BOMBAY BORING WORKS P. LTD., MUMBAI V. ITO -12(1)(3), MUMBAI

ITA 893/MUM/2021

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 6901 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-03-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 23-05-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bogus purchase; Reason to believe
• Section: 271(1)(c); 133(6)

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL “SMC” Bench, Mumbai Shri Shamim Yahya (AM) I.T.A. No. 893/Mum/2021 (A.Y. 2010-11) Bombay Boring Works Pvt. Ltd. 396/15, Prakash Villa Dhanpathohar Nagar, North Avenue Road Santacruz-West Mumbai-400 054. PAN : AADCB2173R Vs. ITO-12(1)(3) Mumbai. (Appellant) (Respondent) Assessee by Shri Vimal Punmiya Department by Shri T. Sankar Date of Hearing 04.01.2022 Date of Pronouncement 15.03.2022 O R D E R This appeal by the assessee is directed against the order of learned CIT(A) dated 30.10.2017 pertains to A.Y. 2010-11. 2. The grounds of appeal read as under :- 1. On the facts and circumstances of the case and in law the Ld CIT(A) erred in confirming the initiation of the reassessment proceeding under section 147. On the facts and circumstances of the case and in law the Ld CIT(A) failed to consider that reassessment proceeding cannot be initiated. No reassessment can be made just to make an enquiry or verification. Reassessment proceeding cannot be initiate merely on the information received from investigation wing. Reassessment proceeding cannot be initiated when the LD. CIT(A) have reason to suspect and not reason to believe. 2. On the facts and circumstances of case and law the Ld CIT(A) erred in confirming the assessment order under section 143 sub section 3 r w s 147 of income tax Act which is passed against the principal of natural justice. 3. The Ld. CIT(A) erred in confirming the addition of genuine purchases of Rs. 11,49,548/- and thereby erred in confirming and treating the same as bogus purchases. Bombay Boring Works Pvt. Ltd. 2 4. The Ld. CIT(A) erred in confirming the charging of interest under section 234A, 234B, 234C and 234D of the Income Tax Act 1961. 5. The Ld. CIT(A) erred in confirming the initiation of the penalty proceeding under section 271(l)(c) of the Income Tax Act 1961. 6. The Assessee craves leave to add further grounds or to amend or alter the existing grounds of appeal on or before the date of hearing.” 3. Brief facts are that in its P/& L account, the Assessee debited purchases of Rs. 18,25,779/-. The purchase debited included purchases claimed to have been made from following parties. Sr. No. Name of the party Amount of purchase (in Rs. ) 1 Shakti Trading Co. 44,616/- 2 Nankkishor Sales agency Pvt. Ltd. 1,41,364/- 3 Adarsha Trading Co. Pvt. Ltd. 1,16,480/- 4 Sunico Traders Pvt Ltd. 2,88,871/- 5 Big Step International 5,58,217/- Total 11,49,548/- The AO learnt that the aforementioned parties were declared as hawala dealers by the Sales Tax department. The AO also received information that these parties were providing accommodation entries without affecting any actual sales. In the course of the assessment proceedings the appellant filed copy of bill/ledger in support of the purchases made from the aforementioned parties. 4. In order to verify the genuineness of the purchases the AO issued notice u/s. 133(6) to the parties these notice were returned unserved by the postal authorities. In view of the above the appellant was asked to explain why the purchase from parties mentioned above should not be disallowed. The reply the appellant regard is paraphrased below: a) The appellant made purchases of goods from above mentioned parties against valid tax invoice and mode payment by cheque these purchases. b) The appellant was a contractor and in the business of sales and repairs and reconditioning of all types of engine components c) Material purchased were consumed for our contract work. Without the purchases, the contracts could, not have been executed. d) Addition cannot be made on the basis of information received from sales tax department. Bombay Boring Works Pvt. Ltd. 3 e) Addition cannot be made on the basis of suspicion alone. f) Statements made by the before the Sales Tax Department are not binding on the income tax authorities. 5. The AO rejected the appellant's explanation and disallowed the claim. The relevant portion of the assessment order is reproduced below: "The assesses failed to produce the above mentioned hawala party for verification. Further, the assessee failed to provide copies of transportation receipts in support of movement of goods and copy of stock register statement. The assessee is engaged in the business activity of manufacturing, it is not verifiable the material consumed by the assessee company. Thus the assessee failed to substantiate its claim of genuine purchases from the aforesaid party by following standard operating procedure. Accordingly an amount of Rs. 11,49,548/- is added back in the total income of the assessee Penalty proceedings u/s. 271(1)(c) are initiated for furnishing inaccurate particulars of income. 6. Against this order assessee appealed for the learned CIT(A). Learned CIT(A) held as under :- “6.1 I have considered contention of the appellant in the course of assessment proceedings, appellant was asked to furnish the details of the transaction and to prove the genuineness of the same. The appellant was provided with sufficient opportunities to prove the genuineness of the purchases. The appellant, however, did not choose to avail the opportunity so provided. Therefore the transactions remained unsubstantiated. Notices u/s 133(6) of the Act issued to the parties were returned unserved by the postal authorities. The appellant failed to produce the purchase register, stock register, challans and invoices. Thus appellant failed to prove the genuineness of the transaction. 6.2 In the course of appellate proceedings, the appellant did not attend the hearings on any date. I, therefore do not see any reason for interfering with the finding of the Assessing Officer on this issue. Accordingly, the disallowance of Rs. 11,49,548/- is upheld.’’ 7. Against this order assessee is in appeal before ITAT. 8. I have heard the parties and perused the records. Learned counsel of the assessee submitted that authorities below have not doubted the sales still they have made hundred percent disallowance. He submitted that when sales are not doubted hundred percent disallowance is not sustainable on the touchstone of honourable Bombay High Court decision in the case of Nikunj Exempt Enterprises. Learned counsel of the assessee further submitted that in Bombay Boring Works Pvt. Ltd. 4 this case assessee has already shown 70% gross profit. He submitted that there are various case laws where disallowance has been done only to the extent of 12.5% to cover the gross profit in such case. He submitted that when the gross profit earned is already 70% no disallowance is called for. However he agreed that 5% disallowance in this case is agreeable to the assessee. 9. Upon careful consideration I note that learned CIT(A) in this case has dismissed the appeal basically for non-prosecution. The learned CIT(A) has no such power under the act. In this view of the matter his order is not at all sustainable. Moreover I note that sales have not been doubted in this case. Similarly assessee has also shown gross profit of 70%. In this view of the matter in my considered opinion of 5% disallowance shall serve the interest of justice. I decide accordingly. 10. In the result, assessee’s appeal is partly allowed. Order pronounced in the open court on 15.3.2022. Sd/- (SHAMIM YAHYA) ACCOUNTANT MEMBER Mumbai; Dated : 15/03/2022 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. BY ORDER, //True Copy// (Assistant Registrar) PS ITAT, Mumbai