ITO 32(1)(3), MUMBAI vs. BALWANT A. SHAH, MUMBAI

At the time of hearing one Mr.Narendra N.Vyas requested for adjournment stating that the assessee is out of station. Since there is no (A.Y: 2011-12) Balwant A.Shah authorization or power of attorney from assessee to represent before this Tribunal we reject the request for adjournment and proceed to dispose of this appeal on hearing the Ld.DR.

Ld. DR submitted that the Assessing Officer while completing the assessment made addition u/s. 69C towards bogus purchases at ₹.77,94,479/- for the reason that some of the dealers from whom the assessee made purchases were providing only accommodation bills as found by the Maharashtra Sales Tax Authorities in their investigations and the list of dealers were mentioned in the public domain on the website of the Sales Tax Department. Assessee was asked to prove the genuineness of the purchases. The assessee submitted its reply which is also extracted by the Assessing Officer in the order. It was contended by the assessee that purchases made from the parties are supported by the purchase bills issued by them including the collection of VAT having address and VAT/CST TIN Numbers, Assessee after making purchases, sales have been effected and accounted for. It was contended that there cannot be any sales without purchases and purchases have been duly reflected in the sales tax returns filed by the assessee, more than 90% of payments for the purchases to the parties were made by account pay cheques. Therefore, it was contended by the assessee that the (A.Y: 2011-12) Balwant A.Shah purchases made from the above parties are genuine purchases and the purchases should not be treated as bogus purchases.

Ld. DR submitted that the Assessing Officer not convinced with the reply submitted by the assessee and since parties were not produced by the assessee nor they have responded to the notices issued u/s. 133(6) the Assessing Officer worked out the peak credit at ₹.77,94,479/- and treated as income u/s 69C of the Act. Ld. DR submitted that the assessee preferred appeal before the Ld.CIT(A) and the Ld.CIT(A) considering the submissions of the assessee and also the findings of the Assessing Officer and relying on the decisions of various High Courts computed the profit element on such purchases of ₹.96,26,713/- @13.28% being average Gross Profit rate declared by the assessee and restricted the addition to ₹.12,78,427/-. Ld. DR vehemently supported the orders of the Assessing Officer.

We have heard the Ld. DR perused the orders of the authorities below. Assessee is a trader in building materials made purchases from various dealers. The Assessing Officer based on the information from the Sales Tax Department website that certain dealers reflected in the website are providing only accommodation entries without supply of goods came to the conclusion that assessee made only bogus purchases from these purchases he required the assessee to prove the genuineness of the (A.Y: 2011-12) Balwant A.Shah purchases. Assessee submitted that purchases made from the parties are supported by the purchases bills issued by them including the collection of VAT having address and VAT/CST TIN Numbers, Assessee after making purchases, sales have been effected and accounted for. It was contended that there cannot be any sales without purchases and purchases have been duly reflected in the sales tax returns filed by the assessee, more than 90% of payments for the purchases to the parties were made by account pay cheques. Therefore, it was contended by the assessee that the purchases made from the above parties are genuine purchases and the purchases should not be treated as bogus purchases.

The Ld.CIT(A) considering the submissions and the findings of the Assessing Officer concluded that only the profit element embedded in such purchases should be added as income of the assessee but not the entire purchases and the Ld.CIT(A) estimated the Gross Profit rate on such Purchases at 13.28% which is the Gross Profit rate declared by the assessee, this view of the Ld.CIT(A) is correct.

The Hon'ble Gujarat High Court in the case of Bholanath Polyfab Pvt. Ltd [355 ITR 290] held that when the assessee made purchases and sold the finished goods as a natural corollary not the entire amount covered under such purchases would be subject to tax but only the profit element embedded therein. Similar view has been taken by the Hon'ble

In the result, Revenue’s appeal is dismissed.