ITO 22 (2)(2), MUMBAI vs. MAHENDRA KUMAR BAFNA , MUMBAI

The assessee is engaged in the business of whole sale and retail trade of Plywood, Sunmica, Teakwood, Fevicol and other hardware items. The assessment in the case of assessee for assessment year 2009-10 and 2010-11 were reopened 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. In assessment year 2009-10, the assessee allegedly obtained accommodation entries amounting to Rs.5,60,677/- and in assessment year 2010-11 the assessee allegedly obtained accommodation bills aggregating to Rs.8,78,328/- from suspicious dealers. The Assessing Officer made addition of entire alleged bogus purchases in the respective assessment years. Against the assessment orders, the assessee filed appeal for respective assessment years before the CIT(A). The First Appellate Authority after examining the facts concurred with the findings of Assessing Officer to the extent that the assessee has obtained bogus purchase bills, however, the CIT(A) restricted the disallowance on bogus purchases to 12.5% of such purchases.

Ms. Smita Verma representing the Department vehemently defended the assessment order for the impugned assessment years. The ld. Departmental Representative submitted that the assessee has failed to discharge his onus in proving genuineness of purchases made from suspicious dealers. The notices issued by the Assessing Officer under section 133(6) of the Income Tax Act, 1961 (in short 'the Act') to the dealers from whom the assessee had allegedly made purchases were received back unserved from postal authorities. No document was furnished by the assessee to substantiate trail of goods. The ld. Departmental Representative placed reliance on the decision rendered by Hon'ble Supreme Court of India in the case of N.K. Proteins Vs. DCIT, 84 taxamann.com 195(SC) and prayed for restoring complete disallowance of bogus purchases.

Submissions made by ld. Departmental Representative heard, orders of authorities below examined. Undisputedly, the assessee failed to discharge his onus in proving authenticity of dealers and purchases made from them. At the same time it is observed that the Assessing Officer has accepted the sales turnover declared by the assessee, hence, the entire alleged bogus purchases cannot be disallowed. Without purchases there cannot be sales. It is only the profit element embedded in such transactions that can be brought to tax [RE: PCIT vs. Paramshakhti Distributors Pvt. Ltd. in Income Tax Appeal No.413 of 2017 decided on 15/07/2019 by Hon'ble Bombay High Court.] I am of considered view that the Assessing Officer has erred in making 100% disallowance on bogus purchases. I concur with the findings of CIT(A) in estimating profit margin @ 12.5% on alleged bogus purchases. The impugned order is upheld and appeal of the Revenue for assessment years 2009-10 and 2010-11 are dismissed, sans merit.

In the result, both appeals by the Revenue are dismissed. Order pronounced in the open court on Monday, the 12th day of July, 2021. Sd/- (VIKAS AWASTHY) �या�यक सद�य/JUDICIAL MEMBER मुंबई/Mumbai, �दनांक/Dated: 12/07/2021 Vm, Sr. PS (O/S)