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Income Tax Appellate Tribunal, MUMBAI BENCH “I”, MUMBAI
Before: SHRI C.N. PRASAD & SHRI RAJESH KUMAR
Per Rajesh Kumar, Accountant Member:
The present appeal has been preferred by the assessee against the order dated 19.03.2018 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2009-10.
The only issue raised in various grounds of appeal is against the confirmation of addition of Rs.11,41,661/- by Ld. CIT(A) thereby upholding the order of AO confirming the addition made on account of bogus purchases.
2 Mrs. Mumtaz Ali Nasruddin Kapoor 3. The facts in brief are that the case of the assessee was reopened by issue of notice dated 26.03.2014 after receiving information from the DGIT (Inv.), Mumbai who in turn got information from Sales Tax Department, Government of Maharashtra that assessee is a beneficiary of accommodation entries to the tune of Rs.11,41,661/- from five parties as stated in para 3 of the assessment order. Thereafter, the assessee vide letter dated 05.05.2014 submitted that the return filed originally may kindly be treated as return filed in response to notice under section 148 of the Act. The reasons recorded u/s 148(2) of the Act forming a belief on the issue of reopening was also supplied to the assessee. During the course of assessment proceedings, the assessee supplied the information as desired by the AO in the form of purchase invoice, bank statements evidencing the payment by account payee cheques etc. However, the notice issued under section 133(6) by the AO in order to verify all these parties were returned unserved. Finally, the AO not being satisfied with the explanation of the assessee came to the conclusion that the assessee has taken accommodation entries from the hawala parties as are brought out by the Sales Tax Department as stated in para 3 of the assessment order and added the entire purchases to the tune of Rs.11,41,661/- by framing the assessment under section 143(3) r.w.s. 147 of the Act vide order dated 25.03.2015.
The Ld. CIT(A) also affirmed the addition as made by the AO by observing that the assessee is a beneficiary of hawala entry operator and the necessary verification by the AO could not be carried out due to non service of notices under section 3 Mrs. Mumtaz Ali Nasruddin Kapoor 133(6) of the Act as the parties were not available at addresses supplied by the assessee. The Ld. CIT(A) further observed that it is not enough that copies of purchase bills and bank statements to substantiate the said purchases and thus the assessee has not discharged the onus cast upon him to prove the genuineness of the purchases. Further, the assessee has also not maintained the stock register. Finally, the addition of Rs.11,41,661/- was affirmed on account of non genuine purchases.
We have heard the rival submissions of both the parties and perused the material on record. The undisputed facts are that the assessee is a beneficiary of hawala entries and could not produce the necessary evidences as required by the AO for the purpose of carrying out the verification as to genuineness of the said purchases. Though the assessee produced the purchase bills, invoices and copies of bank statement but in absence of any stock register by the assessee, the verification could not be carried out. The Ld. CIT(A) affirmed the order of AO treating the entire purchases as non genuine. Normally in the business of hawala purchases the modus operandi of the beneficiary is that the accommodation bills are obtained from the hawala operator whereas the material is procured from the grey market and thus the assessee makes savings of VAT and other incidental charges thereon. In such a scenario the co- ordinate benches of the Tribunal have taken a consistent view that entire purchases can not be added to the income of the assessee and it is only the profit element embedded in the said alleged bogus purchases which has to be brought to tax. During the year the assessee has shown a gross profit of 14.93% vis-à- vis the GP in the preceding year of 10.34%. Therefore, we are of 4 Mrs. Mumtaz Ali Nasruddin Kapoor the opinion that adding 100% purchases to the income of the assessee is not justified and has to be deleted. However, at the same time, we are of the view that some reasonable profit has to be added to the income of the assessee. In view of the decisions of the co-ordinate benches of the Tribunal, we are of the view that it would be reasonable if these purchases are brought to tax @ 12.5%. Accordingly, we set aside the order of Ld. CIT(A) and direct the AO to add 12.5% of the purchase instead of 100%.
In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open court on 25.09.2018.