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PER PAWAN SINGH, JUDICIAL MEMBER:
This appeal by assessee u/s 253 of the Income-Tax Act (“The Act”) is directed against the order of ld. CIT(A)-3, Thana dated 23.05.2016 for Assessment Year (AY) 2010-11. The assessee has raised the following grounds of appeal:
1. The ld. CIT(Appeals) ought to have deleted the entire addition of alleged bogus purchase of Rs. 61,75,442/-. He erred in confirming the disallowance of 25% of alleged bogus purchases of Rs. 61,75,442/-.
2. The ld. CIT(Appeals) ought to have deleted the entire ad hoc addition of expenses of Rs. 2,83,560/-. He erred in giving relief of 50% of the addition instead of giving full relief.
2. Brief facts of the case are that the assessee is a partnership firm, engaged in the business of manufacturing of export of leather goods, accessories, filed M/s Amity Leather International Saphale its return of income for relevant Assessment Year (AY) on 23.09.2010 declaring total income at Rs. 1,04,99,490/-. The assessment was completed under section 143(3) on 28.03.2013. The Assessing Officer (AO) while passing the assessment order, made the addition of Rs. 61,75,442/- on account of bogus purchases and further disallowed 25% of expenses of Rs. 11,34,246/-. The disallowance of expenses were worked out to Rs. 2,83,560/- i.e. 25% of Rs. 11,34,246/-. On appeal before the ld. CIT(A), both the addition/disallowance was confirmed. Further, aggrieved by the order of ld. CIT(A), the assessee has filed the present appeal before us.
3. None appeared on behalf of assessee when case was called for hearing.
After passing over and waiting for sufficient time when none appeared on behalf of assessee, we left no option except to hear the ld. Departmental Representative (DR) for the Revenue and to decide the appeal on the basis of material available on record. The notice for the hearing of the appeal for this date was sent through registered post on 12.10.2017. The ld. Departmental Representative (DR) for the Revenue supported the order of authorities below. It was argued that investigation wing of the Income-tax Department, Government of Maharashtra made the full-fledged enquiry about the hawala dealers. The hawala dealers were engaged in providing accommodation entries without the delivery of goods. During the relevant period, the assessee has made purchases from two parties. Name of both the parties were listed in the list of hawala dealers. The proprietor of both the 2 M/s Amity Leather International Saphale parties have given affidavit before the Sales-tax Department, Government of Maharashtra that they were not doing any genuine business activity, rather were engaged in providing the accommodation entries. For disallowance of expenses, the ld. DR for the Revenue argued that the assessee failed to substantiate with documentary evidence to prove the genuinity of expenses.
We have considered the submission of ld. DR for the Revenue and perused the material available on record. First Ground of appeal relates to disallowance on account of bogus purchases. We have seen that during the assessment proceeding, the AO noticed that the assessee has shown the purchases from M/s Shakti Trading Co. for Rs. 53,24,327/- and from M/s Samir Trading Co. for Rs. 8,51,115/-. The names of both the parties were listed in the list of hawala traders as the information available at the website of Sales –tax Department, Government of Maharashtra. The assessee was asked to prove the genuineness of the purchases and to produce the parties.
The assessee filed no reply or given any response to the queries raised by AO. The AO on the basis of information of Sales-tax Department and the information of investigation wing of Income-tax Department disallowed the aggregate of purchases from both the parties. On appeal before the ld. CIT(A), the disallowance was restricted to 25% of the purchases. The ld. CIT(A) sustained the addition @ 25% on the basis of decision in (i) Sanjay Oil Cake Industries Vs. CIT (2008) 316 ITR 274 (Guj) (ii) Vijay Proteins Ltd. Vs ACIT 58 ITD 428 (Abd) (iii) M/s Nand Kishore Meghraj Jewellers, 3 M/s Amity Leather International Saphale Jaipur Co. No. 105/JP/09 arising out of ITA No. 433/JP/2009 by ITAT Jaipur & (iv) M/s. Trident Jewellers ITAT Jaipur ITA No. 552/JP/2013.
We have seen that the AO while passing the assessment order relied upon the third party information and made the addition without bringing any incriminating evidence against the assessee. However, before the ld. CIT(A), the assessee has contended that there were corresponding sale against the purchase and payments were made through account payee cheque and the disallowance of entire purchase is not justified. We have noted that before the ld. CIT(A), the assessee furnished the details of Gross Profit ratio for AY 2009-10, AY 2010-11 & AY 2011-12 which are shown at 14.14, 14.24 & 16.72 respectively. We have considered the material available on record independently. We have noted that the assessee has furnished the Gross Profit for previous year, current year and subsequent year. The assessee has shown the Gross Profit for current year @ 14.24%.
The ld. CIT(A) sustained the addition @ 25% of the impugned/bogus purchases. The disallowance @ 25% of the bogus purchases is on hire side.
In our view, under the Income-tax Act, the Revenue is not entitled to tax the real income and not the entire transaction. Even otherwise, the transaction is not verifiable because of the certain reasons, the Revenue is entitled to tax the income component only. In order to fulfill the revenue leakage, the Revenue authority on the basis of fact of particular case may brought to tax only the profit attributable on such purchases. We are also of the opinion 4 M/s Amity Leather International Saphale that in such cases in order to fulfill the revenue leakage, the disallowance of reasonable percentage of bogus purchases would meet the end of justice.
Considering the fact that assessee has declared the Gross Profit of 14.24% during the year under consideration. We are of the view that disallowance of 12.5% of bogus purchases of Rs. 61,75,442/- would meet the end of justice.
Thus, the AO is directed accordingly. Hence, Ground No.1 the appeal is partly allowed. 6. Ground No.2 relates to addition on account of disallowance of expenses. We have noted that the assessee has claimed expenses consisting of:
Advertisement Rs. 38,597 Festival expense Rs. 21,908 Misc. expenses Rs. 2,27,945 Office Maintenance Rs. 1,41,200 Conveyance Rs. 1,54,165 Printing & Stationery Rs. 1,07,207 Total Rs.11,34,246 7. During the assessment, the assessee was asked to explain the nature of expenses. During the assessment, the assessee explained that due to peculiar nature of expenses, it is not possible for assessee to obtain bills. In a number of cases, the payments are made to very small businessmen who are unable to provide bill. The AO made the adhoc disallowance @ 25%. We have noted that the assessee has declared income of Rs. 1,04,99,490/-. The assessee claimed expenses consisting of Advertisement, Festival, Miscellaneous, Office Maintenance, Conveyance, Printing & Stationery and Visitor Expenses. The AO has not disputed the genuinenity of expenses.