ITO 33 (2)(5), MUMBAI vs. SHRI. PANKAJ MOHANLAL MISTRY, MUMBAI

The only issue in this appeal of Revenue is against the order of CIT(A) restricting the addition made by the Assessing Officer by applying the profit rate at 12.5% of the bogus purchase.

Briefly stated facts are that the assessee engaged in the manufacturing of light fittings. The AO received information from DGIT (Investigation), who in turn received information from Sales Tax Department, Mumbai that the assessee has made purchases from hawala parties, as listed in hawala dealers by the Maharashtra Sales Tax Department, who are providing bogus bills of purchase to the assessee amounting to ₹30,87,733/- as admitted by these hawala dealers in their deposition before the authorities. The same reads as under: - “Sl Name of party Amount No. 1. Sandesh Sales pvt. ltd. 519,076 2. Leo Impex 1124,718 3. Kameshwar trading Pvt. Ltd. 504,282 4. Hitech Impex 118,125 5. Umiya sales agency pvt. Ltd. 175,500 6. Trichipuram trading pvt. ltd. 646,032 Total 30,87,733 Shri Pankaj Mohanlal Mistry Page | 3 4. The AO issued noticed under section 133(6) to the parties which returned back with the remark as “left” and assessee failed to produce these parties. During the course of assessment proceedings and during appellate proceedings, the assessee submitted all the documentary evidences such as inward register, stock register, payment received against such sales, receipt of material purchases, account payee cheque. But the Assessee could not produce transportation details as transportation bills, delivery challans and weightment slips According to the AO, the assessee failed to establish the genuineness of the purchase and accordingly, he made addition of unproved purchase at Rs. 30,87,733/- to the return income of the assessee. Aggrieved, assessee preferred the appeal before CIT(A), who restricted the disallowance at 12.5% of the bogus purchases by observing in para 4.3 by following the decision of Hon’ble Bombay High court in the case of Nikunj Eximp Enterprises (P.) Ltd. vs. CIT 216 Taxman 171 (BOM) by observing as under: - “4.3 Though, the assessee was not in a position to produce the delivery challans etc. as the same were taken away by the Sales-tax department, the fact remains that the appellant produced bank account statement, purchase bills, etc., to prove the genuineness of the purchases. It is also a fact on record that the Assessing Shri Pankaj Mohanlal Mistry Page | 4 Officer has not doubted the sales affected by the appellant. Thus, it is logical to conclude that without corresponding purchases being made, the appellant could not have made the sales. Merely relying upon the information from the Sales Tax Department the Assessing Officer could not have treated the entire purchases as bogus. The appellant has brought documentary evidences on record to prove genuineness of such transactions, the action of the Assessing Officer in ignoring them cannot be accepted. When the payment to the concerned parties are through proper banking channel and there is no evidence before the AO that the payments made were again routed back to the appellant, the addition of bogus purchases is not sustainable in law and facts. Only corollary that follows in such situation is that the appellant could have obtained the bogus bills for the material purchased locally. In other words the entities may not be the actual suppliers but may have provided the bills for the material purchased by the assessee locally. This is Shri Pankaj Mohanlal Mistry Page | 5 not case in which the signed blank cheque books etc. found with the buyer to say that the purchase of material were not at all made but entered in the stock to inflate the raw material. Therefore, the decision of the Supreme Court in the case of N K Proteins Ltd 250 taxman 0022(SC) would not apply to the case. In this case the saving on account of VAT and other incidental charges made by the appellant on the said bogus purchases can be brought to tax as additional profit. Keeping in view the totality of facts and circumstances of the case, the disallowance made by the AO is restricted to 12.5% of such purchases. Therefore, the AO is directed to add 12.5% of Rs.30,87,733 working out to Rs.3,85,967 and modify the addition accordingly. The appellant gets part relief. This ground is partly allowed.”