PRAKASH R BUDHRANI,MUMBAI vs. INCOME TAX OFFICER-2(3), KALYAN

This is an appeal filed by the assessee against the order of CIT(A)- 3, Mumbai dated 17/08/2017 for A.Y.2009-10 in the matter of order passed u/s.143(3) r.w.s. 147 of the I.T Act 1961.

Grievance of assessee relates to reopening of assessment as well as merit of the addition made in respect of bogus purchases to the extent of 25%.

Rival contentions have been heard and record perused.

Facts in brief are that the assessee is a cable operator. The case was reopened on the basis of information received from the Sales Tax Mr. Prakash R. Budhrani Department that, parties namely M/s. O.K. Enterprises, M/s. Shubh Laxmi Sales Corporation, Navdeep Trading Co. and Dhruv Sales Corporation from whom the assessee had made purchases were involved in providing hawala entries and assessee was one of beneficiaries. Therefore, the AO added back the entire amount of the purchases made from the above parties as bogus purchases.

By the impugned order CIT(A) restricted the addition to the extent of 25% after having the following observation. “I have carefully considered the submissions of the appellant, the observations of the AO in the assessment order; case laws relied upon by the appellant and the facts of the case II. During appellate proceedings, the AR of the appellant submitted copies of ledger accounts, purchase bills of the suppliers, copy of bank statement of making the payments by account payee cheques. The AR of the appellant has submitted the corresponding sales on the purchases made from the aforesaid suppliers. The AR of the appellant has filed the comparative chart of GP ratio for the year under appeal @11.99% as compared to previous year @ 11.89%, which is more or less the same. The AR of the appellant placed reliance on the following cases:- a) ITAT Mumbai in the case of DCIT vs. Rajeev G. Kalathi wherein it has been held that information received from sale tax department have been good starting point for making further investigation and take it to logical end. But, he left the job at initial point itself. Suspension of highest degree cannot take place of evidence. b) Rajesh P. Soni vs. ACIT 100 TT3 892(Ahd) c) CIT vs. Nikunj Eximp Enterprises Pvt, Ltd. 372 ITR 619(Bom) d) Ganapatraj A. Sanghavi vs. ACIT e) ACIT vs. Mahesh K. Shah (ITAT) Mumbai wherein it has been held that purchases cannot be treated as bogus merely on the basis of statements and affidavits filed by the alleged vendors before the sales-tax department. The said statement cannot be relied upon without cross-examination of the parties. The fact that the parties did not respond to the notice u/s.133(6) is not relevant if the assessee filed copies of purchase invoices, extracts of stock ledger etc. .. On the purchases, there were corresponding sales and the payments were made by account payee cheques, therefore, the disallowance of entire purchases made from Hawala dealer is not justified. (iii) From the above discussion, it can be concluded that, it is case where the goods were received from the parties other than the persons Mr. Prakash R. Budhrani who had issued the bills of such goods. Though the purchases were shown to have been made by making payment to Hawala dealers but goods must have come from grey market, therefore, under such circumstances, the chances of purchase cost being inflated could not be ruled out. '' Considering the totality of the facts of the case, I am of the considered opinion to disallow 25% of unverifiable purchases made from unverifiable/Hawala parties. The disallowance @ 25% out of unverifiable purchases from unverifiable/Hawala dealer had been upheld in the aforesaid case: (1) Sanjay Oil Cake Industries Vs CIT (2008) 316 ITR 274 (Guj) (2) Vijay Proteins Ltd Vs ACIT 58 ITD 428 (Abd) (3) M/s Nand Kishore Meghraj Jewellers, Jaipur CO. No. 105/JP/09 arising out of by ITATJaipur (4) M/s. Trident Jewellers ITATJaipur ITA No. 552/JP/2013. In view of the above stated facts, the disallowance @ 25% of Rs.14,99,920/-works out to Rs.3,74,980/- and the same is added to the total income of the assessee. The appellant get relief of Rs.11,24,940/- i.e.(14,99,920 -3,74,980). Accordingly, the appeal of the appellant on this ground is partly allowed. "