SHRI. HARIRAM S. BISHNOI,MUMBAI vs. INCOME TAX OFFICER-WARD 15(2)(4), MUMBAI

This appeal has been filed by the assessee against order dated 22/02/2016 passed by the Ld. Commissioner of Income Tax (Appeals)-30, Mumbai, pertaining to the Assessment Year 2011-12, whereby the Ld. CIT (A) has partly allowed the appeal filed by the assessee against assessment order passed u/s 143(3) of the Income Tax Act, 1961 (for short ‘the Act’).

Brief facts of the case are that the assessee the sole proprietor M/s Raj Hans Metal Syndicate, engaged in the business of trading in ferrous and non ferrous metal, filed its return of income for the assessment year under consideration declaring total income of Rs.18,12,985/-. Since, the case was selected for scrutiny, notices u/s 142(2) of the Act, was issued time to time and the authorized representative appeared before AO and also filed the details called for. In order to verify the genuineness of the purchases made by the assessee during the relevant year, notices u/s 133(6) of the Act, were issued to the parties from whom the assessee had alleged to have purchased the goods. However, notices issued to Prayash Steelage, Manglik Metal (India),Malani (Metal) India, Kalash Metals Pvt. Ltd., Kanak Steel Industries and Mahadev Metals received back un-served from postal department with the remarks thereon either ‘Not known’ or ‘Left’. It also came to the notice of the AO that the aforesaid entities during the relevant period indulged in issuing bogus bills to various assesses without supplying any goods. Accordingly, the assessee was asked to produce the parties along with the details to prove genuineness of the transaction of purchases in question. However, the assessee neither produced the parties before AO nor filed the details to the satisfaction of AO. Accordingly, the AO made addition of Rs. 30,09,302/- calculating the peak amount on the basis of alleged purchases made from the above mentioned six parties and determined the income of the assessee at. Rs. 42,22,290/-

The order appealed against is bad in law and is against the principle of natural justice.

The order appealed is based on surmises and conjectures.”

On the other hand, the Departmental Representative (DR) relying on the findings of the Ld. CIT(A) submitted that the Ld.CIT (A) has rightly sustained the addition to 12.5% of the bogus purchases made by the assessee during the relevant year. Since, the assessee has failed to prove genuineness of the transaction, there is no reason to interfere with the findings of the Ld. CIT(A)

We have heard the rival submissions and perused the entire record and also gone through the cases relied upon by the authorities below as well as referred before us. The only grievance of the assessee is that the Ld. CIT (A) has wrongly sustained the addition of 12.5% of the bogus purchase. We notice that the AO has not rejected the books of account and accepted the sales shown by the assessee. Since, the AO has not rejected the sales shown during the relevant year, the entire amount of purchases cannot be added to the income of the assessee as there cannot be sale without any purchase. If the assessee had not purchased the goods in question from the parties concerned, it implies that purchases were made from the parties other than those mentioned in the books of account. Hence, there is no justification in making addition of the entire amount of bogus purchases determined by the AO. Since, it has been established that the assessee had not purchased the goods in question from the parties concerned, it can be concluded that the assessee had made the questioned purchases from grey market without paying VAT and other taxes. Under these circumstances, the AO ought to have made addition keeping in view the profit element embedded in the purchases in question.

The Hon’ble Bombay High Court In CIT Vs. Nikunj Eximp Enterprises Pvt. Ltd. 372 ITR 619 (Bom), while upholding the decision of Mumbai Tribunal, has observed 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. The Hon’ble Gujrat High Court in CIT vs. Simit P. Seth 356 ITR 451(Guj) 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. Hence, following the principles law laid down by the Hon’ble High Courts of Bombay and Gujarat, discussed above, we uphold the order of the Ld. CIT(A) and dismiss all the grounds of appeal of the assessee and direct the AO to make addition @ 12.5% of the total amount of bogus purchases made by the assessee to the income of the assessee.