ITO - 27(2)(3), NAVI MUMBAI vs. MUKUND J. GHORPADE, MUMBAI

The only issue on merits, in this appeal of assessee is against the order of CIT(A) restricting the addition of the AO in estimating the profit rate at 12.5% of the bogus purchases.

Briefly stated facts are that the assessee engaged in the business of printing of advertising materials. 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.12,69,638/- as admitted by these hawala dealers in their deposition before the authorities. The same reads as under: - S.No. Name of the seller Amount 1. Nageshwar 2,49,518/- 2. Manav Impex 3,57,924/- 3. Meeti 1,71,066/- 4. Monil Impex 1,74,887/- 5. Kalyan Kirti 1,06,163/- 6. Prakash 2,10,080/- Total 12,69,638/- 4. The AO issued noticed under section 133(6) to the parties which returned back with the remark as “left” 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 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 3 | P a g e 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 whole amount as unproved purchase at Rs.12,69,638/- to the return income of the assessee. Aggrieved, assessee preferred the appeal before CIT(A), who sustained the disallowance at 12.5% of the bogus purchases by observing in para 5.3.7 as under: - “5.3.7 In view of the above discussed factual matrix and precedents, I am of the view that estimation of 12.5% as profit embedded in impugned purchases shown from the alleged hawala party and adding the same to the total income returned, would meet the ends of justice. Therefore, I direct the AO to estimate profit @ 12.5% of the alleged bogus purchases, which works out to Rs. 1,58,705/- (@12.5% of Rs. 12,69,638/-) and restrict the addition to Rs. 1,58,705/-. The appellant gets a relief for the balance amount of Rs. 11,10,933/-.