M/S.LALIT SILK INDUSTRIES,MUMBAI vs. ITO WARD 17(2)(2), MUMBAI

The only issue on merits, in this appeal of assessee is against the order of CIT(A) directing the AO to restrict the addition made by AO being estimating profit percentage at the rate of 8 % on bogus purchases.

Briefly stated facts are that the assessee engaged in the business of manufacture/ processor of Yarn. The AO received information from DGIT (Investigation), who in turn received information from Sales Tax Department, Mumbai that the assessee has made purchases from hawala parties, as listed in hawala dealers by the Maharashtra Sales Tax Department who are providing bogus bills of purchase amounting to Rs. 1,22,84,132/- as admitted by these hawala dealers in their deposition before the authorities. The same reads as under: - Sl No. Name of the Hawala Party Amount 1. Adinath Trading Company 67,42,347 2. Suraj Sales Corporation 55.41,785 Total 1,22,84,132 4. During the course of assessment proceedings and during appellate proceedings, the assessee submitted documentary evidences such as payment received against such sales, receipt of material purchases, account payee cheque. According to the 3 | P a g e AO, the assessee failed to establish the genuineness of the purchase and accordingly, he made addition of unproved purchase at 12.5% of ₹ 15,35,516/- to the returned income of the assessee. Aggrieved, assessee preferred the appeal before CIT(A), who restrict the addition at 8% by observing in para 4 as under: - “4. The facts of the case are that the assessee is engaged in the business of trading in steel. The AO contended that as per information received in office DGIT(Inv), Mumbai and subsequently, from the Sales Tax Department, Mumbai, it was found that the M/s Adinath Trading Company and M/s Suraj Sales Corporation was providing accommodation entries without doing any actual business from whom assessee has claimed total purchases ₹ 15,35,516/-. Subsequently, the assessee was asked to furnish all relevant evidence to establish that goods have actually been delivered/ supplied. The assessee was also asked to furnish its explanation on the purchases purported to have made from the party and also asked to show cause as to why the expenditure 4 | P a g e