DCIT 20(2), MUMBAI vs. PARUL L. SHAH, MUMBAI

Order under section 254(1) of Income Tax Act PER PAWAN SINGH JUDICIAL MEMBER: 1. These two cross appeals under section 253 of Income Tax Act (‘Act’) by revenue and the assessee are directed against the order of Commissioner (Appeals) 29, Mumbai, dated 30 Sept 2014 for assessment year 2010-11. As both the appeals are filed against the same order by the parties, thus clubbed, heard together and are decided by common order, to avoid the conflicting decisions. &7520/M/2014 AY 2010-11, Parul L Shah

concern and the average rate of interest at which interest is paid to nonrelated parties and disallowed proportionate interest expenses attributable to the difference between lending to the related parties and nonrelated parties at Rs.2,82,837 /-. The learned CIT(A) while considering this ground of appeal observed that the assessee has sufficient capital balance available with them, which it can lend to the cistern concerned in the time of need. The capital of the firm/ assessee as on 31 March 2009 is at Rs. 39,53,704/- and Rs. 92,56,447/- as on 31 March 2010, which clearly indicate that assessee had sufficient interest- bearing funds available at their disposal to advance money at lower rate of interest @ 6% as compared to the interest paid or charged from other parties. The ld CIT(A) relied upon the decision of Hon’ble Bombay High Court in CIT versus Reliance Utilities and Power Ltd (313 ITR 340) and deleted the disallowance. Considering the peculiarity of the facts of the present case when the assessee has sufficient surplus fund available with them at their disposal to lend to its sister concern at lower rate of interest compared to the other nonrelated parties no disallowance was warranted. Hence, we do not find any infirmity or illegality in the order passed by Commissioner (Appeals) which require our interference. Thus this ground of appeal raised by the revenue is dismissed.

4. The second Ground (Ground No. 2 to 5) raised by revenue relates to sustaining the disallowance of bogus purchases @ 23% of the total purchases. The learned DR of the revenue strongly relied upon the order of AO and further argued that assessee failed to prove the genuineness of purchases. It was argued that during the assessment proceedings the assessee was asked to prove receipt of goods and proof of delivery of material, challans including the lorry receipt. The assessee failed to produce any documentary evidence about the delivery of the goods. The onus was upon the assessee to prove the genuineness of transaction and the assessee failed to discharge his onus. The ld Commissioner (Appeals) sustained the addition @ 23% on the basis of GP rate despite the fact that assessee has failed to prove the genuineness of transaction. The Ld DR for the revenue argued &7520/M/2014 AY 2010-11, Parul L Shah that the order of Commissioner (Appeals) may be set aside and that order of AO may be restored. On the other hand ld AR of the assessee argued that that during the assessment proceeding the AO did not furnished the assessee the information received from the Sale Tax Department. No statement of the persons which were allegedly recorded by the Sales Tax Department was supplied to the assessee. The AO has not made any independent inquiry and relied on the information of the third-party while making addition against the assessee. The assessees prove the genuineness of transaction before the assessing officer. The assessee purchased the material of Rs.52,12,502/- from five parties and payments were made through account payee cheques. The supplier from whom the assessee purchased the material was duly registered with the Sale Tax Authorities. The materials purchased from the said parties have been sold to various parties in the market. The AO not doubted the sale of the assessee. During the assessment preceding assessee produce the bills of material purchased from the parties. The name and address of the parties were mentioned on the bill itself, none of the party is found to be non-existent. The AO not issued the notice under section 133(6) nor summoned anyone of them by invoking power under section 131 of the Act. The ld AR of the assessee argued that the addition on account of bogus purchases sustained by ld Commissioner (Appeals) @ 23% is at higher side when the GP rate was lower. It was argued by ld AR of the assessee that the assessee purchased the material by way of genuine transaction and prayed that a lenient view may be taken while considering this ground of appeal

5. We have considered the rival contention of the parties and gone through the orders of authorities below. We have seen that during the assessment proceedings the AO relied upon the information received from DDIT (investigation) that the assessee during the relevant financial year has made certain purchases from five parties whose names appeared in the list of bogus billers. Such information was received from Sale Tax Department Government of Maharashtra clearing the bogus billers have accepted that they have only issued bills to the assessee without actually delivering the goods. The AO noted &7520/M/2014 AY 2010-11, Parul L Shah that purchases have been shown without receipt of any actual delivery of goods. The AO identified the following five parties.

Sl. No Name of the parties Amount (Rs.) 1 Motion Traders Private Limited 24,99,764/- 2 Eveready Marketing Private Limited 1,26,319/- 3 Seva Enterprises 7,44,806/- 4 Abhilasha Sales Private Limited 7,71,623/- 5 Laxman Sales Private Limited 10,69,990/- Total 5 2,12,502/-

that the AO nowhere doubted the corresponding sales made by assessee against the alleged bogus purchases during the year under consideration. The ld CIT(A) further concluded that consumption of goods purchased is reconciled with the sales recorded in the stock inventory of the goods purchased /sold and the purchases of material cannot be held as bogus or not genuine. From the details submitted by the assessee it can be observed that the assessee had made the purchases of various types of art paper from the parties in question and after making since against such purchases and offered the profit there from for taxing in the return of income for the year under consideration. However, while concluding that the genuineness of the purchases made by assessee is not in doubt, what is doubt at this estate is the correctness of the purchase price shown on the invoices issued by the impugned parties. As the parties who had issued the bills are not available for verification, the purchase price shown on the invoices issued by those parties in question cannot be accepted in absence of proper verification and thus in such circumstances, it can be held that such purchases are over- invoiced resulting in lowering down the gross profit. Commissioner further concluded that assessee has shown gross profit of 20.16% during the year under consideration. After considering the GP ratio rendered CIT (Appeals) held that if gross profit @ 23% is applied on the total cost of impugned bogus purchases the gross profit on the same would come to Rs.11,98,875/-. And the ld Commissioner (Appeals) restricted the disallowance at Rs 11,98,875/- and granted the relief of Rs. 40,13,627/-to the assessee. Considering the facts that the genuineness of the purchases made by the assessee was not doubted by ld Commissioner (Appeals) the disallowance restricted @23% to our opinion is at higher side. Thus as per our considered opinion the disallowance @ 15% of total impugned purchases would be sufficient to meet the end of Justice. We accordingly direct the AO to calculate the disallowance is of impugned bogus purchases @15% of total cost of impugned purchases. With this observation the appeal of the assessee is partly allowed.

&7520/M/2014 AY 2010-11, Parul L Shah

Order pronounced in the open court on this 18th November, 2016.