ITO 33(2)91), MUMBAI vs. M/S JASWANTILAL SHANTILAL SHAH (HUF), MUMBAI

The grounds raised by the assessee are on the common issue of disallowance made on account of non–genuine purchases.

Brief facts are, the assessee is a Hindu Undivided Family (HUF) and is engaged in the business of trading in hardware. For the assessment year under dispute, the assessee filed its return of income on 28th September 2010, declaring total income of ` 4,46,710. The return of income filed by the assessee was processed under section 143(1) of the Income Tax Act, 1961 (for short "the Act"). Subsequently, on the basis of information received from the Sales Tax Department through the DGIT (Inv.), Mumbai, that certain purchases claimed to have been made by the assessee during the year are non– genuine as the concerned selling dealers have been identified as hawala operators by the Sales Tax Department, the Assessing Officer re–opened the assessment under section 147 of the Act. In the course of assessment proceedings, he called upon the assessee to prove the genuineness of the purchases worth ` 1,72,62,982, claimed to have been made from 21 parties. As observed by the Assessing Officer, in response to the query raised, the assessee furnished its audited

After considering the submissions of the assessee in the context of facts and material on record, learned Commissioner (Appeals), observed, though, the Assessing Officer has disputed the purchases, however, he has not suspected the sales turnover. Thus, he was of the view that in absence of such purchases, the assessee could not have effected the corresponding sales. Therefore, he observed that the assessee might have purchased the goods from undeclared sources and to regularize such purchases has obtained accommodation bills. Thereafter, relying upon the decision of the Hon’ble Gujarat High Court in CIT v/s Simit P. Sheth, [2013] 356 ITR 451 (Guj.), the learned Commissioner (Appeals) held that the entire purchases cannot be 4 Jaswantlal Shantilal Shah (HUF) disallowed but the profit element embedded in such purchases can be considered for addition. Accordingly, he restricted the addition to 12.5% of the non–genuine purchases.

We have heard the learned Departmental Representative and perused the material on record. As could be seen from the facts on record, the assessee is a trader in hardware. Though, it may be a fact that the assessee was unable to prove the exact source of purchase with supporting evidence, however, it is equally true that the sales effected by the assessee have not been disputed or doubted by the Assessing Officer. Therefore, the logical conclusion would be, in absence of the disputed purchases corresponding sales could not have been made. That being the case, the entire purchases cannot be disallowed, but only the profit element embedded in such purchases can be considered for disallowance. Therefore, in our opinion, learned Commissioner (Appeals) was justified in restricting the addition to the profit element embedded in the non–genuine purchases by estimating the same @ 12.5%. As regards Revenue’s reliance on the decision of the Hon'ble Supreme Court in N.K. Proteins Ltd. (supra), we are in agreement with learned Commissioner (Appeals) that the said decision is not applicable as the facts are totally different as discussed in Para– 4.4 of learned Commissioner (Appeals)’s order. In view of the 5 Jaswantlal Shantilal Shah (HUF) aforesaid, we uphold the decision of learned Commissioner (Appeals). Grounds raised by the Revenue are dismissed.

In the result, appeal is dismissed. Order pronounced through notice board under rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1963, on 25.09.2020