ITO, - 22(2)(1), MUMBAI vs. SHRI KALMESH P DESAI (HUF), MUMBAI

PER SHRI SHAMIM YAHYA, AM :

Assessment Year Amount Assessee 2009-10 37,16,632/- Individual 2010-11 10,38,220/- Individual 2011-12 30,97,333/- Individual 2011-12 30,69,348/- HUF

“4.6 In view of the above, it is an admitted fact that Sales Tax Department has conducted search and seizure operation and has established large number of companies/firms/partnership concerns as hawala dealers who are engaged in accommodation entries without actually supplying the goods. The appellant is one of the beneficiary and has received such accommodation bills from two of the hawala operators totalling to Rs.1,48,66,527/-. The A.O attempted to verify such parties by making independent enquiries u/s 133(6) of the I.T. Act, 1961. All these verification letters could not be served on the parties. The onus shifted on the appellant particularly in the background of finding of Sales Tax Department, Mumbai. The appellant filed certain details such as purchase bills, ledger account, bank statement etc. However, some of the specific details required to establish the genuineness of purchase such as evidence of transportation of goods, entry of goods in the stock register, one to one consumption pattern of alleged purchase items, confirmation from the parties concerned etc could not be submitted before the A.O. Nor the Principle Officer of these concerns was produced before the A.O for 3 to 3618/M/2019 Kamlesh Prafulchandra Desai & Anr. examination. However, it is also a fact that the A.O has not questioned the total sale component and if there is a sale, there should be purchase. The appellant being a trading concern, has indulged in using such accommodation entry. As evident from catena of judgements on bogus purchases, only the benefit derived by using such accommodation entries has to be brought to tax. The advantages from using such bogus bills are in the form of saving VAT, saving of transportation charges and various taxes etc. The A.O has rightly disallowed part of the purchases claimed such hawala dealers. However, the judgment of Vijay Protein (supra) is a judgment related to manufacturing concern where all the documents were threadbare analyzed and 25% disallowance on purchase was upheld. In the present case, the ratio of Vijay Protein, a manufacturing concern cannot be applied since the appellant is a business concern doing trading. In my opinion, the ratio of the judgment of Hon'ble Gujarat High Court in the case of Simit P. Seth 356 ITR 461 (Guj.) is applicable to the facts and circumstances of the appellant’s case. Here, the Hon'ble Court has held that disallowance of 12.5% of the purchases from such hawala dealers will be justified based on the premise that the appellant have derived benefit to this extent based on his nature of business. Thus the disallowance of purchase is upheld in principle but it should be based on ratio of Simit P. Seth 356 ITR 461 (Guj.) as the appellant is a trader not manufacturer. Thus the A.O is directed to restrict the disallowance to the extent of 12.5% of purchase from suspicious dealers.”

4 to 3618/M/2019 Kamlesh Prafulchandra Desai & Anr. market. Making purchases through the grey market gives the assessee savings on account of non-payment of tax and others at the expense of the exchequer. In such situation, in our considered opinion, on the facts and circumstances of the case, the 12.5% disallowance out of bogus purchases done by the learned CIT(A) meets the ends of justice. Accordingly, we uphold the order of learned CIT(A).

Order pronounced under Rule 34(4) of ITAT Rules on 28th October, 2020.