ASST CIT CIR 2, KALYAN vs. PRABHAKAR PAYARELAL MAHAJAN, BADLAPUR

The present appeals filed by the revenue are directed against the respective orders passed by the CIT(A)-3, Mumbai, each dated 20.08.2015, which in itself are directed against the assessment orders passed by the A.O u/s 143(3) r.w.s. 147 and u/s. 143(3) of the Income P a g e | 2 & 5238/Mum/2015 ACIT Vs. Shri Prabhakar Pyarelal Tax Act, 1961 (in short ‘the Act’), dated 15.10.2013 and 25.03.2013, respectively. That as commons issues are involved in the aforementioned appeals, therefore, the same are being taken up and disposed of together by way of a consolidate order. We first take up the appeal for AY: 2009.10, wherein the revenue assailing the order of the CIT(A) had raised before us the following grounds of appeal:- “1. On the facts and circumstances of the case and in law, the ld. CIT(A)-3, Thane has erred in deleting the addition of Rs. 47,90,443/- out of total addition of Rs. 63,87,257/- made on account of bogus purchases, despite holding that the purchases were not genuine and the assessee failed to prove the genuineness of the transactions.

That during the course of the assessment proceedings the A.O issued notices u/s 133(6) to the aforesaid parties, however, in case of three of the parties the said notices were returned back by the postal authorities with the remarks ‘not known’/ ‘unclaimed’ /’refused’, while for in the case of the remaining four parties no reply was received. The A.O brought the aforesaid facts to the notice of the assessee and directed him to substantiate the genuineness and veracity of the purchase transactions which were claimed to have been made with the aforesaid parties. However, despite specific directions of the A.O, the assessee failed to produce documentary evidence, viz. purchase bills, confirmation of the concerned parties, copy of transport receipts, copy of stock register etc. in order to support the genuineness of the aforementioned purchase transactions, and could only place on record the copies of the ‘ledger accounts’ of the aforesaid parties as appearing in his ‘books of accounts’. The assessee further in his attempt to fortify the genuineness of the purchases therein submitted before the A.O that the payments of the purchase consideration to the aforementioned parties were made through banking channels, P a g e | 4 & 5238/Mum/2015 ACIT Vs. Shri Prabhakar Pyarelal therefore, in the backdrop of the sad factual position the veracity of the purchases could not be doubted. The assessee further in order to drive home his contention that he had made genuine purchases from the aforementioned parties, thus submitted that the very fact that his gross profit rate for the year under consideration was in conformity with that of the subsequent year irrebutably proved the consumption of the goods under consideration in its business. It was in the backdrop of the aforesaid facts thus averred by the assessee that the genuineness of the purchases made from the aforementioned parties could not be doubted. The A.O however holding a strong conviction that not only it remained as a matter of fact that concrete information was received from the Sales Tax authorities that the assessee had taken bogus purchases bills from the aforesaid hawala parties, who had in their respective statements and affidavits recorded/filed during the course of the Sales Tax proceedings accepted that they were only providing bogus sale bills and not carrying out any genuine purchase/sale transactions, but rather, the assessee despite being afforded sufficient opportunity, had even otherwise failed to discharge the onus as stood cast upon him to prove the genuineness and veracity of the purchase transactions under consideration. The A.O after deliberating on the aforesaid facts though concluded that the assessee had not made any genuine purchases from the aforementioned parties, but observed that the consumption of the goods under consideration in the business of the assessee was not doubted. The A.O after deliberating on the aforesaid factual position and therein concluding that the assessee had not made any genuine purchases from the aforesaid parties, thus, held a conviction that the assessee in the guise of bogus purchase transactions had brought in his books of accounts unaccounted stock. The A.O thus being of the view that the assessee had incurred an unexplained expenditure for P a g e | 5 & 5238/Mum/2015 ACIT Vs. Shri Prabhakar Pyarelal making the aforesaid purchases, thus added the aggregate value of the aforesaid bogus purchases of Rs.63,87,257/- in the hands of the assessee under Sec. 69C of the ‘Act’.

The assessee being aggrieved with the order of the A.O carried the matter in appeal before the CIT(A). The CIT(A) after deliberating on the contentions of the assessee observed that now when the ‘Sales’ and the ‘Closing stock’ corresponding to the purchase transactions claimed by the assessee to have been made from the aforesaid parties, had been accepted by the A.O, as well as the rate of gross profit and net profit of the business of the assessee was also found to be in conformity with that of the immediate preceding year, therefore, the entire purchases could not be disallowed. The CIT(A) however being of the considered view that the fact that the assessee must have inflated his purchases could not be ruled out and thus being of the view that as per various judicial decisions the profit margin involved in booking of bogus purchases as adopted by the courts, varied from 12% to 30%, therefore, adopted 25% of the aggregate of the ‘bogus purchases’ as the profit/margin generated by the assessee from making such purchases. The CIT(A) thus on the basis of his aforesaid observations restricted the addition on account of booking of the purchases by the assessee in his ‘books of accounts’ at an inflated value at Rs.15,96,814/- (i.e. 25% of Rs.63,87,257/-), and as such allowed a relief of Rs.47,90,443/- (i.e. Rs.63,87,257/- (-) Rs.15,96,814/-) to the assessee.

The revenue being aggrieved with the order of the CIT(A) had carried the matter in appeal before us. That as the respondent despite being intimated of the date of hearing of the appeal had failed to put up an appearance, therefore, we proceed with as per Rule 25 of the Appellate Tribunal Rules, 1963, and dispose of this appeal after P a g e | 6 & 5238/Mum/2015 ACIT Vs. Shri Prabhakar Pyarelal hearing the appellant revenue. The ld. Departmental Representative relied on the order of the A.O and therein averred that now when there was no evidence that the goods under consideration had actually been consumed in the business of the assessee, therefore, the CIT(A) had erred in restricting the addition to 25% of the aggregate value of the aforesaid bogus purchases.

We have heard the ld. Departmental Representative, perused the orders of the lower authorities and the material available on record. We are of the considered view that in the backdrop of the facts of the present case there remains no doubt that the assessee had not made any genuine purchases from the aforementioned parties, but as a matter of fact had merely taken bogus bills from them. We however find that the A.O while framing the assessment had categorically observed that the consumption of the goods/material under consideration was not doubted. Thus in the backdrop of the aforesaid observations of the A.O, we are unable to persuade ourselves to accept the contention of the ld. D.R. that the CIT(A) had wrongly proceeded with on the premises that the goods/material corresponding to the bogus purchases were consumed in the business of the assessee. We find that the said material observation of the CIT(A) is not in the thin air, but rather is based on the findings of the A.O recorded at Page 8 - Para 4.3 (iii) of the assessment order.

We have given a thoughtful consideration to the facts of the case, and are of the considered view that the CIT(A) after observing that the A.O had concluded that the consumption of the goods/material claimed by the assessee to have been purchased from the aforementioned parties, was not being doubted, coupled with the fact that the rate of gross profit and net profit for the year under consideration was also found to be in conformity with that of the P a g e | 7 & 5238/Mum/2015 ACIT Vs. Shri Prabhakar Pyarelal immediately preceding year, which further fortified the fact that the goods under consideration were consumed in the business of the assessee, therefore, the addition of the aggregate value of such bogus purchases was not warranted in the hands of the assessee. We are of the considered view that the CIT(A) had rightly observed that the addition in the hands of the assessee was liable to be restricted only to the extent of profit element which the assessee would had made from making of such bogus purchases. We have deliberated on the observations of the CIT(A) and are of the considered view that he had in all fairness restricted the addition in the hands of the assessee to 25% of the aggregate value of the bogus purchases. We are persuaded to be in agreement with the view arrived at by the CIT(A), and thus finding no infirmity in his well reasoned order, uphold the same. The Grounds of appeal

We now take up the appeal filed by the revenue for AY: 2010-11. The revenue assailing the order of the CIT(A) had raised before us the following grounds of appeal:

On the facts and in the circumstances of the case and in law, the Ld. CIT (A)-3, Thane erred in deleting the above addition despite the P a g e | 8 & 5238/Mum/2015 ACIT Vs. Shri Prabhakar Pyarelal fact that the assessee failed to discharge his onus proving the purchases.

The appellant prays that the order of the Ld. CIT(A)-3, Thane, may be set-aside and that of the Assessing Officer be restored.

We find that as the facts and the issue involved in the present appeal of the revenue for A.Y. 2010-11 are the same as were involved in its appeal for A.Y. 2009-10, marked as A.Y. 2009-10, marked as shall apply mutatis mutandis for disposing of the present appeal of the revenue for A.Y. 2010-11, marked as ITA No. 5238/Mum/2015. Thus, in the backdrop of our aforesaid observations and reasoning recorded while disposing of the ‘Grounds of appeal no. 1 to 3’ in the appeal of the revenue for AY: 2009-10, the Grounds of appeal no. 1 to 3 raised by the revenue before us in the present appeal, viz. ITA No. 5238/Mum/2011, are dismissed. That as the Ground of appeal no. 4 is general, the same is dismissed as not pressed.

The appeal of the revenue is dismissed.

The appeal of the revenue for A.Y 2009-10, marked as A.Y 2010-11, marked as are dismissed.