PRAKASH MANEKJI SHAH,THANE vs. ITO WD 3(2), THANE

On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in relying on the decision of Supreme Court in the case of Kanchanwala Gems Vs. JCIT 288 ITR 10(SC) and Hon'ble High Court's decision in the case of Vijay Protein, Sanjay Oil Cake Industries, etc..

On the facts and in the circumstances of the case, and in law, the Hon'ble CIT(A) erred in not following the order of ITAT, Pune

The order of the CIT(A) may be vacated and that of the Assessing Officer may be restored.

Brief facts are, the assessee an individual is engaged in the business of trading in iron, steel, cement and building material. For the 4 Shri Prakash Manekji Shah assessment year under consideration, the assessee filed its return of income on 29th September 2009, declaring income of ` 3,57,190. On the basis of information received from Sales Tax Department, Government of Maharashtra, that some of the dealers from whom the assessee claimed to have purchased goods were involved in hawala transaction by providing bogus bills without actual supply of goods, the Assessing Officer re–opened the assessment under section 147 of the Act. During the re–assessment proceedings, on the basis of information available on record, the Assessing Officer found the following purchase transaction shown by the assessee to be non– genuine.

He, therefore, called upon the assessee to prove the genuineness of the purchases. Though, the assessee claimed the purchases to be genuine, however, the Assessing Officer not being convinced with the reply of the assessee for ascertaining the genuineness of the purchase transactions, proceeded to conduct enquiry independently by issuing notices under section 133(6) to the concerned parties. As observed by the Assessing Officer, all such notices returned back un–served by the 5 Shri Prakash Manekji Shah postal authorities. The Assessing Officer, therefore, deputed Ward Inspector to find out the whereabouts of the concerned parties who, vide his report dated 24th February 2014, submitted that the parties are not available at the given address. Being armed with the aforesaid facts, the Assessing Officer issued a show cause notice to the assessee on 4th March 2014 requesting to produce the concerned parties for examination. He also called upon the assessee to explain, in the event of his failure to produce the concerned parties why the purchases made from them should not be treated as bogus and added back to the total income. As observed by the Assessing Officer, the assessee in spite of opportunity given could not produce the concerned parties instead furnished an explanation stating therein that the purchases made are genuine. The Assessing Officer, therefore, treated the purchases made by the assessee as bogus and added the entire amount of ` 43,32,591. Being aggrieved of such addition, assessee preferred appeal before the first appellate authority.

Learned Authorised Representative submitted, the allegation of the Departmental Authorities that the assessee failed to produce any evidence is not correct as in the course of assessment proceedings, the assessee had produced purchase bills, address of the concerned dealers, their PAN, details of payment made through cheque to prove the genuineness of the transactions. He submitted, even in the case of two parties namely Moksh Trading Co. and Magnum Enterprises confirmation of accounts were also furnished. Therefore, it cannot be said that the assessee has not produced any evidence to prove the genuineness of the purchases. He submitted, only because the parties could not be found or assessee was not able to produce them will not lead to adverse inference that purchases are bogus. He submitted, the 7 Shri Prakash Manekji Shah adverse material collected by the Sales Tax Department were never confronted to the assessee. Refuting the observations of the learned Commissioner (Appeals) that the assessee had agreed for restricting the disallowance to 25% of the bogus purchases the learned Authorised Representative submitted, the assessee had never agreed for restricting the disallowance to 25% but has only raised an alternative plea without prejudice to adopt profit rate in the range of 12.5% to 25% on the quantum of bogus purchases. He submitted, the estimation of profit @ 25% in case of a trading business is high and excessive, hence, should be reduced to 12.5%. In support of his contention, the learned Authorised Representative relied upon the following decisions:–

Learned Departmental Representative submitted, as the assessee failed to prove the genuineness of the purchases by producing even one of the concerned parties, the entire amount involved in bogus purchases is to be treated as income of the assessee. He submitted,

In the rejoinder, the learned Authorised Representative submitted, the decisions relied upon by the Department are in case of manufacturers, hence, will not be applicable to a trader.

We have considered the submissions of the parties and perused the material available on record. We have also applied our mind to the decisions relied upon. Undisputedly, the information obtained from the Sales Tax Department revealed that certain dealers without actual supply of goods were indulging in issuing bogus bills. As per the information obtained, it was found that the assessee has made purchases to the extent of ` 43,32,591, from three of the parties appearing in the list of bogus dealers maintained by the Sales Tax Department, Government of Maharashtra. In the course of assessment proceedings, when this fact was confronted to the assessee, he claimed the purchases to be genuine and sought to prove the genuineness of the purchase transaction by furnishing the names and address of the parties their PAN details, purchase bills, details of payments made through cheque. However, as it appears, primarily for 9 Shri Prakash Manekji Shah the reason that assessee failed to produce the concerned parties before him, the Assessing Officer had treated the entire purchases made from the concerned parties as bogus and added back to the income of the assessee. In our view, non–production of the concerned parties cannot be the sole criteria to make the additions. It is evident on record that the sales effected by the assessee have not been disputed by the Assessing Officer which has also been admitted by the learned Commissioner (Appeals). Therefore, it is a fact that the assessee had made the purchases, though, may be from a different source. It also appears that before the Departmental Authorities, the assessee had produced quantitative tally of purchases and sales which learned Commissioner (Appeals) has rejected solely for the reason that it was not in the form in which the assessee was asked to furnish. Assessee’s inability to produce the concerned parties may be for various reasons including the fact that such parties may not be available in their earlier addresses. Therefore, even accepting that the assessee has conclusively failed to prove the genuineness of transaction with the concerned parties, at the same time, it can be said that without effecting such purchases the assessee could not have achieved the sales turnover. In the aforesaid circumstances, in our view, the entire amount representing the alleged bogus purchases cannot be treated as income of the assessee. In this regard, we agree

In view of our aforesaid decision, the grounds raised by the Department have become infructuous, hence, dismissed.

In the result, assessee’s appeal is partly allowed and Revenue’s appeal is dismissed. Order pronounced in the open Court on 21.12.2016