ITO 19(2)(5), MUMBAI vs. PANKHIDEVI N DOSHI, MUMBAI

The present appeal filed by the revenue is directed against the order passed by the CIT(A)-29, Mumbai, dated 20.01.2017, which in itself arises from the assessment order passed by the A.O u/s. 143(3) r.w.s.147 of the Income tax Act, 1961, (for short ‘Act’), dated P a g e | ITO Vs. Pankhi Devi N. Doshi 22.02.2016. The revenue assailing the order of the CIT(A) had raised the following grounds of appeal before us:-

Briefly stated, the facts of the case are that the assessee who is engaged in the business of trading in ferrous and non-ferrous metals had filed her return of income for A.Y 2011-12 on 29.01.2011, declaring total income of Rs.4,45,245/-. The A.O was in receipt of information from the DGIT(Inv.), Mumbai, therein intimating that as per the information received from the Sales Tax Department, Government of Maharashtra, it emerged that the assessee had made bogus purchases from the following parties during the year under consideration:

That during the course of the assessment proceedings the A.O called upon the assessee to submit books of accounts, stock register, details of sales vis-a-vis purchase details, however, the assessee though filed part information but failed to produce the account books and the stock register. The A.O observed that a perusal of the purchase and sales details produced by the assessee revealed that the same could not be matched. It was further observed by the A.O that despite the fact that the assessee had total turnover of 3.02 crore, but however no expenditure was booked under the head transportation charges and freight charges. The assessee further failed to produce the delivery challans, lorry receipts, transportation details etc. in order to support the genuineness of the purchase transactions under consideration. That in the backdrop of the aforesaid facts the A.O issued a notice u/s. 133(6) of the Act to the aforementioned parties, however, all of the said notices were returned back unserved. The A.O again called upon the assessee to substantiate the genuineness and veracity of the purchase transactions by placing on record supporting documents, however, the assessee except for placing on record the copy of the ledger accounts and stressing on the fact that the payments towards the purchase consideration were made to the aforementioned parties vide cheques, failed to produce any other supporting documentary evidence, viz. delivery challans, lorry receipts, transportation details etc. The A.O in the backdrop of the aforesaid facts concluded that the assessee had failed to discharge the onus as stood cast upon her in respect of the genuineness and veracity of the purchase transactions, and thus concluded that the assessee had merely obtained accommodation bills from the P a g e | ITO Vs. Pankhi Devi N. Doshi aforementioned parties and no genuine purchase of goods was made from them. The A.O thus rejected the books of account of the assessee u/s. 145(3). It was thus observed by the A.O that the assessee who had made the purchases from the open/grey market, had thereafter only with the purpose of routing the said transactions through its books of accounts, obtained accommodation bills from the aforementioned parties. The A.O thus after rejecting the claim of the assessee that it had made genuine purchases from the aforementioned parties, therein concluded that though it remained as a matter of fact that the assessee had not purchased the goods from the aforementioned parties, but the goods under consideration had in fact entered the assessee’s regular business premises. The A.O thus being the view that as the assessee had failed to give any evidence or cogent explanation as to how the goods under consideration which had not been purchased from the aforementioned parties, had still came in his possession, thus concluded that the assessee had incurred expenditure on such purchases, which he however had failed to fully explain with documentary evidence. The A.O thus on the basis of his aforesaid conviction made an addition of the entire amount of the bogus purchase of Rs.61,56,710/- in the hands of the assessee.

The assessee being aggrieved with the order passed by the A.O carried the matter in appeal before the CIT(A). The CIT(A) after deliberating on the contentions of the assessee in the backdrop of the facts of the case, therein concluded that it remained as a matter of fact that the assessee had failed to substantiate the genuineness and veracity of the purchases transactions which were claimed by her to have been made from the aforementioned parties, which were categorized by the Sales Tax Department, Government of Maharashtra as hawala parties. The CIT(A) however observed that though the P a g e | ITO Vs. Pankhi Devi N. Doshi assessee had failed to prove the genuineness and veracity of the purchase transactions claimed to have been made from the aforementioned parties, however, observed that as the corresponding sales had not been doubted by the A.O, therefore, it could safely be concluded that the assessee after making purchases of the goods under consideration from the open/grey market, had taken bogus bills from the aforesaid hawala parties. The CIT(A) thus in the backdrop of his aforesaid observations concluded that now when the corresponding sales of the goods under consideration were not doubted, therefore, the addition in the hands of the assessee was liable to be restricted to the amount of profit margin which the assessee had generated from making the purchase from the open/grey market. The CIT(A) thus on the basis of his aforesaid view relied on the judgment of the Hon’ble High Court of Gujarat in the case of CIT Vs. Simit P. Sheth (2013) 356 ITR 451(Guj) and estimated the profit margin at 12.5% of the aggregate value of the bogus purchases made by the assessee from the aforementioned parties.

The revenue being aggrieved with the order of the CIT(A) had carried the matter in appeal before us. That despite being put to notice as regards the date of hearing of the appeal, the assessee respondent had failed to make an appearance before us. We thus being left with no other alternative proceed with and dispose of this appeal as per Rule 25 after hearing the appellant revenue. The ld. Departmental Representative (for short ‘D.R’) during the course of hearing of the appeal relied on the order passed by the A.O and averred that in the backdrop of the facts involved in the case, the A.O had rightly made an addition of the entire amount of bogus purchases in the hands of the assessee. It was submitted by the ld. D.R that the CIT(A) had erred in restricting the addition to 12.5% of the aggregate P a g e | ITO Vs. Pankhi Devi N. Doshi value of bogus purchase claimed by the assessee to have been made from the aforementioned parties. It was thus submitted by the ld. D.R that the order passed by the CIT(A) may be set aside and that of the A.O be restored.