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Income Tax Appellate Tribunal, MUMBAI BENCH “F”, MUMBAI
Before: SHRI PAWAN SINGH (JM) & SHRI S RIFAUR RAHMAN (AM) Shri Jitendra R Sanghvi
O R D E R PER PAWAN SINGH, JM : 1. This appeal by revenue is directed against the order of CIT(A)-45, Mumbai dated 25-04-2016 which arises from assessment order passed u/s 144 dated 19-03-2016. The revenue has raised the following grounds of appeal:-
“1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in restricting the addition of Rs2,26,304/-made in respect of bogus purchases to Rs.7,07,198/-especially when Ld. CIT(A) has clearly found that the assessee did not fully substantiate the claim of genuine purchases.
On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in not making inquiry or direction the AO to conduct inquiries to establish the correct facts in this case, when it is 2 ITA 5867/Mum/2018 Jitendra R Sanghvi
noted that the assessee had completely failed to establish the genuineness of purchase. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in determining the profit percentage at the rate of 8% of bogus purchases, while the assessee failed to establish the genuineness of the purchase claimed.” 2. Brief facts of the case are that assessee s a proprietor of M/s Sanghvi Enterprises, filed his return of income for AY 2010-11 on 14-10-2010 declaring income of Rs.12,55,250. Subsequently, on the basis of information received from sales-tax department, Government of Maharashtra, which referred the list of hawala dealers and the beneficiary to the DGIT (Investigation), Mumbai. The name of assessee appeared in the list of beneficiaries. The assessee allegedly made the purchases of Rs. 28,28,794/- from four such hawala dealers. On the basis of information, On the basis of such information, the AO issued notices u/s 148 dated 02- 03-2015. The assessee neither filed any return of income nor responded to other notices issued u/s 143(2) / 142(1). The AO, on the basis of material before him rejected the books of account of assessee and made 25% of addition of aggregate of the purchases shown from such hawala parties in the assessment order dated 19-03-2016 passed under section 144 of the Act. On appeal before learned CIT(A), the addition was restricted to 8%. The Ld. CIT(A) restricted the addition holding that assessee might have obtained the bills in lieu of materials purchased
3 ITA 5867/Mum/2018 Jitendra R Sanghvi locally. The Value Added Tax (VAT) and other incidental charges on the said bogus purchases could be brought to tax as additional profit on such purchases and thereby restricted the addition to 8% of such bogus purchases. Thus, aggrieved by the order of Ld. CIT(A), the revenue has filed the present appeal before us.
None appeared on behalf of the assessee despite the service of notice through registered post acknowledge (RPAD). Therefore, we left no option but to hear the submissions of learned departmental representative (Ld. DR) for the revenue and decide the appeal on the basis of material available on record. The Ld. DR for the revenue submits that the income- tax department had made full-fledged enquiry regarding hawala traders who were indulging in providing the accommodation bills without actual delivery of goods. The assessee is one of the beneficiary of such beneficiary. Before the AO, the assessee has not furnished any evidence to substantiate the purchases. Even then the assessing officer on a reasonable basis has made addition of 25% only. The Ld. CIT(A) restricted the same to 8% only on his assumption that the assessee might have purchased the goods locally and have saved VAT and other incidental charges. The Ld. DR prayed for restoring the addition to the extent of 25% of the purchases.
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We have considered the submission of the Ld. DR for the revenue and perused the material available on record. We have noted that the during the assessment the AO recorded that the assessee has not responded to the notices sent to the assessee. The assessing officer after rejecting the books of account of the assessee estimated addition @25% of aggregate of the purchases shown from those four alleged hawala parties. The AO has not made any independent enquiry himself. The AO made additions solely on the basis of information of investigation agency. Before the Ld. CIT(A), the assessee furnished bank statement showing the payment to the dealers, which was verified by the AO. It was further urged before the Ld. CIT(A) that the AO merely relied upon the information of sales- tax department and treated 25% of purchases as bogus. The assessee further claimed that he has sufficient documentary evidence to prove the genuineness of transaction. After considering the submission of assessee, the Ld. CIT(A) took his view that in such type of transaction the parties have saved VAT and other incidental charges which can be brought to tax being additional profit earned by the assessee and accordingly restricted the addition to 8% of such purchases.
We are also of the view that under the Income-tax Act, the revenue authorities are entitled to tax the real income and not the income based on hypothetical basis. Considering the facts that Ld. CIT(A) restricted the 5 ITA 5867/Mum/2018 Jitendra R Sanghvi addition to avoid the possibility of revenue leakage of the additional benefit which the assessee might have earned by showing such purchases.
Accordingly, we do not find any merit in the appeal filed by the revenue.
In the result, appeal filed by the revenue is dismissed.
Order pronounced in the open court on 18-12-2019.