ITO-27(1)(3), MUMBAI vs. SHRI. HASMUKHLAL T. MEHTA, MUMBAI

O R D E R PER R.C. SHARMA, ACCOUNTANT MEMBER

This appeal filed by the revenue is against the order of CIT(A) for the A.Y.2009-10 in the matter of addition upheld on account of bogus purchases, order passed u/s.143(3) r.w.s. 147 of the Income Tax Act, 1961.

“6.1. Ground No. 1, 2 & 3 of the appeal are against addition of Rs. 13.23.400/- as unexplained expenditure u/s.69C of the Act. As per the investigations carried out by the Sales Tax Authorities, the aforementioned party was found to be involved in giving accommodation entries only without actually supplying the goods. The logical inference is that the purchases made by the appellant would also be in the nature of accommodation entries only. To verify the same, the AO had made enquiries by issuing notices u/s 133(6) which were returned unserved by the postal authorities. This party was found to be non existent at the address given by the appellant. The appellant also failed to provide the Jatest address of the party. During the scrutiny assessment the appellant furnished details of purchases and corresponding sales. However, the appellant could not produce the party before the AO inspite of opportunity being given. The appellant also failed to produce delivery challans or transportation details. The onus-'of proving the genuineness of Such purchases is on the appellant which the appellant had not been able to discharge fully. When the hawala party had admitted on oath that it had given accommodation entries only without actually supplying the goods, the genuineness of purchases made from these parties will have to be considered taking this into consideration while examining the documentation submitted by the appellant in support of its claim. The documentary evidences such as purchase bills, payments by cheques, etc. would all have been orchestrated to present a facade of genuineness and does not necessarily mean that the purchases from these parties are genuine. The Courts have held that payment by cheque by itself is not sacrosanct so as to prove genuineness of purchases when the surrounding circumstances are suspect. However, the appellant has shown onward sales which has not been doubted by the Assessing Officer. Since there can be no sales without corresponding purchases, the only logical explanation is that the appellant would have made purchases from undisclosed parties in the grey market at lower rates and purchases were shown as being made from the impugned parties to suppress its profits. In such a situation, the various Courts including the Hon'ble Gujarat High Court in the case of CIT vs Simit P. Sheth, 356 ITR 451 have held that not the entire purchases but only the profit element embedded in these purchases was to be disallowed and accordingly held that 12.5% of the purchases will be reasonable as profit on margin against the bogus purchases. In view of this decision of Hon'ble Gujarat High Court (supra), the addition made by the AO is restricted to 12.5% of the total alleged bogus purchases amounting to Rs, 13.23.400/- which should sufficiently cover the profit element embedded in the impugned purchases. The appellant's ground of appeal is 'Partly Allowed'.”

3. It is clear from the order of CIT(A) that after controverting the findings of the AO and after applying judicial pronouncements in case of Simit P Sheth, he has upheld the addition in respect of profit element of 12.5%. Nothing was placed before me so as to persuade me to deviate from the findings of CIT(A), accordingly, I uphold the order of CIT(A).

Order pronounced in the open court on this 28/01/2020