ITO 22 (1)(5), MUMBAI vs. SHRI. HITESH KUMAR S JAIN, MUMBAI

The assessee is engaged in trading and manufacturing of gift items. The assessment for AY 2009-10 in the case of assessee was re-opened on the ground that the assessee has obtained accommodation entries aggregating to Rs. 12,32,830/- from various (six) dealers, declared as hawala operators by the Sales Tax Department, Government of Maharashtra. During assessment proceedings, the assessee could neither produce the dealers nor could furnish confirmations from them. Even the notices issued to the dealers under section 133(6) of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’] were received back unserved from postal authorities with remarks “Left” or “Unknown”. The two parties on whom notices were served denied having any transaction with the assessee during relevant period. Further, the assessee could not furnish relevant documents viz. delivery challans, lorry receipt, stock register, etc. to prove trail of goods. In other words, he assessee could neither prove genuineness of the transactions nor the authenticity of dealers. At the same time, the AO did not raise doubt over the sales turnover/stock declared by the assessee. The AO disallowed entire alleged purchases from two dealers i.e. M/s Chirag Corporation and M/s Shree Yamuna Impex aggregating to Rs. 4,72,688/- as aforesaid dealers had denied any transaction with the assessee during relevant period. In respect of remaining purchases, the AO made addition by applying Gross Profit (GP) rate of 18.12% i.e. the GP rate declared by the assessee on regular purchase and made addition of Rs. 1,37,738/-. Thus, in total, the AO made addition of Rs. 6,10,426/- on account of suppression of profits on non-genuine purchases.

In first appellant proceedings, the CIT(A) restricted the disallowance on alleged bogus purchases to 12.5% and reduced the addition to Rs. 1,54,104/-. Against the relief granted, the Revenue is in appeal before the Tribunal.

Submissions made by ld. Departmental Representative (DR) heard, orders of the authorities below examined. Since the AO accepted the sales turnover and the closing stock declared by assessee, entire bogus purchases could not have been added. It is only the profit element embedded in such purchases that can be brought to tax. The assessee has declared GP of 18.12% during the relevant period. The CIT(A) has restricted the addition on entire alleged purchases to 12.5%. This margin on bogus purchase is over and above the GP declared by the assessee. I find no reason to interfere with the impugned order. The findings of the CIT(A) on this issue are upheld and the appeal of Revenue is dismissed, sans merit.