METRO SHOES LTD,MUMBAI vs. DCIT CIR 2(2)2, MUMBAI

The assessee is a public limited company engaged in the business of dealing in foot wears, shoes etc. Consequent to the information received from the sales tax department that certain dealers (called hawala dealers) have provided only accommodation bills without actually supplying the materials, the revenue analysed the details thereof. It was noticed that the assessee herein has purchased goods from some of such dealers in the three years under consideration. Accordingly the assessing officer reopened the assessments of all the three years under consideration.

In assessment years 2009-10 and 2010-11, the assessee has purchased foot wears/shoes worth Rs.44.77 lakhs and Rs.94.70 lakhs respectively from the hawala dealers. The AO computed peak credit of those purchases and 2 Metro Shoes Limited disallowed a sum of Rs.9.34 lakhs and Rs.72.22 lakhs respectively in AY 2009- 10 and 2010-11. In the assessment year 2011-12, the assessee has purchased shoes having value of Rs.13,57,822/- and Stationery items having value of Rs.5,07,016/-, both aggregating to Rs.18,64,838/- from such hawala dealers. The assessing officer assessed entire amount of Rs.18.64 lakhs as income of the assessee.

Before Ld CIT(A), the assessee challenged the reopening of assessments, but the same was rejected by the first appellate authority. However, the Ld CIT(A) restricted the additions to 12.50% of the value of alleged bogus purchases in all the three years. Aggrieved, the assessee has filed these appeals.

The assessee has raised a legal issue in AY 2009-10 and 2010-11 with regard to non-issuing of statutory notice prescribed u/s 143(2) of the Act. The Ld A.R submitted that the assessee had raised it before Ld CIT(A) also, but the first appellate authority has failed to adjudicate the same. The Ld A.R submitted that the assessee has not received any notice prescribed in sec. 143(2) of the Act for these two years and non-service of notice would be fatal to the assessment proceeding. In this regard, he placed reliance on the decision rendered by Hon’ble Delhi High Court in the case of Principal CIT vs. Shri Jai Shiv Shankar Traders Pvt. Ltd (2016)(383 ITR 448). Accordingly he contended that the assessment orders passed for AY 2009-10 and 2010-11 is liable to be quashed.

The Ld D.R submitted that the copy of notice prescribed u/s 143(2) of the Act is available in the assessment record. However he fairly admitted that there is no evidence for service of the said notice.

We heard the parties on this issue legal issue. The issue relating to validity of assessment order passed without issuing notice u/s 143(2) of the Act was considered by Hon’ble Delhi High Court. The case before the Hon’ble Delhi High Court was also a case of reopening of assessment. The Hon’ble

In assessment year 2011-12, the assessee is contesting the addition sustained by the Ld CIT(A). The Ld A.R submitted that the assessee is having a turnover of more than Rs.400 crores and it has procured the shoes through its purchase department. He submitted that the procurement, distribution and sale of shoes are controlled through computer systems. He submitted that the assessee has also paid excise duty on said purchases upon branding them by its brand name. Accordingly he submitted that the Ld CIT(A) should have deleted the entire addition and he was not justified in sustaining addition to the extent of 12.50%. He submitted that the stationery items of Rs. 5.07 lakhs has actually been purchased and used in the business. Accordingly he submitted that no addition is called for on these purchases also.

On the contrary, the Ld D.R submitted that the assessee has failed to obtain confirmation letters from the suppliers and also failed to produce the suppliers.

We heard the parties and perused the record. A perusal of paragraph 6.4 of the assessment order would show that the assessee has accepted the inference drawn by the AO that the assessee has purchased goods from some other place and not from the parties from whom bills were obtained. The assessee had initially claimed that it had purchased goods through brokers, but it could not give the details of brokers also and it appears to have withdrawn said submissions by accepting the fact that the purchases were made from some other parties. Following observations made by the AO makes this point clear:-

The Ld A.R placed heavy reliance on the details of stock register, excise duty payment etc., in order to contend that the purchases were genuine. All the records maintained by the assessee, no doubt, would prove the purchase of shoes, but the question here is the “source” of purchase. From the observations made by the AO, We notice that the assessee has agreed that it has purchased material from some other parties and not from the parties who had given bills. In that situation, We are of the view that the Ld CIT(A) was justified in inferring that the assessee would have made profit on such purchases, since it was not shown that the materials were purchased only at the rates shown in the accommodation bills. We notice that the Ld CIT(A) has estimated the profit so made on such purchases at 12.50% and We are not inclined to disturb the same.

The assessee, in the alternative, has stated that the profit @ 12.50% should have been estimated on the net purchase value of Rs.12,06,950/- and not on the gross value of Rs.13,57,822/- in respect of shoes. Similarly it has been stated that the profit should have been estimated on the net purchase value of Rs.4,82,875/- and not on the gross value of Rs.5,07,016/- in respect

In the result, the appeals filed for AY 2009-10 and 2010-11 are allowed and the appeal filed for AY 2011-12 is treated as partly allowed for statistical purposes.