INCOME TAX OFFICER, PUNE vs. COOPERATION METALS, PUNE

Subsequently the order u/s 143(3) r.w.s. 147 of the Act was passed on 13.03.2015 determining the total income of the assessee at Rs.5,80,450/- wherein the Assessing Officer made addition of Rs.4,43,816/- being GP @ 5% on account of unproved purchases from the vendor declared as hawala parties. Subsequently the Ld. CIT-III, Pune examined the record and found the order of the Assessing Officer to be erroneous and prejudicial to the interest of the Revenue since the Assessing Officer has not verified all the relevant issues to arrive at the correct taxable income. He, therefore, set aside the issue to the file of the Assessing Officer with certain directions. Subsequently the Assessing Officer issued notice u/s 143(2) r.w.s. 263 of the Act in response to which the assessee filed its submissions. It was explained that the assessee has made purchases from the parties concerned from whom physical delivery of goods were taken and supplied

However, the Assessing Officer was not satisfied with the arguments advanced by the assessee. He observed that a survey action u/s 133A of the Act was carried on 15.02.2013 in the case of the assessee. The Assessing Officer in the course of survey action had recorded statement of Shri Mafatlal N Shah u/s 131 of the Act. In the statement the Assessing Officer confronted the partner of the assessee regarding purchases of Rs.88,76,319/- from the parties M/s. Raj Metal Industries, M/s. Rajlaxmi Corporation & Reliable Metal Works and Ramani Metal Corporation. He noted that the transaction relates to bogus bills, fake purchases bills and without actual movement of goods. Non-genuine bills were utilized by the assessee to inflate the expenses and in turn reduce its total income. Rejecting the various explanations given by the assessee, the Assessing Officer made addition of Rs.84,32,503/- (i.e. Rs.88,76,319 – Rs.4,43,816) being unproved purchases from the vendors declared as hawala parties.

In appeal the Ld. CIT(A) / NFAC directed the Assessing Officer to restrict the addition to 18% of the said bogus purchases by observing as under:

Aggrieved with part relief granted by the Ld. CIT(A) / NFAC, the assessee as well as the Revenue are in appeal by raising the following grounds: Grounds raised by the assessee in ITA No.2231/PUN/2024 (A.Y. 2010-11) 1. The learned CIT(A), NFAC erred in law and on facts in confirming addition on account of alleged Hawala Purchases amounting to Rs.15,97,740/- (after allowing partial reliefs). Learned I-T authorities ought to have appreciated that "purchases" made by Appellant were genuine. 2. The learned IT authorities ought to have appreciated that, Appellant, in the initial round of proceedings u/s 143(3) r.w.s. 147, has agreed for addition of 5% GPM (Gross profit margin) of alleged HAWALA Purchases in only to buy peace of mind. 3. Learned CIT(A), NFAC erred in law and on facts in deciding the GPM (gross profit margin) of 18% on alleged Hawala Purchases solely relying upon the information received from sales tax department indicating alleged bogus purchases made. The I-T authorities ought to have proceeded further for cross-examination of the suppliers/further probing of such suppliers, from whom the alleged bogus purchases were made. Appellant relies upon the decision of jurisdictional Honorable Bombay High Court in the case of PCIT Vs. Nitin Ramdeoji Lohiya - [2022) 145 taxmann.com 546. 4. The learned CIT(A), NFAC erred in law and on facts in assessing the gross profit margin (GPM) of the appellant at 18% on alleged HAWALA purchases instead of a reasonable lower plausible GPM. Appellant contends that, in business of trading of goods and assuming, such huge 18% GPM on alleged HAWALA Purchases is abnormal. 5. Appellant craves leave to add/alter/modify/amend/delete all or any of the grounds of appeal.

The Ld. DR heavily relied on the order of the Assessing Officer. He submitted that the Ld. CIT(A) / NFAC without appreciating the facts properly has reduced the addition to Rs.15,97,740/- as against Rs.84,32,503/- made by the Assessing Officer which is not justified.

The Ld. Counsel for the assessee on the other hand submitted that without purchases, there cannot be any sales and in the instant case the Assessing Officer has accepted the sales made by the assessee. Relying on the following decisions he submitted that only the profit element embedded in such unaccounted purchases can be added to the total income and not the entire purchases: 1) Amcon Construction [TS-452-HC-2026 (Bom] 2) ITO vs. Navin Sirahmal Mukim vide ITA No.1054/PUN/2025 3) CIT vs. Prathana Gems (2025) 9 NYPCTR 1752 (Guj) 4) PCIT vs. Sunil Kumar Parasmal Jain (2025) 9 NYPCTR 1753 (Guj) 5) Sha Tarachand Fojmal and Company vide ITA No.2541/Mum/2025 6) PCIT vs. Ramelex (P) Ltd (2025) 179 taxmann.com 374 (Bom) 7) Ramasamy Sivaprakasam vide ITA No.1266/Chny/2025 8) KDM Impex vide ITA No.3040/Mum/2025

We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. CIT(A) / NFAC and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the Assessing Officer in the original assessment order passed u/s 143(3) r.w.s. 147 of the Act on 13.03.2015 determined the total income of the

A perusal of the decisions relied on by the Ld. Counsel for the assessee shows that only the profit element embedded in such bogus purchases can be added and not the entire purchases to the total income of the assessee. It has been held that although the purchases were not fully proved, however, the entire disallowance is not justified since without purchases there cannot be any sales. In the instant case the Assessing Officer has not doubted the sales made by the assessee and only doubted the purchases made by the assessee from the parties who are treated as hawala operators. Considering the totality of the facts of the case and in the interest of justice, we are of the considered opinion that adoption of profit @ 10% of the total unproved purchases of Rs.88,76,319/- will meet the ends of justice. We, therefore, modify the order of the Ld. CIT(A) / NFAC and direct the Assessing Officer to restrict the addition to Rs.8,87,632/- being 10% of Rs.88,76,319/- as the income of the assessee. Since an amount of Rs.4,43,816/- has already been added in the original order passed u/s 143(3) / 147, therefore, the addition is restricted to Rs.8,87,632 – Rs.4,43,816 i.e. Rs.4,43,816/-. The grounds raised by the assessee are accordingly partly allowed and the grounds raised by the Revenue are dismissed.

After hearing both sides, we find identical grounds have been raised by the assessee in ITA Nos.2321/PUN/2024 & ITA No.2320/PUN/2024 and the Revenue

In the result, the appeals filed by the assessee are partly allowed and the appeals filed by the Revenue are dismissed.