SHEELA ROSHANLAL OHRI,MUMBAI vs. ITO WD 20(3)(2), MUMBAI

O R D E R

PER AMARJIT SINGH, JM:

1. On the facts and circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) has erred in confirming the disallowance of Rs.45,27,573/- out of total purchases made by the appellant during the relevant period amounting to Rs.12,34,63,618/-.

3. The brief facts of the case are that the assessee filed the return of income on 29.10.2005 declaring total income to the tune of Rs.3,38,460/-. The return of the income was accompanied by computation of income, audited balance sheet, profit and loss account and audit report u/s.44AB of the Income Tax Act, 1961 ( in short “the Act”) in the form of 3CB and CD. The assessee is engaged in manufacturing trading and exports of readymade garments. Assessment was completed u/s.143(3) of the Act determining total income to the tune of Rs.4,69,22,380/-. The main addition made in the order on account of Bogus Purchases of Rs.4,34,40,500/-. The assessee preferred an appeal before the CIT(A) and the CIT(A) vide its order deleted the entire addition made by the Assessing Officer. The revenue has preferred an appeal before the ITAT and the ITAT vide order no. dated 19.01.2010 set aside the order of the CIT(A) and restored the matter to the Assessing Officer. In the original assessment order the Assessing Officer has came to the conclusion that out of purchase bills of Rs.4,34,40,500/-, the purchase bill of Rs.1,56,78,639/- are pertaining to the earlier years. The 2 A.Y. 2005-06 assessee was following mercantile system of accounting, therefore it is mandatory on the part of the assessee to offer the same in the earlier year i.e.2004-05. The assessee explain that the purchases were made in the earlier year could be accounted in the subsequent year after due verification which were general practice in trade. After the remand of the case, the Assessing Officer disallowed the purchase from the six parties on account of non-service of the notice u/s.133(6) of the Act. The purchase to the tune of Rs.45,27,573/- was treated as unexplained and added to the income of the assessee. The assessee filed an appeal before the CIT(A) and the CIT(A) dismissed the appeal of the assessee, therefore, the assessee has filed the present appeal before us.

4. We have heard the arguments advanced by the learned representative of the parties and perused the record. The learned representative of the assessee has argued that the CIT(A) has wrongly confirmed the disallowance of Rs,45,27,573/- out of the purchases made by the appellant during the relevant period amounting to Rs.12,34,63,618/-.However on the other hand Ld Representative of the Department has refuted the said contention. The present appeal before us is the second round of appeal by the parties. The only dispute is in connection with the confirmation of Rs.12,34,63,618/-. The reasons which has been mentioned by the CIT(A) for declining the claim as follows:-

3 A.Y. 2005-06 “Now, coming to the issue regarding the purchases of Rs.45,25,573/-, I find that these pertain to 6 parties namely M/s.Deokiran Agencies, M/s.Growwel Associates, M/s.Team Work Knit, M/s.Vardhaman Spinning Mills and M/s.A.M.Tex from whom the A.O. sought but received no confirmation during the original assessment proceedings. During the fresh assessment proceedings, the A.O. had called for information again but noted that required information / confirmation was not received. Further, the original assessment order as well as the impugned assessment order and remand report received make it quite apparent that it is the practice of the appellant that when purchases were made, the bills relating thereto were often not in the name of the appellant but in the name of its sister concerns and the payments for these purchases were also made by the sister concerns and the payments for these purchases were also made by the sister concerns directly to the sellers. The appellant thereafter made payments to its sister concerns. The appellant has submitted that the fact that the opening balances of parties from whom these purchases were made, was either nil or an amount relating to other bills shows that the purchases were not entered or taken into account in the preceding year. However, in such circumstances, given the absence of a stock register, it is very difficult to correlate whether the purchases in question were utilized for the 4 A.Y. 2005-06 appellant’s own name from the same parties who also supplied goods to its sister concerns. Therefore, it is unlikely that the parties have incorrectly issued the bills in the name of the appellant’s sister concern if the goods in question were meant for the appellant. In the impugned order, the A.O., after verifying the stock register allowed the purchase for those goods which the appellant utilized for its own business purpose. In view of the foregoing discussion, I do not find any infirmity in the order of the Assessing Officer and hence the addition of Rs.45,27,573/- made by the learned AO is accordingly confirmed. This ground of appeal is therefore dismissed.”

5. The assessee has produced the details at page 14 of the paper book which is reproduced as follows:-

S. PARTY BILL DATE OF ENTRY AMOUNT PAID PAID BANK NAME/ LC NO. No NAME NO. INVOICE DATE OF OUT OF DATE AMOUNT INVOICE DISALLO- WANCES 1 A.M.TEX 8 01/11/2003 01/04/2004 318,144 01/04/2004 318,144 CANARA BANK- LC/23/10 2 DEOKIRAN 26 22/01/2004 01/04/2004 544,000 23/06/2004 544,000 SARASWAT BANK AGENCIES CHQ. NO.039053 3 GROWWEL 31 20/03/2001 01/04/2004 379,968 06/04/2004 379,968 SARASWAT BANK ASSOCIATES CHQ. NO.039101 24 16/02/2004 01/04/2004 282,744 21/05/2004 282,744 CANARA BANK CHQ.NO.529760&529761 13 12/01/2004 01/04/2004 249,039 19/04/2004 249,039 CANARA BANK CHQ.NO.504903&504904 4 TEAM WORK 23 12/03/2004 01/04/2004 245,886 11/06/2004 100,000 CANARA BANK KNIT CHQ. NO.529647 5 A.Y. 2005-06 23/06/2004 145,886 SARASWAT BANK CHQ. 039054 5 VARDHAMA 2358 02/02/2004 01/04/2004 980,083 03/05/2004 980,083 SARASWAT BANK N SPG. MILLS LC/062 2241 08/01/2004 01/04/2004 490,048 17/04/2004 490,048 CANARA BANK LC/54/60 2240 08/01/2004 01/04/2004 598,952 17/04/2004 598,952 CANARA BANK LC/54/60 6 UNICORN 30 13/02/2004 01/04/2004 147,359 02/05/2004 147,359 CANARA BANK IMPEX CHQ.NO.529747 27 27/12/2003 01/04/2004 291,350 14/05/2004 150,000 CANARA BANK CHQ.504990 19/05/2004 141,350 CANARA BANK CHQ.504989 4,527,573 4,527,573 The main ground for declining the said purchases is that the notices u/s.133(6) of the Act were not served and some purchases were belonging to earlier year and the transaction was done through sister concern. The primary onus to disclose about the identity of the purchasers, the addresses, bills and details of bank transaction was upon the assessee which has been discharged by him. It came into the notice that the Assessing Officer merely issued the notices u/s.133(6) of the Act which were not served. No further inquiry was done by the assessing officer. Non service of notice cannot be cause to decline the purchases because after the non-services of the notice no further enquiry was done by the Assessing Officer. If the purchase has been routed through the sister concern, the same cannot be base to decline the purchase also. In the instant case sufficient information has been given by the assessee which has not verified / confirmed by the proper and justifiable enquiry. The sale is not disputed. Some entries