ITO 17(2)(2), MUMBAI vs. HANSRAJ DHANJI PRASAD HUF, MUMBAI

Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा लेखा सद�य लेखा लेखा सद�य सद�य राजे�� सद�य राजे�� राजे�� केकेकेके अनुसार राजे�� अनुसार अनुसार PER RAJENDRA, AM- अनुसार Challenging the order dated 22,4.14 CIT(A)29, Mumbai the Assessing Officer ( AO) has filed the present appeal. Assessee-HUF is engaged in trading activities in cotton canvas plastic and tarpaulins and erection of temporary monsoon shed on hire basis, filed its return of income on 30.9.2009, declaring total income at Rs.12.97 lacs.The AO completed the assessment u/s. 143(3) of the Act on 23.12.2011, determining the income of the assessee at Rs.23.84 lacs. 2.First Ground of appeal is about reducing the addition made by the AO on account of alleged bogus purchases. During the course of assessment proceedings the AO made enquiries by issuing letters u/s. 133(6) of the Act, to four parties namely M/s. Shrinath Trading Company, M/s. UV Distributors Pvt. Ltd., M/s. Sangura Trading Pvt. Ltd. and M/s.Saileela Trading Pvt. Ltd., that the assessee had made purchases from these parties of Rs.16.15 lacs, Rs.21.65 lacs, Rs.15.62 lacs and Rs.7.72lacs respectively during the year .The letters sent by the AO returned unserved.As per the AO the assessee did not provide proper details regarding purchases made from the above parties despite the number of opportunities provided to it.He treated the purchase made from the above four parties as bogus purchase amounting to Rs.61.15 lacs, and added back this amount to the income of the assessee. 3.Aggrieved by the order of the AO,the assessee preferred an appeal before the First Appellate Authority (FAA).Before him, it was argued that it had discharged its initial onus by providing the purchase bill containing addresses,sales tax number of the purchasers,that it had furnished the bank statement showing payments made to the above parties by cheques along with the ledger copy of the above parties, that stock statement was supplied to the AO to prove the consumption of the material for erection of monsoon shades,that the AO had not pointed out any defects in the books of account, that if the sales were accepted there was no justification for disapproving the purchases, that it had filed the confirmation along with the purchase bills from the above parties during the assessment proceedings.The assessee filed certain details with regard to purchases before the FAA and made a request to admit the above evidences as per the provisions of Rule 46A of the Income tax Rules 1962.The FAA 1 4678/M/14-Hansraj directed the AO to file a remand report. After considering the remand report and the comments of the assessee on the remand report, the FAA held that even during the remand proceedings the assessee could not provide the current addresses of the parties from whom the purchases were made during the year under appeal, that the AO had not given any conclusive finding to prove that purchases were bogus, that he had doubted the genuineness of the purchases only on the ground that purchasers had not responded to the letters issued by him u/s.133(6) of the Act, AO had accepted the total sales made by the assessee for the year under consideration, that he had not treated any part of the sales as bogus, that payments to the sellers of the goods were made through banking channels, assessee had shown the quantitative tally of the stock purchased/sold.Finally, he held that there was no question of disallowing the entire purchases , that the assessee had not produced the parties from whom goods were purchased, that the possibility of obtaining bill from non-existent parties could not be ruled out, that there were chances of inflating the purchase to reduce the profit. He referred to the cases of Simit P. Sheth (IT appeal No.553 of 2012 dt.16.1.2013) of the Hon’ble High Court of Gujarat and held that only the profit element embedded in such purchases was to be taxed and not the entire amount of the alleged bogus purchases. He directed the AO to disallow 11% of the alleged bogus purchases for the year under appeal. 4.During the course of hearing before us, the DR contended that assessee had failed to produce the alleged sellers of the goods, that the letters issued u/s. 133(6) could not be served on the addresses given by the assessee. The Authorised Representative (AR) stated that all the necessary details were made available to the AO during the assessment proceedings, that the AO had accepted the sales, that in the remand report the AO had not doubted the genuineness of the transactions. He referred to cases of Balaji Textile Industries (49ITD177), Rajiv G. Kalathil(ITA/6727/Mum/2012-AY09-10 dt.20.8.2014); Nikunj Exim Enterprises of Hon’ble Bombay High Court. 5.We have heard the rival submissions and perused the material before us. We find that while submitting his remand report on 7.3.2014 the AO had made the following observation at para no.4:- “On perusal of the additional evidences filed by the assessee during the appellate proceedings such as confirmations, copy of account in the books of the appellant, bank statement and sales tax paid challan, it appears that payment for alleged purchases had been made through the bank account of the assessee, therefore, to that extent the claim of the assessee that purchases are genuine seems to be in order, but in the absence of any cross verification by way of section 133(60) of the IT Act, 1961 the same is not established.” We find that the AO had made the addition only because letters issued by him could not be served on the purchasers.In our opinion he should have issued summons to the parties and made further enquiries in that regard specially when the payments were made through banking channels.In our opinion after accepting the genuineness of the sales he was not justified in rejecting the corresponding purchases. It is also a fact that the assessee had furnished all the necessary evidence during the assessment/remand proceedings like purchase bills, ledger accounts of the supplier of goods, confirmation of the parties, details of payments made through banking channels.In the case of Nikunj Exim Enterprises (supra), the Hon'ble Bonbay High Court held that if the sales are accepted by the AO then purchases should not be rejected.Considering the peculiar facts and circumstances of the case we are of the opinion that the order of the FAA does not suffer from any legal or factual infirmity.We find that he had confirmed the addition to the tune of Rs.61.15 lacs i.e. @ 11% of the purchases.In our opinion, there is no justification in disturbing his order.First Ground of appeal is decided against the AO.

4678/M/14-Hansraj