DCIT vs. Shivshankar R. Sharma (ITAT Mumbai)

DATE: September 16, 2016 (Date of pronouncement)
DATE: October 15, 2016 (Date of publication)
AY: 2011-12, 2010-11
FILE: Click here to download the file in pdf format
S. 69C Bogus purchases: The AO cannot treat purchases as bogus (accommodation entries) merely on the basis of information received from the sales-tax department and without conducting independent inquires especially when the assessee has discharged its primary onus of showing books of account, payment by way of account payee cheque and producing bills for purchase of goods

(i) By relying on the official website of the Sales Tax Department, Government of Maharashtra regarding suspicion parties providing accommodation entries, the AO has made an addition. In response to the show cause notice issued by the AO, the assessee has supplied copy of bills, cop of the bank statement to prove that payment made for purchases, and copy of ledger accounts of all eight parties. The assessee is an individual carrying on a proprietary business in the name of M/s Noble Construction Company, undertaking construction work of dams and canals on behalf of Government of Maharashtra in the interior part of the State. In the interior parts the goods are not available easily. The Government contracts are time barring contract and the work is required to be completed on time. Accordingly, when the material is required in emergency the telephonic orders are placed upon the parties who supply the materials at site. The corresponding consumption of materials in respect of which the purchases were affected by the assessee firm have not been doubted by ld. AO. Neither any document information has been provided by the AO nor he has given any opportunity to the assessee to cross examine the said party and AO has concluded that the purchases by assessee company from the said party is bogus merely on the basis of information from Sales Tax Department.

(ii) The AO has not conducted any independent enquires for making the addition especially since the assessee has discharged its primary onus of showing books of account, payment by way of account payee cheque and producing bills for purchase of goods.

(iii) From the record we found that the gross profit of the assessee has been consistently growing year after year which is depicted in the table below and which has been accepted by the Department: The accounts of the appellant were duly audited u/s 44AB of the Act and the same have not been rejected by AO. It is evident that assessee has been declaring higher gross profit during the year under consideration as compared to the GP rate shown in earlier years.

(iv) Hon’ble Bombay High Court in the case of Nikunj Eximp Enterprises (P) Ltd (216 Taxman 171), held as under :-

Section 37(1) of the Income-tax Act, 1961 – Business expenditureAllowability of [Burden of proof] – Assessment year 2001-02 – Assessing Officer disallowed income of assessee alleging nongenuine purchases from different parties – Commissioner (Appeals) upheld order of Assessing Officer – Assessee filed letters of confirmation of suppliers, copies of bank statement showing entries of payment through account payee cheques to suppliers and stock reconciliation statements – Sales of purchased goods were not doubted and substantial amount of sales made by assessee was to Government department – Further, books of account of assessee had not been rejected – Tribunal deleted disallowance – Whether merely because suppliers had not appeared before Assessing Officer or Commissioner (Appeals), it could not be concluded that purchases were not made by assessee – Held, yes [Para 71 [In favour of assessee.

The above decision squarely applies to the case of the assessee as entire sales in case of assessee is made to the Government.

(v) Hon’ble Chandigarh Tribunal in the case of ITO vs Arora Alloys Ltd (2012) (12 ITR (Trib) 263). This decision has been affirmed by the Punjab & Haryana High Court in 370 ITR 372, wherein it was held as under:-

Section 69C of the Income-tax Act, 1961 – Unexplained expenditure – Assessment year 2004-05 – Where addition on account of unexplained expenditure incurred for purchase of raw material was solely based on information received from Central Excise department, same could not be sustained In favour of assessee.

(vi) The decision of Hon’ble Bombay High Court in the case of Babulal C. Borana v. Third Income-tax Officer [2005] 144 TAXMAN 674 (Bom) also supports our contention.

(vii) Furthermore, the hon’ble Gujarat High Court in the case of Commissioner of Income-tax v. M.K. Brothers (Gujarat High Court) (163 ITR 249), held as under:-

[ Section 69 of the Income-tax Act, 1961 – Unexplained investments – In relevant assessment year assessee made certain purchases from some parties and made payment through cheques – ITO found that parties were not available to cross-examine and that though purchases were claimed to have been made on credit “.- basis, payments were shown to have been made after substantial lapse of time after date of purchase – ITO held those transactions to be bogus and added back amount spent on purchases as income of assessee – Whether Tribunal was justified in deleting aforesaid addition to income of assessee on ground that there was no evidence to show that vouchers given by those parties to assessee were bogus or that any part of those payments came back to the assessee-Held, yes”

(vii) In view of the detailed finding recorded by CIT(A), which has not been controverted by ld. DR by brining any positive material on record, we do not find any reason to interfere in the order of CIT(A). Applying the proposition of law discussed in the above judicial pronouncements to the facts of the instant case, we do not find any infirmity in the order of CIT(A) sustaining addition of Rs.3 lakhs out of total purchases.

Cases referred

i) Shri Ramila Pravin Shah Vs. ACIT, ITA No.5246/Mum/2013
ii) Shri Ganpatraj A Sanghavi Vs. ACIT, ITA No.2826/Mum/2013
iii) M/s G.V.Sons Vs. ACIT, ITA No.2239/Mum/2012
iv) Shri Deepak Popatlal Gala Vs. ITO, ITA No.,5920/Mum/2013
v) Babulal C. Borana Vs. Third ITO, 282 TR 251(Bom)
vi) Rajeev G. Kalathil Vs. DCIT, 67 SOT 52(Mum Trib)
vii) CIT Vs. Nangalia Fabrics Pvt. Ltd., 220 taxman 17 (guj)
viii) CIT Vs. Nikunj Eximp Enterprises pvt. Ltd., 216 taxman 171
ix) CIT Vs. M.K.Brothers, 163 ITR 249
x) ITO Vs. Premanand, 107 TTJ 395
xi) Arora Alloys Ltd., 370 ITR 372

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