SAI SARNAM ENGINEERS,MUMBAI vs. ITO 2(4) KALYAN, KALYAN

This appeal is filed by the assessee against the order of CIT(A) dated 04.01.2016 for the assessment year 2009 – 10.

Following grounds are raised in the appeal which read as under:-

The short facts of the case are as under. The assessee has filed the return declaring income of Rs.2,77,139/- and was filed on 24.09.2009. The assessee is in business of manufacturing of Engineering goods. The return was accepted u/s. 143(3) on 12.11.2010. Subsequently the information was received from Sales Tax Department, Maharashtra giving names and address and other details of certain persons who have provided entries for bogus purchase bills to a large number of tax payers. The persons who have provided the entries to various beneficiaries have filed the affidavit before the Sales Tax Department stating therein that they have merely provided entries to these beneficiaries and no goods as mentioned in the purchase bill issued by them were infact delivered by them to those beneficiaries. The name of the assessee appears in the list of persons who obtained the bogus purchase bills from the entry provider. The assessee has taken following purchase bills from the various parities which read as under:-

The Assessing Officer has given show cause notice and held that assessee was asked to prove the purchase from the seller to prove the genuineness of the purchase from the above Hawala dealers. However assessee failed to prove the same. Therefore Assessing officer has rejected the book result u/s 145 of the I.T. Act and disallowed the details of purchase from the above parties amount to Rs.26,38,470/-.

The Ld.DR submitted before us that the assessee was asked to produce the hawala dealers, the notice u/s .133(6) was returned back with the remark “unknown / unclaimed / refused”. Therefore whatever purchases made by the assessee is not genuine. Therefore when the assessee did not provide any information before the Assessing Officer the Assessing Officer was justified and the CIT(A) is not justified in deleting the addition and moreover the assessing the CIT(A) is wrongly applied to the decision of the Sanjay Oil Cake Industries 316 ITR 274(GUJ).

On the other hand Ld.AR Submitted that all the payments made to the suppliers by account pay cheque supporting by entries in Bank Statements of the assessee. It is also not proved that the assessee has received back this amount the assessee has made the sales. Therefore when purchased sales cannot be made, the assessee did not produce the hawala dealers before Assessing Officer for cross verification. The Ld.AR submitted that the above Hawala dealers have filed affidavit, moreover the Gross profit is about 18.26%. Therefore the CIT(A) is rightly disallowed 25% of the purchase. Ld. AR has submitted that CIT(A) has wrongly applied but in this case the Gross Profit additions should have been made. The Ld.AR submitted that Assessee has asked for the cross examination of the persons who have filed the affidavit but cross examination was not give. The Ld.AR relied upon the decision of Hon’ble Gujarat High Court as held that the only profit element should be added to the total income of the assessee. The Ld.AR submitted that assessee has received the goods other than

We have heard the rival contention of both the parities. Looking to the facts and circumstances of the case we find that in this case the CIT(A) has held that assessee has received the goods from the parties other than the persons who have issued the bills of such goods. Though the purchases were shown have been made by making payments to hawala dealers but the goods must have come from gray market. Therefore such circumstances changes of purchased costs being incurred cannot be ruled out. We have also gone through the order of the Assessing Officer wherein assessee has tried to demonstrate that assessee has made purchase from his suppliers who are registered by purchase bills and challans and the concerned bills were submitted with ITO. All the payments were made by the cross pay cheques. The Copy of the bank statement was submitted. Therefore it was proved beyond doubt that assessee has made purchase on material and assessee has also affected the sales. It is not the case of the Assessing Officer that assessee has made payment of bogus purchase and the cheque amount was received back by the assessee. The only dispute in this case that assessee could not produce the so called hawala dealers who have given the bill. Therefore we are of the view that as per the judgment of various High Court’s and the Tribunal we are of the view that in such bogus purchases what can be added is only the profit element is to be added. We find that in the case of Bholanath Poly Fab Pvt. Ltd. 355 ITR 290 (Guj) wherein the facts were that the purchases were made from the bogus parties since the notice issued by AO to these parties were returned or unserved and the assessee was unable to produce the confirmation from these parties. The Tribunal has held that though purchases were made from bogus parties, nevertheless the purchases themselves were not bogus as the entire quantity of opening stock, purchases and sales were tallying. Hence only the profit margin embedded in such amount would be subjected to tax. We similarly find in this case that assessee has not produced the parties but assessee did produce all the bills and vouchers before the Assessing Officer and which were subject to audit. The assessee has produced the evidence to show that all the payments were made by cross pay cheques and copy of the bank statements was also submitted. The assessee has also made purchase of materials and affected the sales which were reflected in final statement of the assessee. Treating account balance sheet were submitted , therefore we are of the view that entire purchase cannot be subjected to tax only profit element embedded therein is to be taxed. We also find in case of CIT v. Simt Sheth (2013) 38 Taxmann.com 385 (Guj) wherein it was held that some of the ITA.NO.2939/Mum/2016 M/s. Sai Sarnam Engineers supplier of the steel had not supplied any goods but only provided sales bills and hence the purchase from the said party was held to be bogus. The CIT(A) in that case has found that the purchase were not made from the named parties but the other parties. Therefore the Tribunal has sustained the addition to the extent of 12.5%. We find that in this case considering the facts of this case the assessee has shown the Gross Profit at 18% but after CIT(A) order the Gross profit is 22.83% which is very higher. Therefore the interest of justice we sustain the addition to the extent of 20% of the Gross Profit. Therefore considering the facts of this case we are of the view that Gross profit at 20% is reasonable and we modify the order of CIT(A) accordingly.

In the result the appeal is partly allowed.