Short Overview : As AO had not doubted the sales, therefore even though assessee had not produced the parties from whom he had allegedly obtained bogus purchase bills, addition under section 69C would be restricted to the extent of peak purchases.

AO made an addition under section 69C relying on the statements and findings of the Sales Tax Department, Government of Maharashtra coupled with the fact that the notices issued by him under section 133(6) were returned un-served by the postal authorities. Assessee raised an alternate ground before CIT(A) that the peak purchases could at the most be determined as unexplained purchase.

 It is held that Though the assessee was not able to produce the parties from whom he had allegedly obtained bogus purchase bills, before the AO for examination; it was a fact on record that AO had not doubted the sales. Thus, it was logical that without corresponding purchases, the assessee could not have made the sales. Hence, addition made by AO under section 69C would be restricted to the extent of peak purchases.

Decision: In assessee’s favour.

Referred: Pr. CIT (Central)-1 v. NRA Iron & Steel Pvt. Ltd. Civil Appeal No. of 2019 (Arising out of SLP (Civil No. 29855 of 2018) : 2019 TaxPub(DT) 1628 (SC),Udit Kalra v. ITO [ITA No. 220/2019 & C.M. No. 10774/2019 dated 8-3-2019] : 2019 TaxPub(DT) 3068 (Del-HC),Pr. CIT v. NDR Promoters Pvt. Ltd. [ITA No. 49/2018 of Delhi High Court, dated 17-1-2019] : 2019 TaxPub(DT) 0886 (Del-HC),N.K. Industries Ltd. v. Dy. CIT (2016-TIOL-3165- HC-AHM-IT) : : 2016 TaxPub(DT) 3862 (Guj-HC),CIT v. M/s Jansampark Advertising & Marketing (P) Ltd. (2015) 231 Taxman 384 (Delhi) : 2015 TaxPub(DT) 0992 (Del-HC),Vijay Proteins Ltd. v. CIT 2015) 58 taxmann.com 44 (Gujarat) : 2018 TaxPub(DT) 7917 (Guj-HC),CIT v. Arun Malhotra (2014) 47 taxmann.com 385 (Delhi) : (2014) 363 ITR 195 (Del) : 2014 TaxPub(DT) 1564 (Del-HC),CIT v. La-medica (2001) 117 Taxman 628 (Delhi) : (2001) 250 ITR 575 (Delhi) : (2001) 168 CTR 314 (Delhi) : 2001 TaxPub(DT) 1244 (Del-HC) and N.K. Proteins Ltd. v. Dy. CIT (2017-TIOL-23-SC-IT) : 2017 TaxPub(DT) 1860 (SC)

IN THE ITAT, MUMBAI BENCH

SAKTIJIT DEY, J.M. & N.K. PRADHAN, A.M.

ITO v. Sunil Govind Agre

ITA No. 2312/MUM/2018

31 July, 2019

Assessee by: None

Revenue by: Chaudhary Arun Kumar Singh, DR

ORDER

N.K. Pradhan, A.M.

This is an appeal filed by the Revenue. The relevant assessment year is 2011-12. The appeal is directed against the order of the Commissioner (Appeals)-45, Mumbai (in short ‘CIT (A)’) and arises out of the assessment completed under section 143(3) of the Income Tax Act 1961, (the ‘Act’). Though the case was fixed for hearing before the Tribunal on 10-8-2018 and 31-7-2018, neither the assessee nor his authorized representative appeared on the above date. As there is non-compliance by the assessee, we are proceeding to dispose off this appeal after hearing the learned DR and examining the relevant materials available on record.

2. The grounds of appeal filed by the revenue read as under :–
3. On the facts and in the circumstances of the case and in law, learned Commissioner (Appeals) erred in partly deleting the addition of Rs. 85,08,600 after accepting that the parties from whom purchase were made were bogus and were rotating funds.
4. On the facts and in the circumstances of the case and in law, learned Commissioner (Appeals) erred in directing the assessing officer to take the peak of the purchase without giving any logic or justification.
5. The appellant prays that the order of the learned Commissioner (Appeals) on the above ground be set aside and the addition made in the Assessment order may kindly be restored as the Hon’ble Supreme Court in the case ofN.K. Proteins Ltd. v. DCIThas upheld the Hon’ble Gujarat High Court order which held that ‘addition on the basis of undisclosed income could not be restricted to certain percentage when the entire transaction was found as bogus’.
6. Briefly stated, the facts are that the assessee filed his return of income for the assessment year (AY) 2011-12 on 30-9-2011 declaring total income of Rs. 5,07,610. The assessee is engaged in trading in computer system, assembled systems and peripherals etc. in the name and style of his proprietary concern M/s Infocom Technologies/S.N. Enterprises. During the course of assessment proceedings, the assessing officer observed that as per the information received from the Sales Tax Department, Government of Maharashtra the assessee has obtained bogus purchase bills from the following two parties :–

Sl. No.	Name of the purchase party	Amount of purchase (Rs.)	TIN
1.	Kotson Impex Pvt. Ltd.	6,50,000	27110537510V
2.	Urvin General Trading Co. Pvt. Ltd.	78,58,600	27940584729V
	Total	85,08,600

During the course of assessment proceedings, the assessing officer called for information under section 133(6) from the above two parties in order to verify the genuineness of transactions. However, the notices sent by him could not be served and these were returned un-served by the postal authorities with the remark “not known”. The assessing officer noted that the TIN Nos. of the above two parties mentioned in the website of the Sales Tax Department are matching with the TIN reflected in the purchase bills filed by the assessee. The assessing officer sent a show-cause notice along with the statement recorded by the Sales Tax Authorities to the assessee vide letter, dated 10-2-2014 asking to explain why the above purchases amounting to Rs. 85,08,600 shall not be treated as unexplained expenditure under section 69C of the Act. The said show-cause notice and the reply to it has been extracted by the assessing officer in the assessment order dated 10-3-2014.

The assessing officer was not convinced with the reply of the assessee for the reason that in spite of request, the assessee failed to produce either of the two parties before him for examination except stating that the purchases and sales are genuine. Relying on the statements and findings of the Sales Tax Department, Government of Maharashtra coupled with the fact that the notices issued by him under section 133(6) to the said two parties were returned un-served by the postal authorities, the assessing officer made an addition of Rs. 85,08,600 under section 69C of the Act.

4. Aggrieved by the order of the assessing officer, the assessee filed an appeal before the learned Commissioner (Appeals). In theOrder, dated 31-1-2018, the learned Commissioner (Appeals) held as under :–

“4.7 Assessee in its submission before the assessing officer vide letter, dated 7-3-2014 at point (g) submitted that without prejudice to his arguments that his gross profit is 1.66% addition at G.P. of 9% may be made as additional income.

However, the appellant has taken an alternate ground as under :–

5. Without prejudice to the above, the assessee states that the peak purchases of Rs. 31,50,000 can at the most be determined as unexplained purchase.

It is noticed that the appellant though filed confirmations of the seller parties but failed to produce them for verification. Notices issued by the assessing officer were not served at the given addresses. Examination of the bank accounts of these parties by the assessing officer at the time of remand proceedings, it appeared that the seller parties were only rotating funds in their account. Affidavit filed by the appellant by himself during the proceedings supports the argument of the assessing officer. Though the assessing officer has not made any analysis with regard to the peak purchases and bank transactions from the peak point of view, the assessee himself has worked out and came up with the peak of his purchases.

Therefore, accepting the alternate ground of the appellant, the assessing officer is directed to restrict the addition to the peak of purchases of Rs. 31,50,000 as against the addition of Rs. 85,08,600. Appellant gets part relief.”

5. Before us, the learned DR relies on the decision inN.K. Proteins Ltd. v. CIT, (2017-TIOL-23-SC-IT) : 2017 TaxPub(DT) 1860 (SC), N.K. Proteins Ltd. v. CIT, (2016-TIOL-3165- HC-AHM-IT) : : 2016 TaxPub(DT) 3862 (Guj-HC), CIT v. Arun Malhotra, (2014) 47 taxmann.com 385 (Delhi) : (2014) 363 ITR 195 (Del) : 2014 TaxPub(DT) 1564 (Del-HC), Vijay Proteins Ltd. v. ACIT, (2015) 58 taxmann.com 44 (Gujarat) : 2018 TaxPub(DT) 7917 (Guj-HC), CIT v. La Medica, (2001) 117 Taxman 628 (Delhi)/(2001) 250 ITR 575 (Delhi)/(2001) 168 CTR 314 (Delhi) : 2001 TaxPub(DT) 1244 (Del-HC), Udit Kalra v. ITO, Ward-50(1) of Hon’ble Delhi High Court ITA No. 220/2019 & C.M. No. 10774/2019 dated 8-3-2019] : 2019 TaxPub(DT) 3068 (Del-HC), Pr. CIT (Central)-1 v. NRA Iron & Steel Pvt. Ltd., Civil Appeal No. of 2019 (Arising out of SLP (Civil No. 29855 of 2018) : 2019 TaxPub(DT) 1628 (SC) Supreme Court recent decision dated 5-3-2019, Pr. CIT-6, New Delhi v. NDR Promoters Pvt. Ltd., ITA No. 49/2018 of Hon’ble Delhi High Court dated 17-1-2019] : 2019 TaxPub(DT) 0886 (Del-HC) & Jansampark Advertising & Marketing Pvt. Ltd., (2015) 231 Taxman384 (Delhi) : 2015 TaxPub(DT) 0992 (Del-HC).

Relying on the above decisions, the learned DR submits that the addition of Rs. 85,08,600 by the assessing officer be confirmed.

6. We have heard the learned DR and perused the relevant materials on record. In the instant case the notices issued by the assessing officer under section 133(6) were returned un-served by the postal authorities with the remarks “not known”. The assessee failed to produce the parties before the assessing officer for examination.

However, we find that though the assessee was not able to produce the above parties before the assessing officer for examination, it is a fact on record that the assessing officer has not doubted the sales. Thus it is logical that without corresponding purchases, the assessee could not have made the sales. Such being the facts, the case of the present assessee is distinguishable from the case laws relied on by the learned DR.

Considering the entirety of facts and circumstances of the case, we find that the learned Commissioner (Appeals) has rightly restricted the disallowance to the peak of purchases of Rs. 31,50,000 taken as an alternate ground by the assessee. Thus we confirm the order of the learned Commissioner (Appeals).

7. In the result, the appeal filed by the revenue is dismissed.