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Income Tax Appellate Tribunal, “I”, BENCH, MUMBAI
Before: SHRI RAJENDRA, AM & SHRI RAM LAL NEGI, JM
O R D E R
PER RAM LAL NEGI, JM
This appeal has been filed by the assessee against order dated 26/02/2016 passed by the Ld. CIT (A)-2, Thane, pertaining to the Assessment Year 2009-10, whereby the Ld. CIT (A) has partly allowed the appeal preferred by the assessee against assessment order passed u/s 144 read with section 147 of the of the Income Tax Act, 1961 (for short ‘the Act’).
Brief facts of the case are that the assessee filed its return of income for the assessment year 2009-10 declaring the total income of Rs. 84,68,240/-. Subsequently, the AO received information from the Sales Tax Department Maharashtra that a large number of entities have issue bogus purchase bills to various tax payers including the present assessee. Accordingly, the AO issued notice u/s 148 of the Act, to the assessee to file return in response to the 2 Assessment Year: 2009-10 notice within fifteen days. The AO also issued notice u/133(6) of the Act to M/s ‘Adigin Enterprises’ from whom the assessee had obtained bogus purchase bills worth Rs. 22,79,511/-, but the notice was received back un-served. Apart from the notices u/s 143(3) & 142(1) the AO issued show cause notice to the assessee as to why the purchases shown made from bogus entity during the year relevant to the assessment year under consideration should not be treated as bogus expenses and the said amount should not be added to the total income.
The assessee only submitted P&L account along with audit report and computation of income, however, no reply was filed to the show cause notice despite availing several opportunities. Accordingly, the AO passed the assessment order on the basis of material available on record determining the total income of the assessee at Rs.1,09,82,537/-after making inter alia making addition of Rs. 22,79,511/- on account of bogus purchases. In appeal the Ld. CIT(A) confirmed the addition made by the AO. The assessee is in appeal before the Tribunal against the said order by raising the following grounds of appeal:
1. “The learned CIT (Appeals) erred in not deleting the addition of Rs. 22,79,511/- made by the ITO on the ground of alleged bogus purchases without appreciating the fact that the 6 purchases involved were made from one party- M/s Adjijin Enterprises and the payments were made by A/c Payee cheques.
2. The learned CIT (Appeals) erred in not deleting in full the disallowance at 15% of expenses made by ITO.”
Ground No 1 of the appeal pertains to addition on account of bogus purchases. Before us, the ld. Counsel for the assessee submitted that since the assessee has submitted P&L account along with audit report and computation of income, the ld. CIT(A) has wrongly confirmed the addition made by the A.O. The Ld. counsel relying on the judgment of Hon’ble Bombay High Court passed 3 Assessment Year: 2009-10 in Nikunj Enterprises 372 ITR 619 (Bom) submitted that the impugned order is liable to be set aside as the same is contrary to the principles of law laid down by the Hon’ble High Court in the aforesaid case. The Ld. counsel further submitted that the assessee case is covered by the decision of the Mumbai Tribunal rendered in Chanderkant vs. ITO, in which the addition of 12.5% of the total bogus purchases, estimated by the CIT(A), has been restricted to 10%.
On the other hand, the ld. DR relying upon the findings of the ld. CIT(A) submitted that the impugned order does not warrant any interference as the findings of the ld. CIT(A) is in accordance with the principle of law laid down by the different courts and Tribunals including the judgment of Hon’ble Gujarat High Court passed in N.K. Protien Limited vs. DCIT in Tax appeal No 240,261,242&260 of 2003 in which it has been held that if the purchases are not proved to be genuine then the entire amount of purchases needs to be taken as income.
We have heard the rival submissions and also perused the material on record including the cases relied upon the parties. The only issue in this case is whether the Ld CIT(A) has erred in confirming the disallowance of entire amount of bogus purchases made by the assessee during the relevant financial year? We notice that the AO has made disallowance in question without rejecting the books of account of the assessee. AO has also not disputed the sales made by the assessee during the relevant period.
In Nikunj Enterprises 372 ITR 619 (Bom), the Hon'ble jurisdictional High Court has held that merely because its suppliers had not appeared before the A.O. or the ld. CIT(A) one could not conclude that the purchases were not made by the assessee. The Hon’ble Gujarat High Court in CIT vs. Sumit P. Seth 356 ITR 451 (Guj) has upheld the decision of the Tribunal and sustained the 4 Assessment Year: 2009-10 addition of 12.5% of the total bogus purchases holding that only profit element embedded in such purchases can be added to the income of the assessee.
So, in light of the facts of the case and the law laid down by the Hon’ble High Courts in the cases referred above, we partly allow the appeal of the assessee and restrict the addition to 12.5% of the total amount of bogus purchases made by the assessee during the year relevant to the assessment year under consideration. In our considered view, the facts of the cases relied upon by the revenue are different from the facts of the present case. We, accordingly, direct the A.O. to compute the addition in terms of this order.
Ground No 2 pertains to confirmation of 15% disallowance made by the AO claimed by the assessee under the head miscellaneous expenses. The Ld. counsel submitted that since the AO has made the disallowance in question without giving any reason the same is arbitrary and without any basis. Therefore, the Ld. CIT(A) ought to have deleted the same. On the other hand the Ld. DR relied on the concurrent findings of the authorities below.
We have considered submissions and also gone through the orders passed by the authorities below. We notice that the AO has made the disallowance of 15% of the total miscellaneous expenditure claimed by the assessee on the ground that the assessee has failed to submit any evidence to prove the expenses. On the other hand, the Ld. CIT(A) has restricted the disallowance to 10% of the total disallowance determined by the AO holding that the appellant has maintained proper records/bills/vouchers in order to claim the expenses under different head. Since, the assessee has maintained proper record and the same has not been rejected by the authority concerned, in our considered opinion there is no justification in sustaining 50% of the disallowance on ad hoc basis, made by the AO vide assessment order passed 5 Assessment Year: 2009-10 u/s 144 read with section 147 of the Act. Hence, we find merit in the contention of the assessee and hold that the findings of the Ld. CIT(A) is not based on any evidence on record. We, therefore, delete the disallowance sustained by the Ld. CIT(A) allow this ground of appeal of the assessee. The AO is directed to delete the addition.