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Income Tax Appellate Tribunal, “H” Bench, Mumbai
Before: Shri Shamim Yahya (AM) & Shri Ravish Sood (JM)
O R D E R Per Shamim Yahya (AM) :
This is an appeal by the Revenue wherein the Revenue is aggrieved that learned CIT(A) has not sustained 100% disallowance on account of bogus purchases.
The grounds of appeal read as under:-
1. "On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs 1,11,90,923/- made by the Assessing officer on account of unexplained expenditure u/s 69- C of the I.T. Act on purchases made from hawala parties, 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 judgement in the case of N.K. Protien 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."
2. "On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in estimating the profit from Hawala purchases by 2 Shri Harish Khushalchand Chandak
disallowing only 15,98,703/- 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."
The assessing officer in this case has made hundred percent addition on account of bogus purchase amounting to Rs. 1,27,89,626/-. Brief facts of the case are as under :-
The AO had received information from the Investigation Wing of the department that the assessee had taken accommodation bills for purchases from the parties declared as hawala operators by Maharashtra Sales Tax Department for A.Y. 2011-12. During the course of assessment proceedings for A.Y. 2011-12, it was seen by the AO that during the year under consideration, the assessee had claimed to have made bogus purchases for A.Y. 2011-12 and accordingly the AO issued notices u/s. 133(6) of the Act to the parties from whom the assessee claimed to have made bogus purchases. However, the notices were unserved by the postal authorities with the remark 'not- known/unclaimed'.
During the course of assessment proceedings for A.Y. 2012-13, the AO noticed that the assessee has made purchases from the same following parties:-
Sr. Party who have issued Amount (in Rs.) No bogus bills to the assessee
1 M/s. Royal Enterprises 48,00,044/- 2 M/s. Famous Traders 41,59,287/- 3 M/s. Vijay Enterprises 38,30,295/- Total 1,27,89,626/- The name of the above parties figured in list of suspicious dealers on the Maharashtra Sales Tax Department, who had issued accommodation entries without actual deli very of goods.
3 Shri Harish Khushalchand Chandak
The AO in his aforesaid assessment order has further mentioned that the Sales Tax Department had conducted independent inquiries in the case of each hawala operator, including in the case of above stated hawala operator and it was conclusively proved that these parties/operators were engaged in the business of providing accommodation entries only. These parties mostly indulged in following activities: a) issuing only bills and doing non-genuine business (Hawala Business); b) not maintaining stock and not keeping stock Register c) not effecting any purchase; and d) there was no transaction of goods. e) entries were being provided by the parties for commission.
During the course of assessment proceedings for A.Y. 2011-12, in order to ascertain the genuineness of purchases made by the assessee, the AO conducted independent inquiries by issuing notices u/s. 133(6) of the Act to the which were returned unserved by the postal authorities with a remark ‘not known/unclaimed’. Since the assessee failed to attend in response to the notices issued and also to produce any documentary evidence in support of his claim, the AO made 100% addition of these purchases.
Upon assessee's appeal learned CIT-A has noted that the sales have not been doubted. Accordingly placing reliance upon several case laws and up on the facts of the case he sustained 12.5% disallowance out of the bogus purchases.
Against above order revenue is in appeal before the ITAT. We have heard the Ld DR. None appeared on behalf of assessee despite notice.
We have carefully perused the records. We find that in this case the sales have not been doubted it is settled law that when sales are not doubted, hundred percent disallowance for bogus purchase cannot be done. The rationale being no sales is possible without actual purchases. This proposition is supported from Hon'ble jurisdictional High Court decision in the case of 4 Shri Harish Khushalchand Chandak Nikunj Eximp enterprises (in writ petition no 2860, order dated 18.6.2014). In this case the Hon'ble High Court has upheld hundred percent allowance for the purchases said to be bogus when sales are not doubted. However the facts of the present case indicate that assessee has made purchase from the grey market. Making purchases through the grey market gives the assessee savings on account of non-payment of tax and others at the expense of the exchequer. In such situation in our considered opinion on the facts and circumstances of the case the 12.5 % disallowance out of the bogus purchases done by the learned CIT-A meets the end of justice. Accordingly we uphold the order of learned CIT-A.
The decision of N.K. Protien Ltd. (supra) referred by Revenue in grounds of appeal has already been distinguished by Hon'ble Bombay HC in the case of PCIT Vs. Mohommad Haji Adam (Income Tax Appeal No. 1004 of 2016 vide Judgement dated 23.4.2019.
In the result this appeal filed by the revenue stands dismissed
Order has been pronounced in the Court on 3.5.2019.