ITO 27(2)(4), NAVI MUMBAI vs. NAYAN K SHUKLA, MUMBAI

Nayan K.Shukla Assessment Year 2010-11 [CIT(A)], Mumbai, Appeal No. CIT(A)25/IT-276/14-15 & IT-277/14/-15 dated 27/12/2016 qua relief provided to the assessee against certain bogus purchases. The assessment was framed by Ld. Income Tax Officer, Ward 22(1)(4) [AO] u/s 143(3) read with Section 147 on 22/03/2014. None has appeared for assessee despite notice as per order sheet noting. Hence, we proceed to dispose-off the same on the basis of material on record and after hearing Ld. Departmental Representative [DR]. 2.1 Facts leading to the same are that the assessee being resident individual engaged in the business of cable wire and switches under proprietorship concern namely New Tech Sales Corporation was subjected to an assessment u/s 143(3) read with Section 147 for impugned AY on 22/03/2014 where the income of the assessee was determined at Rs.1,08,49,626/- after certain additions on account of purchases for Rs.97,25,146/-. The original return was filed on 25/09/2010 at Rs.11,24,480/- which was processed u/s 143(1). The solitary issue involved in the appeal is addition of certain 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.4,87,84,572/- from thirteen parties. Consequently, notice u/s 148 dated 15/02/2013 was issued to the assessee which was followed by statutory notices u/s 143(2) and 142(1).

Aggrieved, the assessee contested the same with partial success before Ld. CIT(A) vide impugned order dated 27/12/2016 which is combined order for AY 2009-10 & 2010-11. The Ld. CIT(A) noted that corresponding sales could not be possible without making any purchases and therefore, estimation of suppressed profit embedded in the transactions was required to be made as per various judicial pronouncements. Finally, Ld. CIT(A) estimated the same @12.5% of bogus Nayan K.Shukla Assessment Year 2010-11 purchases which came to Rs.60,98,071/- and deleted the balance additions. Aggrieved, the revenue is in further appeal before us.

The Ld. Departmental Representative [DR] placed reliance on the stand of Ld. AO and contended that the assessee could not substantiate the delivery of material in any manner and mere possession of purchase invoices or payment through banking channels, by itself, was not conclusive to establish the claim of the assessee. Our attention is further drawn to the fact that all notices sent u/s 133(6) were returned back un- served and therefore, Ld. AO correctly ascertained the amount of disallowance to be made in this regard.

We have carefully heard the same and perused relevant material on record. We are of the considered opinion that there could be no sale without purchase keeping in view the assessee’s nature of business which was material intensive and could not be carried out without purchase of material. 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 evidence to prove actual delivery of material or furnish any details of transportation as required by Ld. AO and all notices sent u/s 133(6) remained un-served, 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