ITO 9(2)(1), MUMBAI vs. INDEPESCA OVERSEAS P. LTD, MUMBAI

Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा सद�य सद�य राजे�� राजे�� केकेकेके अनुसार अनुसार PER RAJENDRA, AM- लेखा लेखा लेखा सद�य सद�य राजे�� राजे�� अनुसार अनुसार Challenging the order,dated 02.12.2013,of CIT(A)-20,Mumbai,the Assessing Officer(AO)has filed the present appeal.Assessee-company, engaged in the business of trading and processing of raw fish and export of sea food,filed its return of income on 13.10.2010. The AO completed the assessment,u/s.143(3),of the Act on 15.3.2013 determining the income of the assessee at Rs. 28. 20 crores. 2.First ground of appeal is about deleting the addition made on account of unconfirmed purchases,amounting to Rs.16,37,87,197/-.During the assessment proceedings the AO found that the assessee had shown sundry creditors of Rs.10.15 crores.To verify the genuineness and credit -worthiness of the creditors, he called for information u/s. 133(6) from some of the parties,on test check basis,from whom the assessee had made purchases.He found that in most of the cases notices were served but the parties had not filed any details.The AO was of the opinion that purchases to the extent of Rs.17.38 crores,in respect of 16 parties,had not been proved.He issued a show cause notice u/s.142(1)of the Act.After considering the submissions of the assessee dt . 22.01.2013,30.01.2013 and 27.02.2013,the AO held that in majority of cases notice issued u/s. 133(6)were either returned unserved/not replied,that the respective parties had furnished incomplete details,that the assessee had not furnished evidence of total purchase in respect of 9 cases, that proper addresses were not made available, that mere filing of explanation without supporting documents did not authenticate the genuineness of purchases, that the payments had been made through banking channels,that the assessee had not brought all bills and invoices of such purchases,that the confirmation letters filed by the assessee did not prove the nature of transaction,that there were incomplete details, that the assessee had booked fictitious purchases to inflate the expenditure and to reduce the profit.Finally,he made a disallowance of Rs.17,38, 01,213/-. 3.Aggrieved by the order of the AO the assessee preferred an appeal before the First Appellate Authority(FAA).Before him,it was submitted that all the details, confirmations from the suppliers,ledger accounts, bank accounts, bank statement of the supplier, copy of acknowledge -

ITA/1711/M/14,AY.10-11-Indepesca ment of filing of return of income of the suppliers were filed by the assessee, that the ledger Account of the assessee in the books of the supplier parties along with their confirmations were furnished during the assessment proceedings,that most of the suppliers were illiterate or not conversant with perfect account system, that out of the 16 suppliers 11 parties were fish suppliers,that as per the set procedure material arrival report was prepared at the factory site,that in the material arrival report details like varieties, accounts, weight agreed and total value of the goods was mentioned,that the report was countersigned by both the parties,that final material arrival report was being maintained by the assessee,that the AO had wrongly disallowed the genuine purchases and had brushed aside the reliable evidences, that by letter dt.27.2.2013 the AO was made aware of the submission of the confirmations,that in respect of differences in closing balance reconciliation statement had been filed. The FAA,vide his letter,dt.7.10.2013,forwarded the material to the AO and to offer his comments.The AO made his submissions about the material sent by the FAA by his letter,dt. 13. 11.2013.In his remand report,the AO stated that the assessee had made an application for rectification u/s.154 of the Act,that it was found that there was a mistake in addition of Rs.1, 00, 14,017/-,that the purchases to the tune of Rs.16,37,87,197/- were not genuine, that the documents submitted by the assessee were incomplete or were not filed at all, that the assessee except for submitting ledger account had not furnished any substantive evidence, that the bank statement were filed only in one case, that no bank details were filed in respect of 12 parties, that it had not filed invoices for purchase in 10 cases, that the stock register was not submitted , that the claim of expenses made by the assessee remained unproved. In response to the observations of the AO the assessee contended before the FAA that it had filed copy of ledger accounts of all the 16 supplying parties, copy of ledger account of the assessee in suppliers books/confirmation duly signed by all the 16 parties, copy of relevant extract of bank statements, copies of invoices of six suppliers,that reconciliation statement was also furnished, that out of 16- six suppliers had not supplied fish,that there was no question of submitting raw material for such supplies,that assessee had submitted copy of invoices during the course of scrutiny assessment, that vide letter dt.30.1.13 the assessee had furnished copies of raw material reports along with sample copies of invoices,that the AO had not asked to submit the stock register. After considering the submissions of the AO and the assessee,the FAA held that the AO had disallowed purchases of Rs.17.38 crores without any valid reason and without rejecting the genuineness of the purchases,that the AO had not established the facts that the purchases made by the assessee were bogus,the assessee had been able to refute each and every argument with necessary evidence,that the AO vide its order 27.9.13 had rectified the mistakes u/s.154 of the Act,that the AO had reduced addition of Rs.7.54 cr. (Rs.1.00cr +6.54cr),that the assessee had submitted copy of ledger account of all 16 suppliers along with the confirmation,that the assessee had filed copies of relevant extract of respective bank account of the suppliers,that the basic evidences were provided to the AO, that the assessee had filed reconcilliation statement vide its letter dt.27.2.13, that assessee had submitted copies of acknowledgement of return of income of the suppliers.He further held that if the evidences produced by the assessee were not genuine and the payments made through banking channels were not satisfactory it was the legal responsibility of the AO to make further investigation and to establish the contrary facts, that the assessee had discharged its onus.With regard to the letter dt.13.11.2013 of the AO, the FAA observed that submissions made by the AO were full of incorrect narration and untrue statement. During the course of assessment proceedings,the assessee had produced all the books of account, that the 2

ITA/1711/M/14,AY.10-11-Indepesca AO while passing the order had never asked for producing Xerox copies of all documents, that the succeeding AO could not contend that assessee had not filed complete documents, that the AO in its letter 13.11.2013 had made certain factually incorrect observations, that the letter of the assessee dated .27.2.13 and 23.9.2013 clearly proved that confirmation of 16 suppliers, copies of relevant extract of bank statement and copies of reconciliation statement were filed by the assessee,that six of the creditors were not fish suppliers,that question of submitting of raw material report in such cases did not arise, that the assessee had submitted copies of invoices during assessment proceedings and AO had accepted the factual positions,that the succeeding AO had made incorrect observation about invoices for purchases, that the AO had not called for the stock register,that there was difference of Rs.9,154/- with regard to purchase expenditure , that the reconciliation about said transaction was filed. The FAA further held that AO had not rejected the veracity of books of account nor had made any observation of incorrectness or incompleteness of books of account u/s. 145(3) of the Act.The FAA referred to the case Sanchita Marine Products Pvt. Ltd.(15 SOT 280) and Hi Lux Automatic (P.)Ltd. (ITAppeal No.A33 of 2007 of Hon’ble Delhi High Court dt.23.3.2009.He also referred to the case of Nikunj Exim Enterprises Pvt. Ltd. of the Hon’ble Jurisdictional Hugh Court. Finally, the FAA directed the AO to delete the entire disallowance made under the head purchase expenses. 4.Before us,the Departmental Representative(DR)supported the order the AO and stated that necessary documents were not produced before the AO.His attention was drawn to the observa - tions of the FAA about filing of documents and misreporting of facts by the succeeding AO.He was directed to produce the original assessment records of the AO and to verify the veracity of the claim made by the AO in his letter dated 13.11.2013.After two weeks period the DR admitted that the assessee had produced the documents as mentioned by the FAA.The Authorised Representative(AR)supported order of the FAA and made the same submission that were made before the FAA.

5.We have heard the rival submissions and perused the material before us.We find that initially the AO had disallowed an amount of Rs.17.38 Crores under the head unproved purchases,that in the rectification proceedings carried out on two occasions he reduced it to Rs.7.54 Crores,that he had issued notices u/s.133(6)of the Act on test check basis,that during the appellate proceedings the FAA had forwarded certain documents to the AO and had called for his comments,that the successor AO alleged many an irregularities in the accounts maintained by the assessee,that the FAA has given categorical finding of fact about filing of confirmation letters of suppliers of fish along with details of their bank statement,copies of acknowledgment of income tax returns and reconciliation statement.He specifically mentioned that vide letters dated 27.2.13 and 23.9.2013 the AO had furnished all the necessary details.Before us,the DR on the basis of the assessment records,admitted that both the letters and the annextures to the letters were available on the file of the AO.In thses circumstances,we are of the opinion that the findings of facts recorded by the FAA with regard to the purchases in question present the true picture and the comments of the AO made in his letter 13.11.2013 were factually incorrect.It is also a fact that the AO had not rejected the books of accounts maintained by the assessee,nor has doubted the genuineness of the sales made by it.In the matter of Nikunj Exim Enterprises Pvt. Ltd.(Income Tax Appeal No.5640 of 2010),the Hon’ble Bombay High Court has specifically held that in a case where sales are considered genuine,no addition,on account of bogus purchases,can be made.Considering the 3

ITA/1711/M/14,AY.10-11-Indepesca facts that all the details were furnished before the AO and that same were not considered by him and respectfully following the judgment of Nikunj Exim Enterprises Pvt. Ltd.(supra),we decide the effective Ground of appeal against the AO.