TMI Blog2021 (1) TMI 1002X X X X Extracts X X X X X X X X Extracts X X X X ..... mmon order of Commissioner of Income Tax (Appeals)-25, Mumbai [for short the ld. CIT(A)] in Appeal No. CIT(A)-25/IT-276/2014-15 IT-277/2014-15 order dated 27.12.2016. Assessments were framed by ITO Ward-22(1)(4), Mumbai vide order of even date 22.03.2014 under section 143(3) r.w.sec. 147 of the Income Tax Act, 1961 (hereinafter the Act ) for the Assessment Years 2009- 10 2010-11. 2. The only common issue in these two appeals of assessee is against the order of CIT(A) restricting the disallowance of bogus purchases at 12.5% being profit earned by assessee on unexplained/unverified purchases and added the same as unexplained expenditure under section 69C of the Act. For this issue, the facts and circumstances in both the years are same and even the grounds raised are identically worded and hence will take up the grounds from Assessment Year 2009-10. The relevant ground no.2 raised by assessee reads as under: 2 In the facts and circumstances of the case and in law, the learned Commissioner of Income Tax(A) erred in a) confirming the disallowance amounting to ₹ 6,84,266/- being 12.5% of total purchases of ₹ 54,74,132/- by way of unexplained expenditure u/s 69 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sachi Mercantile Pvt. Ltd. ₹ 3,77,755/- 7. K.V.Trading Co. ₹ 2,36,918/- 4. According to the Sales Tax Department these parties, abovementioned, are indulging into issuing bogus bills without delivery of actual goods. Therefore, the Assessing Officer issued show-cause notice dated 19.02.2014, which was replied by the assessee vide letter dated 01.03.2014 that the assessee had purchased material in the normal course of business and has received the material and made payment by account payee cheque which has been cleared from the Bank Account. It was claimed before the Assessing Officer that the assessee has re-sold the material purchased from these parties and which is also reflected in the stock register as well as sales register, which were produced before the Assessing Officer during the course of assessment proceedings. The assessee also proved actual delivery by placing delivery challans/transport receipts before the Assessing Officer in support of its claim. The Assessing Officer disallowed the entire purchases from these parties, as these parties could not respond to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... econciliation statements before the AO; and merely because the suppliers did not appear before the AO, one cannot conclude that the purchases were not made by the assessee. The AO cannot disallow the purchases on the basis of suspicion because the suppliers were not produced before them. 11.3 The facts and circumstances as outlined above, clearly suggest that the purchases of materials by the appellant cannot be doubted but a major lacuna in these transactions is the unverifiable nature of the purchases from the parties in question, as they could not be located at the given addresses. Thus the purchases prices shown on these invoices are not subjected to verification and as such it was difficult to establish the correctness of the purchase prices paid for the materials purchased from them. Such verification of the price shown on the invoices/bills was necessary to ascertain the correctness of the profits shown by the appellant for the period under consideration. This verification was also vital to determine as to whether the purchase prices shown on the bills/invoices, are as per prevailing market prices of the materials purchased and to ascertain that the price paid for the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether the purchases themselves were completely bogus and non-existent or that the purchases were actually made but not from the parties from whom it was claimed to have been made and instead may have been purchased from grey market without proper billing or documentation. In the present case, CIT believed that when as a trader in steel the assessee sold certain quantity of steel, he would have purchased the same quantity from some source. When the total sale is accepted by the Assessing Officer, he could not have questioned the very basis of the purchases. In essence therefore, the Commissioner (Appeals) believed assessees theory that the purchases were not bogus but were made from the parties other than those mentioned in the books of accounts. That being the position, not the entire purchase price but only profit element embedded in such purchases can be added to the income of the assessee. So much is clear by decision of this Court. In particular, Court has also taken a similar view in case of Commissioner of Income Tax-IV vs. Vijay M Mistry Construction Ltd. vide order dated 10.01.2011 passed in Tax Appeal No. 1090 of 2009 and in case of Commissioner of Income Tax-I v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d any comparable bills/invoices for purchases of similar items made from other parties to establish that the purchases from the parties in question were at par with the purchases made from other parties during the period under consideration. The possibility of such purchases from unregistered dealers without invoices cannot be ruled out. In view of the above, the correctness of the purchase prices mentioned on such bills/invoices issued by the above parties in question cannot be accepted and some additional profit needs to be estimated on such purchases made from the above parties in question. 11.9. As stated above, following the guidelines laid down in the above judicial decisions, disallowance of 12.5% on such alleged bogus purchases of ₹ 54,74,132/- i.e., ₹ 6,84,266/- for A.Y. 2009-10 is confirmed, which needs to be added to the total income of the assessee on account of alleged bogus purchases and the balance addition of ₹ 30,29,960/- is hereby deleted. Thus, grounds of appeal no. 3-9 are partly allowed. 6. Similarly in Assessment Year 2010-11 also the CIT(A) restricted the profit rate at 12.5% of the bogus purchases. Aggrieved, the assessee came in appe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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