RUPESH CHIMANLAL SAVLA,MUMBAI vs. ITO WD 3(3), KALYAN

3. On merits, in all these assessment years, the assessments were reopened by issue of notice under Section 147 based on the information received by the Assessing Officer from the Sales Tax department, Maharashtra, stating that some dealers have provided accommodation entries for bogus purchase bills to large number of taxpayers. On the basis of this information, the assessments were reopened in Assessee’s case for the assessment years 2009-10 to 2012-13 and assessments were completed by order dated 22.08.2014 under Section 143(3) read with 147 of the Act. From the information obtained by the Assessing Officer from Sales Tax department, he was of the opinion that Assessee has also obtained bogus purchase bills from various parties listed in the Sales Tax department website. In the course of Assessment proceedings, from the details filed by 3 Rupesh Chimanlal Savla ITA No.6179-6182/Mum/2016 the Assessee, it was noticed by the Assessing Officer that the Assessee has shown purchases as under : Sl.No. Name of the Dealer Assessment Year 2009-10 2010-11 2011-12 2012-13 1. M/s Maruti Corporation 6,37,308 1,84,387 2. M/s Manshi Traders 12,01,458 3. M/s Sangura Trading P.Ltd. 3,52,688 4. M/s D.D. Corporation 10,40,399 5. M/s Payal Enterprises 43,264 6. M/s Amit Trading Co. 3,78,831 7. M/s Gopikrishna Trading Co. 5,91,470 8. M/s J.K. Agency 2,11,314 18,14,329 7,85,287 9. M/s Mayur Trading Co. 2,75,174 1,23,750 10. M/s G.M. International 2,17,451 11. M/s Rummit Enterprises 5,98,154 12. M/s N.K. Trading Co. 6,00,402 13. M/s Real Traders 1,14,261 14. M/s Bhakti Enterprises 20,36,702 28,48,950 15. M/s J.B.Shah & Co. 30,27,088 Total Amount Rs. 47,31,906 36,52,734 28,21,989 58,76,038 4. The Assessing Officer during the course of assessment proceedings required the Assessee to submit Xerox copies of purchase bills, transport bills, delivery challans, octroi payments, receipts in respect of the transactions made with the above parties during the years under consideration. The Assessee submitted Xerox copies of bills of purchases from the above parties and further submitted that all the purchases are made within the local limits and the delivery has been done by hand, therefore, no transport, octroi and delivery challans are submitted.

The Assessing Officer required the Assessee to produce the parties from whom the purchases were made to prove the genuineness of the transaction. He also deputed the Inspector to get information under Section 4 Rupesh Chimanlal Savla ITA No.6179-6182/Mum/2016 133(6) of the Act from the above dealers. Some notices sent were returned unserved and in some cases Inspector reported that the parties are not carrying on business activity at the given address. The Assessing Officer further noticed from the audit report that Assessee is maintaining only cash book, bank book, purchase register, sales register, journal and general ledger and auditors have certified that the Assessee is engaged in the business of retail trading involving large number of items in small quantities per item and therefore it is not possible for them to maintain quantity details, therefore, the same is not possible to report, the Assessing Officer concluded that books of account of the Assessee cannot be stated as correct and complete. Therefore, he rejected the books of accounts and book results under 145 of the Act. The Assessing Officer held that since the Assessee is unable to produce the parties in person before him, the Assessee’s claim for purchases from these parties are disallowed and added to the income of the Assessee, within the meaning of Section 69C of the Act. The matter was carried before the Ld.CIT (Appeals) and Ld. CIT (Appeals) sustained the additions agreeing with the view of the Assessing officer that the Assessee has failed to produce the parties, the notices issued to the parties were returned unserved or they were not available at the given addresses. He further observed that the parties have deposed before the Sales Tax authorities that they are providing only accommodation entries and after receiving payments from the customers through banking channels, they have returned the monies to the customers in cash after retaining a small portion towards commission. Therefore, he concluded that the purchases 5 Rupesh Chimanlal Savla are not genuine and the Assessing Officer is justified in treating them as bogus purchases.

The Ld. Counsel for the Assessee before us submits that the information said to have been received from Sales Tax department by the Assessing Officer is not given to the Assessee. The Assessing Officer has not provided inspection report to the Assessee and it was kepy only on record. The information about notices returned unserved was not intimated to the Assessee. The Counsel for the Assessee submits that the bills were issued in the financial year 2008-09 to 2011-12 and the inspection said to have been made in 2014 and nothing is mentioned in the assessment order as to who has gone for verification and what they have verified. The Ld. Counsel submits that they are only the suspected dealers in the sales tax website and the transactions by the Assessee with them are genuine. The Ld. Counsel submits that stock register cannot be maintained for the inventories like buttons, threads, rolls etc. which the Assessee does trading in those items i.e. tailoring items, in view of the large number of items in small quantities per item, it is not possible for maintaining stock record. The Ld. Counsel submits that the Assessee has explained as to why there are no transport bills, octroi payments, delivery challans for the items traded by it as these items are of local purchases and delivered by hand. The Ld. Counsel submits that the Assessee has produced ledger copies of the concerned parties, all other necessary evidences like purchase bills, bank statements proving the payments made through cheques etc. to prove the genuineness 6 Rupesh Chimanlal Savla 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 7 Rupesh Chimanlal Savla Assessing Officer to prove the genuineness of the transactions by producing the parties, the Assessee failed to produce the parties and submit proper evidences to establish the transactions of purchases as 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 certain parties 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 Assessing Officer has got from the Sales Tax department relating to the present Assessee before us. Solely based on this information obtained from Sales Tax department, Assessing Officer required the Assessee to produce these parties for verification and simultaneously he deputed the Inspectors to issue notices under Section 133(6) to these parties. Again, we noticed from the assessment order that Inspector has given a report stating that some of the notices were returned unserved and it was also reported by the Inspectior that no such business activities are carried out at the given address in some of the parties. Again, this report of the Inspector was never forwarded to the Assessee at any point of time, but was kept on record. Thus, it is apparent that sole basis of addition is only 8 Rupesh Chimanlal Savla 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.

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 9 Rupesh Chimanlal Savla ITA No.6179-6182/Mum/2016 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 10 Rupesh Chimanlal Savla ITA No.6179-6182/Mum/2016 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:– 11 Rupesh Chimanlal Savla ITA No.6179-6182/Mum/2016 “Q.21:– As per the information received, it seems that the assessee company M/s. Sharad Constructions P. Ltd. has booked bogus purchases during the financial year 2009–2010 (i.e., A.Y. 210– 11), please confirm whether it is true? Ans:– Regarding alleged bogus bill in year 2009–10 (A.Y. 2010–11) in particular, last year we received notice & show case notice from sales tax deptt. Informing us that 4–5 suppliers had not paid VAT collected from us and not knowing about this as suppliers already collected VAT from us, as a routine, we had taken set off of VAT where VAT was paid more than 4% i.e., 12.5%. We wonder, how these bills becomes bogus where no set off was taken and sufficient proof has been given to their Dept. even for materials purchased under 12.5% VAT. We have given enough evidence that in matter of purchase of marble (Navodaya Trade) & Stainless Steel pipe (Nutan Metals) wherein it was explained that the material was actually received at various sites, the material was consumed and the same was also certified by the architect appointed by the customers. We have also shown payment received from clients after certified by Architect as used in the respective work and tallies with the record. Regarding Brick suppliers Regal Bricks & Sand Suppliers, we have not purchased any material from this party during the period.

The working shown in the aforesaid chart indicates that the assessee is consistently showing a healthy gross profit rate over the years. Moreover, when the payments towards purchases were made through account payee cheques, to certain extent, it establishes the genuineness of purchases unless adverse material is brought on record to prove the contrary. This view of ours is supported by the decision of the Tribunal, Mumbai Bench, in Ramesh & Co. v/s ACIT, ITA no.2959/Mum./2014, dated 28th November 2014. Moreover, the decision of the Hon'ble Jurisdictional High Court in CIT v/s Nikunj Exim Enterprise Pvt. Ltd. (supra) also support assessee’s case that when payments are made through account payee cheque to suppliers and sales effected are not doubted, further, when books of account are not rejected purchases cannot be treated as bogus. The other decisions of the Tribunal relied upon by the learned Authorised Representative also express the view that merely on the basis of information obtained from the Sales Tax department, no addition can be made on account of bogus purchases. Therefore, on over all consideration of facts and material on record, we are of the opinion that the addition made on account of bogus purchases is legally unsustainable, hence, we delete the same.”

However, at the same time, keeping in view the nature of business of the Assessee and the fact that the assessee is making local purchases without any transportation bills, delivery challans etc., 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 2% of the above purchases to meet the anomalies.

In the result, appeals of the assessee are partly allowed.