ITO 33(1)(5), MUMBAI vs. SMT.HEENA AJAY PAREKH, MUMBAI

The common grievance of both the parties is in relation to the additions deleted/sustained by learned Commissioner (Appeals) with regard to the non–genuine purchases.

Brief facts are, the assessee, an individual, is engaged in the business of trading in iron and steel through his proprietary concern M/s.Heena Enterprises. For the assessment years under consideration, the assessee filed her returns of income in regular course. The returns of income were initially processed under section 143(1) of the Income Tax Act, 1961 (for short "the Act"). Subsequently, on the basis of information received from the DGIT (Inv.), Mumbai, and the Sales Tax Department, Government of Maharashtra, that the assessee is a beneficiary of accommodation entries provided by certain hawala operators through bogus purchase bills, the Assessing Officer re– opened the assessment under section 147 of the Act. During the assessment proceedings, the Assessing Officer on the basis of 3 Smt. Heena Ajay Parikh information available on record found that purchases worth ` 15,06,504, claimed to have been made from eleven parties in the assessment year 2010–11 and purchases worth ` 27,63,725, from four parties in the assessment years 2011–12 are non–genuine. Accordingly, he called upon the assessee to prove the genuineness of such purchases. Further, to ascertain the genuineness of such purchases, the Assessing Officer himself conducted independent enquiry by issuing notices under section 133(6) of the Act to the concerned parties. However, as observed by the Assessing Officer, such notices returned back unserved by the postal authorities. Therefore, he called upon the assessee to produce the concerned parties for verifying the genuineness of purchases. It is alleged that the assessee could not produce the concerned parties. Further, the assessee was also unable to furnish any clinching evidence to prove the genuineness of such purchases. Accordingly, Assessing Officer treated the purchases made as non–genuine and computed the profit element embedded in such purchases by applying the rate of 12.5% and made the addition accordingly. The assessee challenged the aforesaid additions before the first appellate authority.

The learned Commissioner (Appeals), after considering the submissions of the assessee, found that the assessee has already declared gross profit rate of 7.2% on all purchases including the 4 Smt. Heena Ajay Parikh alleged non–genuine purchases. Therefore, relying upon certain judicial precedents, he directed that the differential gross profit rate between 12.5% as applied by the Assessing Officer and 7.2% as declared by the assessee, working out to 5.3%, should be applied to make the addition on non–genuine purchases.

We have considered rival submissions and perused the material on record. The facts on record clearly reveal that the Assessing Officer had specific information indicating certain purchases made by the assessee were non–genuine. Accordingly, in the course of assessment proceedings, not only he called upon the assessee to furnish corroborative evidence to prove the genuineness of purchases, but he himself conducted independent enquiry by issuing notice under section 133(6) of the Act. It is evident that the genuineness of purchases could not be proved by the assessee with conclusive evidence. That being the case, the Assessing Officer was justified in estimating the profit element embedded in such purchases. Therefore, the dispute, as it exist now according to us, is the reasonable profit percentage at which the addition can be worked out on non–genuine purchases. After considering the nature of business carried on by the assessee and other attending facts and circumstances relating to the dispute, we are of the considered view that learned Commissioner (Appeals) was justified in restricting the addition to the differential gross profit rate of 5 Smt. Heena Ajay Parikh 5.3% i.e., the difference between the gross profit declared by the assessee @ 7.2% and as estimated by the Assessing Officer @ 12.5%. Therefore, we do not find any reason to interfere with the decision of learned Commissioner (Appeals) on the issue. Ground raised is dismissed.

In the result, Revenue’s appeals and assessee’s cross objections are dismissed.