KIRTI MURLIDHAR MUNI,MUMBAI vs. ITO 19(2)(2), MUMBAI

Though the assessee has raised grounds of appeal

which are running into six pages which are argumentative or narrative of various decisions of superior courts and Tribunals. However, in our considered view, the substantial ground of appeal is if the ld. CIT(A) erred in confirming the Mum 2016-Shri Kirti Murlidhar Muni disallowance on account of bogus purchases to the extent of 6.5% of non-genuine purchases.

The Assessing Officer in order to verify the transaction, the Assessing Officer issued notice under section 133(6). No response was received from the dealers. Notices sent to those dealers were returned back by the postal authorities. The assessee was also asked to substantiate the purchases and to produce the hawala dealers to cross-examine. The assessee failed to produce any of the parties. The Assessing Officer asked the assessee to produce the delivery challans, transport receipts and Octroi receipt and weighbridge for weighing the goods, excise gate pass, goods inward register, warehouse, storage etc. The assessee failed to produce the evidence related to the delivery of goods. However, the assessee contended that the purchases are genuine and the assessee made the purchases by making payment through account payee cheque.

The contention of assessee was not accepted by Assessing Officer. The Assessing Officer after considering the nature and activities of the 3 Mum 2016-Shri Kirti Murlidhar Muni assessee took his view that it would be just a fair, if profit element embedded in such purchases is taken as the profit earned from the purchases shown from such non-genuine parties. The Assessing Officer, therefore, disallowed 12.5% of the aggregate purchases of Rs. 1.66 crore. The Assessing Officer worked out the disallowance of Rs. 20,84,039/-. On appeal before the ld. CIT(A), the disallowance was further restricted to 6.5% of the total non-genuine purchases. The ld. CIT(A) while restricting the disallowance to 6.5% concluded that the percentage of Value Added Tax (VAT) of the bills is charged at 4% and margin in the trade is earned 2.5% and considered the declared Gross Profit (GP). The ld. CIT(A) restricted the disallowance at 6.5% of the aggregate of total purchases of Rs. 1.66 crore. Thus, further aggrieved, the assessee has filed the present appeal before us.

We have heard the submissions of the learned authorised representative (AR ) for the assessee and the learned departmental representative (DR) for the revenue and also gone through the orders of the lower authorities. We have also deliberated on the various case law relied by the lower authorities. The ld. AR of the assessee submits that the assessee engaged in the business of trading of ferrous and non-ferrous items and steel trading. The Assessing Officer disallowed the purchases of Rs. 12.5% of the alleged bogus purchases. However, on appeal before the ld. CIT(A) restricted the disallowance to the extent of 6.5%. The ld. 4 ITA No. 6329 Mum 2016-Shri Kirti Murlidhar Muni AR of the assessee submits that the assessee has already declared GP @ of 3.62%. The learned AR for the assessee submits that in the recent decision the Hon’ble Bombay High Court in CIT Versus M Haji Adam & Co in ITA No. 1004 of 2016 dated 11th February 2019 held that addition in respect of bogus purchases is to be limited to the extent of bringing the gross profit rate on such purchases at the same rate as of other genuine purchases. The ld. AR of the assessee submits that similar direction may be given to the Assessing Officer to restrict the disallowance on the alleged bogus purchases to the extent of gross profit (GP) on the purchases of other genuine purchases. 7. On the other hand, the ld. DR for the revenue supported the order of lower authorities. The ld. DR further submits that the ld. CIT(A) has already given substantial relief to the assessee. The assessee has shown the purchases from non-genuine parties. The said non-genuine/hawala dealers were indulging in providing bogus entries without delivery of goods. The assessee failed to substantiate before the lower authority to prove the delivery of goods.

We have considered the submission of both the parties and perused the record carefully and the case law relied by lower authority and by ld. representatives of the parties. Before us, the ld. AR of the assessee has not challenged the validity of the re-opening. Therefore, we confirmed the validity of re-opening. So far as the disallowance on account of 5 Mum 2016-Shri Kirti Murlidhar Muni bogus purchases are concerned. There is no dispute that the Assessing Officer has not rejected the books of account of the assessee The Assessing Officer has not disputed the sale of assessee against the alleged bogus purchases. We have noted that 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, we set aside the matter to the file of assessing officer with the direction to restrict the addition with regard to the bogus purchases by bringing the gross profit rate on such bogus purchases as the same rate as that of other genuine purchases. Needless to order that before passing order on our direction the assessing officer said Grant opportunity of hearing to the assessee and would pass the order in accordance with law.

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