ITO WD 2(1), MUMBAI vs. ACCORD ASSOCIATES, ULHASNAGAR

M/s. Accord Associates purchases in other words the Ld.CIT(A) sustained the addition to the extent of 15% of the purchases made.

Briefly stated facts are that the assessment of the assessee was reopened u/s 147 and re-assessment was completed on 27/03/2015 determining the income of the assessee at ₹.1,25,94,550/- While computing the income the Assessing Officer treated ₹.49,59,903/- as bogus purchases for the reason that the purchases made by the assessee from some of the dealers referred to in Page No. 2 of the Assessment Order are non-genuine. The dealers are providing only accommodation entries as deposed by them before Sale Tax Department, Investigation Authorities and the notices issued to the dealers by the Assessing Officer were returned unserved and one of the dealers stated that they have no dealings with the assessee company, for these reasons Assessing Officer concluded that the purchases made by the assessee are non-genuine and entire purchases were treated as bogus purchases.

On appeal the Ld.CIT(A) restricted the addition to 15% of the bogus purchases keeping in view the net profit already shown by the assessee for the Assessment Years 2008-09 to 2011-12.

We have heard the rival submissions, perused the orders of the authorities below. The Ld.CIT(A) restricted the addition to 15% observing as under:- (I) I have carefully considered the submissions of the appellant, the observations of the AO in the assessment order, case laws relied by the appellant, the facts of the case, and therefore, I proceed to decide the appeal of the appellant. (II) From the above discussion, it is seen that the appellant did not produce the Hawala dealers before the Assessing Officer for cross verification. The appellant has booked the aforesaid purchases in its books of accounts as expenses, therefore, the onus to prove the genuineness and correctness of the purchase transactions lies with the appellant by producing the parties, but failed to do so. The statement or affidavit filed by the Hawala dealers before the Sales Tax Department has evidentiary value, which cannot be ignored. If the purchases were genuine in Toto, the appellant could have filed counter affidavit and should not have paid the VAT on behalf of the Hawala dealers/unverifiable dealers, but failed to do so. (III) There are various reasons as to why the Hawala dealers were absconding and also not appeared before the Assessing Officer for cross examination during assessment proceedings, whereas in other purchases no such anomaly have been found by the Assessing Officer. At least, the appellant could have produced copy of return filed along with P & L a/c and B/S of Hawala dealer before Assessing Officer, but failed to do so. (IV) From the above discussion, it can be concluded that, it is case where the goods were received from the parties other M/s. Accord Associates than the persons who had issued the bills of such goods. Though the purchases were shown to have been made by making payment to Hawala dealers but goods must have come from grey market, therefore, under such circumstances, the chances of purchase cost being inflated could not be ruled out. Therefore, in principle the judgment of Hon'ble SC is relied upon i.e. in the case of Lachminarayan Madan Lal vs. CIT 86 ITR 439(SC), wherein held that even if there is an agreement between assessee and agents for payment, that does not bind Income tax officer to allow the payment was made exclusively and wholly for the purposes of the business. (V) The AR has given the GP ratio for A.Ys. 2008-09, 2009- 10, 2010-11 and 2011-12 @ 15.46%, 17.25%1 15.16% and 16.49% respectively. The Net Profit shown by the appellant is 8.08%. However, the appellant could not furnish the delivery of materials at the construction site and no day to day stock register is maintained. The case laws relied upon by the appellant are also not similar to the facts of the appellant. At page 15 of the paper book, the AR of the appellant has filed details of consumption of the raw materials utilized in the construction activity and at page no. 16 details of purchase of raw material i.e. cement. However, on the purchases there were corresponding sales and the payments were made by account payee cheques, therefore, the disallowance of entire purchases made from the so- called hawala dealers is not justified. (VI) Considering the totality of the facts of the case and also various courts have up held the disallowance on such purchases from 12.5 % to 25% therefore, I am of the considered opinion to disallow 15% as inflated purchases on the total purchases made from unverifiable parties.

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.