ITO 32(1)(5), MUMBAI vs. GLAZERS INDIA, MUMBAI

Appeal by the revenue is directed against the order dated 20.4.2015 passed by the ld.CIT(A)-44 for the assessment years 2010-11 wherein the revenue has raised the issue of deletion of unexplained expenditure of Rs.43,77,342/- on account of bogus purchase as against the addition of Rs.49,74,242/- made by the AO under section 69C of the Income Tax Act, 1961.

Brief facts of the case are that the assessee filed return of income on 23.9.2010 declaring a total income of Rs.17,77,230/-. The case of the assessee was selected for scrutiny and statutory notices under section 143(2) and 142(1) of the Act were issued and served upon the assessee. During the course of assessment proceedings, the AO observed that the assessee has made total purchases to the tune of Rs.4.95 crores out of which the above purchases, the purchase of Rs.1 lakhs were made from 46 parties. To verify the genuineness of the purchases, the AO issued notices u/s 133(6) to several parties by registered post but in the following cases, notices sent to the parties were not served : Name of the parties TIN Amount (Rs.) 1 N B Enterprises 27490339033V 28315 2 Niddish Impex Pvt. Ltd. 27600648257V 2071782 3 Rushabh Enterprises 27120669570V 1136268 4 Atlas Enterprises 27710363744V 722824 5 Jainam Trade Corporation 27070656939V 100000 6 Mahavir Enterprises 27560556517V 250260 7 Jain Trading Corporation 27210156439V 664803 Total 4974252 According to the AO these seven parties were appearing in the list of Hawala operators as published by the Sales Tax Department of Government of Maharashtra and accordingly, the AO treated these purchases as bogus purchases and added the same to the total income of the assessee u/s 69C of the Act by framing the assessment u/s 143(3) vide order dated 22.3.2013 by assessing the income of the assessee at Rs.68,09,520/- by making various additions. In the appeal proceedings, the ld.CIT(A) sustained the addition to the extent of 12% of the total purchases of Rs.5,96,910/- by observing holding as under : “Decision: I have gone through the facts of the case, contention of the AO and Submissions of the appellant. It is an undisputed fact that Sales Tax Department did make enquiries regarding genuineness of the parties actually making the sale and it is also a fact that the Sales Tax Department got the statements of those persons stating that they were actually engaged only in providing accommodation entries for a certain commission fee. On his part, the AO has gone into the issue by sending 133(6) notices and making field enquiries, but has not found any concrete evidence to doubt the genuineness of the payments being shown by the appellant through the bank account. The AO has also definitely not been able to question the availability of the inventory that has been subsequently sold. To extent, the examination of that aspect has not created any doubt in terms of the purchases. However, as far as the evidence submitted by the appellant is also concerned, the appellant has filed his own books, purchase bills/challans, ledger account and its own bank statement to further his argument. The fact that the payments are being made through cheques is not something that is being doubted. In fact that is the contentious issue; that these parties which are indicated by the Sales Tax Department through a procedure which appears to be technically correct on paper, are in fact engaged in false billing for a fee/commission. The onus of proving the entire transactions to be genuine is definitely on the tax payer, when he is making the claim of purchase and especially in the light of the doubt that has been raised by the enquiries conducted by the Sales tax Department, the onus is even more on the tax payer to show that as far as he is concerned, he has discharged his tax related liabilities in an accurate manner. So therefore, while on one hand the AO many not had a clinching proof but the primary responsibility which is ensued on the tax payer has also not been discharged in terms of establishing the genuineness of the transaction. Merely filing copies of his own ledger accounts and bank accounts does in no way establish that the parties actually existed, but then considering that the books of accounts have not been disputed, sales have not been disputed and neither cheques have been shown to be received back as cash by the appellant, I am of the considered view that in the context of the situation where the AO has himself said that what is being doubted is not the quantity of purchases per se, which has entered in to the books of the appellant, but that the purchases were billed through bogus parties, then the cause of justice would be served by looking at the gross profit margins being declared by the appellant. I am guided by the' ratio of decision of the Hon'ble Gujarat High Court in the case of CIT Vs Simit P. Sheth pronounced on 16.1.2013 in tax appeal No.5531 of 2012 wherein the Hon'ble Court have held that when the total sale is accepted by the AO, then the entire purchases cannot be added to the income of the appellant. The Hon'ble Court have, therefore, held that when the total sale is accepted by the AO, then the entire purchase cannot be added to the income of the appellant. The Hon’ble Court have, theefore, held that fair profit ratio would' be needed to be added back to the income of the assessee. Therefore, 12% of the purchases of RS.49,74,252/- which works ( out to Rs.5,96,910/- is upheld for lack of credible evidence being provided by the appellant to substantiate the purchases. The appellant gets relief of Rs.43,77,342/-“ 3. We have carefully considered the rival contentions and perused the material placed before us including the orders of authorities below. We find that out of total purchases, the AO could not verify the purchases to the extent of Rs.49,74,252/- when the notice under section 133(6) of the Act were issued which were returned un-served. We also find that the assessee could not produce any stock tally of the total purchases and sales made during the year and stocks left unsold at the year end. But the AO has not doubted the sales made during the course of assessment proceedings. The ld.CIT(A) has recorded the findings of facts that the assessee has not discharged the burden cast upon it including proving the genuineness of the transactions. The ld. CIT(A) also observed that the AO has also failed to discharge the responsibility cast upon under the Act. The AO has not disputed the books of accounts including the sales nor did verify or investigate the amount paid by way of cheques whether received by the appellant back from the purchasers. In our opinion, the ld.CIT(A) has rightly sustained the addition to the extent of 12% of the total purchases covering the leakages of revenue and also the possibility of savings which the assessee may have made by making purchases from gray market by not paying the regular and legal taxes of local bodies. In our view, the order passed by the FAA sustaining the addition to 12% of the total purchases needs to be upheld. Accordingly, we uphold the order of the ld.CIT(A) by dismissing the appeal of the revenue.

In the result, the appeal for the revenue is dismissed. Order pronounced in the open court on 20th Mar, 2017. Sd sd (Mahavir Singh) (Rajesh Kumar) न्याययक सदस्य / Judicial Member लेखा सदस्य / Accountant Member भुंफई Mumbai; ददनधंक Dated :20.3.2017 SRL,Sr.PS