MAX FLED & IMAGING SYSTEMS LTD,MUMBAI vs. DCIT 7(2), MUMBAI

All these appeals are filed by the Assessee against the order of the Ld. CIT (Appeals)-13, Mumbai dated 21.10.2014 for the assessment years 2006-07 to 2009-10 arising out of the assessment orders passed u/s 143(3) r.w.s 147 of the Act.

The only issue in all these appeals of the Assessee is directed against the order of the Ld. CIT (Appeals) in confirming the addition made towards bogus purchases.

Briefly stated, the facts are that the Assessing Officer reopened all these assessments for the assessment years 2006-07 to 2009-10 by issue of notice u/s 148, on the basis of information received from the sales tax department where a survey was conducted by the Investigation Wing in respect of certain dealers who said to have been deposed that they have provided only accommodation entries. The Assessing Officer reopened assessments of the Assessee, believing that the Assessee was provided only accommodation entries from those parties where investigation was conducted by Sales Tax Department and no purchases were effected. The Assessing Officer in the course of reassessment proceedings required the Assessee to justify the purchases made by the Assessee from M/s Manav Impex as genuine. The Assessee submitted a detailed reply in the course of reassessment proceedings stating that the purchases made by the Assessee from M/s Manav Impex are genuine. The Assessee produced list of stock traded by the Assessee, movement of stock purchased by M/s Manav Impex with details of each stock, stock summary, reconciliation of purchases and sales with annual report, confirmation from sales parties, invoices of M/s Manav Impex towards purchase of goods. All these details were produced before the Assessing Officer contending that the purchases made by the Asssessee are genuine. However, the Assessing Officer rejected the explanation of the Assessee by observing that information has been received from the Investigation Wing relating to Assessee who have indulged in the practice of taking bogus purchase bills and routing it to the books of account and this information has been received from the Sales Tax Department. The Assessing Officer observed that the Assessee is one of the parties indulged in activities of bogus purchases. He observed that M/s Manav Impex admitted before the Sales Tax Authorities that it has indulged into the practice of bogus sales/purchases and that the Assessee has made bogus purchases from it. Therefore, he concluded that the parties have admitted before the Sales Tax Authorities in indulging bogus sales/purchases and the Assessee failed to discharge its onus by substantiating the genuineness of the transaction. On appeal by the Assessee, the Ld. CIT (Appeals) sustained the addition observing that the Assessee has not produced any information regarding the purchases and the Assessing Officer observed that the Assessee has not produced the confirmations, bills, invoices etc.

The Ld. Counsel for the Assessee vehemently submits that the basic information as set out in the assessment order itself has been produced before the Assessing Officer to prove that the purchases made by the Assessee are genuine. The Ld. Counsel submits that the Assessing Officer had in fact reproduced the submissions made by the Assessee along with the information submitted therein and therefore there is no justification in holding that the Assessee has not produced the information relating to the purchases, therefore not genuine. He submits that the findings of the Ld. CIT (Appeals) that the Assessee not produced any information relating to purchases before the Assessing Officer is contradictory when the Assessing Officer himself reproduced what has been submitted by the Assessee in the course of assessment proceedings.

The Ld. Counsel for the Assessee further submits that the additions/disallowances were made based solely on the information received from the Sales Tax Department that certain suppliers provided only accommodation entries and not supplied any goods. The Ld. Counsel submits that the Assessee was not confronted with the information said to have been received by the Assessing Officer from Sales Tax Authorities regarding M/s Manav Impex and the statement said to have been recorded from them. No opportunity for cross examination was given to the Assessee. Additions were made based only on the information received from Sales Tax Department without confronting such information received by the Assessing Officer from the Sales Tax Department nor providing any opportunity for cross examination of the party. The Ld. Counsel submits that the Assessee has produced ledger copies of the concerned parties, other necessary evidences like purchase bills, bank statements, proving payments made through cheques etc. to prove the genuineness of the transactions and whereas the Assessing Officer has not brought any evidence against the Assessee except the information obtained from the Sales Tax Department to prove that the purchases are not genuine. The Ld. Counsel submits that since the Department has made allegation that the purchases are bogus, the onus is on the Department to prove such fact through Cogent Evidences.The Ld. Counsel further submits that on identical facts and circumstances, the Hon’ble Jurisdictional High Court as well as the Tribunal of Mumbai benches deleted the addition made under Section 69C in the following cases: Sl. Decision Citation / ITA Nos. 1. CIT Vs. Nikunj Eximp Enterprises (P) Ltd 372 ITR 619 (Bom) 2. ITO Vs. Takhtmal Bhuralal Pichholiya 4526 to 4528/M/2014 3. ITV Vs. Hiren Shantilal Doshi 715/M/2015 4. ACIT Vs Vishal P Mehta 5313/M/2013 5. ITO Vs. Ashok Talreja (HUF) 4629/M/2014 and others 6. Talco Marketing Vs. ITO 3394 and 3395/M/2014 7. DCIT Vs.Rajeev G Kalathil 6727/M/2012 8. ITO Vs Paresh Arvind Gandhi 5706/M/2013 9. ITO Vs. Sanjay V Dhruv 5089/M/2014

The Ld. DR vehemently supported the orders of the lower authorities. The Ld. DR submits that inspite of the specific request made by the Assessing Officer to prove the genuineness of the transactions by producing the parties, the Assessee failed to produce the parties and not submitted proper evidences to prove/establish the transactions of purchases are genuine. Therefore, the Assessing Officer was justified in treating the purchases made from the concerned parties as bogus purchases.

We have heard the rival submissions, perused the orders of the authorities below and the material available on record. It is very much apparent from the assessment order that the basis for treating the purchases made by the Assessee from M/s Manav Impex as mentioned in the assessment orders is only the information obtained by the Assessing Officer from Sales Tax department. We find that this information was not parted to the Assessee by the Assessing Officer. It is also not known as to what kind of information the Assessing Officer has got from the Sales Tax department relating to the present Assessee before us. Solely based on certain information said to have been obtained from Sales Tax department, Assessing Officer made addition. The Assessing Officer had made no efforts to issue even notices under section 133(6) of the Act to the supplier to make any further enquiries about supplies made by it to the Assessee. Thus, it is apparent that sole basis of addition is only the information obtained from the Sales Tax department by the Assessing Officer.

The Assessee for whatever reason might not have produced the parties for verification may be due to lapse of time or may be due to the dealers shifting from their business premises etc., but he has produced the copies of bank statements, where the payments were made through cheques and the ledger copies of the books of the Assessee of the parties etc. to prove the genuineness of the purchases. The Assessing Officer never doubted the sales made by the Assessee for such purchases, in fact, he has accepted the sales. Without there being any purchases, there could not be any sales. It is also not proved by the Assessing Officer that the amounts paid by the Assessee to the dealers were returned back to the Assessee and the purchase bills issued are only accommodation entries. Simply because the Assessee could not produce the dealers, the entire purchases cannot be treated as bogus purchases. The Assessing Officer could have made further investigations to ascertain the genuineness of the transactions which he failed to do. The Assessee has discharged its initial onus of providing necessary information about the purchases.

We find that on identical situation and facts, the Coordinate Bench of the Tribunal in the case of ITO Vs. Sanjay V Dhruv in dated 29.02.2016 held that the purchases cannot be treated as bogus purchases and addition cannot be sustained under Section 69C observing as under : “We have considered the submissions of the parties and perused the material available on record. It is evident from the assessment order that on the basis of information obtained from the Sales Tax Department, Assessing Officer issued notices under section 133(6) to three parties out of which two notices were returned unserved by the postal authorities and in case of one of the parties through notice was served, there was no response . Therefore, he called upon the assessee to produce the concerned parties. As the assessee failed to produce the concerned parties, the Assessing Officer, therefore, primarily relying upon the information obtained from the Sales Tax Department, held the purchases to be bogus and made addition under section 69C of the Act. Though, it may be a fact that assessee was not able to produce the concerned parties before the Assessing Officer, for whatever may be the reason, fact remains during assessment proceedings itself the assessee had produced confirmed ledger copies of concerned parties, bank account statement, purchase bills, delivery challans, etc., to prove the genuineness of the purchases. It is also a fact on record that the Assessing Officer has not doubted the sales effected by the assessee. Thus, it is logical to conclude that without corresponding purchases being effected the assessee could not have made the sales. Moreover, the Assessing Officer has not brought any material on record to conclusively establish the fact that purchases are bogus. Merely relying upon the information from the Sales Tax Department or the fact that parties were not produced the Assessing Officer could not have treated the purchases as bogus and made addition. If the Assessing Officer had any doubt with regard to purchases made, it was incumbent upon him to make further investigation to ascertain the genuineness of the transactions. Without making any enquiry or investigation the Assessing Officer cannot sit back and make the addition by simply relying upon the information obtained from the Sales Tax Department and issuing notices under section 133(6) of the Act. As the Assessing Officer has failed to make any enquiry or investigation to prove the fact that the purchase transactions are not genuine whereas the assessee has brought documentary evidences on record to prove genuineness of such transactions which are not found to be fabricated or non–genuine, the action of the Assessing Officer in ignoring them cannot be accepted. Moreover, as rightly observed by the learned Commissioner (Appeals), when the payment to the concerned parties are through proper banking channel and there is no evidence before the Assessing Officer that the payments made were again routed back to the assessee, the addition made under section 69C cannot be sustained. Moreover, the decisions relied upon by the learned A.R. on careful analysis were found to be squarely applicable to the facts of the present appeal. Therefore, finding no infirmity in the order of the first appellate authority, we uphold the same by dismissing the grounds raised by the Department.”

Similarly in the case of Sharad Construction Pvt. Ltd., Vs. ACIT, dated 30.09.2016, the Coordinate Bench held as under : “2. We have considered the submissions of the parties and perused the material available on record in the light of the decisions relied upon. At the outset, we must observe, the Assessing Officer has not rejected the books of account of the assessee. This fact is not disputed by the learned Departmental Representative. It is further evident, the allegation of bogus purchases was contained in a report received from the DGIT (Inv.). It is a fact on record to ascertain the genuineness of purchases, the Assessing Officer summoned one of the directors of the assessee company and recorded a statement under section 131 of the Act on 28th January 2013. On a perusal of the said statement reproduced by the Assessing Officer in the assessment order reveals that in question no.21, the Assessing Officer specifically asked the assessee to explain the allegation of bogus purchases. In reply, it was submitted by the assessee as under:–

In view of the above discussion, we hold that there is no material on record to conclusively prove that the purchases made by the Assessee are bogus purchases and nothing is brought on record to suggest that the information gathered by the Sales Tax department conclusively proves that the dealer is providing only the accommodation entries to the Assessee before us. Thus we hold that addition made towards bogus purchases cannot be sustained.

However, at the same time, keeping in view the nature of business of the Assessee and possibility of the Assessee making local purchases without any transportation bills, delivery challans etc., and the possibility of the Assessee making purchases in grey market on cash cannot be ruled out. Therefore, keeping in view the facts and circumstances of the case, we direct the Assessing Officer to disallow 12.5% of the above purchases to meet the anomalies and to cover up the leakage of revenue and not the entire purchases.

In the result all the appeals of the Assessee are partly allowed.