ITO, 29(3)(5), MUMBAI vs. SANDEEP SURESH MAYEKAR, MUMBAI

The only issue in on merits, in this appeal of Revenue is against the order of CIT(A) restricting the action of the AO in estimating the profit rate at 6% of the bogus purchases as against 22.93% by the AO.

Briefly stated facts are that the assessee engaged in the business of Electrical Contractor. 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 amounting to Rs. 12,82,936/- as admitted by these hawala dealers in their deposition before the authorities. The same reads as under: - “Sl Name of party Amount No. 1. Naman Enterprises 85,881 2. Navdeep Trading Corpn 5,90,133 3 Shubhlaxmi Sales Corpn 6,07,222 Total 12,82,936 5. The AO issued noticed under section 133(6) to the parties which returned back as unserved and assessee failed to produce these parties. According to information received the name of this party was appearing in the list of hawala entry operators as 3 | P a g e Sandeep Suresh Mayekar. supplied by sales Tax Department of Maharashtra. The hawala traders admitting before the sales tax authorities in their deposition that they were providing only accommodation purchase bills on commission basis without being actual purchase/ sale of goods. The AO during the course of scrutiny assessment proceedings required the assessee to file the details of purchase. The assessee filed copies of purchase bills from the above said parties, copies of ledger extract and copies of bank statements to prove the payments by cheque. The AO required the assessee to produce these parties for verification but assessee expressed his inability to do so. According to the AO, the assessee failed to establish the genuineness of the purchase and accordingly, he made addition of profit rate @ 22.93% of unproved purchase at ₹2,94,177/- to the return income of the assessee. Aggrieved, assessee preferred the appeal before CIT(A), who restricted the disallowance at 6% of the bogus purchases by observing in para 4.15 by observing as under: - “4.15 However, keeping in view of the various judicial pronouncements as mentioned above, a reasonable estimated suppressed profit may be taken at 6% instead of 22.93% adopted by the AO. Therefore, AO is directed to work out gross profit margin at 6% as reasonable addition on the total bogus purchases shown at ₹12,82,936/- and add to the income returned. The AO may accordingly work out the addition on the above lines and accordingly the appeal filed by the appellant is partly allowed.”