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Income Tax Appellate Tribunal, KOLKATA ‘SMC’ BENCH, KOLKATA
Before: Shri J. Sudhakar Reddy
This appeal filed by the assessee is directed against the order of ld. Commissioner of Income Tax (Appeals)-13, Kolkata dated 29.02.2016 for the assessment year 2009-10 on the following grounds:- “(1) That, the learned Commission of Income Tax (Appeals) had failed to appreciate that the impugned assessment order has been passed by the learned Assessing Officer u/s 143(3) of the Act by holding M/s AP TRADERS as a bogus party in spite of the fact that such party held a valid registration certificate under West Bengal Value Added Tax Act, 1995 and the registration number of the party-appeared in the purchase bills produced during the course of the assessment proceedings.
./2016 Assessment year: 2009-2010 Page 2 of 7
That, the learned Commissioner of Income Tax (Appeals) had failed to appreciate that the original assessment order passed u/s 143(3) of the Act was held to be erroneous and was directed to be revised u/s 263 of the Act on the ground that the alleged violation u/s 40A(3) was not properly considered in tile said assessment order (Para-2, Page-25 -of the Paper Book enclosed in Part-B) and there was no discussion in the order passed u/s 263 of the Act that the impugned purchases were bogus.
3. That, the learned Commissioner of Income Tax (Appeals) had failed to appreciate that if purchases are held to be bogus the effect thereof from sale or closing stock should have been also eliminated as otherwise in the absence of purchase of the material there cannot be any sale which is liable to be taxed.
4. That, the impugned assessment is based on irrelevant considerations and, therefore, the same is bad in law and perverse”.
2. The facts in brief are that the assessee is a partnership firm engaged in the business of trading of iron and steel materials. The original assessment of the assessee-firm was completed under section 143(3) of the Act on 22.11.2011 determining total income at Rs.1,61,255/-. Subsequently, the ld. CIT, Kolkata-XV by his order dated 06.03.2014 passed under section 263 of the Income Tax Act, 1961 (‘the Act’) set aside the original assessment order and directed the Assessing Officer to pass a fresh assessment order after examining the relevant issues and after allowing the assessee an opportunity in this regard. The Assessing Officer in pursuance to this order passed under section 263 passed a fresh assessment order under section 143(3) read with section 263 on 17.06.2014, determining the total income at Rs.39,57,121/-, inter alia, making an addition of Rs.37,95,866/- towards bogus purchases from one M/s. Apex Traders, on the ground that it is a non-existing party. Aggrieved, the assessee carried the matter in appeal. The first appellate authority confirmed the addition. Further, being aggrieved, the assessee is in appeal before the Tribunal. ./2016 Assessment year: 2009-2010 Page 3 of 7
Though the assessee has taken five grounds of appeal, in fact, only one addition is disputed, i.e. an amount of Rs.37,95,866/-, being payment made to M/s. Apex Traders. Goods were claimed to have been purchased by payment through cheques. But enquiries revealed that the cheques were, in fact, bearer cheques. The notices issued under section 133(6) of the Act to M/s. Apex Traders got returned with the comments from the postal authorities that the address given is a wrong address. Enquiry made by the Income Tax Inspector did not give any result and the party could not be located at the address given in the invoice/bill. The assessee was asked to furnish the correct address, which was not done. Thus the Assessing Officer concluded that for the following reasons the purchases were bogus:- (i) Non-availability of M/s. Apex Traders, from whom purchases of goods were made. (ii) The assessee could neither produce the party nor give the correct address of the party. (iii) The payments were claimed to be made by cheque.
The ld. counsel for the assessee submitted that in the order under section 263 of the Act, the ld. CIT, Kolkata-XV set aside the assessment by directing the Assessing Officer to examine the genuineness and creditability of M/s. Apex Traders, Kolkata as this party was not traceable and as the payments made by the assessee to this party is not documented by any evidence. He further submits as follows:- (a) The Profit & Loss Account of the assessee is not disturbed. (b) Stock summary has been furnished disclosing purchase of material as well as sale of material and closing stock and none of these figures were disturbed. (c) Copy of certificate of registration in Form B from the Central Sales Tax Department was furnished, which is placed at pages 31 & 32 of the paper book. (d) Copies of bills received from M/s. Apex Traders were furnished at pages 34 to 41 of the paper book. ./2016 Assessment year: 2009-2010 Page 4 of 7
(e) Purchases of the goods from M/s. Apex Traders were declared in the return under the Sales Tax Act.
(f) The accounts have been audited and the auditors have issued an audit report under section 30E under West Bengal Value Added Tax Act, 2003 in Form No. 88 on 14.12.2009 considering these purchases and sales and had not found any discrepancy. The Sales Tax Department accepted these purchases and sales as genuine.
(g) The Assessing Officer has not doubted the sales of these goods and under such circumstances, the purchases cannot be doubted.
(h) The assessee cannot be held responsible if the person from whom goods are purchased is not available at the address given in the bills after the lapse of a substantial period of time as they would have shifted the place of business and were under no obligation to inform the same to the assessee.
(i) That the assessee has produced all possible evidence within this possession and control to demonstrate that the purchases in this case were genuine.
On a query from the Bench, it is submitted that the payments were made in cash.
The ld. D.R., Md. Ghayas Uddin, on the other hand, vehemently controverted the submissions made by the assessee and submitted that a perusal of the bills issued by M/s. Impex Traders demonstrated that the payments were to be accepted only by account payee cheques but on the contrary, payments were made in cash. He pointed out that this discrepancy leads to the passing of an order under section 263 by the ld. CIT and that the assessee has not challenged this order. He argued that the assessee has lost his right to challenge this issue as he has accepted ./2016 Assessment year: 2009-2010 Page 5 of 7 the order passed by the ld. CIT under section 263 of the Act. He further argued that the assessee failed to produce evidence of existence of M/s. Apex Traders despite numerous opportunities. He pointed out that enquiries made by the Revenue by issuing notices under section 133(6) of the Act and by deputing the Inspector of Income Tax resulted in coming to a conclusion that M/s. Apex Traders does not exist. On quantitative tally etc. he submitted that the Assessing Officer has not specifically accepted them.
After hearing the rival contentions and considering all the papers on record as well as the orders of the authorities below and case laws cited, we hold as follows:- The undisputed fact in this case is that the assessee maintains books of account and the book results have been disturbed disallowing the said purchase. The figures of sales and closing stock have not been commented upon by the Assessing Officer. The assessee has failed to give the correct address of M/s. Apex Traders. The assessee has produced sales tax registration details of M/s. Apex Traders but no other details have been given. The books of account of the assessee are audited and the auditors who furnished the audit report under section 30E of the West Bengal Value Added Tax Act, 2003 have not found any discrepancy in the purchases from M/s. Apex Traders. The Assessing Officer in this case has not made any enquiries from the Sales Tax Department. Keeping in view the VAT returns filed by the assessee, the audit report given by the auditor, copies of the certificate of registration under Sales Tax Act of M/s. Apex Traders, the fact that the books of account of the assessee have not been rejected by the Assessing Officer, I am inclined to partly agree with the submission of the assessee that the addition in question on the ground that the purchase is a bogus purchase, cannot be sustained. The assessee has relied on the decision of the Hon’ble Jurisdictional High Court in the case of CIT –vs.- Crescent Export Syndicate [ITA No. 202 of 2008 (Calcutta High Court)], judgment dated 30.07.2008, wherein it is held as under: ./2016 Assessment year: 2009-2010 Page 6 of 7
“The assessee also produced bills in respect of all purchase made from these 15 parties and finally the ld. CIT(A) has held as regards the purchase, it is seen that these were recorded in the stock register, their consumption is also recorded therein, up to the stage of final production. All these records are audited. They are produced before the Assessing Officer for examination who had not been able to point out any defect in it. Under the circumstances the purchases are considered to be genuine. So the purchases have been held to be genuine. Accordingly, in our opinion, the learned Tribunal has correctly came to the conclusion by deleting the addition of Rs.15,69,116/- under section 40A(3) of the Act. On the other ground as it appears that the CIT(Appeal) has been directed to reconsider the matter. In view of that we do not think that any substantial question of law is involved in this matter. Hence the appeal being of 2008 is dismissed”.
In the case on hand, as payments are made in cash, the Assessing Officer as well as the ld. CIT(Appeals) have rightly suspected the genuineness of the same. The assessee has not been able to lead any third party evidence in support of its claim. The only valid argument is that there could be no sales without purchases. But the price at which the goods were purchased remained a grey colour when admittedly the payment was made in cash. As the undisputed fact that the payments were made in cash under section 40A(3) is attracted as pointed out by the ld. CIT(Appeals) in his order passed under section 263 of the Act. In view of the above discussion, I am of the view that section 40A(3) has to be applied and the disallowance restricted to this amount. This would meet the ends of justice.