ITO 27(2)(4), NAVI MUMBAI vs. NILESH S. MEHTA (HUF), MUMBAI

The sole issue raised by the revenue is against the deletion of addition to the tune of Rs. 1,86,68,739/- being 98.22% of the bogus purchases sustaining thereby sustaining of Rs.3,38,326/- just 1.78% on account of bogus purchase as against 100% disallowance made by the AO.

Facts of the case are the AO received the information from the DGIT(Inv), Sales Tax Department, Government of Maharashtra that the assessee has obtained accommodation entries for purchase through the parties declared as hawala operators by the Government of Maharashtra, Sales Tax Department. Accordingly, the case of the assessee was reopened by issuing notice u/s 147 r.w.s.148 of the Act dated 30.3.2014. Thereafter the statutory notices u/s 143(2) and 142(1) were issued and served upon the assessee. During the course of re-assessment proceedings, the assessee before the AO made declaration that he has purchased materials of Rs.2,31,12,904/- out of which the purchases to the tune of Rs.1,90,07,065/- were made from the following 13 parties: Name of the Party Amount (In Rs.) Balaji Trading 3,39,342 Siddhivinayak Trading 21,41,400 Deepali Enterprises 21,44,412 Manav Impex 9,90,220 Rekha Trading Co 20,06,019 Renuka Sales 20,22,377 Amar Enterprises 16,16,550 Sun Enterprises 16,15,713 M R Corporation 20,70,292 Grifton India Riddhi 12,63,078 Navdeep Trading 13,57,991 Gautam Traders 2,83,046 Mahavir Enterprises 11,56,625 Total 1,90,07,065 The names of the above parties figured in the Sales Tax Department’s list of suspicious dealers who have issued accommodation entries without actual delivery of the materials. The AO tried to verify the purchases by issuing notices u/s 133(6) to these parties but the same returned unserved. Accordingly, the assessee was issued show cause notice which payee cheques. The AO rejected the submissions of the assessee and worked out the disallowance at Rs. 75,58,057/- on the basis of peak purchases as per books of accounts produced by the assessee and accordingly added the same to the income of the assessee u/s 69C by framing assessment u/s 143(3) r.w.s.147 of the Act assessing the income at Rs.78,42,506/-. Aggrieved by the action of the AO, the assessee appealed before the FAA, who after considering the submissions and examining the records placed before him partly allowed the appeal of the assessee by observing and holding as under : “e. Considering the fact that in no. of judgments, it has been held that only the profit embedded in such purchases could be added to the appellant’s income considering the nature of business. I am of the considered opinion that gross profit rate, is to be considered to make addition on account of alleged bogus purchases from thirteen parties made by the assessee. For the year under consideration, the appellant has shown gross profit rate of 1.78% and total purchase from the above mention4ed parties which are considered to be bogus is Rs.1,90,07,065, the gross profit on the above transaction works out of Rs.3,38,326/- which is confirmed that needs to be added to the total income of the assessee on account of alleged bogus purchase. In view of the same, the balance addition of Rs.72,19,731/- is deleted. Hence this ground of appeal