PIYUSH MAHENDRA DAND,MUMBAI vs. ITO WD 29(2)(5), MUMBAI

The assessee is a trader in chemicals. Consequent to the information received from the Sales Tax Department that certain parties are issuing only accommodation bills without actually supplying the material (hawala dealers), the Revenue collected the details of such dealers. It was noticed that the assessee herein has purchased goods aggregating to ` 1.54 crores from such hawala dealers. Hence, the Assessing Officer treated the same as bogus purchases and accordingly reopened the assessment u/s. 147 of the Act. During the course of assessment proceedings, the Assessing Officer issued notices u/s. 133(6) of the Act to the suppliers, but all of them were returned back by the postal department with the noting “left and not known”. The Assessing Officer asked the assessee to prove the genuineness of the 2 Shri Piyush Mahendra Dand purchases but the assessee failed to do so. The Assessing Officer took the view that the assessee would have purchased the goods from the grey market at a lower rate and accordingly estimated the profit that would have realised on those transactions at 12.5%. Accordingly, the Assessing Officer assessed 12.5% of the value of bogus purchases, which worked out to ` 19,35,635/-. The learned CIT(A) also confirmed the same and hence the assessee has filed this appeal challenging the order passed by the learned CIT(A).

Learned AR submitted that the assessee has reconciled the purchases and sales and it has also maintained the stock register to prove the receipt and dispatch of material. Accordingly, he submitted that the assessee has not made any profit as alleged by the Assessing Officer. He submitted that the assessee has been declaring gross profit at an average rate of 4.50% consistently over the years. Accordingly, he submitted that the learned CIT(A) was not justified in confirming the addition made at 12.5% of value of purchases. He further submitted that the Coordinate Bench of the Tribunal has considered identical issue in the case of Steel Line (India) (ITA No. 1321/Mum/2016) and the Tribunal has confirmed the addition to the extent of 2% of the value of purchase.

On the contrary, learned Departmental Representative placed reliance on the order passed by the learned CIT(A).

I heard the rival contention and perused the record. Since the assessee has maintained stock register and since the Assessing Officer has accepted the sales, he has estimated the profit that would have been made on the value of alleged bogus purchases. The case of the Assessing Officer is that the assessee has sourced the materials from the grey market and obtained accommodation bills from the hawala dealers in order to account for those purchases. Accordingly, the Assessing Officer has taken the view that the assessee would have purchased the goods at a rate lower than that shown in the accommodation bills.

I notice that the VAT rate applicable on the purchases made by the assessee is 4%. I also notice that the assessee had declared gross profit rate at 5.30% in the immediately preceding year and the G.P rate has come down to 4.35% during the year under consideration. By considering both these factors, I am of the view that the G.P rate of 12.50% estimated by the AO appears to be on the higher side. Accordingly I am of the view that the profit earned on the alleged bogus purchases may be estimated at 8%. The Ld A.R placed reliance on the decision rendered by the co-ordinate bench in order to contend that the Tribunal has restricted the addition to 2%. In my view, the issue would depend upon the facts of each case and hence the decision rendered in one case cannot be taken as precedence for another case. Accordingly I modify the order passed by Ld CIT(A) and direct the AO to sustain the addition to the extent of 8% of the value of bogus purchases.

In the result, the appeal filed by the assessee is partly allowed. Order has been pronounced in the Court on 12.9.2017.