ITO 20(3)(5), MUMBAI vs. ZAHID ABBAS MANKAD, MUMBAI

Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा सद"य सद"य राजे"" राजे"" केकेकेके अनुसार अनुसार PER RAJENDRA, AM- लेखा लेखा लेखा सद"य सद"य राजे"" राजे"" अनुसार अनुसार Challenging the orders,dated21/05/2015,of the CIT (A)-32,Mumbai,the Assessing Officer(AO) has filed appeals for the above-mentioned two assessment years.Assessee,an individual,is engaged in the business of sales and trading of MS plates, steel bars,sheets, angles etc.The details of dates of filing of returns,returned incomes, assessed incomes etc. can be summarised as under: AY. ROI filed on Retuned income Asstt. Date Assessed income 2010-11 15.10.2010 Rs.7.17 lakhs 28.03.2014 Rs.98.47lakhs 2011-12 30.09.2011 Rs.7.56 lakhs 26.03.2014 Rs.1.03 crores As the issues involved in both the appeals are common, so, we are adjudicating them together, for the sake of convenience.Initially the returns for both the years were processed u/s.143 (1) of the Act.Later on, a survey u/s.133A was carried out at the business premises of the assessee and notices u/s.148 were issued and the assessments were completed u/s.143(3)r.w.s.147 of the Act. ITA/4580/Mumbai/2015-AY.2010-11. 2.During the course of survey proceedings,the members of the team found the bills of purchase of goods from hawala dealers and same were impounded.As per the AO no supporting documents for delivery of goods/receipts of goods were available with the assessee,that other documents such as quotations, delivery Challans, Lorry receipts and weighing slips were also not existing.He directed the assessee to file various details including the details of purchases and sales made during the year.He found that assessee had purchased goods from nine parties during the year under appeal,amounting Rs. 3.65 crores.He observed that the goods were purchased from the parties who were providing accommodation entries,that the Sales Tax Department of Government of Maharashtra had declared the above suppliers bogus bill providers,that the 4580-81/M/15 Zahid Abbas Mankad assessee could not explain the purchases from the above parties along with supporting evidences such as transportation receipts. He directed the assessee to produce the parties.The assessee filed copies of purchase register,return of income with computation of income and copy of audit report.As per the AO the assessee did not file details called for in the specified format,that in absence of such details it was not possible to conduct further enquiries regarding genuineness of the purchase, that the assessee did not produce the parties on scheduled date. He gave a final opportunity to the assessee to explain the purchases.After considering the submission of the assessee, he held that purchases made by the assessee were not genuine,that the goods had been purchased from other suppliers,that the only bills of the items were obtained from the above- mentioned nine parties. He referred to the case of Vijay Proteins (58 ITD 428) and held that the books of accounts maintained by the assessee were not verifiable.Finally,he held that 25% of the purchase price, debited in the books of accounts,through the fictitious invoices obtained from the bogus suppliers, had to be disallowed on account of inflation of purchases and unexplained investment in such purchases. Thus, the AO made an addition of Rs. 91.30 lakhs to the income of the assessee for the year under appeal. 3.Aggrieved by the order of the AO, the assessee preferred an appeal before the First Appellate Authority(FAA).Before him, the assessee made elaborate submissions. After considering the submissions of the assessee and the assessment order,he held that the assessee had produced purchase invoices, Ledger statements, that the payments were made through banking channels against purchase invoices, that there was no evidence to prove that cash had flown back to the assessee, that the assessee was a trader and the goods purchased were used in sales and not in consumption has manufacturing, that unlike manufacture of goods the assessee was able to establish one-to-one correlation between the goods purchased and the goods sold,that the item- wise stock register showed purchases made from the above parties,that the AO had also not ruled out the possibility of purchasing goods from grey market by the assessee, that once sales were accepted there was no reason to doubt the purchases.He referred to the cases of MK Brothers (163 ITR 249) and Nikunj Eximp Enterprises Private Limited. (216 Taxman 171) and held that under the act only net income could be taxed,that the transaction was not verifiable, that only income component was taxable and not the entire transaction amount, that generally in such cases additions were made based on the GP/NP ratio,that the AO had not ruled out the possibility of purchases being made from the grey market from some other parties by investing unaccounted 4580-81/M/15 Zahid Abbas Mankad cash, that the assessee had made payments by cheques,that the course of justice would be met by making addition of a reasonable percentage of purchases in order to fill the gap of any revenue leakages.The FAA considered the average rate of GP from the AY.2006-07 to the AY.2011-12 and held that addition at the rate of 5.68% on the purchases would be quite reasonable to protect leakages of revenue.He confirmed the addition of Rs. 20.74 lakhs and the assessee got relief of Rs.70.55 lakhs. 4.Before us,the departmental representative supported the order of the AO and stated that the assessee had not produced the parties, that evidence of transportation of goods was not available,that the addition made by the AO at the rate of 25% was just and reasonable.

5.We have perused the material available on record.We find that an action u/s.133A was carried out at the business premise of the assessee,that the AO had made addition of Rs. 91.30 lakhs to the income of the assessee on account of bogus purchases,that the AO had not doubted the genuineness of the sales made by the assessee, that the FAA had partly allowed the appeal filed by the assessee.It is an established principle of taxation that sales cannot take place without purchases.The AO had made an addition at the rate of 25% on an estimated basis, however, the FAA reduced it to 5.68% on the basis of GP/NP rates of the earlier years. As the AO has not doubted the sales and the assessee had not produced certain details,so,it would be in the interest of Justice that estimate made by the FAA is upheld. In the estimations, made by the AO/FAA,the estimate made by the FAA,according to us,has got some base and should be endorsed. So,confirming the same, we decide First effective ground of appeal (GOA 1-3)against the AO. ITA/4581/Mum/2012.AY.2011-12. Following our order for the earlier assessment year, we decide the First effective ground of appeal (GOA 1-3)against the AO,as the facts of the case under consideration are identical to the facts of earlier year. The only difference is the quantum of disallowance. As a result, appeals filed by the A.O. stand dismissed. फलतः िनधा"रती अिधकारी "ारा दािखल क" गई अपील" नामंजूर क" जाती ह". Order pronounced in the open court on 3rd May,2017. आदेश क" घोषणा खुले $यायालय म" &दनांक 3 मई, 2017 को क" गई । अमरजीत"सह /Amarjit Singh) (राजे"" / Rajendra) (अमरजीत"सह अमरजीत"सह अमरजीत"सह "याियक सद"य / JUDICIAL MEMBER लेखा लेखा सद"य सद"य / ACCOUNTANT MEMBER लेखा लेखा सद"य सद"य मुंबई Mumbai; &दनांक/Dated : 03.05.2017. Jv.Sr.PS.