ITO,WARD 3(2), KALYAN vs. DINESH MADHABHAI DHEDHI, DOMBIVALI

Briefly stated, the facts of the case are that the assessee filed his return of income for the assessment year (AY) 2011-12 on 21.09.2011 declaring total income of Rs.2,71,641/-. On receipt of information from the Sales Tax Department, Government of Maharashtra that the assessee had obtained bogus purchase bills amounting to Rs.6,78,766/- from two hawala dealers, the AO issued notice u/s 148 to the assessee to re-open the assessment. In response to it, the assessee submitted that the return filed on 21.09.2011 be treated as return filed in response to notice u/s 148 of the Act. During the course of re-assessment proceedings, the assessee produced before the AO bank book, cash book, ledger, sales register, purchase register and financial statements. On verification of the documents filed, the AO noted that further purchases of Rs.11,62,306/- from other two parties were also suspicious. In order to verify the genuineness of purchases, the AO issued notices u/s 133(6) to the hawala operators from whom the assessee had made purchases. Through the said notices, the AO had called for information such as copies of ledger accounts, bank statements, income tax documents etc. However, those notices were returned un-served by the postal authorities with the remarks “left place”. Therefore, he asked the assessee to produce the said hawala parties for examination. However, vide submission dated 17.07.2014, the assessee expressed inability to produce those parties before the AO for examination. In view of the above facts, the AO relying on the findings of the Sales Tax Department, Government of Maharashtra made an addition of Rs.18,41,072/-.

Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). We find that vide order dated 27.08.2018, the Ld. CIT(A) observed that the quantum of GP of Rs.5,90,340/- is higher than the 25% i.e. Rs.4,60,268/- of bogus purchases of Rs.18,41,072/-. Therefore, he sustained the disallowance to the extent of suppressed GP of Rs.5,90,340/- and deleted the balance amount of Rs.12,50,732/- (Rs.18,41,072/- minus Rs.5,90,340/-).

Before us, the Ld. Departmental Representative (DR) submits that the notices issued u/s 133(6) by the AO calling for information such as copies of ledger accounts, bank statements, income tax documents were returned un- served by the postal authorities with the remarks “left place”. Though the assessee was requested by the AO to produce the said parties for examination, he failed to produce them. Considering the findings of the Sales Tax Department, Government of Maharashtra and the inquiries conducted by the AO, the Ld. DR submits that the order passed by the AO by making an addition of Rs.18,41,072/- be confirmed. 6. We have heard the Ld. DR and perused the relevant materials on record. In the case of N.K Proteins Ltd. (supra), there was search proceedings conducted by the Revenue at the office premises of the assessee wherein blank signed cheque books and voucher of number of concerns were found. Accordingly, the purchases made from these concerns were treated as bogus by the AO and the entire deposits in bank accounts of these parties were treated as assessee’s income on protective basis. On appeal, the ITAT restricted the addition on account of alleged bogus purchases at 25% i.e. Rs.73,23,322/- of the total purchases amounting to Rs.2,92,93,288/-. On further appeal, the Hon’ble High Court modified the order of the Tribunal and Shri Dinesh MadhabhaiDhebhi directed for addition of entire bogus purchases. After hearing the counsels, the Hon’ble Supreme Court dismissed the SLP filed by the assessee and confirmed the decision of the High Court for addition of entire income on account of bogus purchases. In the instant case, as mentioned earlier the assessee produced before the AO bank book, cash book, ledger, sales register, purchase register and financial statement. In such a situation, the AO could have made certain inquiry to verify the genuineness of the transaction. We find that the AO has not made even a preliminary inquiry in this regard and thus the instant case is distinguishable from the decision in N.K Proteins Ltd. (supra). Therefore, considering the facts and circumstances of the case, we are of the considered view that the Ld. CIT(A) has rightly sustained the disallowance of Rs.5,90,340/- and deleted the balance amount of Rs.12,50,732/- (Rs.18,41,072/- minus Rs.5,90,340/-). Thus we affirm the order of the Ld. CIT(A).