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Income Tax Appellate Tribunal, BENCH “D”, MUMBAI
Before: SHRI B.R.BASKARAN & SHRI PAWAN SINGH
O R D E R PER PAWAN SINGH, JM: 1. These two cross appeal are filed by assessee and Revenue against the order of CIT(A)-I, Thane dated 27.06.2014 for AY 2005-06. The assessee has raised the following Grounds of Appeal:
1. The ld. CIT(A)-1 Thane has partly allowed the appeal instead of allowing in full.
2. He has confirmed the addition of Rs. 19,92,196/-out of the addition done by the AO of Rs. 79,68,784/-. Which is against the principals of law.
The Revenue in their Cross Appeal has raised the following Grounds of Appeal:
1. Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A) was justified in restricting the addition to 25% of Rs.79,68,784/- made on account of bogus purchases from 03 parties overlooking the fact that the entire purchases were bogus specially when the Ld.CIT(A) has himself held that the genuineness of the purchases has been upheld and that the assessee failed to prove the genuineness of the transactions are non- genuine.
2. Whether on the facts and in the circumstances of the case and in law, Ld. CIT(A) was justified in overlooking the fact that the assessee failed to prove that the purchases were actually made from the above three parties, the said fictitious purchases were booked by the assessee in its P&L account in the name of the said parties and the source of alleged actual purchases if any had not been entered in the books of accounts and therefore, 100% of the bogus purchases disallowed ought to have been upheld.
3. The appellant craves leave to add amend alter or delete any ground of appeal.
4. The order of the CIT(A) may be vacated and that of the Assessing Officer may be restored.
2. The brief facts of the case are that the assessee-company, who is engaged in the business cloth merchant, filed its return of income for relevant AY on 29.10.2005 declaring total income of Rs. 2,75,830/-. The assessment was completed u/s 143(3) of the Act on 28.02.2007 determining the total income of assessee at Rs. 3,00,920/-. Subsequently, notice u/s 148 dated 23/04/2012 was issued to the assessee and the assessment u/s143(3) rws 147 of the Act was completed determining the income of assessee at Rs 82,69,704/- after making addition on account of bogus purchases of Rs.79,68,704/-. The following reasons of reopening was recorded :- “In this case, the assessee is traders of cloths during the relevant AY. Assessee claimed making purchase of various parties. In these parties M/s Manoj Mills, M/s Shree Ram Sales & Synthetics, M/s Astha Silk mills were surveyed by ITO Ward -14(3)(2), Mumbai. In that survey, these parties admitted that they were providing accommodation bills in view of that assessee’s transaction with these parties are shame transaction and profit to that extent is suppressed.” The assessee contested the notice and filed reply and submitted that return filed on 29.10.2005 may be treated in reply of the notice u/s 148 of the Act. During reassessment proceeding, the AO noticed that assessee has shown the following purchases from those parties.
Sr.No. Name of the party Transaction during the year 1 M/s Manoj Mills Rs. 32,27,804/- 2 M/s Astha Silk Industries Rs. 27,02,082/- 3 M/s Shree Ram Sales & Synthetics Rs. 20,38,898/- Total Rs. 79,68,784/-
The AO issued notices u/s 133(6) to the above three parties. The notice was replied by all three parties and wherein it was stated that they have made sales to the assessee. The AO observed that those seller have not enclosed any documentary evidence to prove the genuineness of the transaction, thus, aggregate of sale transaction of three parties was disallowed and added back to the total income of assessee in assessment order u/s 143(3) r.w.s. 147 of the Act. Aggrieved by the order of AO, the assessee filed the present appeal before the CIT(A). The Ld. CIT(A) after hearing the contention of the assessee restricted the addition to 25% of the aggregate purchase, thus partly allowed the appeal of the assessee its order dated 27.06.2004. Further aggrieved by the order of CIT(A) sustaining the addition to the extent of 25%, of aggregate of impugned purchases the assessee as well as Revenue filed these two appeals before us as per their Grounds of appeal(s).
We have heard ld Authorised Representative (AR) of assessee and ld Departmental Representative (DR) for Revenue and perused the material available on record. AR of the assessee argued that all purchases of assessee were genuine and the payments were made through banking transaction. During the reassessment proceeding, the AO issued notice to those parties. In response to the notice of the AO, all the parties submitted their reply dated 21.01.2013; the parties also furnished the photocopies of their reply to the assessee. The assessee further filed the photocopies of purchased bills, ledger accounts showing the transaction. The bank statement depicting the payment against the purchases through cross account payee cheque. The AO was relying upon the statement of Shri Rakesh Kumar M. Gupta, Prop. Of M/s Manoj Mills recorded u/s 131 on 23.02.2009 by ITO ward 14(3), Mumbai, wherein he allegedly admitted that no transaction of purchase and sale had been made by him and only accommodation bills had been provided. In the order, the AO reproduced the statement of Shri Rakesh Kumar M. Gupta. In the said statement it is not mentioned that accommodation bills were provided to the assessee. Ld AR further argued that Shri Rakesh Kumar M. Gupta was not well due to ill health and could not attend the proceeding before the AO in person. This fact was communicated by Rakesh Kumar Gupta through his letter dated 21.01.2013 and further on 11.03.2013. AR of the assessee also drawn our attention on the photocopies of affidavit of Mr. Mohit Rakesh Kumar Gupta Proprietor of M/s Astha Silk Industries and Mrs. Hema Rakesh Kumar Gupta, who is carrying the business in the name of M/s. Shreeram Sales & Synthetics and the copy of their replies filed in response to the notice u/s 133(6) of the Act, and copy ledger account along with purchase invoice and bank statement. AR of assessee further argued that the assessee has genuinely purchased all material and made the payments thereof. Shri Rakesh Kumar M. Gupta in support of genuineness of transaction with the assessee also filed an affidavit before the AO wherein it was clearly deposed that he never provided accommodation bills/entry to the assessee, the confirmation of ledger account of all parties were also submitted to the AO. AR of the assessee further argued that Ld. CIT (A) restricted the addition to 25% of the purchases without any basis and the same are liable to be deleted. AR of the assessee relied upon the various decision of this Tribunal in M/s Neeta Textiles vs. ITO , dt. 27.05.15, M/s Jitendra Harshadkumar Textiles vs. ITO in ITA No. 771/Mum/11 dt. 21.11.12, M/s C. Chotalal & Co. vs. ITO in ITA Nos. 3960 to 3967/Mum/12 dt. 24.09.2013, M/s Permit Textiles vs. ITO in ITA Nos. 3948 to 3953/Mum/12 dt. 01.10.13 & DCIT vs. Smt. Neena M. Lekhi in ITA No. 1608/Mum/13 dt. 14.01.2015. DR for Revenue argued that the assessee was not maintaining stock register and there was no proof of delivery of goods and further relied upon the statement of Mr. Rakesh Kumar Gupta recorded by ITO ward 14(3) u/s131 of the Act. Ld DR for Revenue further argued that when notice u/s133(6) was issued to those parties, they did failed to enclosed any documentary evidences in their support and strongly supported the order of AO and prayed that order of AO be restored and that order passed by ld. CIT(A) for restricting the addition to 25% may be quashed.
We have considered the rival contention of the parties and perused the material available on record. The AO made the re-opening of the assessment after recording the satisfaction. The assessee has not assailed the re-opening before us. While framing the assessment, AO inferred that certain parties were found to be none- genuine as they were providing only accommodation bills, the AO raised suspicion
about the purchases from M/s Manoj Mills for Rs. 32,27,804/-, M/s Astha Silk Industries for Rs. 27,02,082/- and M/s Shree Ram Sales & Synthetics for Rs. 20,38,898/-. The notices were issued to the parties, the parties filed their reply but no documents to substantiate their sales were filed. As no documentary evidence was enclosed to prove the transaction. The AO relied upon the statement of Mr. Rakesh Kumar Gupta which was recorded u/s 131 during the survey proceedings. The assessee was show-caused as to why these parties should not be treated as non- genuine. The assessee submitted his reply and contended that proprietor of all three concern have filed their reply, wherein they have already stated that the transaction are genuine and further contended that Mr. Rakesh Kumar Gupta has given affidavit that no accommodation bills were provided to the assessee. Rakesh Kumar Gupta further gave in writing that due to his ill health, he is not in a position to travel and attend the proceeding personally and any further enquiry may made from his through telephonic conversation. The submission made and the confirmation filed by assessee was not accepted by the AO, and AO made the addition of aggregate amount of purchases from three parties. During the appellate proceeding, the similar contention was made and it was further contended that as per section 37(1) the purchases used for trading and manufacturing activities cannot be treated as expenditure or expenses which can be disallowed as goods are necessary for trading purpose and the addition made by AO is beyond the purview of section 37(1) of the Act. Ld. CIT(A) concluded that he has confirmed the identical addition against the assessee in assessee’s case for AY 2009-10. The reopening for the year under consideration is primarily based on the assessment order of AY 2009-10 and the facts are identical. Though the CIT(A) concluded that the AO was not justified in making the addition on whole of the amount/non-genuine/bogus purchases and restricted it to 25% of the impugned purchases. The Ld. CIT(A) has not given any reason for restricting the purchases to 25% of impugned purchases. We have noticed that neither the AO nor the CIT(A) disputed that the payments for purchases were made by cross cheques which are duly reflected in the bank statement nor any discrepancy was noticed by AO. The AO and the CIT(A) not disputed the sale of the assessee, the AO has not brought any material on record, which may suggest that the payment made to purchase of goods were again received in cash by assessee. The statements of Bank accounts of parties were not examined. Section 69C provides that if the explanation offered by the assessee about the source of expenditure is not found satisfactory by the AO, the amount may be added to his income. The AO has not recorded the satisfaction that the purchases made by assessee are not genuine. The AO merely relied upon the statement of Mr. Rakesh Kumar Gupta. Mr. Rakesh Kumar Gupta has not referred the name of assessee while making such statement. The assessee has relied upon the decision of M/s Neeta Textiles vs. ITO (supra) wherein similar impugned purchases were also transacted through Mr. Rakesh Kumar Gupta (retracted later on) admitting that sales made to the parties are genuine. The Co- ordinate Bench of this Tribunal while relying the case of M/s Jitendra Harshadkumar & Co (supra) deleted the entire additions of bogus purchases. Further, the Co- ordinate Bench of this Tribunal in Pramit Textiles vs. ITO (supra) held as under:- “7. We have perused the assessment order and the order of CIT(A). We have also perused the order of the Tribunal Mumbai "I" Bench in the case of M/s. Jeetendra Harshadkumar Textiles in and 2211/Mum/2011 for assessment year 2007- 08 dated 21/11/2012. We find force in the contentions of the counsel that the facts and circumstances are identical though the figures may differ. The Tribunal had given its finding at para-8 on page-5 of its order which reads as under :- "8. We have carefully considered the rival submissions in the light of material placed before us. It will be relevant to reproduce the letter received by the AO from Shri Rakesh Kumar Gupta, which is also reproduced in the assessment order: "1 am in receipt of your summons u/s. 131 of the I.T.Act. 1961 in the case of M/s. Jitendra Harshad Kumar Textile Pvt. Ltd. asking me to attend before your goodself with the details of my account with the said M/s. Jitendra Harshad Kumar Textile Pvt. Ltd. for A.Y.2002-03 & 2007-08. As you are aware that my assessing officer had recorded alleged statement u/s. 133A and 131 of the I.T.Act. 1961 1 have been receiving witness summons from all four corners of the city on the ground that I have given accommodation bill, though I have denied the content of the statements recorded by A.O. u/s. 133A & 131 vide my letter dated 27.4.2009 and my affidavit dated 20.2.2009 submitted to ward 14(3)(2). It is physically impossible for me to attend before various income tax authorities, as I am not feeling well, it will not possible for A.Ys02-03 to 07-08.me to attend before your goodseif in response to your above mentioned summons. As regards M/s. Jitendra Harshad Kumar Textiles Pvt. Ltd. is concerned. I have already given my affidavit wherein I have specifically stated that I have sold the goods to M/s. Jitendra Harshad Kumar Textiles P. Ltd. and the consideration is received to me by cross order cheque. Copy of the said ledger account is already submitted the department." 8.1 From the above letter it is clear that the same was written in response to notice issued by the AO. Not only Shri Rakesh Kumar Gupta has stated that he has retracted from the statement recorded during the survey but also filed an affidavit dated 20/2/2009 and letter dated 27/4/2009 to deny the statement made during the survey under section 133A. He has further confirmed that the sales made by the assessee were effected and the consideration was received by cross order cheques. Thus it is clear that there is no material on record to say that the purchases made by the assessee from the said concern were bogus except the general statement recorded by the Department in the case of Shri Rakesh Kumar Gupta, which was later on retracted. In absence of any material brought on record against the submissions made by Shri Rakesh Kumar Gupta in his letter dated 20/12/2009 filed before the AO of the assessee the addition, if any, made in the case of the assessee will be based on presumption only and it cannot be sustained in the eyes of law. As against that assessee has submitted various evidences to show that the actual delivery of the goods was received by the assessee from the said party which has not been discarded by the AO. The addition sustained by Ld. CIT(A) is also on presumption basis. Therefore, keeping in view the facts and circumstances of the case, we are of the opinion that additions made by the AO deserves to be deleted in its entirety. We decide accordingly."
7.1 On identical facts, and issues, this Bench has decided the appeal in the case of M/s. C. Chotalal & Co. in No.3960 to 3967/Mum/2012 for Assessment years 2002-03 to 2009-10 dated 24/09/13 wherein one of us (the Accountant Member) is a party to the said decision. Since the facts and issues being identical, we have no hesitation in following the order of our co-ordinate Bench. Respectfully following the same all the appeals filed by the Assessee are partly allowed and all the appeals filed by the Revenue are accordingly dismissed.
As we have seen that the Co-ordinate Bench of this Tribunal in the cases referred above has categorically noted that Mr. Rakesh Kumar Gupta when confronted with his statement has categorically rebutted his statement in course of cross-examination (though not appeared in the present case). And the Co-ordinate Bench of this Tribunal in all cases deleted the addition which was based on the statement of Mr. Rakesh Kumar Gupta. We have also noticed that proprietors of M/s Astha Silk Industries & M/s Shree Ram Sales & Synthetics also filed their affidavit about the sale and purchase of goods. The AO did not make any further enquiry nor examined them. The AO and CIT(A) not referred in their order about the filing of affidavit by the proprietor of M/s Astha Silk Industries & M/s Shree Ram Sales & Synthetics. The assessee has placed on record the ledger account of M/s Manoj Mills, M/s Astha Silk Industries & M/s Shree Ram Sales & Synthetics along with the bills and delivery challans wherein payment made through cheques are duly reflected. The sale of the assessee is not disputed by AO and ld CIT(A). Thus, evidences are sufficient to show that actual delivery of goods was received by assessee from the said parties. While making the submission, DR for Revenue has not countered any of the evidence placed on record by the assessee. With these observations, we hold that AO made the addition on the basis of mere presumption and the ld CIT (A) also sustained the 25%