SHRI MILIND M MESTRY,MUMBAI vs. ITO WD-4(2), THANE

This appeal filed by the assessee is directed against the order of the Commissioner of Income Tax(Appeals)-3, Thane, dated 12-03-2018. 2. At the time of hearing when the appeal was called up for hearing , neither assessee nor his authorized representative was present to attend the hearing despite service of noitice. Therefore we are proceeding to decide the appeal of the assessee on merits after hearing the ld DR.

Brief facts of the case are that, assessee ,being proprietor of M/s. M/s.Harsh Metal, is doing the business of : 2 : manufacturing of precision die and sheet metal and filed his return of income on 30-09-2009, declaring total income of Rs.1,68,936/-. The case of the assessee was re-opened on the basis of the information received from the Sales Tax Department that party M/s.Blue Nile Enterprises, from which the assessee had made purchases, was involved in providing Hawala entries and the assessee was one of the beneficiaries. During the course of assessment proceedings ,the assessee furnished the copies of bills for purchases from Blue Nile Enterprises, amounting to Rs.10,71,875/- alongwith the ledger account and details of payments by cheques. The AO also issued 133(6) dated but was not replied. The AO observed that mere payment by a/c payee cheque is not sufficient proof of any expenditure claimed by the assessee. The AO further observed that the assessee has failed to produce suppliers for verification. He therefore concluded that the assessee has failed to discharge the onus cast upon him to prove the genuineness of the expenditure and finally the AO made an addition of Rs.10,71,875/- u/s.69C of the Act.

During the course of appellate proceedings, Ld.CIT(A) observed that neither the assessee nor the Authorized Representative of the assessee, attended to argue the case, despite giving several opportunities and dismissed the appeals ex-parte.

After hearing ld DR and perusing the material on record, we observe that in this case, undisputedly, assessee is beneficiary of bogus hawala purchase entries. We note that : 3 : the assessee is engaged in manufacturing and dealing in precision Die and Sheet Metal. The AO added the entire purchases to the income of the assessee by treating them as non genuine despite assessing filing all the information on the ground that the assessee failed to produce the supplier. Though the assessee did not show up before the ld CIT(A) to attend the hearing the appeal was dismissed ex-parte. In our opinion even in the case of bogus purchases where the sales are not disputed by the AO, 100% is excessive and unreasonable in view of the nature of business of the assessee and profit in that line of assessee. However we certainly feel that some estimated profit on the said bogus purchases has to be brought to tax as the AO has not disputed the corresponding sales. In our view it would be reasonable and fair if 6% is applied on the said bogus purchases to assess the profits. Accordingly, we set aside the order of CIT(A) and direct the AO to make addition @4% on the same.

So far as the issue of initiation of penalty proceedings under section 271(1)© is concerned , we of the view that to raise the ground at this stage is premature and therefore does not require any adjudication.