PERRECT ENGINERES,MUMBAI vs. ACIT, CIRCLE, PALGHAR, PALGHAR

The present appeal has been preferred by the Revenue against the order dated 19.09.2018 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2009-10.

There is a delay of four days in filing this appeal. After condoning the submissions of learned Authorized Representative, we are convinced that delay is due to reasonable cause. Hence, considering the delay we admit the appeal for adjudication.

The assessee has challenged the order of ld. CIT(A) on confirmation of re-assessment proceedings under section 147 of the Act and on merits. We would like to adjudicate first the issues on merit.

The assessee has challenged the order of CIT(A) wherein the ld. CIT(A) has upheld the order of AO wherein the AO has made addition of Rs.17,17,186/- on account of alleged bogus purchases.

The facts in brief are that the assessee filed return of income on 25.09.2009 declaring a total income of Rs.9,77,860/-. Thereafter the AO reopened the assessment u/s 147 of the Act r.w.s 148 on 30.03.2016 after the AO received information from the DGIT (Inv.), that the assessee is beneficiary of hawala purchase entries to the tune of Rs.17,17,186/-. During the course of assessment proceedings, the assessee was called upon to justify the genuineness of the transactions which the assessee tried to prove by filing copies of bills, vouchers, bank statement etc. The AO also attempted to verify the transactions by issuing a notice u/s 133(6) of the Act dated 05.06.2016 to M/s. Manav Enterprises which was returned unserved. Finally, the AO treated the entire purchases as bogus and added to the total income u/s 69C by framing assessment u/s 143(3) r.w.s. 147 of the Act dated 26.07.2016.

In the appellate proceedings, the ld. CIT(A) confirmed the order of AO by observing that during the year the GP of assessee was 17.83% vis-à-vis the GP in the earlier two years were 64.45% and 22.84% respectively. The ld. CIT(A) also noted that the assessee has filed the copies of transportation challans from Gujarat Golden Transport Service but no confirmation of the transporter and also the details of goods which were transported was given by the assessee. Thus the addition was sustained.

After hearing both the parties, perusing the material on record, we observe that undisputedly the assessee is beneficiary of the hawala purchase entries to the extent of Rs.17,17,186/-. The said purchases were made from M/s Manav Enterprises. We observe that ld. CIT(A) has sustained the entire addition @100% on the ground that no confirmation of the transporter and also the details of goods which were transported was given by the assessee. We find that the corresponding sales were not disputed by the authorities below and in the absence of doubting genuineness of the sales, the undeniable presumption is that the assessee might have purchased the goods from market thereby making savings in the form of non-payment of VAT and other incidental expenses. In such a scenario it would be unreasonable and unjust to the add the entire bogus purchases to the income of the assessee. In our opinion, it would be just and reasonable if a reasonable rate is applied to assess the profit element embedded in the bogus purchases. We would like to rely on the decision of the Hon’ble Gujarat High Court in the case of CIT vs. Simit P. Sheth reported in 356 ITR 451 and in the case of M/s Bholanath Poly Fab. P. Ltd. reported in 355 ITR 290 and accordingly hold that 12.50% of bogus purchases would be reasonable to assess the income of the assessee. We, accordingly, set aside the order of ld. CIT(A) and direct the AO to apply a rate of 12.50% on the bogus purchases. The ground no. 3 is allowed.

Since we have decided the issue on merit, other grounds raised on legal issues by the assessee are being adjudicated.