INCOME TAX OFFICER 10(3)(1), MUMBAI vs. NAUTICA CLOTHING INDIA PRIVATE LIMITED, MUMBAI

The brief facts of the case as emanating from records are; the assessee company is engaged in trading of readymade garments. The assessee filed its return of income for the impugned assessment year on27/09/2019 declaring total income of Rs.4,11,520/-. The return of the assessee was processed under section 143(1) of the Income Tax Act, 1961 (in short ‘the Act’). Thereafter, assessment was reopened on the ground that assessee has indulged in bogus purchases from suspicious dealers. The Assessing Officer in assessment proceedings made addition of the entire alleged bogus purchases i.e. Rs.73,88,09,154/-. Aggrieved against the assessment order dated 31/03/2015 passed under section 143(3) r.w.s. 147 of the Act, the assessee filed an appeal before the CIT(A). The first appellate authority after examining the facts and applying the ratio laid down by the Hon’ble Gujarat High Court in the case of CIT vs. Simit P. Shah, 356 ITR 451(Guj) restricted the addition to 12.5% of the purchases made from hawala dealers. Against the findings of CIT(A), the Revenue, as well as, the assessee is in appeal before the Tribunal.

Ms. Kavita P. Kaushik representing the Department submitted that the CIT(A) has erred in restricting the addition to 12.5% of the bogus purchases. The documents on record clearly indicate that the assessee has indulged in transactions with hawala dealers notified by the Maharashtra Sales Tax Department’s Investigation Wing. The assessee has failed to explain the source of expenditure for making the purchases. The Ld. Departmental Representative placed reliance on the decision of Hon’ble Apex Court in the case of N.K.Proteins Ltd vs. DCIT, (2017) TOIL

On the other hand, Shri Sambhav Shah appearing on behalf of the assessee submitted that the authorities below have erred in holding that assessee has indulged in bogus purchases. The assessee had submitted various documents viz. copies of invoices, description of quantity of goods purchased, copy of purchase order, proof of dispatch of good and proof of payments to prove trail of goods. The ld. Authorized Representative further contended that the Revenue has not raised any doubt over the sales declared by the assessee. In the absence of purchases there cannot be sales, hence, 100% addition as made by Assessing Officer cannot be sustained. The ld. Authorized Representative further contended that CIT(A) restricted the addition to 12.5% of the bogus purchases, however, in the light of documents furnished by assessee the entire addition ought to have been deleted by the CIT(A). The ld. Authorized Representative, thus, prayed for modifying the order of CIT(A) and deleting the entire addition made on account of alleged bogus purchases.

We have heard the submissions made by the rival sides and perused the orders of authorities below. The Assessing Officer in reassessment proceedings made addition of Rs.73,88,09,154/- on account of bogus purchases made by assessee from alleged hawala dealers notified by Maharashtra Sales Tax Department. During assessment proceedings, the assessee furnished various documents to prove genuineness of the transactions. However, the Assessing Officer brushed aside the same and made addition of the entire alleged bogus purchases.

In the result, the appeal of Revenue, as well as assessee are dismissed.