ITO 15(3)(2), MUMBAI vs. VITECH EQUIPMENT P.LTD, NAVI MUMBAI

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ITA 1526/MUM/2017Status: DisposedITAT Mumbai15 September 2017AY 2009-105 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that since the assessee provided quantitative details of stock and corresponding sales, and the AO did not dispute the sales receipts, the purchases could not be entirely denied. The AO failed to conduct further investigation beyond suspicion, despite payments being made by account payee cheques.

What were the facts?

The Assessing Officer (AO) made an addition for bogus purchases amounting to Rs. 48,75,666/- as the suppliers were declared suspicious and did not comply with notices. The assessee had made purchases from these parties, but they were not produced for verification.

What were the issues?

Whether purchases from suspicious parties, who were not produced for verification, can be disallowed when sales are not disputed and payments were made by cheque. The extent to which profit can be estimated in such cases.

Which sections of the Income-tax Act were involved?

Section 133(6)

AI-generated summary — verify with the full judgment below

Cases cited in this judgment(3)Show list

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Income Tax Appellate Tribunal, MUMBAI BENCH “A”, MUMBAI

Before: D.T. GARASIA & SHRI MANOJ KUMAR AGGARWAL

For Appellant: Shri Vijay Mehta, A.R
For Respondent: Shri Saurabh Deshpande, D.R
Hearing: 23.08.2017Pronounced: 15.09.2017

Per D.T. GARASIA, Judicial Member:

1.

The present appeal has been preferred by the Revenue against the order dated 16.12.2016 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2009-10.

2.

The brief facts of the case are that the assessee is engaged in business of manufacturing & fabrication of process equipments. During the year the Assessing Officer (hereinafter referred to as the AO) found that assessee had made purchases from following parties, who have been declared as suspicious:

2 M/s. Vitech Equipment Pvt. Ltd. Sr. Name of the party Amount of No. Purchase (Rs) 1. M/s. Donear Trading Pvt. Ltd. 5,30,421/- 2. M/s. Jigan Enterprises 6,78,392/- 3. M/s. Centurian Sales Corporation 4,40,048/- 4. M/s. Payal Enterprises 1,27,920/- 5. M/s. Nirush Trading Co. 14,41,388/- 6. M/s. Deepak Sales Corporation 2,49,538/- 7. M/s. Arihant Enterprises 2,56,339/- 8. M/s. D.R. Trading Co. 5,61,392/- 9. M/s. Daxesh Sales Corporation 5,66,249/- 10. M/s. V.K. Enterprises 6,99,235/- 11. M/s. Montex Metal & Steel Pvt. Ltd. 8,46,643/- 12. M/s. Mahavir Enterprises 36,40,811/- 13. M/s. Mihir Enterprises 51,696/- Total Amount 1,00,90,072

3.

The assessee was asked to produce the above parties for verification. There was no compliance of notice under section 133(6). Therefore, the AO has made the addition on account of bogus purchases of Rs.48,75,666/-.

4.

Matter carried to the Ld. CIT(A) and the Ld. CIT(A) has partly allowed the appeal of the assessee by observing as under: “2.4.30 As narrated earlier, the Ld. A.O. in this case has held that the parties from whom the purchases were made by the appellant were found to be bogus and that is the reason for which it was not produced during the assessment proceedings. Not having doubted the consumption/sales, the motive behind obtaining bogus bills thus, appears to be inflation of purchase price so as to suppress true profits. Considering the facts of the case as well as the various case laws cited (supra) especially in the cases of CIT vs. Simit P. Sheth, Bholanath Poly Fab and Sanket Steel Traders (supra), I estimate the suppressed profit to the extent of 12.5% of the purchases made from the bogus entities as the suppressed profit element embedded in 3 M/s. Vitech Equipment Pvt. Ltd. such purchases. This estimation is in addition to the GP shown by the appellant. Accordingly, Ground No. 3 is partly allowed.”

5.

We have heard the rival contentions of both the parties. Ld. D.R. relied upon the decision of the Tribunal, Ahmedabad Bench in the cases of Shwetambar Steels vs. ITO Ahmedabad and Ganesh Rice Mills vs. CIT (294 ITR 316). The facts in the present case show that assessee could not produce the parties from whom goods are stated to have been purchased. The suppliers were found to be engaged in providing bogus bill without actual dealing of goods. In this regard, the assessee has stated that they had submitted quantitative details of stock with respect of the sales with purchases from the parties during the assessment proceedings. The assessee has submitted the detail of corresponding sales in respect of the purchase from the said parties. As mentioned above the AO has never disputed or examined the aspect of sales receipts. Since the sales made by the assessee was not doubted or disputed by the AO and he has accepted the sales receipts of the assessee as it is, therefore, the AO cannot deny that purchases were not made by the assessee and the material was not used for its sales. What is under dispute is the purchases from the parties from whom bills have been taken and cheques have been issued to them. Purchases are not in dispute but the parties from whom purchase are shown to have been made are disputed and suspicious. The AO had made the addition as some of the suppliers were declared hawala dealers by the VAT Department. This may be a good reason for making further investigation but the AO did not make any further investigation and merely completed the assessment

4 M/s. Vitech Equipment Pvt. Ltd. on suspicion. Once the assessee has brought on record the details of payments by account payee cheque, it was incumbent on the AO to have verified the payment details from the bank of the assessee and also from the bank of the suppliers to verify whether there was any immediate cash withdrawal from their account. No such exercise has been done or findings recorded, There was no detailed investigation made by the AO himself. It is also found that the payments have been made by account payee cheque which are duly reflected in the bank statement of the assessee. There is no evidence to show that the assessee has received cash back from the suppliers. Merely because the suppliers did not appear before the AO or some confirmation letters were not furnished, one cannot conclude that the purchases were not made by the assessee. This view is supported by the decision of Nikunj Eximp Enterprises vs. CIT 216 Taxman 171 (Bom). To this extent, we are of the view that if the assessee has fulfilled its onus of making the payment by cheque and has supplied the addresses of the sellers then it cannot be presumed that supplier were bogus simply because the sellers were not found at the given address. There is a considerable time gap between the period of purchase transaction and period of scrutiny proceedings. The AO has not brought any material on record to show that there is suppression of sales. It is basic rule of accountancy as well as of taxation laws that profit from business cannot be ascertained without deducting cost of purchase from sales. Estimation of profit ranging from 12.5% to 15% has been upheld by the Hon'ble Gujarat High Court in the case of CIT vs Simit P Sheth 356 ITR 451 (Guj.). Respectfully

5 M/s. Vitech Equipment Pvt. Ltd. following the decision of Hon’ble Gujarat High Court in the case of CIT vs. Simit P. Sheth 38 taxman 385 (Guj), we dismiss the departmental appeal.

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