SHREEKISHAN JOSHI,MUMBAI vs. JCIT 24(2), MUMBAI

ORDER

PER N.K. PRADHAN, AM

On the facts and circumstances of the case and in law, the authorities below have erred in confirming/retaining the addition to the extent of 30% amounting to Rs.6,07,933/- of the purchase value of so called purchases from genuine parties amounting to Rs.20,26,444/- u/s 69C of the I.T. Act and the reasons assigned by them were wholly wrong and not in accordance with the facts of the case and against the provisions of Income Tax Act and rules made there under.

3. During the course of assessment proceedings, the Assessing Officer (AO) received information from the Director General of Income Tax (Inv), Mumbai that the assessee had made purchases of Rs.20,26,444/- from following four hawala parties, who were engaged in the business of providing accommodation entries only. a. Asian Steel Rs.7,76,017/- b. Mehul Traders Rs.2,00,070/- c. Krishan Trading Associates Rs.4,50,052/- d. Ridhi Siddhi Corporation Rs.6,00,305/- Total Rs.20,26,444/- In order to verify the transactions, the AO issued notice u/s 133(6) to the above parties. In the case of two parties, the notices were returned back by the postal authorities as ‘unserved’. No reply was received from the other two parties, where the notices were served. The AO noted that the assessee failed to produce the above parties for verification. However, the assessee filed copies of the bills and ledger accounts of the above parties before the AO. The AO relied on the deposition made by the proprietors of the above parties that they had only issued tax invoices to the assessee and had not conducted any actual business. Thus the AO made an addition of Rs.20,26,444/- as unexplained expenditure u/s 69C of the Act.

4. Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A) having considered the facts and circumstances of the case held that the disallowance to the extent of 100% is not justified for the reason that it was not proved that the assessee had not purchased any material from any source and the entire cash received on aforesaid accommodation entries were realized by the assessee. Therefore, the Ld. CIT(A) sustained 30% of the disallowance made by the AO which comes to Rs.6,07,933/-.

5. Before us, the Ld. DR supports the order passed by the Ld. CIT(A).

6. We have heard the Ld. DR and perused the relevant materials on record. In the case of CIT vs. Simit P. Sheth (2013) 38 taxmann.com (Guj), the Hon’ble Gujarat High Court has held that where purchases were not bogus but were made from parties other than those mentioned in the books of account, not entire purchase price but only profit element embedded in such purchases can be added to income of the assessee. The Hon’ble High Court referred to a similar view taken in the case of CIT vs. Vijay M. Mistry Construction Ltd. [2013] 355 ITR 498 (Guj) and CIT vs. Bholanath Poly Fab (P) Ltd. [2013] 355 ITR 290 (Guj).