SHRI. LATE GUNVANTRAI C DOSHI,MUMBAI vs. CIT(A)-56, MUMBAI

The brief facts of the case as emanating from records are: The assessee is a manufacturer and reseller of machinery and machinery parts. On the basis of information received from DGIT(Invn.) Mumbai, the assessment in the case of assessee for assessment year 2009-10 and 2010-11 were reopened. As per the information, the assessee had obtained bogus purchase bills for Rs.8,45,983/- in assessment year 2009-10 and for Rs.2,98,028/- in assessment year 2010-11 from various suspicious dealers declared as hawala operators. During the course of assessment proceeding the assessee produced ledger accounts and purchase bills. The notices issued by the Assessing Officer under section 133(6) of the Income Tax Act, 1961 (in short ‘the Act’) on the addresses furnished by the assessee were received back unserved with remarks ‘not known’. In the absence of any cogent evidence and confirmations from the suppliers, the Assessing Officer made addition of the entire bogus purchases in both the impugned assessment years.

Shri. Sanjay Sethi representing the Department vehemently defended the impugned orders for the respective assessment years and prayed for dismissing the appeals field by the assessee. The ld. Departmental Representative submitted that the CIT(A) has passed a very reasoned and balanced order after considering the facts and various decisions and hence, should be sustained.

Submissions made by ld. Departmental Representative heard, orders of authorities below examined. The assessee has allegedly obtained bogus purchase bills from suspicious dealers. The assessee has failed to discharge his onus in proving genuine of the purchases and the dealers. The assessee could neither produce the dealers nor could furnish confirmations from them. Even the notices sent to the dealers remain unserved. At the same time I find that Assessing Officer has accepted the turnover declared by the assessee. Without purchases/inputs there cannot be sales. Therefore, entire alleged bogus purchases cannot be disallowed. The Hon’ble Jurisdictional High Court in the case of PCIT vs. Paramshakti Distributors Pvt. Ltd. in Income Tax Appeal No. 413 of 2017 decided on 15/7/2019has held that only profit element embedded in the bogus transactions has to be brought to tax. The CIT(A) has restricted the addition to 12.5% as against the G.P of 6.08% in assessment year 2009-10 and 6.14% in assessment year 2010-11 declared by the assessee. I am of considered view that GP estimated by the CIT(A) is on higher side. I deem it just and appropriate to restrict GP at 6.5% of the bogus purchases in each of the impugned assessment years. The impugned orders are accordingly modified and appeals by the assessee are partly allowed.

In the result, appeal by the assessee for assessment year 2009-10 and 2010-11 are partly accepted in the terms aforesaid.