ACIT -27 (3), MUMBAI vs. VINDEEP OILTEX EXPORTS, MUMBAI

PER RAVISH SOOD, JM

P a g e | ACIT-27(3) Vs. M/s Vindeep Oiltex Exports (ii) On the facts and circumstances of case and in law, the Ld. CIT(A) erred in estimating the profit from Hawala purchases by disallowing only Rs.1,97,600/- being 12.5% of the bogus purchases as even the basic onus ofproducing delivery challans, transport bills etc. were not fulfilled by the assessee. (iii) The appellant prays that the order of the CIT(A) on the above grounds be reversed and that of the Assessing Officer berestored. (iv) The appellant craves leave to amend, modify and alter any grounds of appeal during the course of hearing ofthis case.”

2. Briefly stated, the assessee firm which is engaged in the business of local trading and export of machinery and spare parts for oil processing units had filed its return of income for A.Y. 2009-10 on 27.09.2009, declaring its total income at Rs.19,97,660/-. The return of income filed by the assessee was processed as such under Sec.143(1) of the Act. Subsequently, on the basis of information received from the DGIT(Inv.),Mumbai, that the assessee was one of the beneficiary which had obtained bogus purchase bills from certain hawala dealers, its case was reopened under Sec. 147 of the Act.

Sr. No. Hawala PAN Name of the Hawala Supplier Amount (Rs.) 1. AACCN4274G Navpad Exports Pvt. Ltd. 7,85,200/- 2. AACCT2855M Top Shop Trading Company Pvt. Ltd. 7,95,600/- Total 15,80,800/- As the assessee failed to substantiate the authenticity of the purchase transactions, therefore, the A.O concluded that the assessee had not made any genuine purchases from the aforementioned parties and had in fact procured the goods from open/grey market. Observing, that the assessee in order to avoid disallowance under Sec.40A(3) of the Act, would had obtained bogus bills from the hawala operators to whom payments were shown to have been made by cheques, the A.O was of the view, that the said amount would thereafter had been received back in cash by the assessee from the said hawala parties, as no purchases were made from them. On the basis of his aforesaid observations, the A.O held a conviction that the said amount would had thereafter been utilised by the assessee for making cash purchases from the undisclosed parties. Accordingly, the A.O was of the view that the amount standing in the name of the bogus parties was to be added as an unexplained expenditure under Sec.69C

P a g e | ACIT-27(3) Vs. M/s Vindeep Oiltex Exports of the Act. Backed by his aforesaid conviction, the A.O made an addition of Rs.15,80,800/- as an unexplained expenditure under Sec.69C of the Act.

P a g e | ACIT-27(3) Vs. M/s Vindeep Oiltex Exports to have been entered in the „stock register‟, and also their corresponding sales were accounted for by the assessee in its regular books of accounts, therefore, the entire value of such purchases could not have been held to be the income of the assessee. We have perused the order of the A.O, and are unable to comprehend, as to on what basis the expenditure incurred by the assessee for making the purchases under consideration had been characterised as an unexplained expenditure under Sec.69C of the Act. As is discernible from the records, the A.O was of the view, that the payments made by the assessee to the hawala operators by cheques against the value of the bogus purchases, would thereafter be received back by it in cash from the aforesaid parties as no purchases were made from them. Accordingly, it was observed by the A.O, that the cash so received back by the assessee from the hawala parties would thereafter have been utilised for financing the subsequent purchases from the undisclosed parties operating in the open/grey market. In the backdrop of the aforesaid observations of the A.O, wherein he had categorically admitted that the source of the purchases made by the assessee from the undisclosed parties in cash was out of the funds which had moved out of its regular „books of accounts‟, therefore, we have no hesitation to observe, that it is beyond our comprehension as to how the purchases under consideration had been brought within the sweep of an unexplained expenditure under Sec.69C by the A.O. In sum and substance, now when the A.O had not doubted the fact that the funds from the regular „books of accounts‟ of the assessee had finally been utilized for making of cash purchases from the undisclosed parties, therefore, in our considered view, the source of such purchases by no means could have been held to be in the nature of an unexplained expenditure within the meaning of under Sec.69C of the Act. We find that the CIT(A) had rightly concluded that the addition in respect of the purchases claimed by the assessee to have been made from the aforementioned parties, in the backdrop of the fact that their corresponding sales were duly recorded in its regular books of accounts, was liable to be restricted only to the extent of the profit involved in making of such purchases at a discounted value from the open/grey market. We find that the CIT(A) after drawing support from the judgment of the Hon’ble High Court of Gujarat in the case of CIT-1, Vs. Simit P. Sheth, of 2012, dated 16.01.2013, had confined the addition to the extent of 12.5% of the aggregate value of the purchases under consideration, and resultantly scaled down the addition to an amount of Rs.1,97,600/-. In our considered view, no infirmity emerges from the order of the CIT(A), who we find had rightly concluded that the addition in the P a g e | ACIT-27(3) Vs. M/s Vindeep Oiltex Exports hands of the assessee in respect of its unsubstantiated purchases was to be confined only to the extent of the profit element involved in procuring of such goods at a discounted value. Also, we find, that the CIT(A) had in all fairness estimated the profit element involved in making of such bogus purchases at12.5% of the aggregate value of the impugned purchases. Accordingly, finding no infirmity in the view taken by the CIT(A), we uphold his order.