ITO 33(1)(4), MUMBAI vs. DE & NEPHEW, MUMBAI

CIT(A)-45, Mumbai dated 10.09.2018 & 11.09.2018 for Assessment Year 2009-10 & 2010-11 respectively. In both the appeals, the revenue has raised the identical grounds of appeal except variation of figures deleting the addition on account of bogus purchases. The revenue has raised the identical grounds of appeal on both the appeals, therefore, both the appeals were clubbed, heard and are decided by common order. The revenue has raised the following grounds of appeal: & 7423 Mum 2018-M/s De & Nephew

Brief facts of the case are that the assessee is engaged in the business of manufacturing of rubber product for industrial use, filed its return of income for Assessment Year 2009-10 on 25.09.2009 declaring total income of Rs. 4,28,041/-. The return of income was processed under section 143(1). The assessment was re-opened under section 147 on the basis of information received from Sale Tax Department, Government of Maharashtra that certain hawala operators are indulging in providing accommodation bills without actual delivery of goods. The Sale Tax Department, Government of Maharashtra referred the list of such hawala dealers and the beneficiary to the DGIT (Investigation), Mumbai. The name of assessee appeared in the list of beneficiary. On the basis of information, the Assessing Officer made a belief that the income of the assessee escaped assessment, therefore, re-opened the assessment under section 147. The notice under section 148 dated 14.03.2014 was served upon the assessee. The assessee in response to the notice under section 148 filed its reply dated 16.04.2014 and stated & 7423 Mum 2018-M/s De & Nephew that return filed originally be treated as return in response to the notice.

The Assessing Officer in order to verify the transaction issued notice under section 133(6) to all the parties. The notice sent through registered post was returned back. The assessee was asked to show- cause as to why the purchases shown from all the parties should not be treated as non-genuine. In response to the show-cause notice, the assessee filed reply dated 13.03.2015 wherein the assessee stated that he is ready to accept the addition of income as deemed income from all suspicious purchase at 5 to 6% and undertake to pay the due tax. The & 7423 Mum 2018-M/s De & Nephew contention of assessee was not accepted by Assessing Officer by taking view that from the records furnished by assessee that assessee has furnished only ledger account, cheque payments, sales invoices and no proof of delivery challan, purchase party, lorry receipt or proof of transportation not furnished. On this observation, the AO took his view that purchases shown by assessee from these firms are bogus. The AO rejected the books of account of the assessee. The AO estimated 33% of bogus purchases for disallowance of purchases from said hawala dealers. On appeal before the ld. CIT(A), the addition was restricted to 12.5% of the impugned/hawala purchases. The ld. CIT(A) while restricting the addition relied upon the decision of Hon’ble Gujarat High Court in CIT vs. Simith P. Sheth (356 ITR 451). Thus, aggrieved by the order of ld. CIT(A), the revenue has filed the present appeal before us.

We have heard the submission of ld. Departmental Representative (DR) for the revenue and ld. Authorized Representative (AR) of the assessee and perused the material available on record. The ld. DR for the revenue supported the order of Assessing Officer. The ld. DR further submits that Investigation Wing of Income-tax Department has made full-fledged investigation in respect of hawala traders. The hawala traders were/are engaged in providing bogus bill without actual delivery of goods. The assessee has shown bogus purchases only to 4 ITA No. 7422 & 7423 Mum 2018-M/s De & Nephew inflate the profit. The ld. DR for the revenue submits that the Assessing Officer has brought sufficient material on record to prove that the purchases shown by assessee were bogus. The assessee is not entitled for any relief. The ld. DR for the revenue prayed for setting-aside the order of ld. CIT(A) and to restore the order of Assessing Officer. 5. On the other hand, the ld. AR of the assessee submits that the assessee furnished all details of purchases and the corresponding sales made against the purchases. The Assessing Officer has not disputed the consumption of material and further sale of the finished goods. The Assessing Officer made the disallowance of 33% of the alleged bogus purchases. The Assessing Officer has not considered the Gross Profit Ratio for earlier years as well as for the year under consideration. The additions made on account of alleged bogus purchases by Assessing Officer was unreasonable. The ld. CIT(A) after considering the Gross Profit declared in three earlier consecutive years restricted the disallowance to 12.5%. Though, the purchases of assessee are genuine, however, the assessee offered reasonable disallowance before AO, only to buy peace. The ld. AR prayed for dismissal of present appeal.

We have considered the submissions of both the representatives and perused the record. The Assessing Officer made the disallowance of 33% of the alleged bogus purchases. The Assessing Officer has not disputed the sales of the assessee. The Assessing Officer solely relied 5 & 7423 Mum 2018-M/s De & Nephew upon the report of Investigation Wing of Sale Tax Department. The Assessing Officer has not rejected the books of account of the assessee.

In the result, appeal of the revenue is dismissed. for A.Y. 2010-11 8. As we have noted above that the assessee has raised the identical grounds of appeal