M/S BHAWWATI INTERIORS,MUMBAI vs. ITO 27 (1)(1), MUMBAI

The grounds of appeal

The grounds of appeal of the Revenue read as under : (i) On the facts and circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition of Rs.48,05,021/- made by the Assessing Officer on account of bogus purchases, without appreciating the fact that the assessee had failed to produce bills, vouchers and other documentary evidences in support of its claim and without considering the latest Apex Court decision in the case of N.K. Proteins Ltd. wherein it is held that once it is proved that the purchases are bogus then addition should be made on entire purchases and not on profit element embedded in such purchases. (ii) On the facts and circumstances of the case and in law, the Ld.ClT(A) erred in estimating the profit from Hawala purchases by disallowing only Rs.16,01,673/-being @ 25% of the bogus purchases as even the basic onus of producing delivery challans, transport bills etc. was not fulfilled by the assessee. (iii) The appellant prays that the order of the CIT(A) on the above grounds be reversed and that of the Assessing Officer be restored.

Brief facts of the case are that the assessee is engaged in the business of executing contracts of interior designing. The Assessing Officer observed that the assessee had debited purchase of Rs.64,06,694/- from M/s. Apex Metal Corporation, Vinay Trading Co., Vijay Laxmi Trading Co., Vatika Trading Co., Unistar Corporation, Nirman Trading Co., Raj International, Ruby Impex, Shakti Trading Co., Shivamani Traders Pvt. Ltd., Unistar Corporation and Vatika Trading Co. whose TIN matched with the information received from the Sales Tax Department regarding bogus parties with whom the assessee had made purchases. On the basis of information received from the Investigation Wing of Income Tax Department, Mumbai, it was found that the assessee had obtained bogus purchase bills total amounting to Rs.64,06,694/-from the above parties which were stated to be hawala operators. Ld. AO, ongoing through the submissions and contentions of the assessee concluded that the assessee failed to prove with supporting documentary evidences that the 3 M/s. Bhagwati Interiors material was actually delivered in its premises and also failed to file evidences of deliveries to establish that the material was consumed for business activities. Also the assessee failed to furnish the confirmation from the above party that had actually sold and delivered material to the assessee company. The Assessing Officer also noted that assessee did not furnish books of account. Hence, the sum in respect of investment made out of unaccounted money by the assessee for purchase of materials from the above party of Rs.64,06,694/- were treated as bogus purchases and added to the returned income of the assessee.

Upon assessee’s appeal learned CIT(A) restricted the disallowance to 6.25%.

Against this order assessee and the Revenue are in cross appeal before us.

We have heard both the parties and perused the records. We find that the assessee in this case is not engaged into trading activity. Rather it is a contractor for interior work. The material are said to have been consumed. The Assessing Officer has noted that the assessee has not produced the books of accounts alongwith bills, vouchers and receipts, consumption of raw material/goods purchased from hawals parties. Learned CIT(A) proceeded to decide the issue following decision which is rendered in the context of trading concern. Hence learned CIT(A)’s relief is not sustainable. He has also not considered Assessing Officer’s observation about absence of books of account. Moreover assessee has challenged the reopening also, which learned CIT(A) has failed to adjudicate. Accordingly, in the interest of natural justice we remit the issue to the file of learned CIT(A). Learned CIT(A) is directed to consider all the issues raised before him and thereafter decide as per law. Needless to add the assessee should be provided adequate opportunity of being heard.

In the result, both the appeals of the assessee and revenue are allowed for statistical purposes.