ITO 22(2)(7), MUMBAI vs. PANNALAL SHYAMNARAYAN YADAV, MUMBAI

The only issue in this appeal of Revenue is against the order of CIT(A) restring the disallowance made by AO applying the profit rate at 12.5% of the bogus purchase instead of 25% 2 Pannalal Shyamnarayan Yadav; AY 09-10 of the bogus purchases. For this, Revenue has raised the following ground:-

(a) On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in restricting the addition made by the Assessing Officer amounting to ₹ 1,42,313/- i.e. 25% of the total purchase to 12.5%, ignoring the fact that the action of the Assessing Officer was based on credible information received from the Maharashtra Sales Tax Department and that the assessee, during the course of assessment proceedings, failed to prove the genuineness of the purchase transactions.

Brief facts of the case are that the assessee is engaged in the business of Manufacturing and wholesale dealers in Leather & Leather goods. The AO received information from Sales Tax authorities, who in turn received information from Sales Tax Department, Mumbai that the assessee has made purchases from hawala parties, as listed in hawala dealers by the Maharashtra Sales Tax Department who are providing bogus bills of purchase, amounting to Rs. 5,69,250/- made from Shakti Trading Co. and other purchase parties.

The AO issued noticed under section 133(6) to the parties which returned back with the remark as “left” and assessee failed to produce these parties. During the course of assessment proceedings, assessee has failed to produce the parties or any other new address of the parties before the Assessing Officer. According to the Assessing Officer, the assessee failed to establish the genuineness of the purchase and accordingly, he made addition of unproved purchase at 3 Pannalal Shyamnarayan Yadav; AY 09-10 25% of ₹ 1,42,313/- to the returned income of the assessee. Aggrieved, assessee preferred the appeal before CIT(A), who restricted the disallowance to 12.5% of the bogus purchases by observing in para 6 by observing as under: - “6. I have carefully gone through the findings given in the assessment order and the written submissions of the appellant on the issue and material available on record. As per record, the re-opening was done on the basis of information from Sales Tax Department related to one party only i.e. Shakti Trading Co. Therefore, in case of other three parties, the only adverse finding is non-service of notices u/s 133(6). I agree with the view of the appellant that merely for non-service of notice u/s 133(6), making disallowance is not fully justifiable. However, it is also a fact that the AC asked the assessee to produce the parties. The assessee failed to produce the parties or to provide any other new address of the parties. Therefore, the appellant cannot be held to have discharged the onus of proving the genuineness of purchase fully. Considering the entirety of facts, I am of the view that disallowance of 12.5 % will meet the ends of the justice in the present facts and circumstances. Therefore, the disallowance of 12.5 % of total unproved purchase of Rs. 5,69,250/- = Rs. 71,156/- is hereby confirmed and balance disallowance of Rs. 71,156/- is deleted. The grounds are partly allowed.”