INCOME TAX OFFICER, MUMBAI vs. RAKESH PRUTHAVIRAJ JAIN, MUMBAI

The brief facts of the case are that, the assessee is engaged in the business of trading in ferrous and non-ferrous metals and had filed his return of income declaring total income of Rs. 1,93,580/-, which was processed under section 143(1). Subsequently, on the basis of information received from the Investigation Wing, indicating that certain parties from whom purchases were claimed were allegedly engaged in providing accommodation entries, the case of the assessee was reopened under section 148. During the course of reassessment proceedings, the Assessing Officer treated the purchases aggregating to Rs. 2,46,92,230/- from such parties as non-genuine and proceeded to make an ad hoc addition of 25% thereof, primarily on the premise that the said parties were listed as hawala dealers by the Sales Tax Department and that notices issued under section 133(6) could not be served upon them. The Assessing Officer, however, did not undertake any independent enquiry or field verification to substantiate the allegations or to disprove the evidences furnished by the assessee.

The learned Commissioner (Appeals), after examining the entire factual matrix in detail and taking into consideration the submissions and evidences placed by the assessee, came to the conclusion that while certain deficiencies in the evidences and non-production of parties could not be ignored, at the same time, the Assessing Officer had also failed to discharge the burden cast upon him to prove that the purchases were wholly bogus or that no goods

We have heard the learned Departmental Representative and perused the entire material available on record. None appeared on behalf of the assessee; however, having regard to the fact that sufficient material is available on record and the issue lies in a narrow compass, we proceed to decide the matter ex parte qua the assessee on the basis of the record.

Upon a careful consideration of the rival positions and the orders of the authorities below, what emerges is that the Assessing Officer has proceeded to make the addition primarily on the basis of information received from the Sales Tax Department, without undertaking any independent enquiry to verify the correctness of such information. The evidences furnished by the assessee, including documentary proof of purchases and payments through banking channels,

It is now well-settled through a catena of judicial pronouncements that where the purchases are doubted but the sales are accepted, the addition should be restricted only to the profit element embedded in such purchases. The rationale behind this principle is that even if the assessee has procured goods from the grey market or from unverified parties, the possibility of saving on account of taxes and other incidental costs would result in some extra profit, which alone can be brought to tax. The learned Commissioner (Appeals), in our considered opinion, has correctly appreciated this legal position and has adopted a reasonable and balanced approach in estimating such profit at 12.5%.

The estimation made by the learned Commissioner (Appeals) is neither arbitrary nor excessive; rather, it is based on a judicious appreciation of facts and circumstances of the case. The Revenue has not brought any material on record to demonstrate that a higher rate of profit should have been

Accordingly, we uphold the order of the learned Commissioner (Appeals) and dismiss the grounds raised by the Revenue.

In the result, the appeal filed by the Revenue is dismissed.