ITO WD 3(2), THANE vs. RAMMANGAL S. GUPTA, THANE

This appeal has been preferred by the revenue against order dated 10/01/2017 passed by Ld. CIT (Appeals) - 2, Nashik for the assessment year 2009-2010, whereby the Ld. CIT(A) has partly allowed the appeal filed by the assessee against assessment order passed under section 143(3) read with section 147 of the Income Tax Act, 1961 (for short ‘the Act’).

Brief facts of the case are that the assessee engaged in trading of iron and steel goods, filed its return of income for the assessment year under consideration declaring the total income of Rs.2,55,220/-. The assessment was accordingly completed under section 143 (3) of the Act, after making addition of 2 Assessment Year: 2009-2010 Rs. 62,940/-under section 68 of the Act and Rs. 3,00,000/– as agricultural income. 3. The assessment was reopened under section 147 of the Act on the basis of information received from Sales Tax Department, government of Maharashtra to the effect that certain parties have issued bogus bills without selling goods and the assessee was one of the beneficiaries who obtained bogus bills for Rs.61,90,074/- from six parties. Accordingly, the assessee was asked to file return of income in response to notice under section 148 within 30 days from the date of receipt of notice. Further notices under section 143 (2) and 142 (2) were issued asking the assessee to submit details of purchase and the parties from whom the purchases were made during the year relevant to the assessment year under consideration. The assessee submitted the details of purchasers and asked to treat the submission filed during scrutiny assessment as the submission in response to notice under section 142 (1) of the Act. 4. In order to verify the genuineness of the transactions, information was sought under section 133 (6) from the concerned parties, however the notices were return back un-served. The assessee also failed to produce the parties before the AO. Accordingly, the AO issued show cause notice to the assessee as to why the purchases so made during the relevant period should not be treated as bogus. In response thereof the assessee filed written reply and submitted that the goods purchased from the said parties were sold to different customers. All payments to the parties were made through account payee cheques. Since, the entire details have been furnished along with the documentary evidence to prove the genuineness of the transaction, there is no reason for treating the purchases in question as bogus. The AO rejected the contention of the assessee and added the entire amount of bogus purchase to the income of the assessee. 5. In the first appeal, the Ld. CIT(A) partly allowed the appeal of the assessee and restricted the addition to 10% of the total bogus purchases made 3 Assessment Year: 2009-2010 by the assessee during the relevant year. The revenue is in appeal against the impugned order passed by the Ld. CIT(A) by raising the following effective grounds of appeal:-

On the other hand the Ld. counsel for the assessee relying on the findings of the learned CIT(A) submitted that since the AO has accepted the sales hundred percent addition cannot be made. The Ld. counsel further submitted that in order to prove the genuineness of purchases in question, the assessee has submitted copies of purchase bills and addresses of the parties and details of quantity purchased, consumed and sold. The assessee has also placed on record the Bank statement to prove that the payments were made through banking channels. The Ld. counsel further submitted that in view of the judgment of the Hon’ble High Court CIT Vs. Nikunj Eximp Enterprises Pvt. Ltd. 372 ITR 619 (Bom), the Ld. CIT(A) rightly restricted the addition to 10 % of the total bogus purchases made by the assessee during the relevant financial year.

We have heard the rival submissions and also perused the material placed before us. The only grievance of the revenue is that the Ld. CIT(A) has wrongly restricted the addition to 10% of the amount of bogus purchases . We notice that the Ld. CIT(A) has upheld the action of the AO holding as under: `“7.3 In this regard it has been noticed that the issue under appeal has been recently decided by Hon’ble ITAT, Pune, in the case of M/s. Chetan Enterprises, Nashik Vs. ACIT Circle-2, Nashik, & 366/PN/2016 and M/s Patco Precision Components Pvt. Ltd., Nashik Vs. ACIT Circle-2, Nashik, ITA No. 695/PN/2016. In this cases the above appellants have filed appeals against the orders of the undersigned, wherein the benefit on account of purchases in gray market was estimated at 10% and accordingly addition on account of hawala purchases was confirmed to the extent of 10% of the impugned hawala purchases. The Hon’ble ITAT had held in concluding para 13 of the order, while deciding the case of M/s Chetan Enterprises as under:- “In paras hereinabove, the addition to the extent of 10% the quantum of hawala purchases has been added in the hands of assessee and the said addition would meet the ends of justice, as the purchases are admittedly made from hawala parties. The Assessing Officer is directed to compute the quantum in respect of 5 Assessment Year: 2009-2010 evidences furnished by him to the assessee in the form of statements recorded of other persons. Where no such statements or any other evidences in respect of any person is made available to the assessee, in respect of any person is made available to the assessee, then such quantum is not to be included in this hands of assessee for raised by assessee in both the appeals are allowed as indicated above.” Similarly, while deciding the appeal in the case of M/s Patco Precision Components Pvt. Ltd., the Hon’ble ITAT has directed the A.O. in concluding para 14, as under:- “The assessee had asked for copies of statements recorded by Sales Tax Department of the suppliers and to allow cross examination. The Assessing Officer in the present case also has not supplied the said statements to the assessee and the case of the assessee, though was that, the first aspect in the present case is the availability of statements recorded by Sales Tax Department and in the case, no such evidence is available then there is no basis for making the aforesaid addition. As directed in the above appeals, the matter is set aside to the file of Assessing Officer to verify the contention of assessee in this regard. In case no document is available with Assessing Officer, then no addition is warranted on account of hawala purchases. Otherwise, the addition has to be restricted to 10% of quantum of purchases as directed in earlier appeals”.