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Income Tax Appellate Tribunal, MUMBAI BENCH “K” MUMBAI
Before: SHRI MAHAVIR SINGH & SHRI N.K. PRADHAN
ORDER PER N.K. PRADHAN, A.M. This is an appeal filed by the assessee. The relevant assessment year is 2011-12. The appeal is directed against the order of the Commissioner of Income Tax (Appeals)-44, Mumbai and arises out of the assessment completed u/s 143(3) of the Income Tax Act 1961, (the ‘Act’).
The ground raised by the assessee in this appeal is that the Ld. CIT(A) erred in confirming the action of the Assessing Officer (AO) of selectively treating a part of the purchases amounting to Rs.69,56,460/- made by the assessee as bogus while accepting the genuineness of the entire sales without giving adequate opportunity to the assessee to present its case. Further it is stated that the Ld. CIT(A) erred in confirming the action of the AO of invoking section 69C and making disallowance of purchases of Rs.69,56,460/- disregarding the source of incurring such expenditure (purchases).
Briefly stated, the facts of the case are that the AO found during the course of assessment proceedings that the assessee (prop. of M/s Shah Enterprises) had made purchases from the following parties who were identified by the Sales Tax Department, Government of Maharashtra as bogus ones:
Sr. Name of the Party TIN No. Amount No. (Rs.) 1. National Trading Co. 27210561220V 3,46,701/- 2. Deepali Enterprises 27100503032V 17,45,726/- 3. Swastik Enterprise 27620686755V 4,89,534/- 4. Renuka Sales Corporation 27400626348V 4,90,995/- 5. Rekha Trading Co. 27520270001V 12,45,294/- 6. Raj International 27780573759V 4,04,275/- 7. S.S. Enterprise 27950562074V 3,39,660/- 8. Toral Enterprises 27600666493V 33,395/- 9. Shruti Traders 27770781005V 18,60,880/- Total 69,56,460/-
In order to ascertain the genuineness of transactions, the AO issued notices u/s 133(6) to the parties concerned. These notices were returned unserved by the postal authorities with the remarks ‘not known’ and ‘no such party exists at the given address’. The AO further observed that few of the parties who were found to be available at the given address did not confirm the transactions reflected in the books of accounts of the assessee. The AO further deputed the Inspector of Income Tax to serve the notices and obtain information regarding genuineness of purchases. The Inspector vide her report dated 07.02.2014 submitted to the AO that there was no such concern at the given address. In view of the above, the AO asked the assessee vide his office letter dated 10.02.2014 to produce the above parties along with relevant documents. The AO provided the assessee with the documents available with him for verification. However, there was no response from the assessee. In response to the final show cause issued by the AO, the assessee filed a reply which has been extracted at para 4.5 of the assessment order. However, the AO was not convinced with the said reply of the assessee as no details regarding transportation of such goods could be filed. The AO further observed that considering the nature of hawala transaction, mere production of purchase invoices and claiming payments through banking channels is not a conclusive proof to establish the genuineness of transactions. Therefore, the AO made an addition of Rs.69,56,460/- u/s 69C of the Act.
Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). The assessee had filed adjournment application before the Ld. CIT(A) on 17.04.2015 and 01.09.2015. There was no compliance by the assessee before the Ld. CIT(A) on 09.12.2015 and 09.02.2016. Therefore, the Ld. CIT(A) dismissed the appeal filed by the assessee.
Before us, the Ld. counsel of the assessee submits that the Ld. CIT(A) should not have confirmed the addition of Rs.69,56,460/- made by the AO u/s 69C without giving adequate opportunity to the assessee to present her case.
On the other hand, the Ld. DR supports the order passed by the Ld. CIT(A). He also relies on the decision by the Hon’ble Supreme Court in N.K. Proteins Ltd. vs. DCIT (2017- TIOL-23-SC-IT).
We have heard the rival submissions and perused the relevant materials on record. In the case of N.K Proteins Ltd. (supra), there was search proceedings conducted by the Revenue at the office premises of the assessee wherein blank signed cheque books and voucher of number of concerns were found. Accordingly, the purchases made from these concerns were treated as bogus by the AO and the entire deposits in bank accounts of these parties were treated as assessee’s income on protective basis. On appeal, the ITAT restricted the addition on account of alleged bogus purchases at 25% i.e. Rs.73,23,322/- of the total purchases amounting to Rs.2,92,93,288/-. On further appeal, the Hon’ble High Court modified the order of the Tribunal and directed for addition of entire bogus purchases. After hearing the counsels, the Hon’ble Supreme Court dismissed the SLP filed by the assessee and confirmed the decision of the High Court for addition of entire income on account of bogus purchases. A perusal of the above case clearly indicates that on facts the instant case is distinguishable from the above decision relied on by the Ld. DR. We have mentioned hereinabove that the Ld. CIT(A) had given adequate opportunity to the assessee to appear before him and present the case. There was no compliance either by the assessee or her authorized representative. Thus there is no merit in the submission of the assessee that she was not given adequate opportunity to explain her case. On merit, we find that the assessee failed to prove before the AO the genuineness of purchases made from the above nine parties amounting to Rs.69,56,460/-. We have narrated the details hereinbefore. In the case of CIT vs. Simit P. Sheth (2013) 38 taxmann.com (Guj), 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 has referred to a similar view taken in