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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
Before: SHRI D.T. GARASIA
Per D.T. Garasia, Judicial Member:
The present appeal has been preferred by the assessee against the order dated 03.07.2017 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2011-12.
The short facts of the case are that assessee is engaged in business of retail trading of GI & MS Pipes and fittings and plumbing and sanitary items. The assessee has purchased the goods from Shiv Traders and assessee was asked to produce the party but assessee was unable to produce the party. Therefore, Assessing Officer (hereinafter referred to as the AO) treated the purchases of Rs.1,13,139/- as bogus purchases and added the same to the income of the assessee.
During the course of hearing, the Ld. A.R. submitted that the Ld. CIT(A) erred in confirming the addition on the basis of information received from DG(Inv) treating the purchases as bogus without appreciating that the details of purchase bills, purchase register, details of sales, ledgers, bank statements, quantitative tally etc. were furnished in the reassessment proceedings, thus the addition of Rs.1,13,139/- as bogus purchases may be deleted as the genuineness of the purchases were proved beyond doubt and sales are accepted.
On the other hand, the Ld. D.R. relied upon the orders of the Revenue authorities.
We have heard the rival contentions of both the parties. Ld. D.R. relied upon the decision of the Tribunal, Ahmedabad Bench in the cases of Shwetambar Steels vs. ITO Ahmedabad and Ganesh Rice Mills vs. CIT (294 ITR 316). The facts in the present case show that assessee could not produce the parties from whom goods are stated to have been purchased. The suppliers were found to be engaged in providing bogus bill without actual dealing of goods. In this regard, the assessee has stated that they had submitted quantitative details of stock with respect of the sales with purchases from the parties during the assessment proceedings. The assessee has submitted the detail of corresponding sales in respect of the purchase
3 M/s. Ambernath Steel Tube and Sanitary Store from the said parties. As mentioned above the AO has never disputed or examined the aspect of sales receipts. Since the sales made by the assessee was not doubted or disputed by the AO and he has accepted the sales receipts of the assessee as it is, therefore, the AO cannot deny that purchases were not made by the assessee and the material was not used for its sales. What is under dispute is the purchases from the parties from whom bills have been taken and cheques have been issued to them. Purchases are not in dispute but the parties from whom purchase are shown to have been made are disputed and suspicious. The AO had made the addition as some of the suppliers were declared hawala dealers by the VAT Department. This may be a good reason for making further investigation but the AO did not make any further investigation and merely completed the assessment on suspicion. Once the assessee has brought on record the details of payments by account payee cheque, it was incumbent on the AO to have verified the payment details from the bank of the assessee and also from the bank of the suppliers to verify whether there was any immediate cash withdrawal from their account. No such exercise has been done or findings recorded. There was no detailed investigation made by the AO himself. It is also found that the payments have been made by account payee cheque which are duly reflected in the bank statement of the assessee. There is no evidence to show that the assessee has received cash back from the suppliers. Merely because the suppliers did not appear before the AO or some confirmation letters were not furnished, one cannot conclude that the purchases were not made by the assessee. This view is supported by the 4 M/s. Ambernath Steel Tube and Sanitary Store decision of Nikunj Eximp Enterprises vs. CIT 216 Taxman 171 (Bom). To this extent, we are of the view that if the assessee has fulfilled its onus of making the payment by cheque and has supplied the addresses of the sellers then it cannot be presumed that supplier were bogus simply because the sellers were not found at the given address. There is a considerable time gap between the period of purchase transaction and period of scrutiny proceedings. The AO has not brought any material on record to show that there is suppression of sales. It is basic rule of accountancy as well as of taxation laws that profit from business cannot be ascertained without deducting cost of purchase from sales. Estimation of profit ranging from 12.5% to 15% has been upheld by the Hon'ble Gujarat High Court in the case of CIT vs Simit P Sheth 356 ITR 451 (Guj.). We find that Mumbai Tribunal, in the case of Madhukant B Gandhi in ITA No.1950/M/09, considering the various judgments of various High Courts has held that in view of the fact that it has been amply established that purchase records in books of account from these parties were bogus which suppress to the profit now need to zero in correct rate of net profit should be applied under these circumstances. The Tribunal in this case has applied 5% GP. Hence, following the same ratio, I apply 5% GP on the above bogus purchases which comes to Rs.5,657/-.
In the result, this ground of appeal of the assessee is partly is partly allowed.
5 M/s. Ambernath Steel Tube and Sanitary Store 8. The second issue relates to addition of Rs.61,004/-. During the course of assessment proceedings, the assessee was asked to produce the books of accounts, bill and vouchers. On verification of details produced by the assessee it was seen that some expenditures are not fully supported with vouchers and assessee has made expenses for which the proper voucher. Therefore, AO has disallowed 20% of above expenses which comes to Rs.61,004/-.
Matter carried to the Ld. CIT(A) and the Ld. CIT(A) has dismissed the same.
I have heard the rival contentions of both the parties. I find that the assessee has taken the contention that AO has never asked the assessee to produce the books of accounts and no notice was issued to the assessee for producing the books of accounts. Therefore, in the interest of justice and fairplay, I restore this issue back to the file of AO and AO is directed to decide after giving due opportunity of hearing to the assessee. Hence, this ground of appeal is allowed for statistical purposes.
In the result, appeal of the assessee is partly allowed for statistical purposes.
Order pronounced in the open court on 14.02.2018.