VIJAY BALKRISHNA NAIK,AMBERNATH vs. DCIT CEN CIR 2, KALYAN

The ground no.1 is with respect to the re-opening of the assessment u/s 148 of the Act. At the time of hearing the ld.AR did not press this issue and hence dismissed as not pressed.

The issue in ground no.2 is in respect of making assessment u/s 144 of the Act, the same is also not pressed at the time of hearing, hence dismissed as not pressed.

The issue raised in grounds of appeal no.3 to 9 is against the confirmation by CIT(A) of addition to the extent of Rs.17,12,023/- being 25% of the total bogus purchases as against the total addition of Rs.68,48,091/- by the AO.

Facts of the case are the assessee filed return of income on 22.9.2009 declaring total income of Rs.19,83,790/-, which was processed under section 143(1) of the Act. The AO, after receiving the information from the Sales Tax Department, Government of Maharashtra that the assessee has indulged in availing entries of bogus purchases from various hawala dealers/operators, reopened the case of the assessee by issuing notice u/s 148 of the Act which was complied with by the assessee by letter dated 13.5.2013 requesting the AO to treat return filed on 22.9.2009 as the return filed in response to the notice u/s 148 of the Act. The assessee also filed objections to the re-assessment proceedings. According to the AO the assessee had made bogus purchases from 11 parties to the extent of Rs.68,48,091/- as per details at page 2 of the assessment order. Accordingly the assessee was asked to prove the genuineness of the said purchases by filing the proof of purchases, receipt of materials, payments and confirmations etc. Besides, the AO issued notice under section 133(6) of the Act to the 9 parties which were returned unserved. Thereafter , the AO issued show cause notice to the assessee calling upon him to show cause as to why these bogus purchases should not be added to the total income of the Assessee on account of being non genuine. The assessee vide letter dated 25.9.2011 filed reply without any supporting documents as called for by the AO. The AO disposed of the objections of the assessee filed through the letter dated 13.5.2013 and thereafter disallowed the amount of bogus purchases on the ground that the evidence filed by the assessee were not reliable as they were not bearing lorry numbers, motor number, delivery challan and parties were not traceable by framing the assessment u/s 144 r.w.s.147 of the Act. Aggrieved by the order of AO, the assessee preferred an appeal before the ld. CIT(A), who after considering the contention of the assessee partly allowed the appeal by sustaining the disallowance to the extent of Rs.17,12,013/- being 25% of total disallowance Rs.68,48,091/- by observing that the assessee was not maintaining any stock register or stock tally and no evidences of transportation of material were available giving detailed finding in para 7 of the appellate order.

We have carefully considered the contentions of the rival parties and perused the material placed before us including the orders of authorities below. We find that in this case, the assessee has availed hawala accommodation entries of bogus purchases from 11 parties to the tune of Rs.68,48,091/-. In the assessment proceedings, the assessee could not prove the genuineness of the purchases before the AO who made total disallowance/addition of the alleged bogus purchases. The notices issued u/s 133(6) of the Act to the hawala parties were returned unserved from the 9 parties and in respect of remaining two parties the notices were served but no replies were received. Accordingly the AO disallowed the entire amount of hawala purchases of Rs. 68,48,091/-. The ld. CIT(A) partly sustained the addition to the extent of Rs. 17,12,013/- being 25% of the said hawala purchases by observing that the assessee might have made savings by purchasing of materials from gray markets thereby making savings of VAT and other incidental taxes. During the course of hearing before us, the ld.AR also submitted that the assessee even paid VAT and other charges on the said purchases to the Sales Tax Department of Government of Maharashtra when the hawala operators could not be traced. Therefore, the ld.AR prayed that the rate of addition made by the ld.CIT(A) to the tune of 25% of purchase was very high and unreasonable. In the present case, we find that the sales were not doubted by the AO and the facts that the VAT was paid by the purchaser which was to be paid by the suppliers , the GP adopted by the ld.CIT(A) is very much on the higher side. In the facts and circumstances of the case, we deem it fit and proper if the addition of bogus purchases would be restricted to 8% instead of 25% as made by the FAA. Accordingly, we direct the AO to restrict the addition to the extent of 8% of the total bogus purchases. In the result, the appeal of the assessee stands partly allowed. 7. The facts of this case are identically same as decided by us for the assessment year 2009-10 wherein we have directed the AO to make addition to the extent of 8% of the bogus purchases. By applying the same analogy to this appeal as well, direct the AO to follow the decision as has been taken by us in above appeal for the assessment year 2009-10. In the result, the appeal is partly allowed.