ITO 26(3)(2), MUMBAI vs. SHRI. SHAFIULLAH ABDULLAH KHAN, MUMBAI

The solitary issued raised in this appeal by the Revenue is against relief granted by the CIT(A) in respect of alleged bogus purchases made by the assessee.

Brief facts of the case as emanating from records are: The assessee is a scrap dealer. The assessment for Assessment Year 2009-10 in the case of assessee was reopened on the ground that the assessee has obtained bogus purchase bills amounting to Rs.25,147/- from M/s. Maruti Steel Traders, a entry provider during the Financial Year 2008-09. During assessment proceedings, the Assessing Officer issued notice u/s 133(6) of the Income Tax Act, 1961 ( in short ‘the Act’) to the aforesaid dealer, however, the same was returned by the Postal Authorities with the remark “left”. Since, the assessee could neither produce the dealer or confirmation of purchase nor the relevant documents to substantiate genuineness of the purchases the Assessing Officer disallowed entire purchases and made addition of Rs.25,147/-. The assessee carried the issue in appeal before the CIT(A). The CIT(A) granted part relief to the assessee by estimating suppressed profit margin on bogus purchases at 12.5%. Against the relief granted, the Revenue is in appeal before the Tribunal.

Shri Sanjay Sethi representing the Department vehemently defending the assessment order submitted that the assessee has failed to produce documents viz. stock register, delivery challans/lorry receipts, etc. to substantiate purchases made from the hawala operator. The notice issued to the suspicious dealer remained unserved, the assessee neither produce the party nor confirmation from the said party, hence, the Assessing Officer rightly disallowed entire bogus purchases.

Submissions made by ld. Departmental Representative heard, orders of authorities below examined. The Revenue is in appeal against the order of CIT(A) granting part relief to the assessee by restricting addition in respect of bogus purchases to 12.5% as against 100% disallowance made by the Assessing Officer. A perusal of the assessment order shows that the Assessing Officer has accepted the sales turnover declared by the assessee /respondent. Without purchases there cannot be sales, hence, the entire alleged bogus purchases cannot be disallowed. It is only the profit element embedded in such transaction that can be disallowed.[RE:

PCIT vs. Paramshakhti Distributors Pvt. Ltd. in Income Tax Appeal No.413 of 2017 decided by Hon'ble Bombay High Court on 15/07/2019] The CIT(A) after examining the facts has restricted the addition to Rs.3,143/- by estimating suppressed profit margin on bogus purchases at 12.5%. I find no reason to interfere with the findings of CIT(A), hence, the same are upheld and appeal of the Revenue is dismisse, being devoid of any merit.

In the result, appeal by the Revenue is dismissed.