LOTUS CONSTRUCTION,MUMBAI vs. ACIT 15(3), MUMBAI

The issue raised in this appeal is against confirmation of `3,20,060/- being 8% of alleged bogus purchases as against 100% addition of bogus purchases made by the AO of `40,00,753/-.

The assessee is in the business of builder and developer. During the course of assessment proceedings, the assessee filed list of parties from whom purchases were made. Thereafter the AO issued notice under Section 133(6) of Income Tax Act, 1961 (hereinafter “the Act”) to the said parties. However, the notice issue to M/s. Global Trade Impex was returned unserved. Subsequently the AO noticed that the name of the said party was appearing in the list of hawala dealers as brought out by the M/s. Lotus Construction Sales Tax Department, Govt of Maharashtra. The AO confronted the said facts to the assessee which was replied by the assessee vide letter dated 18.03.2014 by filing detailed submission. However, the reply of the assessee did not find favour with the AO and he added the entire amount of purchases from the said party to the income of the assessee by treating the purchases as bogus and non-genuine. In the appellate proceedings the learned CIT(A) partly allowed the appeal of the assessee by sustaining the addition equal to 8% of the total bogus purchase which works out to `3,20,060/- by relying on the decision of the Hon'ble Gujarat High Court in the case of CIT vs. Simit P. Sheth 38 taxmann.com 385 wherein the Hon'ble High Court has held that where the sale is accepted by the AO then the entire purchases cannot be added to the income of the assessee. However, the assessee still aggrieved by the order of the CIT(A) preferred an appeal before the Tribunal.

We heard the rival submissions and perused the material on record. The undisputed facts are that the assessee has availed various bogus purchase bills to the tune of `40,00,753/- from M/s. Global Trade Impex, which is a party appearing in the list of havala dealers by the Sales Tax Department, Govt of Maharashtra. The AO disallowed 100% of said purchases which is reduced to 8% by the CIT(A) on the ground that the sales were accepted by the AO and therefore only percentage addition can be made depending upon the G.P. ratio declared by the assessee. The practice normally followed in such type of cases where bills are taken from hawala dealers , the assessee purchases goods from grey market thereby making some savings in the form of VAT and other levies. The Coordinate Benches of the Tribunal have taken a view that some percentage addition can be made in order to bring to tax the savings that the assessee might have made by purchasing the goods from grey market. In the present case the CIT(A) has taken a very reasoned view of the matter by directing the AO to assess the income at 8% of the bogus purchases. We do not find any infirmity in the order of the CIT(A) which is speaking and reasoned one and therefore we uphold the same.