ITO WD 1(1), KALYAN vs. HASMUKH JAGDISH VISARIA, BHIWANDI

The assessee is a trader in paper and paper boards. Besides the above, the assessee is undertaking job works for cutting paper boards. The assessee is carrying on business under the name and style of M/s. Mahavir paper Cutting. During the course of assessment proceedings, the Assessing Officer issued notices u/s. 133(6) of the Act to various suppliers of paper & boards in order to verify the genuineness of purchases. Notices issued to the following persons were returned back by the postal authority. Further one person did not respond to the notice issued by the Assessing Officer. Details thereof have been tabulated by the Assessing Officer as under:- Sr.No. Name of the party Amount Remarks involved (Rs) 1. Hermitage trading Co. Pvt. Ltd. 17,70,116 Returned 2. Harsh Corporation 17,84,983 Do 3. Kotsons Implex Pvt. Ltd. 5,27,800 Do 4. Urvin General Trading Pvt. Ltd. 37,73,484 Do 5. Siddhi Enterprises 5,09,600 No reply 83,65,983

Hence the Assessing Officer asked the assessee to produce the above said parties before him. The Assessing Officer also noticed that the name of the above parties have been placed in the list of hawala dealers released by the Sales Tax Department of Maharashtra.

The assessee did not produce the parties but only filed confirmation letters obtained from them. The assessee furnished copies of purchase bills, ledger account copies, bank payment details and few delivery challans. The Assessing Officer was not satisfied with the details furnished by the assessee,

The learned CIT(A) noticed that the Assessing Officer has accepted the sales, meaning thereby the assessee could not have sold the goods without purchasing them. However, since the assessee has failed to produce the suppliers and further since the assessee has failed to furnish transport receipt, delivery challans etc., the learned CIT(A) took the view that the motive of the assessee behind obtaining the bogus accommodation bills would be to inflate the purchase price so as to suppress true profit. Accordingly, by placing reliance on the decision rendered by Hon'ble Gujarat High Court in the case of CIT Vs. Simit P. Sheth (2013) 38 Taxman.com 385 (Gujarat), the learned CIT(A) took the view that profit element embedded in the purchases should be added to the total income. The learned CIT(A) estimated the profit element at 12%. Since the assessee has already declared GP @ 7%, the learned CIT(A) directed the Assessing Officer to make addition at 5% of the alleged bogus purchases. Accordingly, he granted partial relief to the assessee on this issue.

The Ld D.R contended that the assessee has failed to discharge the onus placed upon him to prove the purchases. He submitted that the delivery challans and transport receipts are important documents to prove the movement of goods. He submitted that the assessee has failed to furnish those documents and hence the AO was justified in disallowing entire amount of purchases.

The Ld A.R, on the contrary, submitted that the assessee has sold the goods purchased from the above said parties and the sales has been accepted by the AO. He submitted that the assessee has furnished the details of stock register relating to the above said purchases. He submitted that the delivery

We have heard rival contentions on this issue and perused the record. In the paper book, the assessee has furnished two statements showing that the purchases made from M/s Hermitage Trading Co P Ltd and M/s Harsh Corporation have been sold in entirety to M/s. Mann Papers. The details of reconciliation of purchases made from other three parties with corresponding sales have been furnished. Even though the assessee has submitted that the delivery challans of certain purchases were produced before the AO, yet the details of transport receipts/Octroi payments have not been brought on record. There should not be any dispute that the onus to prove the expenditure claimed is placed upon the assessee and hence the assessee is required to furnish the details to the satisfaction of the AO.

At the same time, the view taken by the Ld CIT(A) that the assessee could not have sold the goods without purchasing it, cannot be found fault with. Since the AO has accepted the sales, the corresponding expenditure incurred on purchases should be allowed as deduction. In our view the said view taken by Ld CIT(A) is justifiable. We also notice that the Ld CIT(A) has taken the view that the assessee, at the most, could have made some profit on the purchases made from the above said parties by way of inflation. In the facts and circumstances of the case, we are of the opinion that the view taken by the Ld CIT(A) is justifiable. Accordingly we uphold the order passed by Ld CIT(A) on this issue.

The next issue contested by the revenue relates to the relief granted in respect of addition relating to outstanding expenses. The assessee had claimed packing charges of Rs.30,68,125/- and the AO noticed that a sum of Rs.27,93,860/- was shown as outstanding, which worked out to about 91% of total packing charges. The AO noticed that the outstanding amount pertaining two parties aggregating to Rs.25,50,912/- has already been disallowed by him

We heard the parties on this issue and perused the record. As observed by Ld CIT(A), we notice that the AO has made this addition only on surmises and conjectures. The assessee has submitted before Ld CIT(A) that the addition of Rs.2,42,954/- was claimed to be related to a concern named M/s. Bhavi Materials, but the payment has already been made by the assessee on 20-08-2009, meaning thereby, there was no outstanding in the name of M/s. Bhavi Materials. Hence the Ld CIT(A) has held that the AO has made this addition on incorrect appreciation of facts, surmises and conjectures. At the time of hearing, the Ld D.R did not furnish any material to contradict the above said observations made by Ld CIT(A). Under these set of facts, we have no other option but to confirm the order passed by Ld CIT(A) on this issue.

In the result, the appeal filed by the revenue and the cross objection filed by the assessee are dismissed. Order has been pronounced in the Court on 4.1.2017