ITO 26 (3)(7), MUMBAI vs. SHRI. VARGHESE GEORGE PADIPURACKAL , MUMBAI

Shri Ajay Gosalia appearing on behalf of the assessee submitted that the assessee is engaged in trading of Pipes and Pipe fittings. The AO made addition of Rs. 20,32,677/- on account of alleged bogus purchases from three dealers during the period relevant to AY under appeal. The AO made addition on entire alleged bogus purchases. The assessee filed appeal against the assessment order dated 23.03.2015. The CIT(A) after examining the facts restricted the addition to Rs. 2,54,087/- by estimating GP of 12.5% on alleged bogus purchases, the same has been accepted by the assessee.

Per contra, Shri Sajnay Sethi representing the Department vehemently defended the assessment order and prayed for reversing the findings of CIT(A) on this issue. The ld. DR submitted that the assessee never appeared before the AO, therefore, the AO was constrained to pass assessment order under section 144 read with section 147 of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’]. The assessee has failed to discharge his onus in proving genuineness of the dealers and the purchases made from them. The notices issued under section 133(6) to the dealers were returned back unserved by the postal authorities. The name of the dealers from whom the assessee has obtained accommodation entries appear in the list of hawala operators declared by the Sales Tax Department, Government of Maharashtra.

Both sides heard, orders of authorities below examined. It is an undisputed fact that the sales turnover declared by the assessee has been accepted by the AO. Without purchases, there cannot be sales, therefore, entire alleged bogus purchases cannot be disallowed. It is only the profit element embedded in such transactions that has to be brought to tax (Re: PCIT