M D DIESEL SPARES,HOWRAH vs. ITO, WARD-47, KOLKATA

The assessee in this appeal has agitated against the addition of Rs.18,85,520/- made by the Assessing Officer u/s 69C of the Act on account of bogus purchases.

The brief facts of the case are that the assessee firm is involved in the business of spare parts of the machinery. The assessee firm for the year under consideration filed its return of income declaring a total income of Rs.45,150/-. The said return was processed u/s 143(1) of the Assessment year: 2012-13 M D Diesel Spares Act. Thereafter, information was received by the Assessing Officer from the Investigation Wing that one Shri Sanjiw Kumar Singh was involved in providing bogus bills to various parties. That the assessee was also one of the beneficiaries of bogus bills by way of transaction made by the assessee with M/s Durga Commodeal Pvt. Ltd. of Rs.7,90,400/- and M/s Gajraj Sales Pvt. Ltd. of Rs.10,95,120/-, totalling Rs.18,85,520/- during the financial year 2011-12 relevant to assessment year under consideration. The assessment of the assessee on the basis of the aforesaid information was reopened u/s 147 r.w.s. 148 of the Act. During the reassessment proceedings, the assessee submitted various documents such as bills, VAT returns, purchase inputs etc. The assessee also claimed that the entire payments were made through banking channel. However, in respect of the delivery transport challan, the assessee explained that these were spare parts of the machinery and were delivered to the assessee via ‘Hand Cart’. However, the Assessing Officer did not agree with the aforesaid submissions and held the entire purchases as bogus and made the impugned addition of Rs.18,85,520/- as unexplained expenditure u/s 69C of the Act observing as under:

“7. In response to notices the assessee submitted some documents in online. It is very much astonishing that all the goods which were delivered to the assessee by the alleged sham companies were via "Hand Cart". The assessee firm had accepted their transactions with the alleged companies viz. Gajraj Sales and Durga Commodeal Pvt. Ltd. but the assessee has failed to furnish any evidence in support of the genuineness of the alleged transaction with the sham concerns of Shri Sanjiw Kumar Singh. Therefore, the assessee fails to discharge their onus to rebut their involvement in the alleged transaction by way of bogus purchase from the companies which were paper concerns of Shri Sanjiw Kumar Singh.

In this context, reference is made to the case of N. K. Proteins Ltd Vs. Deputy Commissioner of Income Tax [2017] 84 taxmann.com 195 (SC), wherein Hon'ble Apex Court upheld the judgment of High Court of Gujarat that entire purchase shown on the basis of fictitious invoices debited in Assessment year: 2012-13 M D Diesel Spares trading account should be added as bogus purchase u/s. 69C of the Income Tax Act 1961.

In the light of the above discussions and facts and circumstances of the case, the alleged purchase amounting to Rs. 18,85,520/- claimed to have made from a paper concerns of so called Shri Sanjiw Kumar Singh (Bill Mater) is treated as bogus purchase claim of the assessee and added with the returned income of the assessee on account of unexplained expenditure u/s 69C of the I.T. Act, 1961. Therefore, the said sum of Rs. 18,85,520/- is considered as undisclosed income of the assessee and assessment is made accordingly. Penalty proceedings u/s 271(1)(c) has been initiated for such unexplained expenditure.”

The ld. CIT(A) confirmed the addition so made by the Assessing Officer.

We have heard the rival contentions and gone through the record. At the outset, the ld. counsel for the assessee has invited our attention to the submissions made before the CIT(A), wherein, it has been duly submitted before the CIT(A) that the assessee firm had brought to the notice of the Assessing Officer that it had purchased goods from the parties through banking transaction and the purchases were supported by bills, VAT returns and purchase inputs, hence the purchases were genuine. It was also pointed out by the assessee that the invoices issued by the parties who had the VAT numbers printed on them and the challans were also issued against the said invoices of delivery of the goods. The ld. counsel for the assessee further submitted that due to the nature of the goods, the goods had been delivered through hand cart and the payments for the said purchases were either made in the previous year 2011-12 itself or subsequently by account payee cheques. The ld. counsel further submitted that in the case of Gajraj Sales Pvt Ltd, the payments for outstanding balance of A.Y 2011-12 were made during the year. The said purchases were held to be genuine in the assessment carried out in the case of the assessee for A.Y 2011-12. However, for the Assessment year: 2012-13 M D Diesel Spares year under consideration, the Assessing Officer, solely relying on the report of the investigation wing, made the impugned addition of the purchases made from the aforementioned two parties invoking the provisions of section 69C of the Act. The ld. counsel, in this respect, has relied on the paper-book containing copy of the bank statement evidencing payments made through banking channel, the details of purchases made during financial year 2011-12, copy of invoices and challans raised by Gajraj Sales Pvt. Ltd. The ld. counsel further referred to the assessment order dated 20.12.2018 passed in assessee’s case, on similar facts and circumstances u/s 143(3) r.w.s. 147 of the Act for assessment year 2011-12, wherein, the Assessing Officer, considering the entire evidences furnished by the assessee, did not make any addition in an assessment framed u/s 147 of the Act, wherein, reopening was done on the basis of the similar information from the Investigation Wing relating to the purchases made by the assessee during the financial year 2010-11 relevant to assessment year 2011-12. The Assessing Officer vide order dated 20.12.2018 accepted the returned income without making any additions on this issue. For the assessment year under consideration i.e. A.Y 2012-13, the assessee, as noted above, had furnished the entire evidences relating to the purchases made by the assessee, however, both the lower authorities without considering the above evidences has made the impugned addition which, in our view, is not sustainable in the eyes of law. Moreover, in this case, the sales have been admitted, the purchases are supported by vouchers and bills along with VAT returns. Even otherwise, the amount has been paid through banking channel which was out of the accounted income of the assessee. Under such circumstances, the source of the expenditure cannot be doubted. There is no question of making the addition u/s 69C of the Act.