INCOME TAX OFFICER WARD 3(2) , KALYAN V. M/S. RAS ENTERPRISES, KALYAN

ITA 417/MUM/2022

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 6901 (ITAT-MUMBAI)
• Duration Of Justice: 4 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-07-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 28-02-2022
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SMITA NAIR
• Keywords: Bogus purchase
• Section: 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “SMC” MUMBAI BEFORE SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) AND SHRI SANDEEP SINGH KARHAIL (JUDICIAL MEMBER) ITA No. 417/MUM/2022 Assessment Year: 2009-10 ITO, Ward 3(2), 2 nd floor, Rani Mansion, Murbad Road, Kalyan West-421 301. Vs. M/s Ras Enterprises, 9/5, Ellora Housing Complex No.2, G. Gupte Road, Dombivli (W)-421 202. PAN No. AAHFR 7866 E Appellant Respondent Revenue by : Ms. Smita Nair, DR Assessee by : Ms. Rutuja Pawar/Riddi Chavan, Adv. Date of Hearing : 20/06/2022 Date of pronouncement : 15/07/2022 ORDER PER OM PRAKASH KANT, AM This appeal by the Revenue has been preferred against the order dated 16.08.2021 passed by the National Faceless Appeal Centre (NFAC), Delhi [herein after referred as ‘the Ld. CIT(A)] for assessment year 2009-10, raising following grounds: 1. On the facts and in the circumstances of the case and in law, the Ld. CIT (NFAC) erred in restricting the disallowance to 12.5% of purchases instead vendors by not following the judgment dated 26.06.2016 of the Hon'ble Gujrat High Court in the case of N. K. Proteins Ltd. against which SLP of the assessee was dismissed by the Apex Court wherein addition on account o upheld in entirety. 2. On the facts and in the circumstances of the case and in law, Ld. CIT (NFAC) erred in deleting the above addition despite the fact that the assessee failed to discharge his onus of proving the purchases. 2. Briefly stated, the facts of the case are that in view of the information received from the Sales Tax Department about receipt of bogus purchase bills by the assessee from four entities, the assessment was reopened by way of issue of notice u/s 148 of the Income Tax Act, 1961 (in short ‘the Act’). During assessment proceedings, the Assessing Officer noticed that assessee derived income from business of manufacturing and trading of pumps used in chemical industries. During the year under consideration, the assessee had shown total turnover of On the facts and in the circumstances of the case and in law, the Ld. CIT (NFAC) erred in restricting the disallowance to 12.5% of purchases instead of 100% of purchases from nonexistent vendors by not following the judgment dated 26.06.2016 of the Hon'ble Gujrat High Court in the case of N. K. Proteins Ltd. against which SLP of the assessee was dismissed by the Apex Court wherein addition on account of bogus purchases has been upheld in entirety. On the facts and in the circumstances of the case and in law, Ld. CIT (NFAC) erred in deleting the above addition despite the fact that the assessee failed to discharge his onus of proving the purchases. Briefly stated, the facts of the case are that in view of the information received from the Sales Tax Department about receipt of bogus purchase bills by the assessee from four entities, the assessment was reopened by way of issue of notice u/s 148 of the Income Tax Act, 1961 (in short ‘the Act’). During assessment proceedings, the Assessing Officer noticed that assessee derived income from business of manufacturing and trading of pumps used in chemical industries. During the year under consideration, the ssessee had shown total turnover of ₹81,89,551/- and gross profit ITA No. 417/M/2022 M/s Ras Enterprises 2 On the facts and in the circumstances of the case and in law, the Ld. CIT (NFAC) erred in restricting the disallowance to 12.5% of of 100% of purchases from nonexistent vendors by not following the judgment dated 26.06.2016 of the Hon'ble Gujrat High Court in the case of N. K. Proteins Ltd. against which SLP of the assessee was dismissed by the Apex f bogus purchases has been On the facts and in the circumstances of the case and in law, Ld. CIT (NFAC) erred in deleting the above addition despite the fact that the assessee failed to discharge his onus of proving the Briefly stated, the facts of the case are that in view of the information received from the Sales Tax Department about receipt of bogus purchase bills by the assessee from four entities, the assessment was reopened by way of issue of notice u/s 148 of the Income Tax Act, 1961 (in short ‘the Act’). During assessment proceedings, the Assessing Officer noticed that assessee derived income from business of manufacturing and trading of pumps used in chemical industries. During the year under consideration, the and gross profit of ₹12,14,110/- was shown at a gross profit rate of 14.81% as compared to turnover of preceding year of ₹14,30,000/- was shown at a gross profit rate of 13.97%. The Assessing Officer asked the assessee to produce four parties from whom purchases of account of the assessee. However, the assessee failed to produce those parties and therefore, the Assessing Officer disallowed corresponding purchases of completed on 18.07.2014 u/s 147 of the Act. On further appeal, the Ld. CIT(A) distinguished the finding of the Hon’ble Gujarat High Court in the case of N.K. Proteins v. DCIT (supra) and following the finding of the predecessor in assessment year 2010 and also finding of the Tribunal, Mumbai Bench in the case of Kanchan FerroMet ITA No. 1552/Mum/2017 disallowance to the extent of 25% of the amount of unproved purchases of ₹5,71,056/ was shown at a gross profit rate of 14.81% as compared to turnover of preceding year of ₹12,35,285/ shown at a gross profit rate of 13.97%. The Assessing Officer asked the assessee to produce four parties from whom purchases of ₹5,71,056/- were recorded in the books of account of the assessee. However, the assessee failed to produce those parties and therefore, the Assessing Officer disallowed responding purchases of ₹5,71,056/- in the assessment completed on 18.07.2014 u/s 147 of the Act. On further appeal, the Ld. CIT(A) distinguished the finding of the Hon’ble Gujarat High Court in the case of N.K. Proteins v. DCIT (supra) and following the inding of the predecessor in assessment year 2010- and also finding of the Tribunal, Mumbai Bench in the case of Kanchan FerroMet ITA No. 1552/Mum/2017 disallowance to the extent of 25% of the amount of unproved ,71,056/-. The Ld. CIT(A) held that the Assessing ITA No. 417/M/2022 M/s Ras Enterprises 3 was shown at a gross profit rate of 14.81% as 12,35,285/- on which of shown at a gross profit rate of 13.97%. The Assessing Officer asked the assessee to produce four parties from were recorded in the books of account of the assessee. However, the assessee failed to produce those parties and therefore, the Assessing Officer disallowed in the assessment completed on 18.07.2014 u/s 147 of the Act. On further appeal, the Ld. CIT(A) distinguished the finding of the Hon’ble Gujarat High Court in the case of N.K. Proteins v. DCIT (supra) and following the 11 and 2011-12 and also finding of the Tribunal, Mumbai Bench in the case of restricted the disallowance to the extent of 25% of the amount of unproved . The Ld. CIT(A) held that the Assessing Officer has not disputed the sale or the closing stock it is not the case that the assessee. The assessee else and bills from those parties. The relevant finding of the Ld. CIT(A) is reproduced as under: “8.4 I have carefully considered the facts of this case, the facts collected by the Id. AO, the arguments put forth by the Id. AR, various decisions related to and the decisions by the predecessor Ld. CIT(A) in the appellant's own case, on exactly similar facts. In the gamut of the facts of this case, I find myself in consonance with the decision delivered by the predecessor CIT(A)3, Nasik that the genuineness of the purchase bills have not been established in this case. However, it has also not been established that the purchases were not made at all. The Id. AO has not disputed the amounts of sale or of the closing stock not known at what price the appellant may have made these purchases from the "unknown parties' and thus, one cannot rule out the possibility of their being an inflation in the amounts of purchases. In view of all these facts it is directed tha 25% of the amounts of unproved purchases of Rs. 5,71,056 be disallowed.” 3. Aggrieved, the Revenue is in appeal before the Tribunal raising the grounds as reproduced above. Officer has not disputed the sale or the closing stock that those purchases have not been made at all by . The assessee has obtained purchases from somewhere lse and bills from those parties. The relevant finding of the Ld. CIT(A) is reproduced as under: I have carefully considered the facts of this case, the facts collected by the Id. AO, the arguments put forth by the Id. AR, various decisions related to the facts which are similar to this case and the decisions by the predecessor Ld. CIT(A) in the appellant's own case, on exactly similar facts. In the gamut of the facts of this case, I find myself in consonance with the decision delivered by the sor CIT(A)3, Nasik that the genuineness of the purchase bills have not been established in this case. However, it has also not been established that the purchases were not made at all. The Id. AO has not disputed the amounts of sale or of the closing stock not known at what price the appellant may have made these purchases from the "unknown parties' and thus, one cannot rule out the possibility of their being an inflation in the amounts of purchases. In view of all these facts it is directed that an amount of 25% of the amounts of unproved purchases of Rs. 5,71,056 be Aggrieved, the Revenue is in appeal before the Tribunal raising the grounds as reproduced above. ITA No. 417/M/2022 M/s Ras Enterprises 4 Officer has not disputed the sale or the closing stock and therefore, been made at all by has obtained purchases from somewhere lse and bills from those parties. The relevant finding of the Ld. I have carefully considered the facts of this case, the facts collected by the Id. AO, the arguments put forth by the Id. AR, the facts which are similar to this case and the decisions by the predecessor Ld. CIT(A) in the appellant's own case, on exactly similar facts. In the gamut of the facts of this case, I find myself in consonance with the decision delivered by the sor CIT(A)3, Nasik that the genuineness of the purchase bills have not been established in this case. However, it has also not been established that the purchases were not made at all. The Id. AO has not disputed the amounts of sale or of the closing stock. It is also not known at what price the appellant may have made these purchases from the "unknown parties' and thus, one cannot rule out the possibility of their being an inflation in the amounts of t an amount of 25% of the amounts of unproved purchases of Rs. 5,71,056 be Aggrieved, the Revenue is in appeal before the Tribunal raising 4. We have heard the rival submissions of the parties on the issue-in-dispute and case, the only dispute has been raised by the Revenue is that following the decision of the Hon’ble Gujarat High Court in the case of N.K. Proteins (supra) entire amount of purchases should hav been disallowed rather than restricting disallowance to 25% (wrongly mention as 12.5% in the grounds). We find that the Ld. CIT(A) has distinguished the decision of N.K. Proteins (supra) observing as under: “8.1 The appellant has submitted copies of the copy of the bank statement showing that it had made the purchases and payments are made by cheques. The assessee has also submitted that the material was consumed in manufacturing. I find that the ld. AO has rested his case only with a parties from whom the alleged bogus purchases were made could not be traced or produced before the AO. He has not established any fact to show that the appellant did not at all make any purchase amounting to safely inferred that this is not a case of bogus purchase but it is a case of obtaining bogus bills to support purchases made from 'unknown' sources. To this extent, in my view, the ratio of N.K We have heard the rival submissions of the parties on the and perused the relevant material on record. In the case, the only dispute has been raised by the Revenue is that following the decision of the Hon’ble Gujarat High Court in the case of N.K. Proteins (supra) entire amount of purchases should hav been disallowed rather than restricting disallowance to 25% (wrongly mention as 12.5% in the grounds). We find that the Ld. CIT(A) has distinguished the decision of N.K. Proteins (supra) The appellant has submitted copies of the purchase bills and copy of the bank statement showing that it had made the purchases and payments are made by cheques. The assessee has also submitted that the material was consumed in manufacturing. I find that the ld. AO has rested his case only with a finding that the parties from whom the alleged bogus purchases were made could not be traced or produced before the AO. He has not established any fact to show that the appellant did not at all make any purchase amounting to ₹5,71,056. Thus, from the facts on record, it may be safely inferred that this is not a case of bogus purchase but it is a case of obtaining bogus bills to support purchases made from 'unknown' sources. To this extent, in my view, the ratio of N.K ITA No. 417/M/2022 M/s Ras Enterprises 5 We have heard the rival submissions of the parties on the perused the relevant material on record. In the case, the only dispute has been raised by the Revenue is that following the decision of the Hon’ble Gujarat High Court in the case of N.K. Proteins (supra) entire amount of purchases should have been disallowed rather than restricting disallowance to 25% (wrongly mention as 12.5% in the grounds). We find that the Ld. CIT(A) has distinguished the decision of N.K. Proteins (supra) purchase bills and copy of the bank statement showing that it had made the purchases and payments are made by cheques. The assessee has also submitted that the material was consumed in manufacturing. I find finding that the parties from whom the alleged bogus purchases were made could not be traced or produced before the AO. He has not established any fact to show that the appellant did not at all make any purchase on record, it may be safely inferred that this is not a case of bogus purchase but it is a case of obtaining bogus bills to support purchases made from 'unknown' sources. To this extent, in my view, the ratio of N.K Proteins vs. DCIT is not applicable to Proteins, it was established that the assessee had inflated the purchases as during search at the office premises, blank signed cheque books, vouchers, blank bill books, letter heads of various concerns were found and it was were floated by the assessee just to create a facade of transactions for inflating expenses, such as purchase, etc 4.1 Before us, the Ld. DR could not support as how the ratio in the case of N.K. Proteins (supra) would app where sales have not been doubted by the Ld. Assessing Officer only defect has been raised by the Assessing Officer is non production of those purchase parties. Though in the year under consideration, gross profit rate of to the earlier year, however, the Ld. CIT(A) following the decision of the Tribunal has restricted the disallowance to the 25% of the unproved purchases of Ld. CIT(A) on the issue find any error in the same. Accordingly, we uphold the same. The grounds raised by the Revenue are accordingly dismissed. Proteins vs. DCIT is not applicable to the facts of this case. In N K Proteins, it was established that the assessee had inflated the purchases as during search at the office premises, blank signed cheque books, vouchers, blank bill books, letter heads of various concerns were found and it was established that these concerns were floated by the assessee just to create a facade of transactions for inflating expenses, such as purchase, etc”. Before us, the Ld. DR could not support as how the ratio in the case of N.K. Proteins (supra) would apply over the facts of the case where sales have not been doubted by the Ld. Assessing Officer only defect has been raised by the Assessing Officer is non production of those purchase parties. Though in the year under consideration, gross profit rate of the assessee is better as compared the earlier year, however, the Ld. CIT(A) following the decision of as restricted the disallowance to the 25% of the unproved purchases of ₹5,71,056/-. In our opinion, the order of the Ld. CIT(A) on the issue-in-dispute is well reasoned and we do not find any error in the same. Accordingly, we uphold the same. The grounds raised by the Revenue are accordingly dismissed. ITA No. 417/M/2022 M/s Ras Enterprises 6 the facts of this case. In N K Proteins, it was established that the assessee had inflated the purchases as during search at the office premises, blank signed cheque books, vouchers, blank bill books, letter heads of various established that these concerns were floated by the assessee just to create a facade of transactions Before us, the Ld. DR could not support as how the ratio in the facts of the case where sales have not been doubted by the Ld. Assessing Officer and only defect has been raised by the Assessing Officer is non- production of those purchase parties. Though in the year under the assessee is better as compared the earlier year, however, the Ld. CIT(A) following the decision of as restricted the disallowance to the 25% of the . In our opinion, the order of the dispute is well reasoned and we do not find any error in the same. Accordingly, we uphold the same. The grounds raised by the Revenue are accordingly dismissed. 5. In the result, the Order pronounced in the Court on Sd/- (SANDEEP SINGH KARHAIL JUDICIAL MEMBER Mumbai; Dated: 15/07/2022 Rahul Sharma, Sr. P.S. Copy of the Order forwarded to 1. The Appellant 2. The Respondent. 3. The CIT(A)- 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// In the result, the appeal filed by the Revenue is dismissed. ounced in the Court on 15/07/2022. Sd/- SANDEEP SINGH KARHAIL) (OM PRAKASH KANT JUDICIAL MEMBER ACCOUNTANT Copy of the Order forwarded to : BY ORDER, (Sr. Private Secretary ITAT, Mumbai ITA No. 417/M/2022 M/s Ras Enterprises 7 appeal filed by the Revenue is dismissed. - OM PRAKASH KANT) MEMBER Sr. Private Secretary) ITAT, Mumbai