ITO 15(3)(3), MUMBAI vs. SECURE INDUSTRIES P.LTD, NAVI MUMBAI

Per D.T. Garasia, Judicial Member:

2 & ITA No.1338/M/2017 M/s. Secure Industries Pvt. Ltd. ITA No.839/M/2017 (Assessee’s appeal) 2. The short facts of the case are that the assessee is a private limited company engaged in manufacture of PP caps. The return of income was filed on 29-09-2009 declaring total income of Rs.3,00,800/-. The case of the assessee has been re-opened u/s 147 as the Assessing Officer (hereinafter referred to as the AO) has received information that the assessee has taken bogus purchase bills from the following parties to suppress profits:

Sr. Name of the Hawala PAN Hawala TIN Amount No. Hawala party AETPPI 119A 27200506372V Rs. 1,57,092 1. Crystal Commercial Co.

During re-assessment proceedings the AO asked to furnish complete details of purchases made from the above parties. A show cause notice was also issued to explain as to why purchases from above parties should not be disallowed. In response to same all the details viz. bills, ledger extract, copy of bank statement called for by the AO were submitted. However, the reassessment has been completed by the AO disallowing the purchases of Rs.45,05,608 from the above parties treating the same as 'bogus purchases' on various grounds.

3 & ITA No.1338/M/2017 M/s. Secure Industries Pvt. Ltd. allowed the appeal by observing as under: “2.4.31 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) and after considering the Gross Profit of 25.03% as mentioned by the appellant in Form No.3CD, I estimate the profit to the extent of 25.03% of the purchases made from the bogus entities as the suppressed profit element embedded in such purchases. This estimation is in addition to the regular overall profit shown by the appellant. Accordingly, this ground of appeal is partly allowed.”

4. The assessee is in appeal against the addition and Department is in appeal against giving the relief to the assessee.

5. I 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 4 & ITA No.1338/M/2017 M/s. Secure Industries Pvt. Ltd. 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 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 book 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, I am 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 following the decision of Hon’ble Gujarat High Court in the case of CIT vs. Simit P. Sheth 38 taxman 385 (Guj), I direct the AO to estimate the profit at 12.5% of bogus purchases of Rs.45,05,608/-.

ITA No.1338/M/2017 (Revenue’s Appeal)

Order pronounced in the open court on 29.08.2017.