ITO 22(3)(5), MMBAI vs. UNIVERSAL TRADING CO. , MUMBAI

The brief facts of the case as emanating from the records are: The assessee is a trader in electrical goods. The assessment in the case of assessee for AYs 2010-11 & 2011-12 were re-opened on the ground that the assessee has indulged in obtaining bogus purchase bills from the dealers, declared as hawala operators by the Sales Tax Department, Government of Maharashtra. During assessment proceedings, the Assessing Officer (AO) found that the assessee has obtained bogus bills amounting to Rs. 12,91,761/- in the period relevant to AY 2010-11 and Rs. 6,84,559/- during AY 2011-12. The notices issued under section 133(6) of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’] by the AO to the dealers were returned back by the postal authorities unserved. No confirmations were filed by the assessee from the dealers, the assessee failed to furnish lorry receipts, delivery challanes, stock register, etc. to prove trail of goods. Thus, the assessee failed to discharge its onus in proving genuineness of the dealers and alleged bogus purchases from the said dealers. For AY 2010-11, the AO adopted Gross Profit (GP) rate of 33% and thus, made addition of Rs. 4,26,281/- under section 69C of the Act. For AY 2011-12, the AO applied average GP of preceding three AYs i.e. 30% and made addition of Rs. 2,05,368/- under section 69C of the Act. Aggrieved by the assessment order for the respective AYs, the assessee carried the issue in appeal before the CIT(A). In first appellate proceedings, the CIT(A) restricted the disallowance on bogus purchases in both the impugned

Ms. Smita Verma representing the Department vehemently defended the assessment order and prayed for reversing the findings of CIT(A) in so far as restricting disallowance on bogus purchases to 12.5% The ld. Departmental Representative (DR) submitted that the assessee has failed to prove genuineness of the dealers declared as hawala operator by the Sales Tax Department, Government of Maharashtra. Further, the assessee has failed to furnish relevant evidence to prove genuineness of the purchase made from declared hawala operators. The AO disallowed bogus purchases after considering GP declared by the assessee.

Submissions made by ld. DR heard, orders of the authorities below examined. Undisputedly, the assessee has failed to discharge his onus in proving genuineness of the dealers and alleged purchases made from them. Since, the AO accepted sales turnover declared by assessee, the AO made addition on account of bogus purchases by adopting GP/average GP declared by the assessee. In first appellate proceedings, the CIT(A) has upheld the findings of AO in so far as assessee’s involvement in obtaining bogus purchases bills. However, the CIT(A) has restricted the addition on account of bogus purchases to 12.5%. The assessee has declared GP of 32.02% in AY 2010-11 and 23.55% in AY 2011-12. In preceding AYs, the assessee has declared GP of more than 30%. Since, the assessee has been declaring suo-moto high rate of GP on entire transactions, it would be unfair to make addition on account of bogus purchases by applying the same rate of GP. The Hon’ble Bombay High