ITO 19 (2)(5), MUMBAI vs. PRAVIN K.MEHTA, MUMBAI

Ld. DR vehemently supported the orders of the Assessing Officer.

Heard Ld. DR, perused the orders of the authorities below. On a perusal of the order of the Ld.CIT(A), I find that the Ld.CIT(A) considered this aspect of the matter elaborately with reference to the submissions of the assessee and the averments in the Assessment Order and following various judicial pronouncements along with decision of the Hon'ble Gujarat High Court in the case of CIT v. Simit P. Sheth [356 ITR 451] restricted the addition to 12.5% of the non-genuine purchases. While holding so, the Ld.CIT(A) observed as under: - “4.2.4 conclusion on Case laws: The net conclusion that can be arrived at from the above discussion is that where the sales and purchases are verifiable and proven e.g. to or from government bodies or agencies etc no addition may be made. If however, the purchases are bogus but the direct sales are proved, the assumptions are that the purchases were made from unknown parties and the AO can apply a profit rate to determine the liability of the appellant. It is also seen that putting an onus on the AO to trace the money trail or verify the withdrawals from the banks etc may give more pointers but it is not sufficient by itself and the ITAT has not accepted such an argument in the case of Shri Ganpatraj A.Sanghavi (supra). If the bogus purchases are unproved and are declared consumed by appellant itself in its trading, manufacturing or non-trading activities, the (A.Y. 2009-10) Shri Pravin K. Mehta entire addition can be made as it only goes to inflate the expenses of the appellant, (refer M/s. Shoreline Hotel Pvt. Ltd vs. CIT Central-1 in dated 19.06.2015). 4.1.5. In view of the above, it is an admitted fact that Sales Tax Department has established large number of companies/firms/partnership concerns as hawala dealers who are engaged in accommodation entries without actually supplying the goods. The appellant is one of the beneficiary and has received such accommodation bills from the three parties (the hawala operators) totaling to Rs. 17,09,050/-. To verify the genuineness of the purchases the Assessing Officer made an independent expenditure by issuing of notice u/s. 133(6) of the Income-tax Act, 1961. The appellant failed to substantiate the purchases made from the hawala dealers. The appellant could not file any of vital documents. The specific details required to establish the genuineness of purchases could not be submitted before the A.O. From the above it is clear that the addition is not only based on report of Sales Tax Department. The appellant has failed to establish the claim of purchase. However, it is also a fact that the revenue has not questioned the sales shown by the appellant. If there is a sale there has to be a corresponding purchases of inputs/raw materials/goods. It is a case where the appellant has not purchased the relevant goods from the parties whose bills have been utilized. In other words, the goods have not been purchased from the parties which have been, examined by the Sales Tax Department. Only the bills of suspicious hawala dealers have been used and goods have actually been purchased from grey' markets. The various judicial decision in such situation have laid down a principle that additions should be restricted to the benefits obtained by using such accommodation entry. Thus the AO is not justified to disallow entire purchases without questioning the sale. Following the ratio of Commissioner of Income-tax v. Simit P. Sheth [2013] 356 ITR 451 (Gujarat) disallowance of 12.5% of purchase will be justified. Thus disallowance is upheld however it is restricted to 12.5% of the purchases from suspicious hawala dealers. The of appeal are therefore Partly Allowed."