BHAGARAM L. CHAUDHARY,PALGHAR vs. ITO WD 1, PALGHAR

I heard the parties and perused the record. The assessee is a dealer in electrical goods. 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

The AO issued notices u/s 133(6) of the Act to those parties, but they were returned back unserved by the postal authorities. The assessee was asked to produce those parties, but the assessee also failed to produce them. The assessee did not maintain stock register on the plea that it is dealing in numerous items. Hence the AO disallowed entire amount of purchases referred above in the respective years. The Ld CIT(A) also confirmed the same and hence the assessee has filed these appeals before the Tribunal.

The Ld A.R submitted that the assessee has declared G.P rate of around 7% in both the years. She further submitted that the assessee has furnished copies of all purchase bills and payment details. She further submitted that the assessee could not maintain stock register due to the fact that he was dealing in numerous items and it would be difficult to maintain day to day stock register for all items. She further submitted that the assessee has actually sold those goods and hence the G.P rate was declared at consistent level. She also submitted that the turnover of the assessee was more than one crore and the alleged bogus purchases form a small portion only. Accordingly she submitted that the Ld CIT(A) was not justified in confirming the entire amount of alleged bogus purchases.

The Ld D.R, on the contrary, 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.

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. Except availability of purchase bills, which the assessee contends as genuine, no other document/evidence was found to suspect the genuineness of purchases.

At the same time, an important fact that is required to be noted that the suppliers to the assessee could not be traced and the assessee also could not obtain confirmation letters from them and also could not produce them. Further, these suppliers have admitted that they have provided only accommodation bills without supplying materials.

The case of the assessee is that it is dealing in a number of items and hence he could not maintain stock register. By submitting that he has declared gross profit rate at a consistent figure of around 7%, the assessee has contended that the same would show that the assessee has actually sold the goods.

Having heard rival submissions, I am of the view that the assessee’s plea for deleting the entire addition cannot be accepted, since the assessee could not produce the supplier/could not furnish confirmation letters and further the assessee has failed to maintain stock register in order to prove the receipt and sale of materials. I notice that the assessee had declared G.P rate of 9.42%,

Hence, on a conspectus of the matter, I am of the view that it may not be justifiable to disallow entire amount of purchases. In my view, the issue before me could be resolved by making estimate of the profit that could have been made by the assessee. Accordingly I am of the view that this issue could be put to rest by estimating the profit from these alleged bogus purchases at 30% of the value of alleged bogus purchases. Accordingly I set aside the order passed by Ld CIT(A) on this issue in both the years under consideration and direct the AO to sustain the addition to the extent of 30% of the value of alleged bogus purchases.

In the result, both the appeals of the assessee are partly allowed. Order has been pronounced in the Court on 13.9.2017.