INCOME TAX OFFICER 32 (1) (2) , MUMBAI vs. C S SHARMA & COMPANY, MUMBAI

Shri M. Subramanian appearing on behalf of the assessee submitted that the assessee is a civil contractor and is primarily working for MES. In assessment proceedings, the AO held that the assessee has obtained bogus purchase bills amounting to Rs. 14,52,015/- from hawala dealers. The assessee produced various document viz. copies of purchase bills, copies of bank statements, etc. to prove genuineness of the purchases. However, the AO made addition of the entire alleged bogus purchases. The assessee carried the issue in appeal before the CIT(A). The CIT(A) after considering the submissions of the assessee and the order of CIT(A) in succeeding AYs i.e AYs 2010-11 and 2011-12 in assessee’s own case restricted the disallowance to 12.5% of alleged bogus purchases. The ld. Counsel for the assessee prayed for upholding the impugned order and dismissing appeal of the Revenue.

Per contra, Ms. Smita Verma representing the Department vehemently defended the assessment order. The ld. DR submitted that the assessee could neither produce the dealers nor any confirmations from the dealers, the notices issued under section 133(6) to the dealers remained unserved. Further, the assessee failed to produce relevant documents viz. lorry receipts, stock register, etc. to prove trail of goods. Thus, the assessee failed to discharge its onus in proving genuineness of the dealers and the purchases.

Both sides heard, orders of the authorities below examined. Undisputedly, the assessee failed to substantiate authenticity of the dealers and the purchases made from them. At the same time, it is observed that the AO has not doubted the sales declared by the assessee. Without purchases, the assessee who is a civil contractor could not perform the work allotted to him. In such like suspicious transactions, entire bogus purchases cannot be added. It is only the profit element embedded in such transactions that can be taxed. The CIT(A) has estimated margin of 12.5% on alleged bogus purchases, the same appears to be reasonable. I seen no reason to interfere with the findings of CIT(A) on this issue. Ergo, the impugned order is upheld and appeal of the Revenue is dismissed. Order pronounced in the open court on Thursday, the 01st day of July, 2021.