ITO 31(1)(3), MUMBAI vs. BRAHMDEV DUDHNATH SHUKLA, MUMBAI

I heard the parties and perused the record. The assessee is a dealer in building materials like bricks, sand etc. Consequent to the information received from Sales tax department that certain parties (called hawala parties) are indulging in providing only accommodation bills without actually supplying the materials, the revenue examined those details. It was noticed that the assessee herein have purchased goods during the years under consideration from the parties listed as hawala parties. The aggregate amount of purchases made by the assessee from such dealers was Rs.9,99,680/- and Rs.36,35,803/- respectively during the years relevant for AY 2009-10 and 2010-11. Hence the AO reopened the assessments of both the years.

The AO issued notices u/s 133(6) of the Act to those parties, but they were returned back unserved by the postal authorities. However, since the assessee could not furnish details of transportation of goods and did not furnish stock records also, the AO disallowed entire amount of purchases referred above in the respective years. The Ld CIT(A), however, noticed that the assessee could correlate the purchases and sales. It was also submitted that the materials were directly transported to the customer site by his suppliers. Accordingly, by placing reliance on hosts of case law, the Ld CIT(A) took the view that the disallowance of entire amount of purchases was not justified. Accordingly he confirmed addition to the extent of gross profit embedded therein. Accordingly he confirmed addition to the extent of 8.35% and 7.82% of the value of purchases respectively in AY 2009-10 and 2010-11 by adopting the G.P rate declared by the assessee. The revenue is aggrieved by the decision rendered by Ld CIT(A) in both the years.

The Ld D.R placed reliance on the decision rendered by Hon’ble Supreme Court in the case of NK Proteins Ltd Vs. DCIT (SLP to CC No.769 of 2017 dated 16-01-2017) and submitted that the Hon’ble Supreme Court has confirmed disallowance of entire amount of bogus purchases. Accordingly he submitted that the Ld CIT(A) was not justified in sustaining addition partially by estimating profit thereon.

The Ld A.R submitted that the assessee has furnished copies of all purchase bills and payment details. He further submitted that the assessee has correlated purchases with sales and further the entire purchases have been sold to a single party. He submitted that the assessee could obtain confirmation letters from two of the suppliers also. However the AO rejected the said documents only for the reason that the details of transportation were not available. He submitted that the materials were directly transported from the suppliers site to the customer site and the bills contain lorry numbers also. Accordingly he submitted that the Ld CIT(A) should have deleted the entire addition, but sustained addition to the extent of G.P rate declared by the assessee. He submitted that the assessee has also accepted the decision of Ld CIT(A) in order to put this issue at rest.

I heard rival contentions and perused the record. I have gone through the facts available in the case of N.K.Proteins Ltd (supra) and notice that, in that case, the revenue conducted search in the hands of that assessee and found the blank signed cheque books and vouchers of number of concerns at its premises. This fact, in my view, shows that the assessee before the Hon’ble Supreme Court was operating all the accounts of the concerns, which factor established bogus nature of the purchases. In the instant case, the facts are totally different, i.e., the assessee purchased goods from third parties, who have been identified as hawala dealers by Sales tax department.

I notice that the assessee could obtain and submit confirmation letters from two of the three suppliers. The assessee has also demonstrated that the materials were transported from the site of supplier to the site of the customer directly. Hence the assessing officer was not correct in observing that the assessee has not proved the transportation. Since the assessee has correlated purchases with sales, in my view, the Ld CIT(A) was justified in holding that the profit element embedded in the said purchases alone should be taxed. The Ld CIT(A) has estimated the same at the same rate of G.P as declared by the assessee. Before me, the revenue could not furnish any material to show that the G.P rate adopted by the Ld CIT(A) was low. Under these set of facts, I affirm the orders passed by Ld CIT(A) in both the years.

In the result, both the appeals of the revenue are dismissed. Order has been pronounced in the Court on 20.9.2017.