ITO 14(1)(3), MUMBAI vs. DIGITRON COMPUTERS P.LTD, MUMBAI

Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा सद�य लेखा सद�य राजे�� राजे�� केकेकेके अनुसार अनुसार PER RAJENDRA, AM- लेखा लेखा सद�य सद�य राजे�� राजे�� अनुसार अनुसार Challenging the orders dt.17.11.14 of the CIT(A-21, Mumbai the Assessing Officer (A.O.) and Assessee have filed the appeals for the above mentioned AY.s .The assessee is engaged in the business of trading in computers and rendering technical services.The details of dates of filing of returns,returned income, dates of assessment etc. can be summarised as under :- A.Y. ROI filed Returned Assessment Assessed Dt. of orders on Income(Rs.) dt. Income(Rs.) of CIT(A) 2010-11 24.09.2010 26,84,750/- 25.03.2013 66,14,720/- 17.11.2014 2011-12 24.09.2011 5,71,400/- 04.02.2014 16,42,560/- 17.11.2014 ITA/160/Mum/2015(2010-11)(By Revenue ): 2.First Ground of Appeal raised by the AO is about partial relief given with regard to bogus purchases. During the assessment proceedings the AO observed that he had received information from Investigation Wing that the assessee had obtained bogus purchase bills amounting to Rs.39.17 lakhs from hawala operators (Rs.14.92 lakhs-Aryan Sales Corpn., Rs.11.17lakhs-M/s. Om Corpn. and Rs.13.07 lakhs from M/s. Savitha International).He asked the assessee to explain as to why the purchase made from the above mentioned three parties

160/M/15,1406/M/15& 1407/M/15,Digitron Computers Pvt.Ltd. should not be treated as bogus purchases and added to its income. After considering the submission of the assessee he held that the sales tax authorities of Mumbai had carried out investigation in the cases where there were defaults of VAT set off credits, that it was found that there were certain parties who were engaged in the business of issuing bills as per the requirement of the customer, that sales tax authorities had recorded the statements of such parties, that the persons had agreed before the sales tax authorities that they had not supplied any material to the customers, that assessee had not produced the delivery challans, purchase orders, that it had only enclosed tax invoices and ledger account of the parties, that the onus was on the assessee to prove genuineness of the transaction, that the production of invoice etc. was of no help to the assessee.Invoking the provisions of section 69C of the Act, the AO added an amount of Rs.39.17 lakhs to the total income of the assessee.

3.Aggrieved by the order of the AO, the assessee preferred an appeal before the First Appellate Authority(FAA).Before him, it was argued that purchases made by it from the above mentioned three parties were genuine, that it had purchased toners, maintenance kits and stationary from the party, that it required toners on a regular basis, that without toners printing could not be carried out , that it had spent an amount of Rs.29.19 lakhs for purchasing the toners only, the assessee had received printing charges from its customers, that the assessee had requested the AO to provide it an opportunity to cross examine the parties,that he did not afford any opportunity to it, copies of the bank statement of the persons were also not provided to the assessee, though the AO had relied upon the same evidence for making the addition, that it had furnished copies of ledger account during the assessment proceedings, that payment was made through Account Payee cheques,that copies of bank statement were also filed before AO, that the assessee had used the goods purchased by it for its business, that the AO was not doubting the fact that goods had been purchased, that he had invoked the provisions of section 69C, that the AO had not objected to the fact that goods had been received by the assessee, that the expenditure was made through banking channels, that no addition could be made u/s. 69C.

4.After considering the assessment order and the submission of the assessee, the FAA held that it had purchased the toners from the above mentioned three companies.Referring to the case of Simit P.Sheth (356ITR451) of the Hon'ble Gujarat High Court and Bholanath Poly

160/M/15,1406/M/15& 1407/M/15,Digitron Computers Pvt.Ltd.

Fab P. Ltd.(355ITR290),he directed the AO to restrict the disallowance to the tune of 12% of the non-genuine purchases.

5.During the course of hearing before us the Departmental Representative (DR) supported the order of the AO. The Authorised Representative (AR) stated that purchases made by the assessee were genuine, that provisions of section 69 were not applicable to the facts of the case, that the AO had not given any opportunity to the assessee to cross examine the persons that had been relied upon by him i.e. AO.He relied upon the cases of 1. Nikunj Eximp Enterprises Pvt. Ltd.(372ITR619); 2. Shri Deepak Popatlal Gala (ITA/5920/Mum/2013,dated 27.03.2015, AY:2010-11); 3. Ramesh Kumar & Co. (ITA No.2959/Mum/2014, dated 28.11.2014,AY 2010-11) and 4. Shri Rajeev G. Kalathil (ITA No.6727/Mum/2012, dated 20.08.2014,AY 2009-10) 6.We have heard the rival submissions and perused the material before us. We find that the assessee had purchased goods from three parties that the sales tax authorities had made a reference to the Investigating Wing of the department, the AO had invoked the provisions of section 69C of the Act and had made an addition of Rs.39.17 lakhs to the total income of the assessee. We find that the assessee had made a request to the AO to afford an opportunity to cross examine the persons whose statements had been relied upon to make the addition. Not giving a chance of cross examining the witnesses was violation of principles of natural justice. Addition made by the AO could be deleted only on that account. However even on merits, additions made is not sustainable.He had invoked the provisions of section 69C and the said section deals with unexplained expenditure.In our opinion, the FAA had rightly held that section 69C could not be used for making additions for unaccounted purchases as alleged by the AO.The case laws relied upon by the assessee support the view taken by the FAA. Therefore, we are of the opinion that the order of the FAA does not suffer from any legal or factual infirmity.Therefore, confirming the same we decide First Ground of appeal against the AO.

7.Ground No.2 & 3 deal with admission of additional evidences by the FAA during the appellate proceedings. During the course of hearing before us the DR could not point out as to how grounds were emanating from the order of the FAA, as he had not admitted additional evidences, so Ground No.2 & 3 are dismissed. ITA 1406/Mum/15-AY.2010-11:

160/M/15,1406/M/15& 1407/M/15,Digitron Computers Pvt.Ltd.

8.The effective Ground of appeal raised by the assessee is about sustaining the addition of Rs.4.70 lakhs u/s. 69C of the Act. As stated in the earlier para of the order, the FAA had directed the AO to add 12% of the bogus purchases of Rs.39.17 lakhs for the year under consideration. 9.Before us, the AR argued that provisions of section 69C were not applicable, that there was no justification for any addition, no relevant documents were made available to AO,The DR left the issue to the discretion of the Bench. 10.We have heard the rival submissions and perused the material before us.We find that the FAA had,while adjudicating the appeal,partly sustained the addition without assigning any reason.As we have already held that the provisions of section 69C will not be applicable to the facts of the case,so,reversing the order of the FAA,we decide the effective ground of appeal in favour of the assessee.

ITA /1407/Mum/15,AY.2011-12 : 11.The facts and circumstances of the case for the year under appeal are identical to the facts of the earlier year-except for the amount of addition sustained by the FAA.So,following our order for the previous year,effective ground is decided in favour of the assessee.