ACIT CIR 11(3)(1), MUMBAI vs. TAPRATH POLYMERS P.LTD, MUMBAI

आदेश / O R D E R

PER RAVISH SOOD, JUDICIAL MEMBER:

“1. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in restricting the disallowance of the alleged purchases of Rs.34,81,845/-claimed to have been made from the alleged hawala parties to 12.5% i.e. Rs.4,35,231/- thereby granting a relief of Rs.30,46,614/- by ignoring the fact that neither the parties nor the confirmation letters was produced either during the course of assessment proceedings or during the appellate proceedings which would prove that the purchases alleged to have been made were genuine.

2. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in restricting the disallowance of the purchases made from the various parties who were proven accommodation entry providers as per the finding made by the Sales Tax authorities in consequence to the investigation carried out.

5. The appellant prays that the order of the CIT (A) on the above grounds be set aside and that of the A.O. be restored.

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

Name of the Parties Amount Deepali Enterprises Rs.9,54,452/- M.R. Corporation Rs.12,58,875/ Smeeta Impex Pvt. Ltd. Rs.3,79,350/- Engineering Service Center Rs.8,89,168/- Total Rs.34,81,845/- , thus reopened the case of the assessee u/s 147 of the ‘Act’. That during the course of the assessment proceedings the A.O issued Notices u/s. 133(6) to all the four parties, which however were returned by the postal authorities with the remarks as under:

Sr. No. Name of the party Remarks 1. Deepali Enterprises Left 2. M.R. Corporation Left 3. Smeeta Impex Pvt. Ltd. Acknowledgment not received 4. Engineering Service Center Intimation posted That in the backdrop of the aforesaid factual matrix the A.O directed the assessee to produce the respective parties, as well as place on record the details in respect of the purchase transactions claimed to have been made from them. Though the A.O had specifically asked the assessee to submit proof of delivery of goods, ledger accounts of parties, bank statement for the entire year highlighting the payments made to these parties, copies of bills issued by the aforesaid parties along with the copy of ledger account and bank statement, the P a g e | ACIT Vs. M/s. Taprath Polymers assessee however failed to comply with the directions and did not furnish the complete details. That though the A.O had called upon the assessee to establish the chain of the items which were purchased from the aforesaid parties and demonstrate as to how the same had been utilized in the manufacturing process, however, the assessee expressed its inability to produce any of the parties and submitted that it was not possible to correlate each item purchased from the aforementioned parties with its utilization in its manufacturing business. The assessee in its attempt to prove the genuineness of the purchase transactions made from the above mentioned parties, therein stressed on the fact that the payments towards the purchase consideration were made to them through banking channel. The A.O however not finding favour with the submissions of the assessee, therein held a conviction that the assessee had as a matter of fact not made any genuine purchases from the aforementioned parties, but had only obtained accommodation entries from them in the garb of purchases. The A.O thus being of the view that in the backdrop of the information received from the Sales Tax Department, a very heavy onus was cast upon the assessee to disprove the allegation that it had merely taken accommodation entries from the aforesaid parties and rather to the contrary prove the genuineness and veracity of the purchase transactions to the hilt, had however failed to discharge the onus so cast upon it. The A.O thus holding a conviction that the assessee had not made any genuine purchases from the aforementioned parties, but had merely taken accommodation entries from them during the year under consideration, therefore, made an addition of the entire amount of the bogus purchases aggregating to the Rs.34,81,845/- in the hands of the assessee.

P a g e | ACIT Vs. M/s. Taprath Polymers 3. The assessee being aggrieved with the order passed by the A.O carried the matter in appeal before the CIT(A). The CIT(A) agreed with the observations of the A.O that the assessee had failed to substantiate the genuineness and veracity of the purchase transactions. However, the CIT(A) after deliberating on the contentions of the assessee in the backdrop of the facts of the case, therein observed that as the A.O had not given any adverse finding in respect of the consumption/sales of the goods under consideration, therefore, concluded that the genuineness of the sales were not in doubt. The CIT(A) thus on the basis of the aforesaid facts concluded that now when the genuineness of the sales had not been doubted by the A.O, therefore, it was not permissible on his part to have made addition in respect of the aggregate value of the purchases claimed by the assessee to have been made from the aforesaid parties, as the same would lead to absurd profit. The CIT(A) thus in the backdrop of his aforesaid observations concluded that in the totality of the facts involved in the case of the present assessee, the addition was liable to be restricted only to the extent of the profit element embedded in the aforesaid purchases, which could safely be held to have been made by the assessee from the open/grey market. The CIT(A) thereafter relying on the judgment of the Hon’ble High court of Gujarat in the case of CIT Vs. Simit P. Sheth (2013) (38 taxaman.com 385) (Guj), and the order of the ITAT, Ahemadabad Bench, in the case of the Vijay Protiens (58 ITD 428), therein concluded that the addition in the hands of the assessee was liable to be restricted to the extent of the profit element embedded in making the purchases from the open/grey market, which could fairly be taken at 12.5% of the aggregate value of the bogus purchases of Rs. 34,81,845/-. The CIT(A) thus on the basis of his aforesaid observations restricted the addition in the hands of P a g e | ACIT Vs. M/s. Taprath Polymers the assessee to 12.5% of the aggregate value of the purchases made by the assessee from the aforementioned parties.