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PER PAWAN SINGH, JUDICIAL MEMBER; 1. This appeal by assessee is directed against the order of ld. CIT(A)-26 Mumbai (Vashi, Navi Mumbai) dated 15.06.2018 for Assessment Year 2009-10. Though the assessee has raised as many as four grounds of appeal
, however, in our considered view, the only substantial ground of appeal are two i.e. (i) whether the reopening under section 147 is valid, (ii) whether the ld. CIT(A) was not justified in restricting the disallowance of bogus purchases to the extent of 12.5% of bogus/hawala dealers/non-existent vendors.
2. Brief facts of the case are that the assessee-firm is engaged in the business of Trading in Oil, filed its return of income for Assessment Mum 2018-Mr. Vishal Amarshi Gala Year 2009-10 on 15.07.2009 declaring total income of Rs. 9,14,450/-.
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 aggregate purchases of Rs. 35,38,225/- from four hawala dealers namely Sthapna Trade Impex P.
Ltd., Meethi Trade Impex, Swastik Enterprises & Shivam Trading Co., whose names were included in the list such hawala dealer. 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 was issued to the assessee. The assessee vide its letter dated 21.09.2014 stated that the return originally filed on 15.07.2009 may be treated as return in response to the notice under section 148. The Assessing Officer after serving notice under section 143(2) proceeded for re-assessment.
During the assessment, the Assessing Officer noted that the assessee has shown purchases of Rs. 35,38,225/- from the following party, 2 Mum 2018-Mr. Vishal Amarshi Gala which was declared as hawala dealers by the Sale Tax Department, Government of Maharashtra.
Name of the party Bill amount (Rs.) 1 Sthapna Trade Impex P. Ltd. 105906 2 Meethi Trade Impex 15601 3 Swastik Enterprises 963799 4 Shivam Trading Co. 2452919 Total 3538225 3. The Assessing Officer in order to verify the transaction issued notice under section 133(6) to following four parties. The notice sent through registered post was returned back with the remark “Left”. The assessee was asked to produce the party and substantiate the purchases. The Assessing Officer after considering the report of Investigation Wing of Sale Tax Department disallowed the 12.5% of the purchases shown from following four parties in assessment order dated 19.03.2015 passed under section 143(3) r.w.s 147.
On appeal before the ld. CIT(A), the ld. CIT(A), the action of AO on reopening as well as disallowance to the extent of 12.5% og allged bogus purchases was upheld. Thus, 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 Mum 2018-Mr. Vishal Amarshi Gala 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 wrongly made the disallowance of 12.5% of the alleged bogus purchases. The addition made on account of alleged bogus purchases was unreasonable and on the higher side. The ld. AR for the assessee submits that the assessee has already declared Gross Profit @ 4.3% and net profit @. .624%. The ld AR for the assessee submits that the margin in the business of the assessee is very low.
The disallowances made by AO are extremely high. It was prayed that to avoid the protracted litigation the assessee will be satisfy if the disallowance is restricted at reasonable percentage. In support of her submissions the ld AR for the assessee relied on the decision of Bombay High Court in PCIT Vs M/s Mohammad Haji Adam &Co (ITA No. 1004 of 2016 dated 11.02.2019) 6. On the other hand, the ld. DR for the revenue supported the order of Assessing Officer. 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 brought sufficient 4 Mum 2018-Mr. Vishal Amarshi Gala material on record to prove that the purchases shown by assessee were bogus. The assessee is not entitled for any relief.
We have considered the submissions of ld. AR for the assessee and the ld. DR for the revenue and perused the record. The ld. AR for the assessee not argued anything against the Grounds No.(i) 1&2, therefore, these grounds are treated as not pressed and dismissed accordingly. On Grounds related to the disallowance @12.5% of the alleged bogus purchases, the Assessing Officer made the disallowance of 12.5%. The Assessing Officer has not disputed the sales of the assessee. books of accounts of the assessee was not rejected. The Assessing Officer solely relied upon the report of Investigation Wing of Sale Tax Department. No independent inquiry was conducted by AO. Before the ld. CIT (A), the assessee urged that the purchases shown by assessee are genuine. The payments of purchases were made through account payee cheques. After considering the submission of the assessee the ld. CIT(A) sustained the action of AO. We are of the considered opinion that under Income Tax Act only real income can be taxed by the Revenue. We may further conclude that even if the transaction is not verifiable, the only taxable is the taxable income component and not the entire transaction. After considering the facts and circumstances and the nature of business activity of the assessee, we are of the opinion that in order to fulfill the gap of revenue leakage 5 ITA No. 5324 Mum 2018-Mr. Vishal Amarshi Gala the disallowance of reasonable percentage of such purchases would meet the end of justice.
Recently the High Hon’ble Bombay High Court in CIT versus Mohd.
Haji Adam & Co. (supra) held the addition in respect of bogus purchases to be limited to the extent of bringing the gross profit rate on such purchases at the same rate as of other genuine purchase.
Respectfully following the decision of the Hon’ble Bombay High Court as refereed above, and considering the submissions of the ld AR for the assessee that the assessee has already declared the GP at 4.3%, we direct the assessing officer to restrict the disallowance @ 5 % of the alleged bogus purchase shown from the impugned hawala dealers.
In the result this ground of appeal is partly allowed.
In the result, appeal of the assessee partly allowed.
Order pronounced in the open court on 03/10/2019.