The proceedings stemmed from the Income Tax Officer’s (ITO) claim that the appellant, engaged in the building material trading business, benefited from bogus purchase bills. These bills, received from ten parties, were flagged by the Sales Tax Department and DGIT. The appellant couldn’t produce any party to confirm the transactions, which raised suspicions about his claims. However, despite this, the fact that the appellant possessed primary purchase documents, the payments made through banking channels, and the reconciliation of sale and purchase transactions were taken into consideration by the ITAT.
The reassessment by the AO using a higher Gross Profit Rate led to an addition to the appellant’s income, which was later partially reversed by the CIT(A), reducing the disallowance to a percentage of the alleged bogus purchases.
The ITAT upheld CIT(A)’s decision, finding it fair and reasonable. It observed that while there were doubts about the purchases due to the inability to confirm transactions, the appellant couldn’t have achieved sales turnover without purchasing materials.
The case of ITO vs Mayur R. Kamdar is a comprehensive example of the intricacies involved in tax assessment and reassessment processes. It elucidates the effects of allegations of bogus purchases and their implications on tax liabilities. This landmark ruling by the ITAT Mumbai highlights the necessity of corroborative evidence in such cases and demonstrates the gravity of maintaining transparent transaction records.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
1. These are cross appeal for Assessment Year [AY] 2009-10 which contest stand of Ld. Commissioner of Income-Tax (Appeals)-44 [CIT(A)], Mumbai, Appeal No.CIT(A)-44/ITA- 135/32 (2) (3)/2014-15 dated 01/09/2015 qua addition on account of alleged bogus purchases. The assessment for impugned AY was framed by Ld. Income Tax Officer-32(2)(3) [AO] u/s 143(3) read with Section 147 of the Income Tax Act, 1961 on 16/03/2015 wherein the assessee has been saddled with addition of Rs.90,43,090/- on account of certain alleged bogus purchases.
2.1 Facts leading to the same are that the assessee being resident individual engaged in the business of trading of building material under proprietary concern namely N.M. Traders was subjected to reassessment proceedings for impugned AY vide issuance of notice u/s 148 dated 16/01/2014 which was followed by statutory notices u/s 143(2) and 142(1). The original return of income was filed by the assessee at Rs.4,58,690/- which was processed u/s 143(1).
2.2 The reassessment proceedings were initiated upon receipt of certain information from Sales Tax Department, Maharashtra & DGIT (Investigation) regarding dealers indulging in bogus purchase bills and it was noted that the assessee stood beneficiary of such bogus purchase bills to the tune of Rs.4,52,28,61 9/- from ten such parties. The assessee defended the purchases made by him but notices issued u/s 133(6) to confirm the transactions remained un-served with remarks like left / not known. After considering assessee’s submissions, documentary evidences and certain judicial pronouncements, Ld. AO adopted Gross Profit Rate of Rs.22.61% as against 6.07% reflected by the assessee against turnover of Rs.546.63 Lacs and added the differential profit of Rs.90,43,090/- to the income of the assessee.
3. Aggrieved, the assessee contested the same with partial success before Ld. CIT(A) vide impugned order dated 01/09/2015 where Ld. CIT(A) restricted the disallowance to 3% of alleged bogus purchases which came to Rs.13,56,900/- and deleted the balance. Aggrieved, the assessee as well as revenue is in appeal before us.
4. The Ld. Departmental Representative [DR] submitted that the addition was on lower side whereas Ld. Authorised Representative for assessee [AR] pleaded for some more relief on the premise that the assessee had reconciled the sale and purchase transactions.
5. After considering rival contentions, we find no reason to interfere with the stand of Ld. CIT(A) since the assessee was engaged in trading activities and could not achieve the sales turnover without purchase of material. The turnover of the assessee has not been doubted by the revenue and the assessee is in possession of primary purchase documents & further, the payments are through banking channels. The assessee is able to reconcile the sale and purchase transactions. At the same time, the assessee could not produce any single party to confirm the transactions and notices issued u/s 133(6) were returned back un-served which cast a serious doubt on assessee’s claim. Therefore, in such a situation, the addition, which could be made, was to account for profit element embedded in these purchase transactions to factorize for profit element earned by assessee against possible purchase of material in the grey market and undue benefit of VAT against alleged bogus purchases, which Ld.CIT(A) has rightly done. Therefore, finding the same quite fair and reasonable, we dismiss both the appeals.
6. Resultantly, both the appeals stands dismissed.
Order pronounced in the open court on 28th February, 2018.