ITO 27 (2)(5), MUMBAI vs. PARESH P. SANGHAVI, MUMBAI

ORDER PER N.K. PRADHAN, A.M. This is an appeal filed by the Revenue. The relevant assessment year is 2010-11. The appeal is directed against the order of the Commissioner of Income Tax (Appeals)-25, Mumbai [in short ‘CIT(A)’] and arises out of the assessment completed u/s 143(3) r.w.s. 147 of the Income Tax Act 1961, (the ‘Act’). Though the case was fixed for hearing on 21.11.2019, neither the assessee nor his authorized representative appeared before the Bench on the above date. As there is non-compliance on the part of the assessee, we are Paresh P Sanghavi proceeding to dispose off this appeal on merits, after examining the documents available on record.

1. On the facts and circumstances of the case and in law, the Id CIT(A) erred in deleting the addition of Rs.13,65,984/-on account of bogus purchases, without appreciating the fact that the assessee had failed to produce bills, vouchers and others documentary evidences in support of his claim and without considering the latest Apex court decision in the case of N.K. Protein Ltd. wherein it is held that once it is proved that the purchases are bogus then addition should be made on entire purchases and not on profit element embedded in such purchases.

2. On the facts and circumstances of the case, the Ld. CIT(A) erred in estimating the profit from Hawala purchases by disallowing only Rs.2,05,184/-, being 12.5%of the bogus purchases as even the basic onus of producing transport bills, delivery challans, transport bills etc. were not fulfilled by the assessee. 3. Briefly stated, the facts of the case are that the assessee filed his return of income for the assessment year (AY) 2010-11 on 17.09.2010 declaring total income of Rs.2,95,630/-. On receipt of information from the Sales Tax Department, Government of Maharashtra that the assessee had obtained accommodation entries from 4 parties amounting to Rs.16,41,474/-, the Assessing Officer (AO) issued notice u/s 148 dated 24.03.2014. In response to it, the assessee submitted that the original return filed on 17.09.2010 be treated as return filed in response to notice u/s 148.

During the course of re-assessment proceedings, the AO issued notice u/s 133(6) to the said parties to ascertain the genuineness of the purchases. In response to it, he found that those notices were returned un-served by the postal authorities with the remark “unknown/left”. In order to verify the Paresh P Sanghavi Inspector of Income Tax to visit the said parties at the address given by the assessee. However, the Inspector reported that those parties do not exist at their given address. In order to verify the transactions, the AO asked the assessee to file correct/new address of the said parties. However, the assessee failed to provide the same. In such a situation, the AO asked the assessee to produce the said parties for examination along with the copies of accounts of the assessee, their books, nature of goods sold along with sample copies of bills issued, copy of delivery challans along with transportation bills, copy of bank statements and copy of their return of income for the AY 2010-11. In response to it, the assessee submitted that the purchases are genuine and the dealer declared as hawal dealer are also genuine and real dealer of the market. It was stated by him that the dealer had defaulted in paying the sales tax due from him and hence declared as hawala dealer. Thus it was stated by the assessee before the AO that there is no ground for making addition on account of purchase from the said parties. However, the AO was not convinced with the above reason given by the assessee for the reason that the identity of the parties is not established. Therefore, by working out the peak credit of the cumulative outstanding of the said parties, he made an addition of Rs.15,71,168/-.