ACIT 21(3), MUMBAI vs. M/S SHRADHA APPARELS WORLDWIDE, MUMBAI

Not convinced with the submissions of the assessee the Assessing Officer treated the purchases as non-genuine and he was of the opinion that assessee had obtained only accommodation entries without there being any transportation of materials and the assessee might have made purchases in the gray market. It is the finding of the Assessing Officer that the assessee did not furnish any confirmation from the parties and failed to produce concrete documentary evidences to prove the claim of the assessee. Assessing Officer observed that the notice issued u/s.133(6) of the Act to the parties were returned unserved with a remark “left” and the Assessing Officer deputed ward inspector to deliver the letters to the parties and ward inspector reported that the parties are found to be non-existing. Therefore, Assessing Officer treated entire purchases of ₹.7,01,000/-, ₹.2,90,400/- & ₹.19,44,456/- for the A.Y:2009-10, A.Y. 2010-11 and A.Y. 2011-12 respectively as non-genuine and added to the income of the assessee. On appeal the Ld.CIT(A) considering the evidences and various submissions of the assessee restricted the disallowance to an extent of 25% of the non-genuine purchases.

Ld. DR vehemently supported the orders of the Assessing Officer.

Heard Ld. DR, perused the orders of the authorities below. On a perusal of the order of the Ld.CIT(A), I find that the Ld.CIT(A) considered this aspect of the matter elaborately with reference to the submissions of the assessee and the averments in the Assessment Order and restricted the disallowance to 25% of the non-genuine purchases. While holding so, the Ld.CIT(A) for the A.Y. 2009-10 observed as under: - “6. I have carefully considered the submissions of the appellant, the impugned assessment order, and the remand report of the AO, on this issue. My observations and findings are as under- 6.1 There is no dispute that those parties were declared as hawala/suspicious traders by the Sales Tax Department who had only issued accommodation entries without actual supply of materials. Those parties were not found traceable on spot enquiry. The assessee could not file any confirmation from them or furnish current whereabout. 6.2 However, it also on record that the assessee has produced invoices and stock sheet in support of its claim of purchase and consumption and has furnished bank statement to show payments to them by account payee cheques. 6.3 It is also found that the AO has made addition of 100% of bogus purchase u/s 40A (3) holding that the assessee must have made cash purchase of the materials. The conclusion of the AO 5 2717 & 2718/MUM/2019 M/s. Shradha Apparels Worldwide seems logical that the assessee must have purchased material from grey market but violation of conditions u/s 40A(3) has not been proved and the said section cannot be invoked on assumption. Therefore, it is held that the AO is not justified in invoking section 40A(3). 6.4 The AO has failed to conduct in-depth enquiry to show that the cash was withdrawn from the bank accounts of the suppliers and handed over to the appellant. There is no evidence on record to show that the appellant has not purchased any such materials from any other source. Therefore, it is held that the AO was not justified in making addition of 100% of purchase amounts. 6.5 Considering the entirety of facts, the only conclusion which can be drawn is that the assessee has purchased material from grey market and obtained bills from the parties in question. Obviously, no one will do so unless he is having a benefit much bigger than the normal G.P. in the business. Hence, the additional profit is to be assessed in the hands of the appellant because the actual source, rate and quantity is not known and what is the level of inflation in the accommodations bills could not be verified due to non-existence of the bill providers. Considering the entirety of facts, I am of the view that 30% of purchase amounts shown from the hawala parties needs to be disallowed which will take care of profit embedded in the transactions. Therefore, the disallowance to the extent of 25% of Rs.7,01,000/- = Rs. 1,75,250/- is hereby sustained and balance disallowance of Rs.5,25,750/- is hereby deleted. The grounds are partly allowed.”

On a careful perusal of the orders of the Ld.CIT(A) and the reasons given therein, I do not find any infirmity in the order passed by the 6 2717 & 2718/MUM/2019 M/s. Shradha Apparels Worldwide Ld.CIT(A) in restricting the addition/disallowance to the extent of 25% of the purchases. Grounds raised by the revenue are dismissed.

In the result, appeals of the Revenue are dismissed.