BHARAT COPY CENTRE P.LTD,MUMBAI vs. DCIT 2(1), MUMBAI

The facts relating to the case are discussed in brief. The assessee is engaged in the business of undertaking labour works in offset printing and photo copying. Consequent to the information received from the Sales tax department that certain parties are engaged in the business of providing accommodation bills without actually supplying the materials and upon noticing that the assessee has purchased goods from some of such parties in the three years under consideration, the AO reopened the assessments of these three years. The assessing officer disallowed the entire amount of purchases made from the suspicious dealers in all the three years by treating them as bogus purchases. The Ld CIT(A), however, took the view that the profit element embedded in such purchases alone should be assessed to tax and accordingly sustained the addition to the extent of 8% of the value of bogus purchases. Aggrieved by the orders passed by Ld CIT(A), both the parties have filed these appeals before us.

The assessee has challenged the validity of reopening of assessments. We notice that the assessing officer has received information from the sales tax department about the suspicious/hawala dealers and further noticed that the assessee has purchased goods from such parties in all the three years under consideration. In our view, the same constitutes sufficient information for forming belief that the income has escaped assessment. Accordingly we are of the view that the Ld CIT(A) was justified in upholding the validity of reopening of assessment.

The assessee has also taken a ground that the assessing officer has failed to allow the opportunity of cross examination to the assessee and accordingly contended that the addition made is not valid. We notice that the assessing officer has reopened the assessment on the basis of information received from the sales tax department that the suspicious/hawala dealers have not actually supplied goods and the sales tax department has given the said information on the basis of statement given by those parties before them. On the basis of such information, the assessee was asked to prove the genuineness of purchases, since the assessee has purchased materials from some of such suspicious dealers. There should not be any doubt that the responsibility to prove the claim for deduction is placed upon the assessee. The AO noticed that the assessee did not have evidence for transportation of materials, receipt and consumption of materials. The assessee could produce only bills and payment details. It could not obtain confirmation letters from the suppliers to prove the genuineness of purchases nor could it produce those parties before the AO. Thus, we are of the view that the assessee has failed to discharge the responsibility to prove the genuineness of purchases, when the genuineness was doubted by the AO on the basis of information available with him. Thus we are of the view that it cannot be said that the AO has merely relied upon the statement given by the parties before the sales tax authorities, but was constrained to make the addition due to the failure of the assessee to conclusively prove the genuineness of purchases. Had the AO merely placed reliance on the sworn statements alone without calling for any details from the assessee, the necessity of affording opportunity of cross examination may have arisen. In view of the above, we are unable to accept the contentions of the assessee and accordingly reject the same.

The common issue relates to the addition made towards bogus purchases. The assessee had purchased papers, flex roll, ink, toner, card board and various other materials required for printing, publishing and photo copying. The assessee did not have evidence for transportation of materials and further the assessee has not maintained stock register. It was submitted that it would be difficult to maintain stock register, since the materials purchased by the assessee are numerous and they are consumed in execution of job works. When the AO asked the assessee to produce the suppliers, the assessee has sought time to produce them on the reasoning that it has stopped business dealing for the past few years. However, the assessee could furnish only their address, PAN no., Sales tax number only before the AO. It was submitted that the addition could not be merely for the reason that the assessee could not produce parties.

The AO observed that the purchase invoices did not have challan number, order number or details of dispatch. Though it was stamped as paid, it did not contain cheque details. The bank statement did not contain the name of payees. Since the assessee did not have proof for transportation of materials and since the suppliers were not produced and since the suppliers have been stamped as suspicious dealers by the sales tax department, the AO took the view that the statement given by them before the sales tax authorities has been corroborated. The AO placed reliance on the decision rendered by Gujarat High Court in the case of CIT Vs. Chandravilas Hotel (164 ITR 102) and Delhi High Court in the case of CIT Vs.Modi Stone Ltd (203 Taxmann 123) to take the view that mere production of vouchers in support of claim for deduction of expenditure would not prove the claim of the assessee. It is the duty of the assessee to prove payment especially when the genuineness is doubted. Accordingly he disallowed the purchases made from the suspicious dealers in all the three years as detailed below:-

The Ld CIT(A) rejected the alternative view taken by the AO, by taking support of the decision rendered by Mumbai bench of ITAT in the case of Shri Ganpatrai A Sanghvi Vs. ACIT (ITA No.2826/Mum/2013 dated 05-11-2014), wherein it was held that the provisions of sec. 40A(3) cannot be applied unless it is proved beyond doubt that actual cash purchases has been made.

The Ld CIT(A) did not agree with the disallowance of entire purchases, since he observed that the assessee has used those materials in its job works and hence the profit element embedded therein should alone be brought to tax. In support of this proposition, the Ld CIT(A) placed reliance on certain case laws. The Ld CIT(A) noticed that the assessee has shown net profit rate ranging from 5.56% to 7.41%. He also noticed that the disallowance of entire amount of purchases would give rise to increase of G.P rate at higher figure. Accordingly he took the view that it would be appropriate to take net profit rate of 8% to sustain addition and accordingly sustained addition to the extent of 8% of the purchases made from suspicious dealers.

The Ld A.R reiterated the contentions made before the tax authorities and contended that the purchases were genuine. On the contrary, the ld D.R placed

We have heard rival contentions and perused the record. We have noticed that the assessee was having only purchase bills and payment details. It could not furnish evidences for transportation of goods and for receipt of goods. The assessee did not maintain stock register also and it was merely submitted that the materials were consumed in different orders. We notice that the Ld CIT(A) has observed that the assessee has proved consumption of materials, but we are unable to understand as to how the assessee could prove the same without maintaining stock register. Though the assessee sought time before the AO to produce the suppliers, yet it could not produce them during the course of assessment proceedings. Hence we are of the view that the assessee cannot be said to have proved the genuineness of purchases beyond doubt. The details of name, address, pan number, sales tax number only give the particulars about the suppliers. It is not the case of the AO or the sales tax department that the suppliers did not exist. Here the dispute is about the genuineness of purchases and hence the details so furnished by the assessee would not be of any help to it.

However, we agree with the decision of Ld CIT(A) in holding that the provisions of sec. 40A(3) cannot be applied on inference basis, since the Ld CIT(A) has followed the decision rendered by co-ordinate bench in this regard.

We notice that the assessee has purchased various items from the suspicious dealers and the same was consumed in various orders. Accordingly it was submitted that the assessee could not maintain stock register. We have already observed that, in the absence of stock register, it would be difficult to prove the consumption of materials. Hence we are unable to understand as to 7 M/s. Bharat Copy Centre Pvt. Ltd.

Since the suppliers have accepted that they have not actually supplied goods, the natural corollary is that the assessee might have purchased goods from some other source. In that case the inference is that the assessee might have made profit in such purchases by inflating the purchase bills. In fact, it is the case of the sales tax department that the suspicious dealers have not paid VAT tax. Hence there is a possibility that the assessee might have saved VAT tax and also obtained some discount in purchase price. The vat rates applicable to the purchases made by the assessee are 5% and 12.5% depending upon the product. We notice that the G.P rate of the assessee has also fallen down, i.e., in AY 2008-09, the G.P rate was shown at 24.94% and the same has fallen down to 23.76% in AY 2009-10, to 17.24% in AY 2010-11 and to 21.66% in AY 2011-12. In AY 2012-13, the G.P rate has again risen to 27.73%. The reduction in G.P rates, inter alia, supports the case of the revenue that there might be inflation of purchase rates.

In these kind of situation, the profit is generally made at Gross profit level and hence the Ld CIT(A) was not justified in adopting N.P rate for sustaining the addition. Considering all these factors, we are of the view that the addition may be sustained at 12.50%. Accordingly, we modify the orders passed by Ld CIT(A) and direct the AO to sustain addition to the extent of 12.50% of the value of alleged bogus purchases in all the three years under consideration.

The assessee has placed reliance on host of case laws, but since the issue before us is factual in nature, they may not come to the help of the assessee.

In the result, the appeals of the revenue are partly allowed and the appeals of the assessee are dismissed. Order has been pronounced in the Court on 22.9.2017.