KAY KAY SYNTHETICS,MUMBAI vs. INCOME TAX OFFICER 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 various yarns. 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. 90,64,783/- 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 55,26,813 2. Suraj Sales Corporation 35,37,970 Total 90,64,783 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 AO, the assessee failed to establish the genuineness of the 3 | P a g e purchase and accordingly, he made addition of unproved purchase at 12.5% of ₹ 11,33,097/- 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 ₹ 12284132/-. Regarding 1st, 2nd and 3rd grounds of appeal the assessing officer has discussed in detail in the assessment order why GP at the rate of 12.5% is being disallowed. I find that it is excessive and keeping in mind other similar cases where I have reduced the GP @ 8%. I direct the AO to calculated GP @ 8%. Hence, appellant 4 | P a g e