YOGESH KUMAR MALHOTRA,THANE vs DCIT, CIR- 3, THANE

Assessee by : Shri Devendra Jain (AR) Revenue by : Shri T. A. Khan (DR) Date of hearing : 21.09.2017 Date of Pronouncement : 21.09.2017 Order Under Section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by assessee under section 253 of the Income-tax Act (the Act) is directed against the order of Commissioner of Income –tax (Appeals)-3 [ld.

CIT(A)], Thane dated 29.02.2016 for the Assessment Year (AY) 2009-10.

The assessee has raised the following grounds of appeal.

1. On the facts and in the circumstances of case and in law, the Ld. CIT(A) has erred in confirming the action of the Assessing Officer ('AO') of adding purchases from Navdeep Trading Corporation amounting to Rs. 32,69,963/- as bogus purchases.

2. On the facts and in the circumstances of case and in law, the Ld. CIT(A) has erred in confirming the action of Ld. AO of holding that purchases to the tune of Shri Yogesh Kumar Malhotra Rs. 32,69,963/- as bogus purchases inspite of sales being accepted by the Ld. AO.

3. On the facts and in the circumstances of case and in law, the Ld. CIT(A) has erred in confirming the action of Ld. AO of denying the benefits of natural justice by not confronting the appellant with the impugned documents/affidavit relied on by the Ld. AO.

4. On the facts and in the circumstances of case and in law, the Ld. CIT(A) has erred in rejecting the books of account of the appellant.

Brief facts of the case are that the assessee filed return of income for relevant Assessment Year on 29.09.2009 declaring total income at Rs.43,98,640/-. On the basis of information from the Sales Tax Department and from information of Director General Income Tax-Circle-3(DGIT), the assessment was re-opened. Notice under section 148 dated 22.03.2013 was served upon the assessee. The assessee vide his reply dated 09.04.2013 contended that the return originally filed may be treated as return in response to the notice under section 148 of the Act. The re-assessment was completed on 26.03.2014 under section 143(3) r.w.s. 147 of the Act. During the re-assessment proceeding, the Assessing Officer observed that the assessee is one of the beneficiary who has received bogus bill from M/s Navdeep Trading Corporation for Rs. 32,69,963/-. The Assessing Officer issued notice under section 133(6) to M/s Navdeep Trading Corporation.

The notice was returned un-served by the postal authorities. The Assessing Officer deputed the Inspector to verify the parties and to serve the notice.

The Inspector reported that no such concern is running on the address from the said premises. The Assessing Officer issued show-cause notice to the 2 Shri Yogesh Kumar Malhotra assessee as to why the purchases should not be treated as bogus purchases.

In response to the notice of the Assessing Officer, the assessee contended that the purchases are genuine as payments were made through cheques. The contention of the assessee was not accepted by assessing officer holding that assessee could not produce the supporting evidence like transportation entry in the Stock Register. Thus, the Assessing Officer disallowed the entire purchases from M/s Navdeep Trading Corporation. On appeal before the ld. CIT(A), the action of Assessing Officer was confirmed. Further, aggrieved by the order of ld. CIT(A), the assessee has filed the present appeal before us.

We have heard the ld. Authorized Representative (AR) of the assessee and ld. Departmental Representative (DR) for the Revenue and perused the material available on record. The ld. AR of the assessee argued that the assessee has made the genuine purchases. The purchases were made through the banking transaction. The Assessing Officer disallowed the entire purchases from Navdeep Trading Corporation. The Assessing Officer made the addition on the basis of third party information. It was argued that mere non-production of parties cannot lead to the presumption that transaction is not genuine, when transaction is established through banking channel. The assessee was not in a position to produce the parties. No summon was issued to the parties. On the other hand, the ld. DR for the Revenue supported the Shri Yogesh Kumar Malhotra orders of authorities below. The ld. DR for the Revenue argued that the assessee has not discharged his primary onus to substantiate the genuineness of purchases. The assessee failed to produce the Stock-Register, Consumption Register, evidence related with Transportation of goods and delivery at the premises of the assessee. The assessee is merely contending that the transaction was made through banking channel is not sufficient to prove the genuineness of the transaction. Since the parties were not available at the address. Hence, there was no occasion for Assessing Officer to summon the party.

We have considered the rival submission of the parties and have gone through the orders of authorities below. We have seen that while passing order the Assessing Officer has not rejected the books of account of assessee. The Assessing Officer has not examined the consumption of material nor disputed the sales of the assessee. The Assessing Officer has not examined the books of account and the Gross Profit earned by the assessee during the relevant AY. In our view, when the Assessing Officer has not doubted the sale of the assessee, thus, it may be an illogical to conclude that without corresponding purchases, the assessee could not affected the sales. The Assessing Officer has not brought any material on record to conclusively establish that the purchases are bogus. Merely upon the information of Sales Tax Department or the fact that the party was not ITA No.3050/M/2016- Shri Yogesh Kumar Malhotra produced before the Assessing Officer, the Assessing Officer could not treated the purchases as bogus and made the addition of the entire purchases in case the Assessing Officer has any doubt, it was incumbent upon him to make the further investigation to ascertain the genuineness of transaction, when the assessee has categorically contended that payments were made through banking transaction. No enquiry was made from the bankers of the assessee. Similarly, we may also note that assessee has not fully discharged his onus to prove the genuineness of the transaction as full proof. During the first appellate stage the assessee was asked to working of Gross and Net Profit. The assessee furnished the details of Gross Profit/Net Profit ratio.

The First Appellate authority / ld. CIT(A) examined the Gross Profit/Net Profit ratio for the year under consideration, preceding year and subsequent year. However, the same was not accepted by ld. CIT(A). The ld. CIT(A) upheld the entire addition/disallowance.

We have noted that the lower authority has disallowed the entire amount of purchases from Navdeep Trading Corporation. We are of the considered view that under the Income-Tax Act, the Revenue is entitled to tax the real income only. We may further observed that even in cases where the entire transaction is not verifiable due to various reasons, the only taxable is the taxable income component and not the entire transaction. The Hon’ble Bombay High Court in case of CIT vs. Hariram Bhambhani of ITA No.3050/M/2016- Shri Yogesh Kumar Malhotra 2013 decided on 04.02.2015 held that Revenue is not entitled to bring the entire sale consideration to tax, but the only profit attributable on the total unrecorded sale consideration along can be subject to Income-tax.

After considering the fact and submission of the parties, we are of the opinion that in order to fulfill the gap of revenue leakage, the disallowance of reasonable percentage, impugned/bogus purchases to 12.5% would meet the end of justice. Hence, the Assessing Officer is directed to restrict the disallowance @ 12.5% of purchases from Navdeep Trading Corporation (Rs.32,69,963/-). Hence, the ground of appeal

raised by assessee is partly allowed.

7. In the result, appeal filed by the assessee is partly allowed. Order pronounced in the open court on 21st day of September 2017.

YOGESH KUMAR MALHOTRA,THANE vs. DCIT, CIR- 3, THANE