M/S. MAC DYECHEM INDUSTRIES,MUMBAI vs. INCOME TAX OFFICER, WARD-28(2)(2), MUMBAI

Ms. Hiral Sejpal appearing on behalf of the assessee submitted that assessee is engaged in manufacturing and trading of dyes and chemicals. The assessment in the case of assessee for AY 2009-10 was re-opened for the reason that the assessee has allegedly obtained bogus purchase bills amounting to Rs. 1,52,31,031/- during the period relevant to the AY under appeal. The assessee in order to prove genuineness of the purchases had furnished copies of ledger accounts of all the parties, bank statements, etc. The Assessing Officer accepted the sales turnover declared by the assessee and thereafter estimated Gross Profit (GP) @ 12.5% on alleged hawala purchases and made addition of Rs. 19,03,878/-. Aggrieved by the assessment order dated 13.03.2015 passed under section 143(3) read with section 147 of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’], the assessee filed appeal before the CIT(A). Before the First Appellate authority, the assessee furnished VAT Audit Report. As per the said report, the assessee had made purchases from alleged hawala dealers आअसं. 5244 & 5279/मुं/2019 (िन.व.2009-10) & 5279/MUM/2019 (A.Y.2009-10) only to the extent of Rs. 76,78,960/-. The CIT(A) modified the assessment order only to the extent of total alleged hawala purchases as per VAT Audit Report and retained adhoc GP addition @ 12.5%. The ld. Authorized Representative (AR) submitted that the assessee has declared GP of 9.42% during the Financial Year (FY) 2008-09. The industry GP is 9.12%. The GP declared by the assessee is more than industry GP. The ld. AR submitted that in light of documentary evidence furnished by the assessee the entire addition in respect of bogus purchases be deleted. The ld. AR further submitted that without prejudice to primary prayer the addition may be restricted to the extent of difference between the GP estimated by the AO and the GP declared by the assessee. To support her submissions, the ld. AR placed reliance on the decision of Tribunal in the case of ITO Vs. Ami Riddhi Chem Pvt. Ltd. in ITA No. 5897 & 5898/Mum/2017 for the AY 2011-12 & 2012-13 decided on 01.01.2019.

On the other hand, Sh. Sanjay J. Sethi representing the Department vehemently defending the assessment order submitted that the VAT Audit Report on the basis of which the CIT(A) has reduced the amount of bogus purchases from Rs. 1,52,31,031/- to 76,78,960/- was never brought to the notice of AO. The CIT(A) has failed to appreciate the fact that parties from whom assessee has made unapproved purchases are declared hawala operators. The ld. DR submitted that the assessee has failed to discharge its onus in proving genuineness of the dealers and the purchases made from them. The ld. DR prayed for restoring the addition made as per assessment order.

Undisputedly, the assessee failed to discharge its onus in proving genuineness of alleged suspicious dealers and the purchases made from them. The AO estimated GP on bogus purchases @ 12.5%. The AO computed total amount of bogus purchases from hawala operators at Rs. 1,52,41,031/-. In First Appellate proceedings, the CIT(A) upheld the findings of AO to the extent of assessee’s involvement in obtaining bogus bills and the rate of GP estimated on such bogus purchases. However, on the basis of VAT Audit Report, the CIT(A) reduced quantum of bogus purchases to Rs. 76,78,960/-. We observe that the assessee has declared GP of 9.42% on regular transactions. This GP has not been disturbed by the AO. In bogus purchase transactions, the modus operandai is that the purchases are made from grey market to save VAT and marginal purchase cost and matching bogus bills are obtained from accommodation entry providers. Taking into consideration entirety of facts, we are of considered view that the ends of justice would be met, if suppressed profit margin on bogus purchases amounting to Rs. 76,78,960/- is estimated at 5%. We hold and direct accordingly.