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Facts
The assessee, engaged in trading steel and brass items, filed its return for AY 2011-12. The case was reopened based on information suggesting the assessee was a beneficiary of hawala transactions for purchases amounting to Rs. 17,90,350/- without delivery of goods. The AO completed the assessment under Section 144 r.w.s 147, treating these purchases as bogus.
Held
The Tribunal held that while the initial assessment was based on a report indicating hawala transactions, the assessee had provided sufficient documentary evidence, including purchase orders and payment details, to substantiate the purchases. The Tribunal found the facts of the present case to be at variance with the cited case law relied upon by the revenue.
Key Issues
Whether the CIT(A) erred in restricting the disallowance of bogus purchases to 15% instead of 100% as determined by the AO, and whether the assessee sufficiently proved the genuineness of the transactions.
Sections Cited
143(1), 148, 144, 147, 69C, 254(1)
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Order under section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by revenue is directed against the order of Learned Commissioner of Income Tax (Ld. CIT(A)) dated 09.12.2024 for A.Y. 2011- 12. The assessee has raised the following grounds of appeal: “
1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in restricting the disallowance of bogus purchases to 15% as against 100% by the assessing officer in order u/s 144 r.w.s. 147 of the IT Act?
2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in overlooking the explicit finding of the Directorate of Investigation, Mumbai that the assessee has undertaken various transactions with 2 parties who were either listed as Hawala Dealer or were fictitious and non traceable.
3. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in restricting the disallowance to 15% by not considering the fact that the assessee also failed to prove the identity and genuineness of the transactions / parties during the assessment proceedings?
4. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in not appreciating the fact that the Human Probability Test applied in this case and false claims of the assessee cannot sustain before the test of Human Probability.
Mulchand Ramajor Gupta 5. The appellant craves leave to add, amend, alter substitute or modify any of the above grounds or add a fresh ground as and when found necessary either before or at the time of hearing.”
The brief facts of the case are that the assessee is an individual engaged in the business of trading of steel and brass items in the name of Vikas Enterprises. The assessee filed its return of income for A.Y. 2011-12 on 30.09.2011, declaring income of Rs. 5,70,185/-. Initially return was proceeded under section 143(1). Subsequently, case of assessee was reopened on the basis of information from DGIT Investigation wing, which was based on the report of Sales Tax department that during the year under consideration the assessee is beneficiary of Hawala transaction for purchase of goods worth Rs. 17,90,350/- from various parties which were providing mere accommodation entry without delivery of goods. On the basis of such information, the case of assessee was reopened. Notice under section 148 dated 21.01.2016 was issued. The Assessing Officer (AO) in para 4 of the assessment order recorded that on service of various notices neither the assessee attended nor any detail were furnished. The AO ultimately completed assessment under section 144 r.w.s 147 on 30.09.2016. The AO while passing assessment order treated the purchases of Rs. 2,77,350/- from Krishna Corporation and of Rs. 15,15,000/- for Ramanand Sale Services which were shown in the list of bogus/Hawala purchases. Thereby, the AO disallowed/treated purchases of Rs. 17,92,350/- as bogus purchases and added under section 69C.
Aggrieved by the additions in the assessment order, the assessee filed appeal before Ld. CIT(A). Before Ld. CIT(A) assessee claimed that goods purchased Mulchand Ramajor Gupta from Ramanand Sales Services and Krishna Corporation were genuine. The goods from Ramanand Sales Services was supplied on 13.12.2010 and 02.12.2010. The assessee purchased Round Brass disk with design. The assessee paid VAT charged by dealer. The assessee claimed that part of goods were exported to Malaysia and final destination was Egypt. The assessee purchased 7500 pieces of round brass disk with design out of which 7200 pieces were exported. From Krishna Corporation the assessee made purchases of plastic casserole of 210 sits and stainless sauce cup of 2440 piece. The goods were supplied on 03.03.2011. The goods were supplied on oral order on which VAT and CST was paid. The assessee also furnished various evidence to prove the purchases. The Ld. CIT(A) after considering the submission of assessee restricted the addition of 15% on such purchases. Thereby allowed part relief to the assessee. Aggrieved by the order of Ld. CIT(A), the revenue has filed present appeal before Tribunal.
I have heard the submission of Learned Senior Departmental Revenue (Ld. DR) for the revenue and the Learned Authorized Representative (Ld. AR) of the assessee. The Ld. DR for the revenue submits that though the tax effect in the present appeal in less than the threshold limit of tax effect for filing appeal before Tribunal but this case falls in the category of exception clause of Circular of Central Board of Direct taxes. The ld Sr DR for the revenue submits that during assessment no details were furnished by assessee. Assessment was completed under section144. The assessee is beneficiary of bogus purchases shown from Krishna Corporation and Ramanand Sales Pvt. Ltd. Both the entity were Hawala parties. The assessee has not furnished 3 Mulchand Ramajor Gupta proof of actual delivery. The AO made 100% of disallowances of purchases shown from both the parties. The Ld. CIT(A) despite recording the fact that no proof of actual delivery was furnished, restricted the addition to the extent of 15% of total expenditure debited on account of such purchases. The Ld. DR for the revenue submits that in a recent decision, the Bombay High Court in PCIT V. Kanak Impex (2025) 172 taxmann.com 283 (Bom) upheld the addition of 100% of purchases shown from Hawala Parties. The Ld. DR for the revenue thus prayed that finding of CIT(A) may be reversed and that of AO may be restored.
On the other hand, the Ld. AR of the assessee supported that order of CIT(A). The Ld. AR of the assessee submits that the assessee has not received notice from AO, due to change of his address, however, before ld. CIT(A) the assessee furnished complete details to substantiate the genuiness of purchases. The assessee has also furnished detail of consumption/export of goods to overseas countries. The assessee proved purchases and source of purchases beyond doubt. The case law relied by Ld. DR for the revenue is not applicable on the facts of the present case. In assessee’s case there is no evasion of VAT. The ld CIT(A) restricted the addition on account of profit element. The ld CIT(A) allowed relief to the assessee only after seeking remand report. In the remand report the AO confirmed the details furnished by assessee. In case of PCIT Vs Kanak impex (supra), that assessee has not proved the purchases, rather in the present case the assessee has proved purchases beyond the doubt. The assessee proved payment against the purchase. In case of Kanak Impex(supra) no source of expenditure was 4 Mulchand Ramajor Gupta furnished. However, in case of assessee the assessee furnished complete details of source with supporting evidence. The case of assessee otherwise covered by Mohammad Haji Adam & Co. (2019) 103 taxmann.com 459 (Bom) of Hon’ble Jurisdictional High Court.
I have considered the rival submissions of both the parties and perused the orders of lower authorities carefully. It is an admitted fact that case of assessee was reopened on the basis of report of investigation wing. The assessment was completed under section 144 r.w.s 147. The AO made addition of aggregate of purchase shown from Krishna Corporation and Ramanand Sales Pvt. Ltd. The AO has made 100% addition against the purchase from aforesaid two parties. Before Ld. CIT(A) the assessee filed detailed return submissions. Copy of such submissions is placed on record in the form of paper book. Along with the submissions the assessee also furnished copy of purchase order, along with quantitative detail and the assessee also furnished showing the payment made to both the parties. Thus the assessee has placed sufficient evidences to substantiate purchases from both the parties. I find that the assessee in its short written notes claimed that ld CIT(A) remanded such evidence to the AO and that AO confirmed about the details in his remand report. However, I don’t find any reference in the order of Ld. CIT(A). However, from the order of ld CIT(A) it is evident that such documentary evidence is duly considered by him and on the basis of various decisions of Tribunal and superior Courts wherein assesses were beneficiary of similar purchases, restricted the addition to the extent of 15% of such purchases. I am conscious of the fact that assessee has not 5 Mulchand Ramajor Gupta challenged the quantum of addition restricted/ sustained by Ld. CIT(A). However, the assessee has discharged his onus in substantiate the purchases. There is no adverse material against the assessee except the report of VAT/Sales Tax department wherein the Saler party was identified was Hawala Traders. The AO has not made any independent investigation of facts. On careful comparison of facts of present case and the facts in case of Kanak Impex (Supra), I find that facts of the present case is at variance. The assessee has furnished completed evidence about source of purchases and payment against such purchases. Therefore, I do not find any merit in the grounds of appeal
raised by revenue.
7. In the result, the appeal of the Revenue is dismissed. Order pronounced in open court on 23.05.2025.