M/S. SANKALP ENTERPRISES,PUNE vs. INCOME-TAX OFFICER, WARD - 9 (4), PUNE

This appeal by the assessee is directed against the order dated 13-05-2019 passed by the CIT(A)-8, Pune in relation to the assessment year 2011-12.

The only issue raised in the instant appeal is against confirmation of the addition on account of bogus purchases. 3. Factual matrix of the case is that the Assessing Officer (AO) received information from the Sales Tax Department, Maharashtra about the racket of bogus purchase transactions. The list of beneficiaries included the name of assessee as well in respect of bogus purchases of Rs.21,09,408. The AO issued notice u/s 148 of the Act. During the course of assessment proceedings, the assessee confessed to have obtained bogus bills. It, however, requested to add the gross profit of 21.55% on such bogus bills to the total income. Not satisfied, the AO estimated gross profit at 40%. When the matter came up before the ld. CIT(A), he opined that the addition ought to have been made for the full amount of purchases rather than 40%. He therefore, made enhancement and confirmed the addition at Rs.21,09,408. Aggrieved thereby, the assessee has come up before the Tribunal.

We have heard the ld. DR through virtual court and gone through the relevant material on record. There is no appearance from the side of the assessee, despite several notices. The appeal came up for hearing for the first time before the Tribunal on 26-08- 2019. On finding the assessee unrepresented, the matter was adjourned for 30-09-2019. The assessee still remained absent. Several notices were issued, but the assessee did not respond. The last notice fixed the hearing for today. Again the assessee has neither attended the proceedings nor furnished any application for adjournment. As such, we are proceeding to dispose off the appeal ex-parte qua the assessee on merits.

It is an admitted position that the assessee obtained bills for bogus purchases amounting to Rs.21,09,408. The fact that the corresponding purchases were sold by the assessee has not been controverted. In such a situation, the addition cannot be made for the amount of bogus purchases, but only for additional cost element embedded in such bills, which the assessee was trying to save by recording purchases at higher price. The Hon‟ble Bombay High Court has laid down this proposition in several decisions including Pr. CIT & Ors. Vs. Mohommad Haji Adam & Co. & Ors. (2019) 104 CCH 0391 MumHC by holding that no ad hoc addition for bogus purchases can be made and that the addition should be made to the extent of difference between the gross profit rate on genuine purchases and gross profit rate on hawala purchases. When we turn to the facts of the instant case, it transpires that the AO made ad hoc estimate at 40% of gross profit without any bedrock and the action of ld. CIT(A) in enhancing the addition to 100% of bogus purchases, is absolutely unsustainable. The assessee categorically admitted before the AO for taxation towards additional gross profit at the rate of 21.55%. Considering the fact that the addition can be made only towards the additional cost, we hold that the profit at 21.55% as offered by the assessee, in the facts and circumstances of the instant case, is reasonable to cover up such cost. We, therefore, direct to make addition at the rate of 21.55% of the amount of bogus purchases at Rs.21,09,408.

In the result, the appeal is partly allowed. Order pronounced in the open Court on 20th August, 2020.