Whether purchases can be treated as bogus solely on the ground that suppliers are not traceable if the assessee has paid by a/c payee cheques and produced the income-tax and sales-tax documents and bank statements of the suppliers?

IN THE INCOME TAX APPELLATE TRIBUNAL “G” BENCH, MUMBAI

BEFORE S/SHRI B.R.BASKARAN (AM) AND AMIT SHUKLA, (JM)

I.T.A. No.2826/Mum/2013

(Assessment Year : 2009-10)

Shri Ganpatraj A Sanghavi

135/141, 1st floor, Room No.23,

Gururajendra House,

5th Kumbharwada,

Mumbai-400004

(Appellant)

Versus.

Assistant Commissioner of Income Tax,

15(3),

Mumbai.

(Respondent)

PAN/GIR No. :AMXPS1466M

Appellant by Shri V K Tulsian

Respondent by Shri Pavan Kumar Beerla

Date of Hearing : 16.10.2014

Date of Pronouncement : 5.11.2014

O R D E R

Per B.R.BASKARAN, Accountant Member:

The appeal filed by the assessee is directed against the order dated 4.2.2013 passed by Ld CIT(A)-26, Mumbai and it relates to the assessment year 2009-10.

2. The Assessee is aggrieved by the decision of ld. CIT(A) in confirming the disallowances of following amounts made by the AO :

a) disallowances of purchases – Rs.1,74,01,436/-;

b) disallowance of donation;

c) disallowance of telephone expenses; and

d) disallowance of hamali and cartages expenses.

3. The facts relating to the case are stated in brief. The assessee is a proprietor of M/s Gururaj Metals and the said concern is in the business of supply of Ferrous and non-ferrous metals to small sale industries. He filed his return of income for the year under consideration declaring total income of Rs.33,88,804/-. However, the AO completed the assessment by determining total income of the assessee at Rs.2,08,58,870/- by making various additions. The assessee challenged the additions by preferring an appeal before the ld. CIT(A), but the same was partly allowed. Still aggrieved, the assessee has filed this appeal before us.

4. The first issue relates to the disallowance of purchases made. The facts relating to the same are stated as under by the ld. CIT(A) :

“3. Ground No.1 is against the addition of Rs.1,74,01,436/- on account of bogus purchases. Brief facts in this regard are that during the assessment proceedings, inquiries were made u/s 133(6) from various parties from where the assessee has shown purchase of metals. The notice issued to the five parties ie. M/s Montex Industries, M/s Roshan Steel Impex, M/s Mokesh Metal and Tubes, M/s Viraj Steel and Alloys and M/s Shivam Metals Industries returned back by the postal authorities with a remark “not known”. Accordingly, the AO issued show cause notice to the assessee as to why the purchases from these parties should not be treated as non-genuine and the same should not be added back. In response to the said notice, the assessee furnished ledger copy of purchases, signed by the respective parties and copies of sample purchase bills along with a few delivery challans and claimed that the purchases are genuine. However, the AO further inquired this matter through on the spot field inquires by the Inspector, who submitted that none of the parties exists at the given address and the inquiries with the nearby shops revealed that nobody is aware about these parties. The report of the Inspector forms part of the assessment order. On the basis of detailed enquiries, the AO came to the conclusion that the assessee has managed to obtain the signatures of these parties, but actually these parties does not exists at the given address.

The AO has further observed that

(i) the receiver’s signature are not affixed on the delivery challans of the purchase from these parties.

(ii) the mode of transport for delivery of these goods is not mentioned on the purchase bills of these parties whereas the purchases invoice of other parties contains the lorry number etc.

(iii) Major portion of purchases are still shown outstanding in the list of sundry creditors.

On the basis of all these facts, the AO has held that the assessee has merely obtained accommodation entries for these purchases. If at all such purchases have been made from some other party, to make corresponding sales, the same would obviously be in cash, which would attract the provisions of section 40(A)(3) of the IT Act Accordingly, the AO has disallowed Rs.1,74,01,436/- on account of such bogus purchases.”

5. In the appellate proceedings, the assessee submitted additional evidences under Rule 46A of the Income Tax Rules, 1962 in the form of TIN allotment letter, Sales Tax Acknowledgement of E-return, challans, certificates under VAT etc in respect of purchases in question. Hence the ld. CIT(A) called for a remand report from the AO. In the remand report, the AO submitted that, out of five parties referred above, three parties, viz., (a) M/s Roshan Steel Impex (b) M/s Viraj Steel and Alloys and C ) M/s Shivam Metals Industries appear in the list of hawala operators prepared by the Sales Tax Department. The AO further submitted that he has obtained bank statements of all the five parties and the perusal of the same shows that they have withdrawn the amounts in cash as soon as the cheques issued by the assessee were realised. The AO also placed reliance on the decision of the Delhi Bench of the Tribunal in the case of DCIT V/s Phoolwati Devi (2009) 314 ITR AT I (Delhi) and also the decision of Hon’ble Supreme Court in the case of SumanDayal V/s CIT (1995) 214 ITR 801 (SC). Accordingly, the AO stood by the assessment order. The AO further observed that if at all the purchases were considered to have been made from any other party, the same would have been sourced out of undisclosed income of the assessee, in which case the provisions of sec. 69C of the Act would be attracted. Even though the assessee furnished a detailed reply in response to the remand report and also placed reliance on various case law, yet the ld. CIT(A) concurred with the view taken by the AO. The ld. CIT(A) also concurred with the view of AO that the assessee would have made purchases from the grey market and such purchases would have made in cash resulting in violation of the provisions of section 40(A)(3) of the Act. He also agreed with the view taken by AO that assessee has not explained the sources for making such purchases and hence the aggregate amount of purchases is liable to be assessed as unexplained expenditure under the provisions of section 69C of the Act. Accordingly, the ld. CIT(A) confirmed the addition made by AO on this issue.

6. We have heard the rival contentions on this issue and perused the record. The AO placed reliance on the written submissions furnished before the ld. CIT(A) whereas the ld. DR placed strong reliance on the orders of authorities below. We notice that the assessee has furnished following reply in response to the remand report furnished by AO:

“3.2 In this respect, the appellant’s submissions made during the appeal proceedings are as under:

“We are in receipt of the remand report dated 21.12.2012 on 31.12.2012

1. The assessee had filed written submissions, paper book and application for additional evidence u/R 46A before your honour The matter was remanded to the AO for a report vide letter dated 12.9.2012. The assessee had filed further details being ledger account of sundry creditors subsequently paid duly highlighted in the bank statement, in the remand proceedings.

2,. On perusal of the remand report it is seen that the AO in para 6 states that out of the 5 parties, three parties are hawala operators. The AO however accepts the existence of parties on enquiry with the banks (refer 9 on page 4 of the remand report)

3. The assessee respectfully submits that :

A. the assessee is proprietor of M/s Gururaj Metals, which is engaged in the business of supply of ferrous and non-ferrous metals to small scale industries. For the relevant previous year, the assessee has declared GP of 4.48% and NP of 1.01% on turnover of Rs.4,36,53,266/- (Pg.1-33 of the written submissions ) As compared to the same, the assessee had, in the immediately preceding year, declared GP of 4.36% and NP of 1.02% on the turnover for that year. In the P/L account, the assessee has credited sales of Rs.4.36,53,266. The assessee has declared net profit of Rs.4.42,515/- from his proprietary concern, M/s Gururaj Metals. The assessee is registered under MVAT and filing the VAT returns regularly. Various judicial pronouncements have been submitted to your honour vide paper book 1

B. During the courses of assessment proceedings, the AO had issued notice u/s 133(6) to 23 parties. Out of the same in case of 5 parties the notice came back as not known.

C. The AO held that the aggregate purchase of Rs.1,74,01,436/- are bogus purchase. The AO has relied on the copy of inspector report wherein it was submitted that parties were not in existence at the address.

D. The assessee submits that the parties confirmation bear their PAN Nos. and invoice copy bears their VAT No. and address. The payments were made by account payee cheque. Thus the assessee had discharged the primary onus of proof by proving the identity of party and genuineness of the transactions .

To read the full judgment, please find the attached file:

Attached file:

http://www.itatonline.in:8080/itat/upload/82106174586022980513$5%5E1REFNO2826-various-Amitshukla-G.pdf