IN INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I , MUMBAI BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI AMARJIT SINGH, JUDICIAL MEMBER ITA NO. 746/MUM/2015 : (A.Y : 2006-07) Dy. Commissioner of Income Tax, Vs. Shri Sharad V. Shah Circle-29(3), Mumbai (Appellant) Prop. Paras Engg. Co., 1301-A, Kalinga (Nirmal Nagar), Mulund Link Road, Mulund (W), Mumbai 400 080 (Respondent) PAN : ALBPS0548P Assessee by : Dr. K. Shivaram & Sheetal Jadhav Revenue by : Shri A.K. Kardam Date of Hearing : 21/07/2016 Date of Pronouncement : 21/09/2016 ORDER PER G.S. PANNU, AM : This appeal by Revenue is directed against order of CIT(A)-33, Mumbai dated 14.11.2014, pertaining to Assessment Year 2006-07, which in turn has arisen from order passed by Assessing Officer, Mumbai under section 143(3) r.w.s. 147 of Income Tax Act, 1961 (in short Act ). 2. In this appeal, Revenue has raised following Grounds of appeal :- 2 Shri Sharad V. Shah ITA No. 746/Mum/2015 1. On facts and in circumstances of case, Ld. CIT(A) erred in deleting addition of Rs.1,50,56,316/- made by AO u/s 69C of act and in restricting addition to Rs.15,05,631/- being 10% of bogus purchases without appreciating fact that assessee has failed to prove genuineness of purchases by not producing purchase parties for verification. 2. On facts and in circumstances of case, Ld. CIT(A) erred in restricting addition to Rs.15,05,631/- being 10% of bogus purchases without appreciating fact that parties have been declared as bogus hawala providers by Sales Tax Department on basis of corroborative evidence available with them and inference based on findings of such agencies cannot be constituted as suspicious. 3. On facts and in circumstances of case, Ld. CIT(A) erred in restricting addition to Rs.15,05,631/- being 10% of bogus purchases without appreciating fact that proprietor of M/s. Janta Transport Service and M/s. D met Laboratory has denied of providing any services to assessee. 3. In brief, relevant facts can be summarized as follows. respondent-assessee is individual who is engaged in business of manufacture/fabrication and job work of all kinds of machine parts. In this case, assessment u/s 143(3) of Act was finalised on 19.11.2008 whereby total income was assessed at Rs.77,29,800/-. Subsequently, Assessing Officer reopened assessment by issuance of notice u/s 148 of Act on 20.3.2013 on ground that certain income had escaped assessment. As per Assessing Officer, based on information received from Maharashtra Sales Tax authorities and Investigation Wing, assessee had made purchases from two concerns, namely, M/s. Manoj Trading Company Rs.89,19,089/- and M/s. Sampak Steels Rs.61,37,227/- which were non-genuine. As per 3 Shri Sharad V. Shah ITA No. 746/Mum/2015 information received, said concerns were part of list of suspicious dealers compiled by Sales Tax Department of Maharashtra. In ensuing assessment, Assessing Officer considered purchases made from aforesaid two parties as bogus, non- genuine and unproved and, therefore, held that claim of expenditure of Rs.1,50,56,316/- on purchases was not acceptable. According to Assessing Officer these facts squarely fall within parameters prescribed in Sec. 69C of Income Tax Act, 1961 and accordingly added sum of Rs.1,50,56,316/- to total income. 4. In this background, assessee carried matter in appeal before CIT(A) and made varied submissions. Before CIT(A), assessee pointed out that purchases were made from two parties and material has been fully consumed in manufacturing of finished products, which were subsequently sold. It was also pointed out that manufacturing activity required various parts and if purchases from these two parties are treated as bogus, material consumption ratio would fall so drastically that it would not be possible to envisage manufacturing of products in absence of such consumption. It was also pointed out that if disputed purchases are removed, then gross-profit ratio would increase from 11.5% to 23.43% during year and net profit ratio will increase from 4.82% to 16.68%, which is unrealistic and impossible to earn in such line of business. It was, therefore, contended that Assessing Officer had made addition merely on basis of assumptions and presumptions. CIT(A) called for Remand report from Assessing Officer and after considering such report of Assessing Officer and further submissions of assessee, he has 4 Shri Sharad V. Shah ITA No. 746/Mum/2015 found it fit to scale down addition to Rs.15,05,631/-. As per CIT(A), it would be fair if disallowance for alleged bogus purchases is restricted to 10% of alleged bogus purchases. CIT(A) has justified his decision by relying on judgments of Hon'ble Gujarat High Court in case of Sathyanarayan P. Rathi, 351 ITR 150 and in case of CIT vs. Bholanath Poly Fab (P) Ltd., ITA No. 63 of 2012 dated 23.10.2012 holding that entire amount covered by unproved purchases could not be taxed, but only profit embedded therein could be subject to tax. As consequence, CIT(A) has retained addition to extent of Rs.15,05,631/- and deleted balance. Against such decision of CIT(A), Revenue is in appeal before us. 5. Before us, stand of ld. DR is that Assessing Officer made no mistake in disallowing entire amount of unproved purchases because assessee could not produce parties for appropriate verification. It was also pointed out that verification exercise carried out by Assessing Officer revealed that so-called parties from whom purchases have been effected were not genuine, based on information received from Sales Tax Department of Maharashtra. 6. On other hand, learned representative for respondent-assessee has pointed out that CIT(A) made no mistake in disagreeing with stand of Assessing Officer. In particular, our attention has been invited to para 2.5 of order of CIT(A) wherein categorical finding has been arrived at that material in question was indeed used for purpose of manufacturing because otherwise sale of machineries could not have been effected. In this context, it was 5 Shri Sharad V. Shah ITA No. 746/Mum/2015 pointed out that CIT(A) justifiably relied on judgments of Hon ble Gujarat High Court in order to sustain addition only with respect to profit element embedded in alleged unproved purchases and not entire amount of purchases. 7. We have carefully considered rival submissions. In present case, sum and substance of charge made by Assessing Officer against assessee is that purchases effected from two concerns are bogus. In above background, Assessing Officer has asserted that Sec. 69C of Act is attracted and accordingly made addition of Rs.1,50,56,316/- representing value of such purchases. moot question is, is Assessing Officer justified in invoking Sec. 69C of Act qua his finding that purchases are bogus or unproved? Sec.69C of Act deals with situation where assessee is found to have incurred expenditure for which he does not offer any explanation about source of such expenditure or explanation offered is not found to be satisfactory by Assessing Officer. It empowers Assessing Officer to treat amount covered by such expenditure as deemed income of assessee. significant point is that deeming character of Sec. 69C of Act is triggered where explanation about source of such expenditure is not found to be satisfactory. In present case, there is no dispute so far as source of funds used for making payment of instant purchases is concerned. In fact, claim of assessee has been that payments to two suppliers have been made through account payee cheques or bank RTGS, aspect which is not in dispute. Therefore, in our considered opinion, invoking of Sec. 69C of Act in 6 Shri Sharad V. Shah ITA No. 746/Mum/2015 background of fact-position sought to be made by Assessing Officer is quite suspect in eyes of law. In any case, we also find no error on part of CIT(A) in applying judgements of Hon'ble Gujarat High Court in case of CIT vs. Bholanath Poly Fab (P) Ltd., ITA No. 63 of 2012 dated 23.10.2012 (supra) and Sathyanarayan P. Rathi (supra) whereby only profit element embedded in instant purchases is sought to be taxed. CIT(A) recorded finding that material was indeed used in process of manufacture and that in such situation, decisions of Hon ble High Court of Gujarat are fully attracted. Before us, ld. DR apart from reiterating stand of Assessing Officer has not raised any credible point so as to assail decision of CIT(A) as erroneous or infirm in law. Therefore, in view of our aforesaid discussion, we hereby affirm order of CIT(A) and, accordingly Revenue fails in its appeal. 8. Resultantly, appeal of Revenue is dismissed. Order pronounced in open court on 21st September, 2016. Sd/- Sd/- (AMARJIT SINGH) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Date : 21st September, 2016 *SSL* Copy to : 1) Appellant 2) Respondent 3) CIT(A) concerned 7 Shri Sharad V. Shah ITA No. 746/Mum/2015 4) CIT concerned 5) D.R, I Bench, Mumbai 6) Guard file By Order Dy./Asstt. Registrar I.T.A.T, Mumbai Dy. Commissioner of Income-tax, Circle-29(3), Mumbai v. Sharad V. Shah