ACIT 33(1)(2), MUMBAI vs. BADRIPRASAD B MISTRY, MUMBAI

Briefly the facts are that, the assessee an individual is primarily engaged in executing civil contract work. For the assessment year under consideration assessee had filed his return of income on 8.10.2010 declaring total income of Rs.11,52,310/-. In the course of assessment proceedings, the AO on the basis of information available from the Sales Tax Department found that certain purchases made by the assessee are bogus. The details of such transactions are as under: S. Name of Parties Amount (Rs.) TIN No. No. 1 Dharmesh Trading Company 4,16,000 27040154641V 2 Jainam Trade Corporation 40,73,432 27070656939V 3 M R Corporation 36,137 27710551730V 4 Donear Trading Private Limited 27,50,827 27910623885V Total 72,76,393

He further noted that as per the investigation conducted by the Sales Tax Authorities, these parties were issuing bogus bills on commission basis without selling any goods or materials. He, therefore, called upon the assessee to furnish necessary details of the purchases. On the basis of the informations submitted by the assessee, the A.O. to ascertain the genuineness of the transactions issued notices u/s.133(6) to the concerned parties, which returned unserved with the postal remark ‘not known’ or ‘not claimed’. As noted by the A.O., he also conducted enquiry through the Ward Inspector on the basis of the details provided by the assessee, however, the enquiry did not yield any result as the parties were not found in their respective addresses. He, therefore, called upon the assessee to show cause why the purchases from the CO No. 121/Mum/2016 (A.Y. 2010-11) Badriprasad B. Misty concerned parties should not be treated as bogus. In response to the show cause notice, the assessee claiming the purchases to be genuine submitted that the materials were used in construction work which is evident from the certificate issued by the builder and architect as well as payment of labour charges. He submitted that since the entire payments were made through account payee cheques, the transaction should be treated as genuine. Without prejudice to the afore-said contentions, the assessee pleaded to estimate his income in terms of section 44AD at 8%. The AO, however, did not find any merit in the submissions of the assessee and ultimately treated the purchases made from the concerned parties aggregating to Rs.72,76,396/- as ‘unexplained expenditure’ in terms of section 69C and added back to the income of the assessee. Being aggrieved of the addition so made, the assessee preferred appeal before the ld. CIT(A).

The ld. CIT(A) after considering the submissions of the assessee in the context of facts and materials on record observed that the A.O. may not have a clinching proof, but in view of the information obtained as a result of the enquiries conducted by the Sales Tax Department, the onus is on the assessee to establish the genuineness of the transactions. She observed, merely filing copies of his own ledger accounts and bank statement cannot establish the existence of the concerned parties. Though, ld. CIT(A) agreed with the observations of the A.O. that the assessee has failed to prove the purchases to be genuine, however, considering the fact that the A.O. has not disputed the sales turnover of the assessee, following the decision of the Hon’ble Gujarat High Court, she held that the entire purchases cannot be added to the income of the assessee, but only the profit element of such purchase turnover has to be treated as his income. Accordingly, she proceeded to estimate the profit at 8% of the alleged bogus purchases of Rs.72,76,396/-, which works out to Rs.5,82,100/-.

The ld. DR relying upon the observations of the A.O. submitted that apart from the information available on record, he had independently conducted enquiry to find CO No. 121/Mum/2016 (A.Y. 2010-11) Badriprasad B. Misty out the genuineness of the transaction. However, on such enquiry the concerned parties from whom the assessee claimed to have made the purchases were found to be non-existant. He submitted, the assessee having failed to establish the genuineness of the purchases, the entire purchases effected by the assessee has to be treated as bogus. Therefore the A.O. was justified in making the addition u/s.69C of the Act. The ld. AR, on the other hand, submitted that the A.O. merely relying upon the information obtained from the Sales Tax Department has made the addition which has no basis. He submitted during the assessment proceedings the assessee had produced documentary evidence to prove the genuineness of the purchases. Therefore, there is no reason to treat the purchases as bogus and even estimate the profit @ 8%. He, therefore, pleaded for deletion of addition sustained by the ld. CIT(A). In support of his contention, the ld. AR relied upon the following decisions: Sr. No. Case Law Rajeev M Kalathil 6727/Mum/2012 2 Paresh Gandhi 5706/Mum/2013 3 Hiralal Chunilal Jain 4547/Mum/2014 4 Ganpatraj A Sanghavi 2826/Mum/2013 5 Deepak Popatlal Gala 5920/Mum/2013 6 Ramila P Shah 5246/Mum/2013 7 Tarla Shah 5295/Mum/2013 8 Ramesh Kumar & Co. 2959/Mum/2014 9 M/s. Imperial Imp. & Exp. 5427/Mum/2015

We have considered the submissions of the parties and perused the material on record as well as the decisions relied upon. It is a fact on record that the A.O. had certain information available with him, as a result of enquiry conducted by the Sales Tax Department which indicated that the purchases made by the assessee from certain parties were not genuine as the concerned parties were not actually involved in any purchase and sales transactions but are only issuing false bills. We have noted, to ascertain the genuineness of the purchases claimed to have been made by the assessee, the A.O. conducted enquiry independently by issuing notices u/s. 133(6) to the CO No. 121/Mum/2016 (A.Y. 2010-11) Badriprasad B. Misty concerned parties. However, none of the notices could be served on any of the parties. When this fact was confronted to the assessee by the A.O. and he requested the assessee to produce the concerned parties before him, the assessee took a plea that they have changed their addresses that is why the notices u/s. 133(6) could not be served. However, when the A.O. called upon the assessee to produce the concerned parties or provide their new addresses, the assessee failed to comply with the request of the A.O. It is further noted, except stating that certain parties are prepared to be present before the A.O., the assessee had not made any genuine effort to produce the concerned parties. We fail to understand if the parties were willing to appear before the A.O., what prevented the assessee in producing them before the A.O. Merely because the payments were made in cheque, it cannot be said that the transactions are genuine. It is also pertinent to mention here that the assessee had not produced any conclusive proof to establish the fact that the so called goods/materials purchased from the concerned parties were actually delivered at the sites. Therefore, in absence of any evidence to prove the fact that the assessee had actually taken delivery of goods, assessee’s claim that purchases were genuine cannot be accepted. Therefore, the assessee’s claim that the entire addition should have been deleted is not acceptable. At the same time, it is a fact on record, that the A.O. has not disputed the sales effected by the assessee. Hence, it is quite possible that the assessee might have purchased the goods from some other source. Taking this into consideration and also the fact that the assessee has failed to prove beyond doubt that the purchases made from the concerned parties are genuine, there is no other option but to estimate the profit element embedded in the bogus purchases. Moreover, we have also noted that the assessee himself before the A.O. as well as ld. CIT(A) had taken an alternate contention to estimate the profit at 8%. Therefore, on an overall consideration of facts and materials on record, we are of the considered view that the ld. CIT(A) was justified in estimating the profit at 8% of the bogus purchases. In view of our afore- said decision, we do not intend to discuss much on the decisions relied upon by the ld. CO No. 121/Mum/2016 (A.Y. 2010-11) Badriprasad B. Misty AR. Suffice to say, on a careful reading of the decisions relied upon, we have observed that the finding therein were on the basis of specific fact involved in those cases. Hence, they cannot be applied to every case, de hors, the factual position. Therefore, we do not find these decisions applicable to the facts of the present case.