ITO 25(2)(4), MUMBAI vs. RITESH R. JAIN, MUMBAI

सुनवाई क� तार�ख/Date of Hearing : 05/10/2016 26/10/2016 आदेश क� तार�ख /Date of Order: आदेश / O R D E R Per Ashwani Taneja (Accountant Member): This appeal has been filed by the Revenue against the order of Ld. Commissioner of Income Tax (Appeals), Mumbai- 35,{(in short ‘CIT(A)’}, dated 02.12.2013 passed against

2 Ritesh R. Jain assessment order of the AO dated 26.03.2013 u/s 143(3) for the Assessment Year 2010-11 on the following grounds: “i.On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition of Rs 2,64,31231/- u/s 69C of the I.T. Act by treating the purchases as genuine." ii. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in relying upon judgments in the case of CIT vs. Nikunj Eximp Enterprises Pvt. Ltd. without appreciating that the facts involved in the appellant's case are different from the facts of the above case law. iii. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has grossly erred in accepting the assessee's claim though the parties have already accepted in their statement on oath that they have not entered into any business with the assessee before the Sales Tax Authorities," iv. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) grossly erred in not appreciating the fact that alleged bills were not supported by supply of goods and the notices under 133(6) issued to parties from whom alleged bills were received were returned undelivered by the postal authorities and the assessee has also filed to produce the parties before the AO.' v. "On the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in deleting the disallowance made by the AO overlooking the explicit finding of the investigation carried out by the Sales Tax Department and corroborated by the enquiries of the AO.." vi. On the facts and circumstances and in law the Ld CIT(A) erred in deleting the addition made on account of depreciation on motor car of Rs.1,84,092/- without appreciating the fact that the car was not used for business purpose vii. On the facts and circumstances and in law the Ld CIT(A) erred in not considering the fact that the assessee introduced this asset just to claim depreciation as the addition on the same issue made for A.Y.2009-10 was accepted by the assessee.”

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4 Ritesh R. Jain by the assessee aggregating to Rs.2,64,31,231/-, but, the AO relying upon the information sent by the Sales Tax Department had issued notice to these parties for further verification. In absence of any proper response, it was held by him that impugned purchases were not genuine. It is noteworthy that during the course of assessment proceedings, the assessee had pleaded before the AO that though complete evidences are available, but, in absence of proper response from these parties, 6% of the purchases may be added to income by treating the same as inflated purchases. But, entire amount of these purchases was added to the income of the assessee by the AO. 3.3. Being aggrieved, the assessee filed an appeal before Ld. CIT(A) wherein detailed submissions were made along with requisite evidences in support of these purchases. The arguments made by the assessee before the Ld. CIT(A) were summarized in the appeal order by Ld. CIT(A) as under: “a) Payments were through banking channel and by cheque. b) Purchase invoice raised by the supplier and submitted to the AO. c) Notice issued but not served, does not mean that these parties are bogus, they are just denying their business transaction to avoid sales tax/VAT etc. d) Statement by third parties cannot be concluded adversely in isolation and without corroborating evidences against the assessee. e) Failure to produce parties cannot be treated adversely against assessee.”

5 Ritesh R. Jain 3.4. Ld. CIT(A) considered all the submissions of the assessee and deleted the entire purchases by observing as under: “I have gone through the contentions of the appellant, findings of the AO and various submissions made. The main contention of the AO is that the names of these 11 sellers appear in the list of the suspicious dealers in the list published by Sales Tax Department, Mumbai. On the basis of this the AO sent notices u/s.133(6) of the I.T, Act, 1961 which were returned unserved with various remarks like not known, unclaimed, left, refused. On the basis of the statement made by these parties before the Sales Tax Department and the non service of notices u/s 133(6) led the AG to conclude that the purchases were bogus and were only accommodation entries. As part of the statement the appellant has brought forward the facts that he has furnished all the details of purchases and sales the invoice copies of these transactions, the bank statements and also that the accounts were duly audited both under the Income Tax Act and under the VAT Act 2005 for the purpose of VAT Audit. The appellant has also referred 'to Hon'ble jurisdictional High Court in the case of M/s.Nikunj Eximp Enterprises Pvt. Ltd. and Babulal C. Borana both referred to Supra to make his argument that the books of the appellant are not being rejected and the sales have not been doubted. The payments have been made by cheques and the AO has not found. any .reason to question the genuineness of those papers. All these evidences were available before the AO during the course of assessment but the AO has not found anything incriminating with any of these documents. The appellant has also submitted that if these purchases were to be added then gross profit on these transactions is 99.92% which is impossibility. After going, through the above submissions and facts I find merit in the arguments of the appellant that once the sales are being treated as genuine and the appellant has vouched for the purchase both through invoice and cheque payments then merely to hold the purchases as bogus on the basis of suspicious list does not lead to the 6 Ritesh R. Jain conclusion that these purchases are bogus. The addition made in this regard is therefore deleted.”

3.5. We have gone through the orders of the Ld. CIT(A). Crux of the reasoning given by the Ld. CIT(A) is that though the assessee had placed complete documentary evidences to substantiate these purchase, but without bringing any contrary material on record, the AO rejected the claim of the assessee and made addition of entire purchase despite the fact that entire payment was made by cheque. The AO made the disallowance merely on the ground that no response was given by these parties in response to notice issued by the AO. Ld. Counsel of the assessee vehemently relied upon judgment of Hon’ble Bombay High Court in the case of CIT vs. Nikunj Eximp Enterprises Pvt. Ltd. (supra) and submitted that in view of the same the addition has been rightly deleted by the Ld. CIT(A). However, during the course of hearing before us both the parties fairly stated that the addition offered by the assessee himself @ 6% of the purchase should be sustained. 3.6. We have considered entire material held on record as well as submissions made by both the sides before us. We find that when the assessee had himself offered to make disallowance @ 6% of purchase of Rs.2,64,54,407/- then, the additions at least to this extent ought to have been sustained by the Ld. CIT(A). Therefore, in these peculiar facts and circumstances of this case, we direct the AO to sustain the disallowance to the extent of 6% of the purchases of Rs.2,64,54,407/- and balance amount is held to be rightly deleted by the Ld. CIT(A). Therefore, order of Ld. CIT(A) is modified accordingly.

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Order pronounced in the open court on 26th October, 2016