ITO 27 (1)(1), MUMBAI vs. ALPA CHETAN DESAI, MUMBAI

O R D E R

PER RAVISH SOOD, JM

1. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 5,69,765/- made by the Assessing Officer on account of bogus purchases, without appreciating the fact that the assessee had failed to produce bills, vouchers and other documentary evidences in support of his claim and without considering the latest Apex Court decision in the case of N.K Protein Ltd. wherein it is held that once it is proved that the purchases are bogus then addition should be made on entire purchases and not on profit element embedded in such purchases.

P a g e | Income Tax officer-27(1) Vs. Smt. Alpa Chetan Desai 2. On the facts and circumstances of the case a nd in law, the Ld.CIT(A) erred in estimating the profit from Hawala purchases by disallowing only Rs.1,56,685/- being 12.5% of the bogus purchases as even the basic onus of producing transport bills, delivery challans, etc. were not fulfilled by the assessee.

3. The appellant prays that the order of the CIT(A) on the above grounds be reversed and that of the Assessing officer be restored.

Sr. No. Particulars Amount (Rs.) 1. C.R. Enterprises 3,51,156/- 2. Paras Enterprises 1,00,000/- 3. Chetan Chemical Cor. 8,01,330/- Total 12,53,480/- The A.O in order to verify the authenticity of the purchase transactions issued notices under Sec. 133(6) to the aforementioned parties, which however were not returned unserved by the postal authorities. In the backdrop of the aforesaid facts, the A.O deputed his inspector to make necessary verifications by visiting the parties at the addresses which were provided by the assessee. However, the inspector in his reply reported that the aforementioned parties were not existing at the addresses provided by the assessee. Accordingly, the A.O brought the fact as regards the non-availability of the parties to the notice of the assessee and directed her to furnish their correct/new addresses. However, as the assessee failed to comply with the directions, therefore, the A.O directed the assessee to produce the parties along with the copy of the ledger account of the assessee in their books of accounts, nature of goods sold, sample copies of bills issued, copies of delivery challans for goods dispatched, transport bills and the copy of their bank statements. Also, the assessee was directed to furnish the details as regards the discharge of the balance outstanding amount towards the aforesaid parties after the end of P a g e | Income Tax officer-27(1) Vs. Smt. Alpa Chetan Desai the year under consideration. In reply, the assessee merely harped on the fact that she had made genuine purchases from the aforementioned parties. However, the assessee neither placed on record any supporting documentary evidence which would have irrefutably substantiated the genuineness of the purchase transactions, nor produced the parties for necessary examination before the A.O. On the basis of the aforesaid facts, it was observed by the A.O that the assessee had failed to discharge the „onus‟ as regards proving the fact that she had purchased the goods from the aforementioned parties. Apart there from, the A.O held a conviction that the support drawn by the assessee from the fact that the payments to the aforementioned parties were made by account payee cheques, did not conclusively prove the genuineness of the purchase transactions. In fact, it was observed by the A.O that as the purchases made by the assessee from the aforementioned hawala parties were proved to be bogus, therefore, the payments made by cheques against such bogus purchase bills would have thereafter been received back from them in cash. At the same time, the A.O was of the view that since the corresponding sales were found to be genuine, therefore, the entire amount of purchase consideration of Rs. 12,53,480/- could not be added to the income of the assessee. Accordingly, the A.O being of the view that the cash received back by the assessee from the aforementioned hawala operators would thereafter be available with her for financing the subsequent purchases from undisclosed parties in cash, therefore, made an addition of the peak of the credit of Rs. 7,26,450/- standing in the names of the bogus parties as an unexplained expenditure incurred by the assessee under Sec. 69C of the Act.

4. Aggrieved, the assessee carried the matter in appeal before the CIT(A). The CIT(A) after necessary deliberations was however not persuaded to subscribe to the addition of the peak of the credit of the purchases of Rs.7,26,450/- made by the A.O under Sec.69C of the Act. The CIT(A) was of the view that though the assessee could not establish one to one nexus/link between the purchases and sales, however, the fact that the materials purchased had thereafter been sold by the assessee could not be doubted. At the same time, it was observed by the CIT(A) that the genuineness of the purchase transactions could not be verified, as the fact that purchases had been made from the aforementioned parties could not be proved by the assessee. Accordingly, the CIT(A) was of the view that the purchase price shown on the invoices produced by the assessee could not be accepted as reflecting the correct value for P a g e | Income Tax officer-27(1) Vs. Smt. Alpa Chetan Desai which the goods were procured by her. On the basis of his aforesaid observations, the CIT(A) was of the view that the possibility of over invoicing of the materials purchased by the assessee with an intent to reduce the profit, or procuring of the same from the open/grey market without proper billing or documentation could not be ruled out. Accordingly, the CIT(A) was of the view that in all fairness the addition in the hands of the assessee could only be restricted to the extent of the additional benefit or profit which she would have earned in respect of the said unverified purchase transactions. On the basis of his aforesaid observations the CIT(A) restricted the addition to an amount of Rs.1,56,685/- i.e 12.5% of the aggregate value of purchase of Rs. 12,53,480/-.