IN INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D , MUMBAI BEFORE SHRI SANJAY GARG (JUDICIAL MEMBER) AND SHRI ASHWANI TANEJA (ACCOUNTANT MEMBER) I.T.A. No.6610/Mum/2013 (Assessment Year: 2009-10) M/s Rich And Royal vs DCIT, Cir.3, Kalyan C/o N.A.Kulkarni Wadal Building 1st Floor, Manpada Road, Near DNSB Bank, Dombivli (E) 421 201 PAN : AADFR3357G (Appellant) (Respondent) I.T.A. No.6652/Mum/2013 (Assessment Year : 2009-10) ACIT, Cir.3, Kalyan vs M/s Rich And Royal C/o N.A.Kulkarni Wadal Building 1st Floor, Manpada Road, Near DNSB Bank, Dombivli (E) 421 201 (Appellant) (Respondent) Assessee by Shri Subodh Ratnaparkhi Revenue by Shri B.S. Bist (CIT DR) Date of hearing : 28-09-2016 Date of pronouncement : 30 -09-2016 2 I.T.A. No.6610 & 6652 /Mum/2013 ORDER Per ASHWANI TANEJA, AM: These cross appeals are filed against order of Commissioner of Income-tax (Appeals)-1, Thane [hereinafter called CIT(A)] dated 26-08-2013 against assessment order dated 29-12-2011 for A.Y. 2009-10 u/s 143(3) of Act. assessee has raised following grounds of appeal: learned CIT (A) -1. Thane has partly allowed appeal instead of allowing in full. 2. He has confirmed addition of Rs. 12,86,761/- out of addition done by AO of Rs. 51,47,044/-, which is against principles of law. Prayer: appellant requests to allow appeal in full instead of allowing partly and requests to delete upheld addition of AO by CIT(A)-1, Thane. Brief: appellant is carrying on business of selling readymade garments and cloth at Kalyan, having good business and is assessed to circle-3 of Kalyan from last eight years. During assessment period, AO determined some purchases made by assessee from parties on whom survey was conducted and he stated that he had issued only bills and said statements were later on retracted by him. same issue was considered by Mumbai ITAT, 'I' Bench and has considered facts in case of Jitendra Harshad Kumar Textiles Pvt. Ltd. SA No. ITA 771/Mum/201 1 A.Y. 2007-08 and have decided issue in favour of assessee. We have purchased goods from said parties and we therefore request addition upheld to extent of Rs. 12,86,761/- is found unwarranted and to be deleted. revenue has raised following grounds of appeal:- 1. Whether on facts & in circumstance of case and in law, Hon ble CIT(A) was justified in restricting addition to 2% of Rs.51,47,044/- made on account of bogus purchases from 5 parties overlooking fact that purchases are bogus? 3 I.T.A. No.6610 & 6652 /Mum/2013 2. common issue involved in both appeals is with regard to addition made by AO on account of bogus purchases from 5 parties. 3. brief facts are that assessee was engaged in business of retail trade business in cloth and readymade garments and other related products. assessee is authorised dealer of cloth and garments of Raymond brand. During assessment proceedings, it was noted by AO that assessee had made purchases from following 5 parties: 1. M/s Manoj Mills 2. M/s Astha Silk Industries 3. M/s Shree Ram Sales & Synthetics 4. M/s Dev Vani Industries 5. M/s Sai Nath Textiles It was noted by AO that these parties were bogus and, therefore, purchases made from these parties aggregating to RFs.51,47,044 were fully disallowed and added back to income of assessee. Being aggrieved, assessee filed appeal before Ld. CIT(A), where 25% of same was allowed by Ld. CIT(A) and remaining amount was confirmed. Revenue has filed appeal against relief granted by Ld. CIT(A) (75% of these purchases) whereas assessee filed appeal with regard to addition confirmed by Ld.CIT(A) (i.e. 25% of purchases disallowed by AO). 3. During course of hearing, it was submitted at outset by Ld. Counsel that similar issue with regard to same parties had arisen in earlier years, i.e. A.Y. 2005-06 and matter reached upto Tribunal. Tribunal decided issue completely in favour of assessee. Ld. Counsel relied upon order of Tribunal passed in assessee s own case and requesting for deleting addition fully. 4. Per contra, Ld. DR relied upon orders of lower authorities. 4 I.T.A. No.6610 & 6652 /Mum/2013 5. We have gone through orders of lower authorities as well as order of Tribunal for A.Y. 2005-06 in ITA Nos 5297/Mum/2014 & ITA No. 5817/Mum/2014 order dated 237-07-2016. It is noted that in assessment order for A.Y. 2005-06 facts are similar. There also purchases were fully disallowed by AO whereas Ld. CIT(A) had granted relief to extent of 75% of such purchases and confirmed 25% of such purchases. Cross appeals were filed before Tribunal; Tribunal dismissed appeal of Revenue and allowed appeal of assessee. Thus, full relief was granted by Tribunal and these purchases were held to be genuine. relevant part of observations of Tribunal is reproduced hereunder: 3. We have heard ld Authorised Representative (AR) of assessee and ld Departmental Representative (DR) for Revenue and perused material available on record. AR of assessee argued that all purchases of assessee were genuine and payments were made through banking transaction. During reassessment proceeding, AO issued notice to those parties. In response to notice of AO, all parties submitted their reply dated 21.01.2013; parties also furnished photocopies of their reply to assessee. assessee further filed photocopies of purchased bills, ledger accounts showing transaction. bank statement depicting payment against purchases through cross account payee cheque. AO was relying upon statement of Shri Rakesh Kumar M. Gupta, Prop. Of M/s Manoj Mills recorded u/s 131 on 23.02.2009 by ITO ward 14(3), Mumbai, wherein he allegedly admitted that no transaction of purchase and sale had been made by him and only accommodation bills had been provided. In order, AO reproduced statement of Shri Rakesh Kumar M. Gupta. In said statement it is not mentioned that accommodation bills were provided to assessee. Ld AR further argued that Shri Rakesh Kumar M. Gupta was not well due to ill health and could not attend proceeding before AO in person. This fact was communicated by Rakesh Kumar Gupta through his letter dated 21.01.2013 and further on 11.03.2013. AR of assessee also drawn our attention on photocopies of affidavit of Mr.Mohit Rakesh Kumar Gupta Proprietor of M/s Astha Silk Industries and Mrs. Hema Rakesh Kumar 5 I.T.A. No.6610 & 6652 /Mum/2013 Gupta, who is carrying business in name of M/s. Shreeram Sales & Synthetics and copy of their replies filed in response to notice u/s 133(6) of Act, and copy ledger account along with purchase invoice and bank statement. AR of assessee further argued that assessee has genuinely purchased all material and made payments thereof. Shri Rakesh Kumar M. Gupta in support of genuineness of transaction with assessee also filed affidavit before AO wherein it was clearly deposed that he never provided accommodation bills/entry to assessee, confirmation of ledger account of all parties were also submitted to AO. AR of assessee further argued that Ld. CIT (A) restricted addition to 25% of purchases without any basis and same are liable to be deleted. AR of assessee relied upon various decision of this Tribunal in M/s Neeta Textiles vs. ITO , ITA No. 6138/Mum/13 dt. 27.05.15, M/s Jitendra Harshadkumar Textiles vs. ITO in ITA No. 771/Mum/11 dt. 21.11.12, M/s C. Chotalal & Co. vs. ITO in ITA Nos. 3960 to 3967/Mum/12 dt. 24.09.2013, M/s Permit Textiles vs. ITO in ITA Nos. 3948 to 3953/Mum/12 dt. 01.10.13 & DCIT vs. Smt. Neena M. Lekhi in ITA No. 1608/Mum/13 dt. 14.01.2015. DR for Revenue argued that assessee was not maintaining stock register and there was no proof of delivery of goods and further relied upon statement of Mr. Rakesh Kumar Gupta recorded by ITO ward 14(3) u/s131 of Act. Ld DR for Revenue further argued that when notice u/s133(6) was issued to those parties, they did failed to enclosed any documentary evidences in their support and strongly supported order of AO and prayed that order of AO be restored and that order passed by ld. CIT(A) for restricting addition to 25% may be quashed. 4. We have considered rival contention of parties and perused material available on record. AO made re-opening of assessment after recording satisfaction. assessee has not assailed re-opening before us. While framing assessment, AO inferred that certain parties were found to be nongenuine as they were providing only accommodation bills, AO raised suspicion about purchases from M/s Manoj Mills for Rs. 32,27,804/-, M/s Astha Silk Industries for Rs. 27,02,082/- and M/s Shree Ram Sales & Synthetics for Rs.20,38,898/-. notices were issued to parties, parties filed their reply but no documents to substantiate their sales were filed. As no documentary evidence was enclosed to prove transaction. AO relied upon statement of Mr. Rakesh 6 I.T.A. No.6610 & 6652 /Mum/2013 Kumar Gupta which was recorded u/s 131 during survey proceedings. assessee was show-caused as to why these parties should not be treated as non-genuine. assessee submitted his reply and contended that proprietor of all three concern have filed their reply, wherein they have already stated that transaction are genuine and further contended that Mr. Rakesh Kumar Gupta has given affidavit that no accommodation bills were provided to assessee. Rakesh Kumar Gupta further gave in writing that due to his ill health, he is not in position to travel and attend proceeding personally and any further enquiry may made from his through telephonic conversation. submission made and confirmation filed by assessee was not accepted by AO, and AO made addition of aggregate amount of purchases from three parties. During appellate proceeding, similar contention was made and it was further contended that as per section 37(1) purchases used for trading and manufacturing activities cannot be treated as expenditure or expenses which can be disallowed as goods are necessary for trading purpose and addition made by AO is beyond purview of section 37(1) of Act. Ld. CIT(A) concluded that he has confirmed identical addition against assessee in assessee s case for AY 2009-10. reopening for year under consideration is primarily based on assessment order of AY 2009- 10 and facts are identical. Though CIT(A) concluded that AO was not justified in making addition on whole of amount/non-genuine/bogus purchases and restricted it to 25% of impugned purchases. Ld. CIT(A) has not given any reason for restricting purchases to 25% of impugned purchases. We have noticed that neither AO nor CIT(A) disputed that payments for purchases were made by cross cheques which are duly reflected in bank statement nor any discrepancy was noticed by AO. AO and CIT(A) not disputed sale of assessee, AO has not brought any material on record, which may suggest that payment made to purchase of goods were again received in cash by assessee. statements of Bank accounts of parties were not examined. Section 69C provides that if explanation offered by assessee about source of expenditure is not found satisfactory by AO, amount may be added to his income. AO has not recorded satisfaction that purchases made by assessee are not genuine. AO merely relied upon statement of Mr. Rakesh Kumar Gupta. Mr. Rakesh Kumar Gupta has not referred name of 7 I.T.A. No.6610 & 6652 /Mum/2013 assessee while making such statement. assessee has relied upon decision of M/s Neeta Textiles vs. ITO (supra) wherein similar impugned purchases were also transacted through Mr. Rakesh Kumar Gupta (retracted later on) admitting that sales made to parties are genuine. Coordinate Bench of this Tribunal while relying case of M/s Jitendra Harshadkumar & Co (supra) deleted entire additions of bogus purchases. Further, Coordinate Bench of this Tribunal in Pramit Textiles vs. ITO (supra) held as under:- 7. We have perused assessment order and order of CIT(A). We have also perused order of Tribunal Mumbai "I" Bench in case of M/s. Jeetendra Harshadkumar Textiles in ITA No.771 and 2211/Mum/2011 for assessment year 2007-08 dated 21/11/2012. We find force in contentions of counsel that facts and circumstances are identical though figures may differ. Tribunal had given its finding at para-8 on page-5 of its order which reads as under :- "8. We have carefully considered rival submissions in light of material placed before us. It will be relevant to reproduce letter received by AO from Shri Rakesh Kumar Gupta, which is also reproduced in assessment order: "I am in receipt of your summons u/s. 131 of I.T.Act. 1961 in case of M/s. Jitendra Harshad Kumar Textile Pvt. Ltd. asking me to attend before your goodself with details of my account with said M/s. Jitendra Harshad Kumar Textile Pvt. Ltd. for A.Y.2002-03 & 2007-08. As you are aware that my assessing officer had recorded alleged statement u/s. 133A and 131 of I.T.Act. 1961, I have been receiving witness summons from all four corners of city on ground that I have given accommodation bill, though I have denied content of statements recorded by A.O. u/s. 133A & 131 vide my letter dated 27.4.2009 and my affidavit dated 20.2.2009 submitted to ward 14(3)(2). It is physically impossible for me to attend before various income tax authorities, as I am not feeling well, it will not possible for A.Ys02-03 to 07-08.me to attend before your goodself in response to your above mentioned summons. As regards M/s. Jitendra Harshad Kumar Textiles Pvt. Ltd. is concerned. I have already given my affidavit wherein I have specifically stated that I have sold goods to M/s. Jitendra Harshad Kumar Textiles P. Ltd. and consideration is received to me by cross 8 I.T.A. No.6610 & 6652 /Mum/2013 order cheque. Copy of said ledger account is already submitted department." 8.1 From above letter it is clear that same was written in response to notice issued by AO. Not only Shri Rakesh Kumar Gupta has stated that he has retracted from statement recorded during survey but also filed affidavit dated 20/2/2009 and letter dated 27/4/2009 to deny statement made during survey under section 133A. He has further confirmed that sales made by assessee were effected and consideration was received by cross order cheques. Thus it is clear that there is no material on record to say that purchases made by assessee from said concern were bogus except general statement recorded by Department in case of Shri Rakesh Kumar Gupta, which was later on retracted. In absence of any material brought on record against submissions made by Shri Rakesh Kumar Gupta in his letter dated 20/12/2009 filed before AO of assessee addition, if any, made in case of assessee will be based on presumption only and it cannot be sustained in eyes of law. As against that assessee has submitted various evidences to show that actual delivery of goods was received by assessee from said party which has not been discarded by AO. addition sustained by Ld. CIT(A) is also on presumption basis. Therefore, keeping in view facts and circumstances of case, we are of opinion that additions made by AO deserves to be deleted in its entirety. We decide accordingly." 7.1 On identical facts, and issues, this Bench has decided appeal in 7.1 On identical facts, and issues, this Bench has decided appeal in case of M/s. C. Chotalal & Co. in ITA Nos. ITA No.3960 to 3967/Mum/2012 for Assessment years 2002-03 to 2009-10 dated 24/09/13 wherein one of us (the Accountant Member) is party to said decision. Since facts and issues being identical, we have no hesitation in following order of our co-ordinate Bench. Respectfully following same all appeals filed by Assessee are partly allowed and all appeals filed by Revenue are accordingly dismissed. As we have seen that Co-ordinate Bench of this Tribunal in cases referred above has categorically noted that Mr. Rakesh Kumar Gupta when confronted with his statement has categorically rebutted his statement in course of cross-examination (though not appeared in present case). And Co-ordinate Bench of this Tribunal in all 9 I.T.A. No.6610 & 6652 /Mum/2013 cases deleted addition which was based on statement of Mr. Rakesh Kumar Gupta. We have also noticed that proprietors of M/s Astha Silk Industries & M/s Shree Ram Sales & Synthetics also filed their affidavit about sale and purchase of goods. AO did not make any further enquiry nor examined them. AO and CIT(A) not referred in their order about filing of affidavit by proprietor of M/s Astha Silk Industries & M/s Shree Ram Sales & Synthetics. assessee has placed on record ledger account of M/s Manoj Mills, M/s Astha Silk Industries & M/s Shree Ram Sales & Synthetics along with bills and delivery challans wherein payment made through cheques are duly reflected. sale of assessee is not disputed by AO and ld CIT(A). Thus, evidences are sufficient to show that actual delivery of goods was received by assessee from said parties. While making submission, DR for Revenue has not countered any of evidence placed on record by assessee. With these observations, we hold that AO made addition on basis of mere presumption and ld CIT (A) also sustained 25% of addition without giving any reasoning. Therefore, keeping in view pacularity of facts and circumstances of case, entire addition made by AO deserves to be deleted. Hence, this Ground of appeal raised by assessee is allowed. ITA No. 5817/Mum/2014 5. Revenue has filed this appeal against restricting addition to 25% of impugned purchases. As we have already allowed appeal of assessee in ITA No. 5297/Mum/2014 wherein we have deleted entire addition, thus present appeal of Revenue has become infructuous and same is dismissed as per observation made herein above. 6. In result, appeal filed by assessee is allowed and appeal of Revenue is treated as dismissed. 6. It is stated by parties before us that nature of evidences and facts and circumstances of case are identical in both years. Therefore, respectfully following order of Tribunal for A.Y. 2005-06, we hold purchases as fully allowable. 10 I.T.A. No.6610 & 6652 /Mum/2013 7. Consequently, appeal filed by assessee is allowed and appeal of revenue is dismissed. Order pronounced in court on this _30th day of September, 2016. Sd/- Sd/- (SANJAY GARG) (ASHWANI TANEJA) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dt : 30th September, 2016 Pk/- Copy to: 1. appellant 2. respondent 3. CIT(A) 4. CIT 5. Ld. Departmental Representative for Revenue, D-Bench (True copy) By order ASSTT.REGISTRAR, ITAT, MUMBAI BENCHES M/s Rich And Royal v. DCIT, Cir.3, Kalyan