KUSUM ELECTRICAL INDUSTRIES LTD,MUMBAI vs. ITO 6(3)(4), MUMBAI

2 & 7057/Mum/2016 M/s. Kusam Electrical Industries Ltd., 5. Assessee has challenged validity of reopening as well as merit of the addition made on account of alleged bogus purchases. I have considered rival contentions and found that as per reasons recorded for reopening, AO was having sufficient reason to believe that income of assessee has escaped assessment, accordingly reopening was justified.

With regard to the merit of addition, I found that Assessee Company is Importer and Distributor of Electrical & Electronic Measuring Instruments. The Company imports Measuring Meters i.e. Electrical and Electronic Measuring Instruments from China, Taiwan & Hongkong. In India, the Company sells its meters through its dealer network, spread throughout India. In case of direct enquiries the Assessee Company also supplies Meters directly to manufacturing units. The Assessee Company imports these Meters based on the orders and specifications given to the Manufacturer under its own brand name i.e. "KUSAM-MECO". These Meters are imported generally through ship and after clearance at Port i.e. after paying custom duty, clearing and forwarding charges etc, the Assessee Company receives the above Meters in its Godown. On the basis of information received from the Dy. Commissioner of Sales Tax; Investigation Division, Notice has been issued u/s.148.

It was contention of learned AR that the sales tax department has included certain parties in the list only because the said parties have not responded to their notices; it is quite obvious that in case the business has closed than there would be nobody to receive the notices. As per learned AR it is also not known as to what are the evidences in 3 & 7057/Mum/2016 M/s. Kusam Electrical Industries Ltd., possession with the Sales Tax Department for classifying the same. The Income Tax Department is also not aware as to how 'the Sales Tax Department has come to a conclusion that those dealers are only providing accommodation entries. In fact, it will be appreciated that the dealers who have supplied the material but due to financial crunch have not been able to pay Sales Tax have been also classified as Non Genuine Dealers. Thus in absence of any specific Information or evidence with the Income Tax Department that those purchases were never made by the assessee company, the same cannot be considered as Non-genuine.

My attention was also invited to the notice issued by the Sales Tax Department wherein Sales Tax Department has only disallowed VAT set off claimed by the Assessee Company and has not disallowed the purchases in its assessment order, thereby the purchases have been accepted by the Sales Tax Department and due to non-payment of VAT by the seller, the VAT SET OFF claimed by the assessee company has been disallowed.

My attention was also invited to assessee’s letter dated 20th November 2014, wherein the assessee had requested the learned A.O. to provide the following documents/information to the Assessee in case the learned A.O. proposes to use any material against assessee: 1. Copy of statement of third Party recorded by the Sales Tax Department.

Copies of any other documentary evidence available with the Assessing Officer in respect of above stated Parties.

Copy of statement recorded by the seller in case of the above stated four parties stating that the assessee company was issued the bogus bills as alleged/ stated by learned A.O. in the reasons u/s 148 issued by him. However the learned AO failed to provide above information to the Assessee company and thereby the process of natural justice is denied 10. From the record I found that in A.Y. 2009-10, the assessee Company had purchased packing material and consumables to the extent of Rs.9,26,599- from the said parties. The Assessee had during the course of assessment proceedings submitted the copies of Ledger accounts, purchase bills, delivery challans and bank statements confirming that the above purchases had been accounted in the books of account and the payment for the same have been made through bank account appearing in Assessee Company's books of accounts. I also found that while making the addition, the learned A.O. also failed to appreciate that the total purchases debited to Profit& Loss Account from the four parties was not Rs.9,26,599/- since the same was inclusive of VAT and therefore Net Purchases that were debited to Profit & Loss Account was only Rs.8,61,253/-. The source of the funds for making the payment to so- called bogus have been made through bank account reflected in the audited books of accounts and adequate supporting along with Bank statement for the payments of the same have been submitted. Section 5 ITA No.7056 & 7057/Mum/2016 M/s. Kusam Electrical Industries Ltd., 69C deals with the expenditure incurred out of the undisclosed income source of which is not explained. It does not deal with the expenditure that is incurred and recorded in the regular books of accounts. In case, even if it is presumed that the assessee had made the purchases from these suppliers to suppress the profit then also the disallowance of the expenditure could have been made only u/s.37 (1) of the I.T. Act i.e., Income from Business and Profession.

Keeping in view the various judicial pronouncements placed on record and keeping in view the totality of facts and circumstances of the case, I direct the AO to make addition of 5% of such purchases to cover-up leakage of revenue if any.

Facts and circumstances in the A.Y.2010-11 are same, therefore, following the reasoning given hereinabove, I direct the AO to restrict the addition to the extent of 5% of such purchases.

In the result, both the appeals are allowed in part.