SPAN CORPORATION,MUMBAI vs. CIT (A)-44, MUMBAI

Brief facts of the case are that the assessee filed its return of income on 26.9.2010 declaring total income at Rs.17,92,992/-. The case of the assessee was selected for scrutiny and accordingly statutory notices u/s 143(2) and 142(1) were issued and served upon the assessee. During the course of assessment proceedings, the AO called for party-wise details of purchases, which were furnished by the assessee which included the purchases of Rs.7,01,478/- from M/s Om Trading Company. The assessee did not provide address of the said party to the AO and therefore the same could not be verified as a result of which the same was added back to the total income of the assessee u/s 69C of the Income Tax Act, 1961. The assessment was completed u/s 143(3) vide order dated 28.3.2013 assessing the total income of the assessee at Rs.74,67,430/-. Aggrieved by the order of the AO, the assessee preferred an appeal before the FAA, who after considering the submissions and contentions of the assessee confirmed the addition made by the AO by observing and holding as under:

The ld. AR vehemently submitted that, the ld. CIT(A) called for the remand report from the AO and the AO vide his letter dated 6.8.2015 submitted the same to the ld. CIT(A) which was not considered by the ld.CIT(A). The ld.AR submitted that all the payments were made through banking channels and material in facts was received and duly entered in the books of accounts of the assessee. Finally, the ld.AR submitted that total addition of purchases was made without any reasons and the suppliers were not hawala dealers. The ld.AR submitted that at the most certain percentage of these purchases could be applied to bring the income to tax as against the entire purchases which included the profit element plus purchase cost of the product which was against the scheme of taxation.

The ld. DR reiterated the submissions as made before the ld. CIT(A) while opposing the submissions of the assessee and relied on the orders of authorities below.

We have heard the rival contentions, perused the material placed before us including the case law relied upon by both the parties. We find that the AO disallowed the entire purchases of Rs.7,01,478/- made from M/s Om Trading Co. due to failure to produce the address of supplier and the necessary verification could not be carried out for want of detailed address of the supplier. We also find that the remand report was called for by the FAA before passing the appellate order. On perusal of the remand report filed at pages 4 and 5 of the paper book we find that the assessee filed the necessary transportation bills and vouchers before the AO and the payments were also made through HDFC bank which were not considered by the ld.CIT(A). It was also mentioned in the bills supplier was not available on the address as the letter issued u/s 133(6) was returned unserved. In our considered opinion, the upholding of the entire purchases made from the party specifically when there is no doubt as to the sales made by the assessee when the proper record, stock register were maintained by the assessee, the disallowance and addition cannot be sustained. At the most, the percentage addition of said purchases could be made to assessee the profit earned by the assessee on these purchases. We, therefore, set aside the order of the FAA and direct the AO to delete the addition of Rs.7,01,478/- and the addition at the rate of 10% of the total purchases i.e.Rs.7,01,478/- which works out to Rs.70,147/- is directed to be made.

In the result, the appeal of the assessee is partly allowed. Order pronounced in the open court on 29th March, 2017.