ACIT - 13(2)(1), MUMBAI vs. SEJAL GLASS LTD., MUMBAI

Order Under Section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER: 1. These cross appeal u/s 253 of the Income-tax Act (the Act) are directed against the order of ld. CIT(A)-21, Mumbai dated 25.07.2016 for the Assessment Year (AY) 2007-08. The assessee has raised the following grounds of appeal. & 5858/M/2016- M/s Sejal Glass Ltd. i. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in restricting the addition to the extent of 8.76% only of the bogus purchases wherein there was subsequent sales instead of upholding the same to the extent of 100% of such purchases without appreciating the fact that assessee has failed to prove the genuineness of the transaction of the purchases made with the parties mentioned in the assessment order. ii. The appellant prays that the order of the CIT(A) on the grounds to be set aside and that of the Assessing Officer be restored.

1. (i) The learned CIT(A) was not justified in rejecting e Appellant's contention that reopening of assessment after expiry of our years from the end of the relevant Assessment Year without showing that any income chargeable to tax had escaped assessment for such assessment year by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment and, therefore, the reassessment was bad in law liable to be set aside.

2. (ii) The learned CIT(A) was not justified in rejecting the Appellant's contention that the learned AO had erred in reopening the assessment without application of mind to material prior to forming reason to believe and without independent application of mind to information received from the investigation wing rendering the assessment made without jurisdiction.

3. The learned CIT(A) was not justified in not appreciating that the learned AO had relied on evidences received from the investigation wing of the Income Tax Department without providing copies thereof to the assessee and thus had violated the principles of nature justice rendering the assessment order liable to be set aside.

4. The learned CIT(A) was not justified in estimating Gross Profit at the rate of 8.76% of purchases of Rs.l,46,76,661/- and confirming addition to the extent of Rs.12,85,675/- without appreciating that the assessee had sold the goods on profit which was credited to the Profit Loss Account and there was no material to hold that the assessee had earned any extra profit.

5. The learned CIT(A) was not justified in sustaining addition of Rs.43,98,018/- out of purchases without appreciating the evidences furnished.

6. The above Grounds of Appeal are without prejudice to one another.

& 5858/M/2016- M/s Sejal Glass Ltd.

Pvt. Ltd and Rs. 1,90,74,680/- purchased from M/s. Faststone Trading Company. Thus, AO made the Additions of total purchases from both the concern of Rs. 1,95,57,667/- on account of impugned/bogus purchase. 4. On appeal before the ld. CIT(A), the addition was of Rs. 4,82,987/- on account of purchases from M/s New Planet Trading Co. Pvt. Ltd. was & 5858/M/2016- M/s Sejal Glass Ltd. deleted. However, out of purchases of Rs.1,90,74,680/- purchased from M/s.

Faststone Trading Company the addition of Rs. 43,98,018/- was sustained holding that no proof sale was provided by assessee. The ld CIT(A) further sustained the 8.76 % of remaining purchase of Rs. 146,76,661/- from M/s.

Faststone Trading Company. Hence, further aggrieved by the order of ld. CIT(A) both the parties have filed their cross appeal raising the grounds of appeal referred above.

5. None, appeared on behalf of assessee despite repeated calls and waiting for sufficient time. Perusal of the records reveals that the representative of assessee was present on 17.08.2017 when one of the appeals (ITA No. 5858/Mum/2016) was listed. The assessee moved an application for consolidation of both the appeal and the said appeal was adjourned for 06.09.2017. As none appeared on behalf of assessee, we left no option except to hear the ld. DR for the Revenue and to proceed with on the basis of material available on record.

6. We have heard the ld. DR for the Revenue and perused the material available on record. The ld. AR of the assessee argued that Investigation Wing of Income-tax Department made full-fledged enquiry. The parties was shown are hawala dealers, the hawala dealers were engaged in issuing bogus bills without delivery of any material or goods, the assessee obtained accommodation bills only in order to inflate the expenses and to bring down & 5858/M/2016- M/s Sejal Glass Ltd. the profitability in order to avoid the tax. The ld. DR for the Revenue prayed that the entire addition should have been sustained by ld. CIT(A).

7. We have considered the rival submission of the parties and perused the material available on record and the orders of authorities below. During the assessment proceeding, the AO observed that the assessee has made the following transaction of purchases from the firms/ concern managed by Praveen Kumar jain;

Sr. No. Name of the parties Transaction Amount (Rs.) 1 M/s Faststone Trading Co. Pvt. Ltd. 1,90,74,080 2 M/s New Planet Trading Co. Pvt. Ltd. 4,82,987 Total 1,95,57,667 The Director of these companies have admitted on oath during the search that they indulged in providing accommodation entries. The assessee was asked to produce the parties and to produce the evidences of purchases from M/s Faststone Trading Co. Pvt. Ltd. and M/s New Planet Trading Co. Pvt. Ltd. The assessee filed its reply dated 05.09.2014 on 19.04.2014 before the AO. In the reply, the assessee has specifically contended that they have not made any transaction with M/s New Planet Trading Co. Pvt. Ltd. and all the transaction were from M/s Faststone Trading Co. Pvt. Ltd. The assessee further contended that all the goods were received by the assessee is entered in the books of company. The goods are then sold to the customers. The payments were made through Account Payee Cheques. The contention of & 5858/M/2016- M/s Sejal Glass Ltd. the assessee was not accepted by AO. The AO disallowed the entire alleged purchases of Rs. 1,95,57,667/- from M/s Faststone Trading Co. Pvt. Ltd. and M/s New Planet Trading Co. Pvt. Ltd. as unexplained purchases.

219 Taxmann 85 (Guj.)]. We have noted that the AO has not rejected the sale of the assessee. The books of account of assessee were also not rejected.

The AO has not disputed the corresponding sales. However, the ld. CIT(A) considered the reply of assessee dated 05.09.2014 that assessee has not & 5858/M/2016- M/s Sejal Glass Ltd. transacted with M/s New Planet Trading Co. Pvt. Ltd. and deleted the disallowance of purchases thereof. The ld. CIT(A) while examining the corresponding sale of remaining purchases and further observed that no corresponding sale with regard to purchases value of Rs. 43,98,018/- was shown or filed before him. The ld. CIT(A) sustained the total disallowance of Rs. 56,83,693/- which is about 29% of the impugned/alleged bogus purchases of Rs. 1,90,74,679/-. In our considered view, the disallowance sustained by ld. CIT(A) is on the higher side. In our view, under the Income- tax, the only real income can be taxed by the Revenue. We are of the further view that in case where the whole transaction or part transaction is not verifiable due to various reasons, the only taxable is the taxable income component only.

raised by assessee are partly allowed. Resultantly, the grounds of appeal raised by Revenue are dismissed.

11. In the result, appeal filed by the assessee is partly allowed and the appeal of Revenue is dismissed.