (294 ITR 316).
The assessee relied upon the decision of Hon’ble Gujarat High Court in the case of CIT vs. Simit P. Sheth 38 taxman 385 (Guj). The Ld. A.R. submitted that the assessee had submitted all the evidences to show that there was a genuine transaction with some of the parties and in respect of those parties assessee has filed the 5 Shri Narsi Devji Patel & ITA No.540/M/2017 income tax return, ledger account, invoices and bank statement. The Ld. CIT(A) has called for the remand report and after going through the remand report the Ld. CIT(A) has deleted the additions and confirmed addition against those parties against which evidences could not be submitted by assessee. The Ld. AR pleaded for more relief on the ground that impugned additions were on higher side.
We have heard the rival contentions of both the parties. The facts of the case show that assessee could not produce the parties from whom the goods are stated to have been purchased from the parties for which the Ld. CIT(A) has confirmed the addition of Rs.53,38,797/- being 25% of Rs.2,13,55,190/- on account of bogus purchases made from 7 parties. The suppliers were found to be engaged in providing bogus bill without actual dealing of goods. In this regard, the assessee has stated that they had submitted quantitative details of stock with respect of the sales with purchases from the parties during the assessment proceedings. The assessee has submitted the detail of corresponding sales in respect of the purchase from the said parties. As mentioned above the AO has never disputed or examined the aspect of sales receipts. Since the sales made by the assessee was not doubted or disputed by the AO and he has accepted the sales receipts of the assessee as it is, therefore, the AO cannot deny that purchases were not made by the assessee and the material was not used for its sales. What is under dispute is the purchases from the parties from whom bills have been taken and cheques have been issued to them. Purchases are not in dispute but the parties from whom purchase are shown to have been made are disputed and 6 Shri Narsi Devji Patel & ITA No.540/M/2017 suspicious. The AO had made the addition as some of the suppliers were declared hawala dealers by the VAT Department. This may be a good reason for making further investigation but the AO did not make any further investigation and merely completed the assessment on suspicion. Once the assessee has brought on record the details of payments by account payee cheque, it was incumbent on the AO to have verified the payment details from the bank of the assessee and also from the bank of the suppliers to verify whether there was any immediate cash withdrawal from their account. No such exercise has been done or findings recorded. There was no detailed investigation made by the AO himself. It is also found that the payments have been made by account payee cheque which are duly reflected in the bank statement of the assessee. There is no evidence to show that the assessee has received cash back from the suppliers. Merely because the suppliers did not appear before the AO or some confirmation letters were not furnished, one cannot conclude that the purchases were not made by the assessee. This view is supported by the decision of Nikunj Eximp Enterprises vs. CIT 216 Taxman 171 (Bom). To this extent, we are of the view that if the assessee has fulfilled its onus of making the payment by cheque and has supplied the addresses of the sellers then it cannot be presumed that supplier were bogus simply because the sellers were not found at the given address. There is a considerable time gap between the period of purchase transaction and period of scrutiny proceedings. The AO has not brought any material on record to show that there is suppression of sales. It is basic rule of accountancy as well as of taxation laws
7 Shri Narsi Devji Patel & ITA No.540/M/2017 that profit from business cannot be ascertained without deducting cost of purchase from sales. Estimation of profit ranging from 12.5% to 15% has been upheld by the Hon'ble Gujarat High Court in the case of CIT vs Simit P Sheth 356 ITR 451 (Guj.). Respectfully following the decision of Hon’ble Gujarat High Court in the case of CIT vs. Simit P. Sheth 38 taxman 385 (Guj), we estimate the net additions at 12.5% instead of 25% made by the Ld. CIT(A). Therefore, the addition sustained by us @ 12.5% of Rs.2,13,55,190/- comes to Rs.26,69,399/-. Therefore, we partly allow the assessee’s appeal. ITA No.1149/M/2017 (Revenue’s appeal)
In respect of departmental appeal, we find that Ld. CIT(A), after due consideration of remand report and evidences submitted by the assessee concluded that the transactions were genuine and substantiate with evidences and hence, deleted the same with due application of mind. Therefore, we are of the view that our interference is not required. Resultantly, the revenue’s appeal stands dismissed.
In the result, assessee’s appeal is partly allowed and departmental appeal is dismissed.
Order pronounced in the open court on 30.10.2017.