ITO - 9(2)(3), MUMBAI vs. M/S. CONTECH MACHINES P. LTD., MUMBAI

O R D E R This appeal by assessee is arising out of the order of the CIT(A) – 16, Mumbai, in appeal No.CIT(A)-16/ITO-9(2)(3)/IT-10087/2016-17, dated 29.11.2019. The assessment was framed by the ITO 9(2)(3), Mumbai, for A.Y. 2010-11, vide his order dated 02.03.2016, u/s. 144 r.w.s. 147 of the Income tax Act, 1961 (hereinafter referred to as “the Act”).

1. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was justified in restricting the suppressed profit to the extent of 12.5% of bogus purchases, when the assessee could not produce any parties or evidence that the said goods were purchased and the onus of providing genuineness of purchases was not discharged by the assessee? 2. Whether the Ld.CIT(A) has ignored the judgement of the Hon’ble Apex Court in the case of N K Proteins Vs. DCIT SLP Nos 769 of 2017 dated 16.01.2017, wherein the Hon’ble Supreme Court had dismissed the SLP filed by the tax payer and confirmed the decision of the Hon’ble High Court for addition of entire income is to be made on account of bogus purchases as against the ITAT’s decision restricting it to 25%.

Sr. TIN No. of the Hawala Party Amount No. Hawala Party 1 27860346638V Asian Steel Rs. 5,923/- 2 27170384799V Chandranand Trading Pvt. Ltd. Rs. 56,202/- 3 27320573915V Jindal Metal Corporation Rs.1,63,754/- 4 27240659707V Rema Trading Co. Rs.3,62,336/- Total Rs.5,88,215/- With no response from the assessee the Assessing Officer passed exparte order and framed assessment u/s. 144 of the Act. Aggrieved the assessee preferred appeal before the first appellate authority.

“6.1.30 In the case of Vijay Proteins (supra), the Hon’ble ITAT was seized with a case of bogus suppliers of oil cakes where 33 parties were found to be bogus by the departmental authorities even though payments were made to the said parties by cross cheques and in fact the A.O. in that case had brought adequate material on record to prove that the cross cheques had not been given to parties from whom supplies were allegedly procured but these were encashed from a bank account in the name of another entity, possibly hawala dealer. Subsequently, the money deposited in that account was withdrawn in cash almost on the same day. The Tribunal however, held that if the purchases were made from open market without insisting for genuine bills, the suppliers may be willing to sell the product at a much less rate as compared to a rate which they may charge in which the dealer has to give genuine sale invoice in respect of that sale. Keeping all such factors in mind, the Tribunal estimated an element of profit percentage of the overall purchase price accounted for in the books of accounts through fictitious invoices. 6.1.31 As narrated earlier, the Ld. A.O. in this case has held that the parties from which the purchases were made by the appellant were found to be bogus and that is the reason for which it was not produced during the assessment proceedings. Not having doubted the consumption/ sales, the motive behind obtaining bogus bills thus, appears to be inflation of purchase price so as to suppress true profits. Considering the facts of the case as well as the various case laws cited (supra), I estimate the suppressed profit to the extent of 12.5% of the purchases made from the bogus entities, as the suppressed profit element embedded in such purchases. This estimation is in addition to the GP shown by the appellant. Accordingly, this ground of appeal is partly allowed.”

6. I noted from the order of the CIT(A) as well as the assessment order that admittedly, the assessee has obtained bills from hawala parties but it is not disputed that the sales met out of these purchases are not considered. Once the sales are not doubted, I find that the CIT(A) has rightly applied the profit rate. I find no reason to interfere with his findings and confirm the same.

Order pronounced in the open court on 26th October 2021.