DHARENDRA BABULAL MEHTA, MUMBAI vs. INCOME TAX OFFICER - WARD 4(1), MUMBAI

When the appeal was called for hearing, none was present on behalf of the assessee. It is seen from record, notice of hearing issued to the assessee per registered post in the address mentioned in Col. No.10 of Form no.36, has returned unserved with the postal remark “left”. Therefore, I proceed to dispose off the appeal ex–parte qua the assessee after hearing the learned Departmental Representative.

The issue in the present appeal relates to the addition of ` 19,61,061 on account of non–genuine purchases.

Brief facts are, the assessee an individual filed his return of income on 29th September 2011, declaring total income of ` 2,91,840. The return of income was processed under section 143(1) of the Income Tax Act, 1961 (for short “the Act”). Subsequently, on the basis of information received from the Sales Tax Department, Government of Maharashtra, that five parties from whom the assessee has shown purchases of ` 19,61,061 are hawala operators providing accommodation entries, the Assessing Officer re–opened the assessment under section 147 of the Act. In course of the assessment proceedings, the Assessing Officer called upon the assessee to prove the genuineness of purchases made from the concerned parties by producing the parties physically and furnishing confirmation, delivery challan, etc. However, as observed by the Assessing Officer, the assessee failed to produced the necessary evidence even the notices issued under section 133(6) of the Act to the concerned parties returned unserved. Since, in spite of several opportunities being given to the assessee to prove the purchases, he failed to do so, the Assessing Officer proceeded to complete the assessment under section 144 of the Act on the basis of material available on record. Thus, ultimately he concluded that purchases of ` 19,61,061, is non–genuine

I have heard the learned Departmental Representative and perused the material on record. As regards the issue relating to validity of proceeding initiated under section 147 of the Act, I find that on the basis of specific information received from external sources that certain purchases made by the assessee are not genuine, the Assessing Officer has re–opened the assessment under section 147 of the Act. Therefore, the Assessing Officer had tangible material to form the belief regarding escapement of income. Moreover, in course of the assessment proceedings, the Assessing Officer has separately dealt with the objection filed by the assessee and provided and communicated to the assessee all adverse materials in his possession. Thus, it cannot be said that the initiation of proceedings under section 147 of the Act is invalid. As regards the merits of the addition made by the Assessing Officer and sustained by the learned Commissioner (Appeals), it needs to be observed that the assessee in spite of sufficient opportunity being granted to him was unable to prove the genuineness of purchase through proper documentary evidences. Neither the assessee was able to produce even a single party before the Assessing Officer nor could he furnish confirmation from the 4 Dharendra Babulal Mehta concerned parties. No evidence was produced by him to prove the delivery of goods. In these circumstances, it has to be concluded that the assessee has failed to prove the genuineness of purchases. However, it is evident, the Assessing Officer has not disputed the sales effected by the assessee, meaning thereby, in the absence of purchases made assessee could not have effected the sales. Therefore, it has to be presumed that the assessee has purchased the goods from third parties other than the declared source thereby avoiding payment of VAT/ other tax. Therefore, in these circumstances the profit element embedded in such purchases has to be taxed to take care of the revenue leakage. Therefore, on overall consideration of facts and material on record, I am of the view that addition @ 12.5% of the non–genuine purchases of ` 19,61,061 needs to be sustained. The Assessing Officer is directed to compute the income of the assessee accordingly. Grounds raised are partly allowed.

In the result, assessee’s appeal is partly allowed. Order pronounced in the open Court on 19.09.2018