SHIVPRAKASH SHARMA,MUMBAI vs. ITO 25(1)(2), MUMBAI

The assessee is a dealer in plastic granules and powders. Consequent to the information received from the Sales Tax Department that certain dealers are indulging in providing accommodation bills without actually supplying materials and upon noticing that the assessee has purchased goods from such hawala dealers to the tune of Rs.85,19,628/-, the Assessing Officer reopened the assessments of the year under consideration by issuing notices u/s. 148 of the Act. In the reopened assessment, the Assessing Officer asked the assessee to furnish all relevant details to prove the genuineness of the purchases. The AO also issued notices u/s 133(6) of the Act to the suppliers, but all of them were returned back unserved. The assessee submitted purchase bills, payment details and reconciliation statement correlating purchases with sales. After considering the replies, the Assessing Officer held that the genuineness of 2 Shri Shivprakash Sharma purchases were not verifiable. Accordingly he rejected the books and also concluded that the assessee might have purchased goods from some other source. The AO followed the decision rendered by the Hon’ble Gujarat High Court in the case of Simit P Sheth (ITA No.553 of 2012) and also the decision rendered by Mumbai bench of ITAT in the case of Shri Madhukant B Gandhi (ITA No.1950/Mum/2009 dated 23.2.1010) and held that a portion of purchases should be disallowed as the assessee might have inflated the purchases. Accordingly, the AO disallowed 25% of the value of alleged bogus purchases, which worked out to Rs.21.29 lakhs. In the appellate proceedings, the learned CIT(A) confirmed the addition to the extent of 12.50% of the value of impugned purchases. Still aggrieved, the assessee has filed these appeals before the Tribunal.

Learned AR submitted that the assessee has furnished to the AO the details of purchases and details of sales made out of those purchases. He submitted that the assessee has furnished copies of invoices, delivery challans and payment details to prove the genuineness of purchases. He submitted that the assessee is declaring G.P @ 5% and N.P @ 2%. He submitted that the applicable VAT rate on the products is 4%. Accordingly, learned AR submitted that there is no justification for Ld CIT(A) in partially confirming the addition. The Ld A.R also submitted that the addition @ 12.50% is on the higher side.

Learned Departmental Representative, on the contrary, submitted that the AO as well as learned CIT(A) has given proper reasoning for confirming the addition and the Ld CIT(A) has already given substantial relief. Accordingly, he submitted that the order passed by Ld CIT(A) should be sustained.

I have heard the parties and perused the record. I noticed that the assessee has furnished copies of purchase bills and payment details. The assessee has also correlated purchases with sales. The assessee has, however, failed to furnish any proof to show that the materials were physically transported to the premises of the assessee. Since the assessee has reconciled

The Ld A.R submitted that the estimation of profit at 12.50% is on the higher side, since the VAT rate applicable to the items dealt with by the assessee is only 4%. Considering this fact and also the rate of G.P declared by the assessee and also considering the fact that the assessee should have sourced the material at lower rate, I am of the view that the addition may be sustained to the extent of 8% of the value of alleged bogus purchases. Accordingly I modify the orders of the learned CIT(A) on this issue in both the years under consideration and direct the Assessing Officer to sustain the addition in both the years to the extent of 8% of the value of alleged bogus purchases. I order accordingly.

In the result, the appeal filed by the assessee is partly allowed. Order has been pronounced in the Court on 21.9.2017.