DCIT CIR 3, THANE vs. T A GEORGE KUTTY, THANE

The grounds of appeal

Briefly stated, the facts of the case are that the Assessing Officer (AO) received information from the Sales Tax Department, Government of Maharashtra that the assessee was a beneficiary of the bogus purchases made from the following parties:

M/s Kalptaru Trading Co. 27330544567V 5,08,372/- 5. M/s Abhilasha Sales P. Ltd. 27450723466V 5,95,814/- The AO on the basis of the above information reopened the assessment for the impugned assessment year by issuing notice u/s 148. The assessee is engaged in the work out civil construction, infrastructure and labour work in the name and style M/s G.K. Construction. In response to a query raised by the AO, the assessee filed a reply which has been extracted at para 5.1 in the assessment order. The AO was not convinced with the same as the assessee failed to file copy of the transport bills and octroi bills for the purchases made from the above parties. The AO observed that barring the ledger account and cheque payments, no other documents such as octroi receipts, transportation details could be filed by the assessee before him. Also the assessee failed to file before the AO item-wise details regarding utilization of material and stock register in respect of consumption/utilization of materials. In view of the above, the AO made an addition of Rs.33,06,617/- towards bogus purchases u/s 69C of the Act. 4. Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). We find that the Ld. CIT(A) has held that the assessee is doing civil construction work with private parties and not with government, therefore, the resultant N.P. of 14.52% after disallowance of Rs.5,29,058/- out of hawala purchases as requested by the authorized representative of the assessee is in order and therefore, accepted. The Ld. CIT(A) thus sustained the disallowance to the extent of Rs.5,29,058/- out of hawala purchases and deleted the balance amount of Rs.27,77,559/- (Rs.33,06,617/- minus Rs.5,29,058/-).

Before us, the Ld. DR submits that the assessee failed to prove the genuineness of purchases from the above five parties. Therefore, it is stated by him that the Ld. CIT(A) should have confirmed the total disallowance of Rs.33,06,617/- instead of restricting it to Rs.5,29,058/-. The assessee did not appear before the Tribunal on the date of hearing fixed by the registry.

We have heard the rival submissions and perused the relevant materials on record. We find that the Ld. CIT(A) has done analysis of the purchases made from the hawala parties and payments made to them at page 15 of the appellate order dated 26.10.2016 passed by him. After such analysis he has made a disallowance of Rs.5,29,058/-. 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. That being the position, not the entire purchase price but only the profit element embedded in such purchases can be added to the income of the assessee. The Hon’ble High Court has 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).