ITO WARD-3(2), MUMBAI vs. TUSHAR ASHOK RAHATGAONKAR, MUMBAI

During the course of assessment, Assessing Officer issued notice under section 133(6) to the above mentioned parties, which were returned unserved by the postal authorities. However, the assessee submitted copies of bills and reconciliation statement of sales corresponding to purchases made. However, no delivery challan or transportation details were submitted. The Assessing Officer was also of the view that the purchases have been made from undisclosed parties in the open market in cash, but not from the above mentioned parties from whom only bills were obtained. However, the Assessing Officer has treated the whole purchases as bogus purchases and added to the total income of the assessee. Further, the Assessing Officer noticed that assessee has debited expenses of R.2,07,747/- to the P&L Account and made disallowance of 20% of such expenses on the ground that the same were not proved. Aggrieved, assessee filed appeal before the Ld.CIT(A). The Ld.CIT(A) held that there cannot be sales without corresponding purchases. Therefore, he restricted the disallowance to the extent of profit margin of 12.5% of the bogus purchases. However, in respect of disallowance of Rs.2,07,747/- pertaining to expenses, the Ld.CIT(A) has dismissed the ground of the assessee.

Heard both sides and perused the materials on record. During the course of assessment, the Assessing Officer found that assessee had 4 ITA 2858/Mum/2022 CO 6/Mum/2023 shown purchases from the parties, who were engaged in providing bogus sale bills without supplying any goods on the basis of information revealed by the sales-tax department. The Assessing Officer has added 100% of such purchases to the total income of the assessee by treating the same as non genuine. During the course of assessment, the assessee submitted the details of corresponding sales made against such purchases which have not been disproved by the Assessing Officer. We observe that in such type of transaction, the assessee purchases goods from the grey market which are cheaper than the material sourced from the genuine dealer and the bills are obtained from the third parties. In the light of the above circumstances, we observe that the assessee had shown corresponding sales against the purchases debited. Therefore, genuineness of purchases as a whole cannot be doubted and only the profit margin embedded in such transaction could be taxed. Therefore, we find justification in the action of the Ld.CIT(A) in restricting the addition to the extent of profit element embedded in such transaction. Accordingly, appeal of the Revenue stands dismissed. CROSS OBJECTION NO.6/MUM/2023 (Filed by Assessee) 6. Regarding cross objection filed by the assessee that Assessing Officer had disallowed 20% of expenses debited to the P&L Account, we find that Assessing Officer has not given appropriate reason for making disallowance @20% o such expenses. Therefore, we consider that it is reasonable to disallow such expenses @10%. Therefore, we direct the Assessing Officer to restrict the disallowance of these expenses debited to 5 ITA 2858/Mum/2022 CO 6/Mum/2023 the P&L Account to the extent of 10%. Accordingly, this cross objection filed by the assessee is partly allowed.

In the result, appeal filed by the Revenue is dismissed and the cross objection filed by the assessee is partly allowed. Order pronounced in the open court on 22/02/2023.