ITO WD 25(1)(3), MUMBAI vs. SUMAN C. SHAH, MUMBAI

The present appeal filed by the revenue is directed against the order passed by the CIT(A)-37, Mumbai, dated 05.01.2017, which in itself arises from the assessment order passed by the A.O u/s. 143(3)

The Ld. CIT(A) has erred in not appreciating that purchases were made from some other parties which were not recorded in the books of accounts and only accommodation bills were obtained from hawala parties and there by attracting provisions of section 40A(3).

The appellant craves leave to amend or to alter any ground or add a new ground, which may be necessary.”

Briefly stated, the facts of the case are that the assessee who is engaged in the business of manufacturing plastics and PVC items had filed his return of income for A.Y. 2010-11 on 25.09.2010, declaring total income at Rs.9,64,270/-, which was processed as such u/s 143(1) of the ‘Act’. The A.O on the basis of the information received from the office of the DGIT(Inv.), Mumbai, that as per the information forwarded by the Sales Tax Department, Mumbai, Government of P a g e | ITO Vs. Shri Suman N. Shah Maharashtra, it was gathered that the assessee had obtained bills of bogus purchases from the certain parties which were engaged in the business of providing bogus bills after charging small amount of consideration, as under:-

That during the course of the assessment proceedings the A.O in order to verify the genuineness and veracity of the aforesaid purchase transactions issued Notices u/s 133(6) to the aforementioned parties. However, except for one party, viz. M/s. K.C. Enterprises which reverted back and in its reply claimed that it had no knowledge of any sales and purchase of goods and/or final transaction with the assessee, the notices in the case of all the remaining 7 parties were received back unserved from the postal authorities, with the remarks ‘left’ or ‘not known’. The A.O in the backdrop of the aforesaid factual position therefore called upon the assessee to substantiate the genuineness of the abovementioned purchase transactions on the basis of documentary evidence, viz. (i) details of goods purchased from the aforementioned parties; (ii) copies of the purchase bills along with P a g e | ITO Vs. Shri Suman N. Shah delivery challans substantiating the receipt of material; (iii) copy of invoices, octroi and transportation bills in respect of goods purchased from the aforesaid parties; (iv) copy of ledger accounts of the parties in the books of account of the assessee; (v) stock register to show the movement of the goods purchased from the aforementioned parties; (vi) details of the parties to whom the goods under consideration were sold, along with the copy of sale bills, delivery challans, invoices, transportation bills etc.; (vii) copes of the bank accounts of the aforesaid parties in which the payments stood credited; (viii) copy of the bank account/statement of the assessee from where the payments were made to the abovementioned parties; and (ix) copy of the bank accounts in which the sale proceeds of the aforesaid goods stood credited. The assessee was further directed by the A.O to produce the abovementioned parties along with their books of accounts, so that the veracity of the purchase transactions could be established beyond any scope of doubt. The assessee in compliance to the aforesaid directions of the A.O submitted that at the relevant point of time when the purchases were made from the abovementioned parties, the latter were duly registered under the MVAT, 2002 and the Central Sales Tax Act, 1956. The assessee in his attempt to substantiate the genuineness of the purchases transactions produced before the A.O the invoices and the delivery challans, as well as stressed on the fact that the payment of the purchase consideration was made to the aforementioned parties vide account payee cheques. The assessee further submitted that as the suppliers were within the limits of Mumbai, therefore, no octroi was paid, thus no octroi receipts as called for by the A.O could be produced. That as regards the mode of transport of the aforesaid goods, it was claimed by the assessee that the goods were delivered by the suppliers through private tempos and the transport receipts in support thereof were not available. However,

The A.O after deliberating on the contentions of the assessee in the backdrop of the facts of the case was however not persuaded to accept the same. The A.O after perusing the evidences which had been placed on record by the assessee, therein concluded that the assessee had failed to prove the genuineness of the purchase transactions claimed to have been made from the aforementioned parties. The A.O in the backdrop of the information which was received from the Sales Tax Department, Government of Maharashtra, thus keeping in view the failure on the part of the assessee to substantiate the genuineness of the purchase transactions, therein concluded that the details furnished by the assessee were counterfeit/and was nothing better than a colourable devise. The A.O concluded that the assessee had as a matter of fact merely obtained accommodation entries from the aforementioned concerns, which were only paper concerns and did not exist in reality. Thus, the A.O after giving a thoughtful consideration to the aforesaid facts observed that the assessee had inflated the purchases by taking bogus bills, and had not made any genuine purchases from the aforementioned parties. However, the A.O being of the view that as the assessee was a manufacturer of plastic and PVC items, therefore, in the absence of purchase of the goods under consideration, the corresponding sales would not have been possible. The A.O thus in the backdrop of his aforesaid observations was of the view that the receipt of material/goods by the assessee could not be doubted. The A.O driven by his aforesaid conviction, thus concluded that the assessee had as a matter of fact purchased the material/goods under consideration, though not from the P a g e | ITO Vs. Shri Suman N. Shah aforementioned parties, but from certain unknown parties which were only to the knowledge of the assessee. The A.O thus concluded that as the aforementioned parties were not found to be in existence, therefore, it could safely be held that the assessee had merely procured the accommodation bills from the said parties, while for the actual purchases of the goods/material was made by him from the open/grey market. The A.O thus held that as the assessee had not purchased the material from the aforementioned parties mentioned in the sale bills, and had also failed to prove that the material/goods mentioned in the bills was used in his business activity, therefore, it could safely concluded that the said purchases were debited by the assessee in his books of accounts, only with the intention of reducing his taxable profits. The A.O in the backdrop of his aforesaid observations thus held the entire purchases made by the assessee from the aforementioned parties, as unproved, and made an addition of the aggregate value of such purchases of Rs.45,37,163/- in the hands of the assessee.

The assessee being aggrieved with the order passed by the A.O, therein carried the matter in appeal before the CIT(A). The CIT(A) after deliberating on the contentions of the assessee in the backdrop of the facts of the case, therein concluded that it remained as a matter of fact that the A.O had not brought any material on record which could go to show that there was any suppression of sales by the assessee. The CIT(A) further observed that now when the assessee had made the payments towards the purchase consideration through cheques, therefore, it was incumbent on the part of the A.O to have verified the payment details from the bank of the assessee, as well as from the bank of the suppliers, in order to verify as to whether there was any immediate cash withdrawal from their account, or not. The CIT(A)

We have heard the ld. Departmental representative, perused the orders of the lower authorities and the material available on record. We have given a thoughtful consideration to the facts of the case and are of the considered view that there can be no second opinion on the fact that the assessee had not carried out any genuine purchase transactions with the aforementioned parties. We find that not only the aforementioned parties had been categorized by the Sales Tax Department, Government of Maharashtra as accommodation entry providers, but independent of that, we find that the assessee had absolutely failed to substantiate the genuineness and veracity of the purchases claimed by it to have been made from the aforementioned parties. We are of the considered view that it remains as a matter of fact borne from record that the genuineness of the sales had not been doubted by the A.O, nor is it the case of the department that the assessee had also suppressed the corresponding sales. We are of the considered view that now when the sales of the assessee had not been doubted by the A.O, therefore, it is beyond our comprehension as to how the entire amount of the purchases claimed by the assessee to have been made from the aforementioned parties could be added to his income. We are unable to persuade ourselves to be in agreement with the view taken by the A.O, and are of the considered view that the CIT(A) after duly appreciating the facts of the case had rightly concluded that now when the sale of the goods under consideration had duly been accounted for by the assessee in his books of accounts, therefore, the addition in his hands was liable to be restricted only to P a g e | ITO Vs. Shri Suman N. Shah the extent of the profit element emerging from the purchase of goods under consideration by the assessee from the open/grey market. We are further of the considered view that the CIT(A) relying on the judgment of the Hon’ble High Court of Gujarat in the case of CIT Vs. Simit P. Sheth (2013) 356 ITR 451(Guj), had fairly estimated the profit margin in the hands of the assessee at 12.5% of the aggregate value of the purchases claimed by the assessee to have been made from the aforementioned parties. We find that the CIT(A) had by way of a very well reasoned order restricted the addition in the hands of the assessee to the amount of profit margin involved in making the purchases from the open/grey market. We thus finding no reason to take a different view, thus uphold the order of the CIT(A).

The appeal of the revenue is dismissed.