Associated Capsules P.Ltd, Mumbai vs Assessee

These two appeals have been filed by the assessee against the

order of CIT(A) dated 28-2-2014 for the assessment years 2008-09, in the

matter of order passed u/s.143(3) r.w.s.153A of the I.T.Act.

2. The common grievance in both the years relate to addition made on

account of purchases of paintings from different parties.

3. Rival contentions have been heard and record perused. The

grievance of the assessee pertain to the addition to the total income on

account of 'unproved purchases' of Rs.29,53,125/- and Rs.15,18,750/- for

the AYrs.2006-07 & 2007-08 respectively. It is mentioned in the

assessment order that the issue of bogus purchases of paintings came to, 2 ITA Nos.2829&2830/2014

light during the search & seizure action u/s.132 of the Act. It is stated in

the assessment order that the Investigation Wing had investigated' into

certain purchases of paintings shown by the assessee group and

established them as bogus on the basis of investigation carried out on

various suppliers. It is further stated by the AO that the statements of Mr.

Krishna Kumar Gupta, Proprietor of M/s.Mukta Sales Corporation and

director of M/sVenkatesh Mercantile Pvt. Ltd. & M/s.Muni Trade Pvt. Ltd.,

Mr.Rashesh A Shah, Proprietor of M/s.Royal Trust Corporation, Shri

Ashok Palan, Proprietor of M/s. Elegant Trading Company & M/s.Mangala

Corporation, Mr. Jesaran Prajapathi, Proprietor of M/s.Raj Enterprises,

M/s.Oshwal Traders, M/s.Balaji Sales Corporation, M/s. Jyoti Enterprises,

M/s.Marco Enterprises and Mr.Chetan M. Shah, Proprietor of M/s.

Neelam Sales Corporation were enclosed as annexures with the

assessment order. It is stated that all the persons denied having supplied

any paintings to the assessee but admitted having received cheques on

behalf of assessee which were deposited in their bank accounts and

subsequently money was withdrawn and given to the person who has

given the cheques, after collecting their commission. During the

assessment proceedings, assessee contended that they have purchased

paintings and the considerations were paid by cheques which included

VAT payment and their cheques were encashed. The AO disagreed with

the stand of the assessee on the basis of statements recorded from the

bill providers. It is further stated in the assessment order that assessee

was asked to produce the parties from whom the above paintings were

purchased to prove the genuineness of purchases, but the assessee did 3 ITA Nos.2829&2830/2014

not comply with the same. It is further stated in their statements before the

Investigation Wing on 30.05.2007 that the parties denied having sold

paintings to the assessee and refused to accept that the said bills were

issued by them. On the basis of these findings, the AO held that the

following purchases as unproved purchases :

A.Y.2006-07

1. M/s Raj Enterprises Rs.29,53,125/-

A.Y.2007-08 M/s Trishala Tradewings Rs.15,18,750/-

4. By the impugned order, the CIT(A) confirmed the addition against

which the assessee is in further appeals for both the assessment years

before us.

5. It was argued by ld. AR that paintings were purchased by issuing

account payee cheque which was duly credited in the account of seller.

The paintings were physically found during the course of search,

therefore, mere decline by seller will not be sufficient for treating the

purchases as bogus. He further contended that no deduction in the form

of any expenses pertaining to the paintings were claimed in the return of

income, therefore, no disallowance should be made.

6. On the other hand, the contention of ld. DR was that the parties

from whom alleged paintings were purchased have clearly declined such

transaction. Furthermore, one of the supplier was not found at the

address given by the assessee. Accordingly, department was justified in

treating such purchases as bogus.

7. We have considered rival contentions and carefully gone through

the orders of the authorities below. We have also gone through the

statement recorded by the AO from the supplier of paintings. It is evident 4 ITA Nos.2829&2830/2014

from the record that assessee has claimed purchase of paintings by issue

of account payee cheques. The paintings were also found during the

course of search at assessee's premises. The AO has made the addition

by treating the paintings as bogus purchase merely on the basis of the

statement of the seller/supplier of paintings. It is also a matter of record

that assessee has not claimed any expenditure in its profit and loss

account with respect to cost of paintings. The source of fund from where

payment was made is also not in dispute, insofar as payment was made

out of credit balance in the bank account. The fact that paintings were

found during the course of search indicated that paintings were actually

purchased. Accordingly, we do not find any merit for adding the amount of

paintings in the assessee's income when the source of funds for making

such purchase was not in dispute, nor the physical form of paintings.

Under these circumstances, the only inference which can be drawn is that

the assessee might have purchased paintings from some other parties.

The value paid to the other parties are not known. Keeping in view the

totality of facts and circumstances of the case, we direct the AO to

ascertain the actual value of paintings in case assessee claims any

depreciation on such assets in future. We direct accordingly.

8. In the result, both appeals of the assessee are allowed, in terms indicated hereinabove.

Order pronounced in the open court on this 25th Feb.2015.

Sd/- Sd/- ( ) ( ) (AMIT SHUKLA) (R.C.SHARMA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER Mumbai; Dated 25/02/2015 /pkm, PS 5 ITA Nos.2829&2830/2014

Copy of the Order forwarded to : 1. / The Appellant 2. / The Respondent. 3. / The CIT(A), Mumbai. / BY ORDER, 4. / CIT 5. / DR, ITAT, Mumbai

6. Guard file.

//True Copy// (Asstt. Registrar) / ITAT, Mumbai