INCOME TAX OFFICER WARD 32(1)(4), MUMBAI vs. SHRI DHARMESH D MODI, MUMBAI

Appellant by Shri Akhtar H Ansari Sr DR Respondent by None Date of hearing 25-11-2019 Date of pronouncement 04-12-2019 O R D E R PER PAWAN SINGH, JUDICAL MEMBER

Thus, all appeals were clubbed, heard and are decided by a common order. For appreciation of facts, the appeal for Assessment Year 2010- 11 in Smt. Darshana D. Modi is treated as lead case. The revenue has raised the following grounds of appeal:-

(i) "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in restricting the addition to Rs.49,920/- (@ 5% of Rs.9,98,400/-) on account of bogus purchases, without appreciating that the fact that the assessee has not produced any cogent evidence to substantiate that he had taken actual delivery of goods purchased from the parties and the notices u/s. 133(6) issued to the parties, from whom alleged bills were received, were returned undelivered by the postal authorities with the remark 'Not known' and the assessee has also failed to produce the purchase parties before the AO." (ii) "On the facts and circumstances of the case and in law, the Ld.CIT(A) erred in not appreciating the ratio of the decision of Gujarat High Court in the case of N.K. Proteins Ltd. wherein it was confirmed that in the event of bogus purchases, the addition on the whole of such purchases was required to be made and this particular ratio was confirmed by the Hon'ble Supreme Court in SLP No.CC No.769 of 2017 dated 16.01.2017, by dismissing the SLP of that assessee." (iii)"The appellant prays that the order of the Ld. CIT(A) on the above grounds be set aside and that of the AO be restored."

3 ITA 5836 to 5838 Mum 2018-Shri Dharmesh D. Modi & Smt Darshana D Modi tax Act (Act). The assessment was re-opened under section 147 on the basis of information received from Sale Tax Department, Government of Maharashtra informing that certain hawala operators were 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 beneficiaries. The assessee allegedly made the purchases of Rs. 9,98,400/- 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 23.03.2015 was issued to the assessee after obtaining necessary sanction from competent authority. Assessing Officer thereafter issued notices u/s 142(1)

& 143(2) along with a questionnaire on 22.07.2015. During the assessment, the Assessing Officer noted that the assessee has shown purchases from the following parties, who were declared as hawala dealers by the Sale Tax Department, Government of Maharashtra:

Name of the parties Bill amount (Rs.) 1 Chemi-Age Enterprise 1,87,200/- 2 Riddhi Enterprises 8,11,200/- Total 9,98,400/-

4 ITA 5836 to 5838 Mum 2018-Shri Dharmesh D. Modi & Smt Darshana D Modi 3. In order to ascertain the genuineness of purchase, the Assessing Officer issued notice under section 133(6) to the parties. The notices sent by Assessing Officer were returned back unserved with the remark of postal authority “Left / Not known”. No other or fresh address was furnished by assessee. The Assessing Officer asked the assessee to furnish all relevant evidence to establish that goods have actually been delivered / supplied. The assessee along with his reply furnished ledger account, purchase bill, bank statement, highlighting the payment made through cheques. The Assessing Officer on the basis of report of Investigation Wing concluded that the hawala parties issued only bogus bill without delivery of goods, received cheque payment and after deducting their commission repaid the balance to the purchase party.

The purchases shown by assessee are unverifiable and there is possibility of revenue leakage. The Assessing Officer rejected the books of account and on the basis of decision of Hon’ble Gujarat High Court in Simith P. Sheth 356 ITR 451 (Guj.) estimated Gross Profit at 15% and accordingly, disallowed 15% of the impugned/alleged bogus purchases, while passing the assessment order on 22.01.2016 under section 143(3) r.w.s.

CITA(A), the revenue has filed the present appeal before the Tribunal.

Therefore, we are left with no option except to hear the submission of Ld. DR for the revenue and to decide the appeal on the basis of material available on record.

6 ITA 5836 to 5838 Mum 2018-Shri Dharmesh D. Modi & Smt Darshana D Modi 6. We have considered the submissions of the Ld. DR for the revenue and perused the material available on record. We have noted that during the assessment the assessee was asked to furnish the evidence relating to the alleged hawala purchases. The AO recorded that the assessee failed to produce any evidence. The AO, however, following the decision of Hon’ble Gujarat High Court in the case of Simith P. Sheth (supra) and the decisions of the Tribunal cited above, added 15% of the alleged hawala purchases being the profit element embedded in such bogus purchases. On appeal, the Ld. CIT(A) reduced the addition to the extent of 5% on such hawala purchases. The ld CIT(A) considered that the gross profit (GP) estimated by the Assessing Officer is not sustainable and that the assessee may have save VAT and other incidental charges by purchasing the material from local traders. And only the VAT charges and other incidental charges can be brought to tax as additional profit earned by assessee by showing purchases from such hawala parties. We have noted that the Assessing Officer has neither examined the Gross Profit earned by assessee in previous or subsequent years nor rejected the sales of assessee. The sale is not possible without the purchases. In our considered view, the Income Tax Authority are entitled to tax the real income component only and not on hypothetical basis. Therefore, we do not find any infirmity in the order passed by ld.

7 ITA 5836 to 5838 Mum 2018-Shri Dharmesh D. Modi & Smt Darshana D Modi CIT(A). We uphold the same. The ground of the revenue fails. No contrary fact or law is brought to our notice to take a contrary view.

ITA No. 5837/Mum/2018 for A.Y. 2011-12

Order pronounced in the open court on 04-12-2019.