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Dy. CIT-CC-1 (4) , Mumbai Versus M/s. M.P. Recycling Co. Pvt. Ltd.

2018 (2) TMI 964 - ITAT MUMBAI

Addition on account of bogus purchases - purchases made from non - genuine parties - Held that:- The assessee is not a wholesale trader of steel, but is a manufacturer of steel items. It had purchased and used steel from the parties, who have not issued bills. PKS and others from whom the assessee has claimed to have purchased steel, had not supplied goods to it. But consumption of steel has not been questioned-rather sales have been accepted as it is. Unlike the matter of Bholanath Poly Fab (20 .....

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vary from business to business and case to case. So, we are not interested in interfering with her order. Confirming the same, we decide first ground of appeal against the AO. - Addition on account of commission expenses - Held that:- FAA had rightly held that no ad hoc disallowance can be made without relying upon any cogent material. Confirming her order, we dismiss second ground, raised by the AO. - Disallowance u/s 14A - time limit for issue of notice under section 143(2) - Held tha .....

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from the search led to the disallowance, made by the AO, under section 14A. See All Cargo Global Logistics Ltd [2017 (6) TMI 309 - BOMBAY HIGH COURT] - Decided in favour of assessee. - I.T.A./6385/Mum/2016 - Dated:- 7-2-2018 - Sh. Rajendra, Accountant Member And C. N. Prasad, Judicial Member For The Revenue : Shri Y.K. Bhaskar-CIT-DR For The Assessee : Shri Rakesh Joshi ORDER PER Rajendra A. M. - Challenging the order dated 09/08/2016 of the CIT(A)- 47, Mumbai, the Assessing Officer (AO)has file .....

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tricting the addition on account of bogus purchases from ₹ 1. 70 crores to ₹ 12. 06 lakhs. During the search proceedings, it was found that the assessee had booked bogus expenditure by obtaining bogus purchase bills/accommodation entries from various entities, including Pramod Kumar Singh(PKS), Sidhi Vinayak Steel, Asian Steel, Chancal Tube Corporation and Suraj Tube Corporation. He directed the assessee to substantiate the purchases by producing Ledger confirmations, bills, Lorry re .....

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es were carried out by deputing the inspector in that regard, that the inspector had reported that the parties from whom purchases were shown to be made by the assessee were not available at the given addresses, that notices issued under section 133 (6) calling for information from those parties had been returned unserved in most cases, that the proprietor of one of the suppliers had admitted that the purchases shown by the group companies were paper transactions, that bogus purchases were intro .....

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, she held that the sales tax Department had put of lists of parties who were found to be engaged in issuing bogus bills without actual sale of goods, that the tribunal and the honorable High Court said dealt with the issue of bogus purchases and the consequential effect thereof. The FAA recorded the various theories propounded by the judicial forums and referred to the cases of Nikunj Eximp Enterprises Private Limited(IT Appeal No. 5604 of 2010 dtd. 17. 12. 2012), Babulal C Borana, M K Brothers .....

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not provide any information to support the allegation of bogus purchases, that the primary impetus behind availing bogus bills was to save on the GP rate, that the average GP rate of the assessee for the past three years was 7. 09%. Considering the facts on record is and the judicial pronouncements disallowance made by the AO was upheld to the extent of 7. 09% of the peak purchases. 2.2. Before us, the Departmental Representative(DR)supported the order of the AO and stated that notices issued u .....

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ion, there is no defect in her approach. One of the basic and fundamental principal of accountancy and taxation jurisprudence is that without purchases there cannot be any sale. If sales are accepted by the AO or if the books of accounts are not rejected by him on account of non genuine sales, then existence of purchases cannot be denied. In such a situation, it becomes a case of purchase from bogus parties and not a case of bogus purchases , as explained by the Hon ble Gujarat High Court. We ar .....

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es were made from bogus parties. The Tribunal noted that the AO had issued notices to all the parties from whom such purchases were allegedly made. Such notices were returned unserved by the postal authorities with the remark that the addresses were incomplete. The inspector deputed by the Income-tax Department also could not find any of the parties available at the given addresses. The assessee was unable to produce any confirmation from any of the parties. Though the assessee had claimed to ha .....

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e sold by the assessee. Therefore, the purchases of the entire 1, 02, 514 metres of cloth were sold during the year 2005-06. The Tribunal, therefore, accepted the assessee s contention that the finished goods were purchased by the assessee, though not from the parties shown in the accounts, but from other sources. The Tribunal was of the opinion that not the entire amount, but the profit margin embedded in such amount would be subjected to tax. On appeal the Hon ble Court held as under: … .....

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gment of Simit P Seth(supra). In that case the assessee was engaged in the business of trading in steel on wholesale basis. During the course of the reassess - ment proceedings for the year 2006-07, the AO noticed that some of the suppliers of steel to the assessee had made their statements on oath to the effect that they had not supplied the steel to it, but had only provided sale bills. In turn, they were receiving a small commission. The AO concluded that the total purchase of ₹ 41, 04, .....

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ons from ₹ 41, 04, 903/- to ₹ 12, 31, 471/- and deleted the balance of ₹ 28, 73, 432/-. While doing so, he deleted the addition of ₹ 5 lakhs as made by the AO, on the ground that the addition on account of bogus purchases had already been made. The Tribunal was of the opinion that 12. 5% of the disputed purchases should be retained in the hands of the assessee as business profits. On appeal, the Hon ble High Court held as under: ……. the Commissioner (Appeals .....

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yardstick could be adopted. In the case before us, the assessee is not a wholesale trader of steel, but is a manufacturer of steel items. It had purchased and used steel from the parties, who have not issued bills. In other words, PKS and others from whom the assessee has claimed to have purchased steel, had not supplied goods to it. But consumption of steel has not been questioned-rather sales have been accepted as it is. Unlike the matter of Bholanath Poly Fab(supar)it is not a case where the .....

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d vary from business to business and case to case. So, we are not interested in interfering with her order. Confirming the same, we decide first ground of appeal against the AO. 3. Next ground of appeal is about addition of ₹ 1. 70 lakhs on account of commission expenses. The AO observed that for availing bogus bills the assessee would have incurred commission expenses at the rate of 1%, that payment and receipt of commission was confirmed by the statements of various parties recorded duri .....

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on expenses could not be upheld. After considering the above we are of the opinion that the FAA had rightly held that no ad hoc disallowance can be made without relying upon any cogent material. Confirming her order, we dismiss second ground, raised by the AO. 4. Last ground of appeal is about disallowance of ₹ 37. 70 lakhs, made under section 14A of the Act. While completing the assessment the AO asked the assessee as to why disallowance under section 14 A read with rule 8D of the Income .....

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s and advances borrowed from the financial institutions. Finally, he made a disallowance of movies 37, 70, 860/-(Rs. 5. 32 lakhs-expenditure directly related to earning of exempt income + ₹ 26. 72 lakhs-average value of total assets as appearing in the balance sheet of the assessee on the first day and the last day of the previous year + ₹ 5. 66 lakhs-0. 5% of the average value of investment, income from which did not form part of total income). 4.1. The assessee challenged the order .....

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