HARIRAM R. PARMAR,MUMBAI vs. ITO-19(1)(5), MUMBAI

The assessee has, more or less raised common grounds of appeal for both assessment years. Therefore, for the sake of convenience, grounds of appeals filed for the Asst. year 2009-10 are reproduced as under:

The brief facts of the case are that the assessee has filed his return of income for AY 2009-10 on 26/09/2009, declaring total income at Rs. 1,83,722/-. The assessment has been completed u/s 147, rws 143(3) of the Income Tax Act, 1961 on 04/03/2014, determining the income at Rs. 13,40,030/-. The case has been, subsequently reopened u/s 147 of the Act, on the basis of information received from DGIT, investigation, Mumbai, as per which, Sales Tax Authorities of Government of Maharashtra had taken actions against number of Hawala dealers, who had issued bogus purchase bills to various parties in Mumbai and other places. As per list of beneficiaries, the assessee is one of the beneficiaries who had taken accommodation bills of bogus purchases from various parties as listed by the AO in para. 3 of his assessment order amounting to Rs. 22,29,336/-. The case was selected for scrutiny and the assessment has been completed u/s. 143(3).r.w.s. 147 of the I.T.Act, 1961 on 23/12/2016 and determined total income of Rs. 16,74,430/-, after making additions of 15% gross profit on alleged bogus purchase from those parties and made additions of Rs. 3,34,000/- to total income of the assessee.

Being aggrieved by the assessment order, the assesee preferred an appeal before the Ld.CIT(A). Before the Ld.CIT(A), the assessee has filed elaborate grounds of appeals which has been reproduced at para 3 on page 2 of the ld. CIT(A) order. The sum and substance of arguments of the assessee before the Ld.CIT(A) are that purchase from the above party is genuine, which is supported by necessary evidences. Therefore, no additions could be made on the basis of information received from third party. The Ld.CIT(A), after considering relevant submission of the assessee and also, by following the decision of Hon’ble Gujarat High Court, in the case of CIT vs. Simith P. Sheth (356 ITR 451) has upheld addition made by the ld. AO towards alleged bogus purchases to 15% gross profit on total purchases from those parties.

We have heard both the parties and perused the material available on record and gone through orders of the authorities below along with case laws cited by both parties. We find that the Ld. AO has made addition of 15% profit on alleged bogus purchases on the ground that the assessee is one of the beneficiary of accommodation entries of bogus purchase bills issued by Hawala dealers. According to the Ld. AO, although assesee has filed certain basic evidences, but failed to file further evidence in the backdrop of clear finding by the Sales Tax Department, Maharashtra that those parties are involved in providing accommodation entries without actual delivery of goods. The Ld. AO had also taken support from the investigation conducted during the course of assessment proceedings, as per which notice issued u/s 133(6) to the parties were returned un-served by the postal authorities. Therefore, he came to the conclusion that purchases from the said parties are bogus in nature. It is the contentions of the assessee before the lower authorities that purchases from the above party are supported by necessary evidences. It has furnished all possible evidences, including books of accounts; stock details and bank statement to prove that payment against said purchases have been made through proper banking channels.

Having considered arguments of both parties and also, considering material available on record, we find that both the sides have failed to prove the case in their favour with necessary evidences. Although, assessee has filed certain basic evidences, but failed to file further evidences to conclusively prove purchases to the satisfactions of the Ld.AO. Further, mere payment by cheque does not prove the genuineness of purchase, more particularly when other circumstantial evidence says otherwise. At the same time, the Ld. AO had also failed to take the investigation to a logical conclusion by carrying out necessary enquires, but he solely relied upon information received from investigation wing, which was further supported by information received from Maharashtra Sales Tax Department. The AO neither pointed out any discrepancies in books of accounts nor made out a case of sales outside books of accounts. In fact, the AO did not disputed sales declared for the year. Under these circumstances, it is difficult for us to accept arguments of both the sides. Further, in a case where purchases are considered to be purchased from suspicious/hawala dealers, various High Courts and Tribunals had considered an identical issue in light of investigation carried out by the Sales Tax Department and held that in case of purchases claims to have made from alleged hawala dealers, only profit element embedded in those purchases needs to be taxed, but not total purchase from those parties. The Hon’ble Gujarat High Court, in the case of CIT vs Simith P.Sheth 356 ITR 451 had considered a similar issue and held that at the time of estimation of profit from alleged bogus purchases no uniform yardsticks could be adopted, but it depends upon facts of each case. The ITAT, Mumbai, in number of cases had considered an identical issue and depending upon facts of each case, directed the Ld.AO to estimate gross profit of 10% to 15% on total alleged bogus purchases. In this case, considering the nature of business of the assessee the Ld. AO has made addition of 15% profit, which has been upheld by the ld. Ld.CIT(A). Although, both authorities have taken 15% rate of profit for estimation of income from alleged bogus purchase, but no one could support said rate of gross profit with necessary evidences or any comparable cases. Therefore, considering facts and circumstances of this case and consistent with view taken by the Co- ordinate Bench in number of cases, we are of the considered opinion that profit rate adopted by both authorities appears to be on higher side and accordingly, we direct the ld. AO to estimate 5% gross profit on total alleged bogus purchases.

In the result, appeal filed by the assessee is partly allowed.

The facts and issue involved in this appeal are identical to facts and issues, which we had considered in Asst. year 2009-10. The reasons given by us in preceding paragraphs in shall mutatis mutandis apply to these appeals, as well. Therefore, for similar reasons, we direct the AO to estimate 5% profit on alleged bogus purchases for Asst. years 2010-11.

In the result, appeals filed by the assessee for Asst. year 2010-11 is partly allowed.

As a result, appeals filed by the assessee for Asst. years 2009- 10 and 2010-11 are partly allowed.