SHARAD VRAJLAL DOSHI,MUMBAI vs. ITO 17 (3)(3), MUMBAI

The assessee has raised the following grounds of appeal: “1. The Learned Assessing Officer and CIT(A) -34 erred in assessing the total income of Rs. 15,78,5607- instead of the returned income of Rs. 3,06,294/-.

The Learned Assessing Officer and ClT(A)-34 failed to make addition on the issue for which assessment is reopened and made addition on gross profit. Thus the entire assessment needs to be set aside following Jet Airways Ltd Bombay High Court 331ITR 236.

Brief facts of the case are that the assessee is Proprietor of M/s Sharad Steel Corporation and is engaged in trading in Iron and Steel filed return of income for AY 2009-10 on 25-09-2009 declaring total income at Rs. 3,06,294/-. The return of income was processed under section 143(1). The assessment was re-opened under section 147 on the basis of information received from Sale Tax Department, Government of Maharashtra that certain hawala operators are 3 ITA 6096/Mum/2018 Sharad Vrajlal Doshi indulging in providing accommodation bills without actual delivery of goods. The Sale Tax Department, Government of Maharashtra referred the list of such hawala dealers and the beneficiary to the DGIT (Investigation), Mumbai. The name of assessee appeared in the list of beneficiary. The assessee allegedly made the purchases of Rs. 1,01,78,109/- from such hawala dealers. On the basis of information, the Assessing Officer made a belief that the income of the assessee escaped assessment, therefore, re-opened the assessment under section 147. Notice under section 148 dated 11.03.2014 was issued and served upon the assessee. Reasons recorded were supplied to the assessee. The Assessing Officer after serving notice under section 143(2) dated 31.07.2014 proceeded for re-assessment. For the year under scrutiny the assessee has shown sales turn over of Rs. 5,17,95,621/- and gross profit of Rs. 1,08,627/-. During the assessment, the Assessing Officer noted that the assessee has shown purchases from the following parties, which was declared as hawala dealers by the Sale Tax Department, Government of Maharashtra.

The assessee was asked to substantiate the purchases and issued show-cause notice as to why the aforesaid transaction should not be treated as non-genuine. The assessee was also asked to produce the party for verification. The assessee filed its explanation and furnished the copy of ledger account and proof of payment through cheques. The Assessing Officer not accepted the explanation furnished by assessee and noted that the assessee has not produced Lorry Receipt, Transportation Details etc. The Assessing Officer after considering the material available before him and the submission made by assessee concluded that certain purchase shown by the assessee remained unverifiable and there is possibility of revenue leakage, the gross profit (GP) shown by assessee is very

On appeal before the ld. CIT(A), the action of Assessing Officer was sustained. Further, aggrieved by the order of ld. CIT(A), the assessee has filed the present appeal before us.

The ld. AR of the assessee further submits that the Hon’ble Bombay High Court in a recent decision on similar set of fact in PCIT vs. M Haji Adam & Co. in of 2016 dated 11.02.2019 held that addition in respect of bogus purchases is to be limited to the extent of bringing the GP rate on such purchase at the same rate as on other genuine purchases. The ld. AR of the assessee submits that the disallowance of alleged bogus purchase may be restricted in accordance with the decision of Hon’ble jurisdictional High Court in PCIT vs. M Haji Adam & Co. (supra).

On the other hand, the ld. Departmental Representative (DR) for the revenue supported the order of lower authorities. The ld. DR further submits that Investigation Wing of Income-tax Department has made full-fledged investigation in respect of hawala traders.

We have considered the submissions of both the representatives and perused the record. Though, the assessee has raised as many as ten grounds of appeal, however as per our considered view, a short issue for our adjudication is whether the disallowance of alleged bogus purchase @ 12.5% is reasonable or not. The ld. AR of the assessee has vehemently relied upon the decision of Hon’ble jurisdictional High Court in M Haji Adam & Co.(supra). We have noted that on similar set of fact, the Hon’ble Bombay High Court in PCIT vs. M Haji Adam & Co. (supra) held that addition in respect of bogus purchase be limited to the extent of bringing the GP rate on bogus purchase at the same rate as other genuine purchases.