ITO WARD 1 (5), KALYAN vs. VIDHATA FOODS PVT LTD, THANE

Sh. Ajay Singh appearing on behalf of the assessee submitted that the assessee is engaged in trading of edible oils. Assessment for AY 2009-10 in the case of assessee was re-opened on the basis of information received from the Sales Tax Department, Government of Maharashtra that the assessee has allegedly obtained bogus purchase bills amounting to Rs. 29,24,289/- from M/s. Shivam Trading Company, a declared hawala operator. During the course of assessment proceedings, the Assessing Officer (AO) accepted the sales declared by the assessee, the books of accounts were also not rejected by the AO, yet the AO disallowed entire alleged bogus purchase made from M/s Shivam Trading Company. The assessee filed appeal against the assessment order dated 12.03.2014 passed under section 143(3) read with section 147 of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’], inter alia challenging re-opening of assessment and addition on account of bogus purchases. The CIT(A) upheld validity of re-opening and on merits of the addition, the CIT(A) granted partial relief by restricting disallowance on bogus purchases to 25%. The ld. Counsel pointed that the assessee had declared आअसं. 412/मुं/2020 (िन.व.2009-10 ) (A.Y. 2009-10) सी.ओ.सं.67/मुं/2021 (िन.व.2009-10) C.O. NO.67/MUM/2021 (A.Y.2009-10) Gross Profit (GP) of 4.20% on regular transactions and same was accepted by the AO. The disallowance sustained by the CIT(A) is very much on the higher side. The ld. Counsel pointed that in C.O., the assessee has assailed the addition sustained by the CIT(A).

Sh. Sanjay J. Sethi representing the Department vehemently defended the assessment order. The ld. DR submitted that the assessee failed to substantiate genuineness of the dealer and the purchases made from the said dealer during the period relevant to the AY under appeal. The CIT(A) has granted partial relief to the assessee by restricting disallowance on bogus purchases to 25%. The Revenue is in appeal against the order of CIT(A) in respect of relief granted.

Both sides heard, orders of the authorities below examined. Undisputedly, the assessee failed to substantiate genuineness of the purchases and the dealer M/s Shivam Trading Company. At the same time, it is observed that the AO has accepted the sales turnover declared by the assessee. Without purchases, there cannot be sales. In the case of unproved purchases, it is only the profit element embedded in such purchases that can be brought to tax, entire sales cannot be added back (Re: PCIT vs. Paramshakti Distributors Pvt. Ltd. in Income Tax Appeal No. 413 of 2017 decided on 15.07.2019). The AO has erred in making 100% disallowance of the purchases made from alleged hawala operator. The assessee has declared GP of 4.20% on regular transactions. In my considered view, estimation of GP at 25% on alleged bogus purchases by the CIT(A) is on higher side. To meet the ends of justice,