TEXURE CONCEPT,MUMBAI vs. DCIT 15(3), MUMBAI

The first issue in this appeal of assessee is against the order of CIT(A) confirming the disallowance of bogus purchases of Rs. 26,50,541/- and consequently directing enhancement of income by Rs. 13,252/- being 0.5% commission on alleged bogus purchases. These two inter connected issues were raised by assessee by way of following three grounds: -

We have heard the rival contentions and gone through the facts and circumstances of the case. Admittedly, the assessee has made purchase amounting to Rs. 26,50,541/- from the following parties: - Sl No Name of the party Amount of VAT TIN Sr. No. in the purchases Hawala list 1 Dev Enterprises 22,33,501/- 27450526556V 299 2. Shree Amaya 4,17,040/- 27240257545V 1221 Enterprises Total 26,50,541

During the assessment proceedings, the AO noticed that the assessee has made purchase from the above parties and accordingly, he issued notices under section 133(6) to various parties from whom goods were purchases. Out of these, the above stated two parties did not respond to the notices. Accordingly, AO directed the assessee to prove these purchases. The assessee produced name and address, copies of purchase bills, bank statements, payment by cheque, quantity purchases, consumed and sold. In view of the above information assessee Page 2 of 6 claimed that it has submitted every possible detail that can substantiate the purchase. The AO informed the assessee that these parties were listed as spacious dealers in the website of the Maharashtra State Sales Tax Department and these are hawala parties providing only accommodation bills. The assessee before AO stated that there is no reason for disbelieving the bills of purchase or at the best the shortfall in gross profit can be added on account of these purchase vis-à-vis sales made out of these purchase. The AO was not convinced because these purchases are made from hawala parties and accordingly, he disallowed the entire purchase of Rs. 26,50,541/- by observing in Para 18 as under: -

Aggrieved assessee preferred the appeal before CIT(A), who also confirming the action of the AO and also enhancing the assessment without any notice to the assessee, on account of 0.5% of commission on the bogus purchase. Aggrieved, now assessee is in second appeal before Tribunal.

We find from the facts of the case that the assessee has made purchase from these two parties who has been suspicious hawala dealers providing the accommodation bills only. No doubt the assessee has filed complete details i.e. name and address of the parties, copies of purchase bills, bank statements, demonstrating payments having been made by cheque, complete detail of quantity purchases, sold and consumed. It does not mean that the assessee has not made purchase particularly when the AO as well as CIT(A) admitted the sale of the items manufactured out of these raw-materials. The business of the assessee is that of manufacture of fertilizers, chemicals, paints, and application cum making of exterior texture paints. But in any case, the assessee might have made these purchases from grey market because these hawala parties clearly admitted to have provided only documentation and bogus bills. In term of the above, we are of the view that a reasonable profit rate can be applied and according to us the assessee has enclosed gross profit rate from AY 2007-08 to 2012-13 which varies from 12 to 18%. The profit rate for AY 2007-08 is 12%, for AY 2008-09 13%, for AY 2009-10 12%, for AY 2010-11 16%, for AY 2011- 12 18% and for AY 2012-13 it is 18%. In our view, the reasonable estimate of profit rate on account of having taken benefit by assessee of Sales Tax /VAT and other taxes the gross profit should be taken at 15% on the above bogus purchase. Accordingly, we direct the AO to disallow only 15% of gross profit and hence this issue of assessee’s appeal is partly allowed.

The next issue in this appeal of assessee is as regards to the claim of deduction disallowed by AO under section 80G of the Act amounting to Rs. 1,22,111/- and confirmed by CIT(A).

We have heard the rival contentions and gone through the facts and circumstances of the case, we find that the AO after seeking information from the party to whom donation is given i.e. Bharatvarshiya Digamber Jain Tirtha Kshetra Committee, who inform the AO vide letter dated 04-12-12 that one shri Shanti Lal Kasliwal has made donation and not the assessee. It is a fact that the assessee might have made payment but this receipt is issued in the name of another person. There is concurrent finding by the lower authorities qua this effect. In view of these facts, we are of the view that the deduction under section 80G for donation can be claimed only if donation is made by that person. Here the facts are altogether different. In view of these facts and circumstances we confirmed the disallowance and this issue of assessee’s appeal is dismissed.

The next issue in this appeal of assessee is against the order of CIT(A) disallowing the expenses at the rate of 10% amounting to Rs. 2,10,089/-. We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the AO has disallowed 10% on adhoc basis out of the following expenses.

The AO has disallowed on the basis that complete bills and vouchers are not available with the assessee. The CIT(A) also confirmed the action of the AO. In view of the above facts we are of the view that the AO as well as the CIT(A) has admitted the genuineness of this expenses, only same bills are not available for that reason, the AO estimated the disallowance and CIT(A) confirmed the same. We are of the view that the estimation should have been done at a reasonable rate and according to us, the 5% disallowance will meet the end of justice. Accordingly, we direct the AO to restrict the disallowance of 5% of the expenses instead of 10%. This issue of the assessee’s appeal is partly allowed.

In the result, the appeal of assessee is partly allowed.