BHARAT JEEVRAJ JAIN,MUMBAI vs. ITO 19(3)(1), MUMBAI

Brief facts of the case are that the assessee is engaged in the business of trading in ferrous and non-ferrous metal, filed return of income for AY 2011-12 on 13-09-2011 declaring total income at 2 ITA 6129/Mum/2018 Bharat Jeevraj Jain Rs. 4,33 ,572/-. 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 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. 1,59,66,402 /- 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 16.09.2014 was issued and served upon the assessee. In response to the notice under section 148, assessee filed its response vide reply dated 20.07.2015 and stated that the return filed on 13.09.2011 be treated the return in response of the said notice. The Reasons recorded were supplied to the assessee. The Assessing Officer after serving notice under section 143(2) dated 16.09.2016 proceeded for re-assessment. During the assessment, the Assessing Officer noted

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 asked to produce the parties for verification. The assessee expressed his inability to produce the parties. 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 the assessee was in possession of goods and has shown the sale against the purchases.

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.

We have heard the submission of ld. Authorized Representative (AR) of the assessee and ld. Departmental Representative (DR) for the revenue and perused the material available on record. The ld. AR of the assessee submits that the assessee furnished complete details of purchases and the sales made against the alleged bogus purchases. The Assessing Officer has rejected the books of account without mentioning specific reasons. The Assessing Officer made the disallowance of 12.5% of the alleged bogus purchases. The ld. AR of the assessee further submits that assessee has already shown Gross Profit (GP) at 2.90%. The addition sustained on account of alleged bogus purchases is on higher side. The ld. AR of the assessee further submits that after addition sustained by ld. CIT(A), the GP of assessee would rise substantially which is not possible in the business of assessee.

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. The hawala traders were/are engaged in providing bogus bill without actual delivery of goods. The assessee has shown bogus purchases only to inflate the profit. The ld. DR for the revenue submits that the Assessing Officer has given sufficient relief. The Assessing Officer has reasonably estimated the disallowances. The assessee is not entitled for any further relief.

We have considered the submissions of both the representatives and perused the record. 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. We have further noted that the assessee has shown GP of 2.9%. It was argued that the GP percentage after addition would be substantially on higher side. Therefore, considering the fact of the present case and the nature of business activities of the assessee and by following the decision of Hon’ble Bombay High Court, we direct the Assessing Officer to restrict the addition with regard to bogus purchases by brining the GP rate on such purchases at the same rate as that of other genuine purchases.

In the result, appeal of the assessee is partly allowed.