H.V. GORADIA (HUF),MUMBAI vs. ITO 32(1)(5), MUMBAI

Facts relating to the issues are stated in brief. The assessee is carrying on the business of trading in Iron and Steel through its proprietary concern named M/s. Essvee Enterprises. It filed THE return of income for the year under consideration on 18.9.2009 and the same was processed u/s. 143(1) of the Act. Subsequently, the Assessing Officer received information from DGIT(Inv) that certain parties have issued accommodation bills for supply of material and the assessee has purchased goods from such parties to the tune

During the course of assessment proceedings the Assessing Officer issued notice u/s. 133(6) of the Act to the supplier of goods but all the notices were returned by the postal authorities with the postal remarks “unclaimed/left”. Hence the Assessing Officer asked the assessee to produce the supplier along with the entry register, lorry receipt of purchase of goods, stock register etc. The Assessing Officer asked the assessee as to why these purchases should not be taken as bogus. The assessee could not produce the parties but simply stated that it has made payments to them by way of account payee cheques. The assessee could produce only purchase and sales register and it did not produce lorry receipts or stock register. The Assessing Officer noticed that the parties from whom the assessee has claimed to have purchased goods have accepted before Sales Tax Department that they are provided only accommodation entries. Accordingly, the Assessing Officer came to the conclusion that the assessee did not make purchases from these hawala dealers and it has only availed benefits from them by procuring accommodation bills, i.e., without taking physical delivery of goods. The Assessing Officer expressed the view that the assessee should have obtained the accommodation bills, only to account for items purchased from grey market. The Assessing Officer further took the view that the assessee should have purchased goods at lower price and accommodation bills should have been obtained for higher price. Since the assessee could not furnish sufficient documents to support the claim of purchases, the Assessing Officer rejected the books of account u/s. 145(3) of the Act. The AO accepted the fact that the assessee could not have sold the goods without purchasing them. Accordingly he took the view that the assessee should have purchased goods from grey market. The Assessing Officer further observed that the gross profit and net

Before learned CIT(A) the assessee challenged the validity of reopening of the assessment and also the profit estimated and assessed by the Assessing Officer. However, the contentions of the assessee did not find favour with learned CIT(A) and he accordingly upheld the validity of reopening of assessment and also upheld the addition made by the Assessing Officer. Aggrieved, the assessee has filed this appeal before us.

The first issue relates to the validity of reopening of assessment. The Ld A.R submitted that the assessing officer did not apply his mind to the information received from the investigation wing and he has reopened the assessment in a mechanical manner. In this regard, he placed reliance on the decision rendered by Hon’ble Delhi High Court in the case of CIT Vs. Kamadhenu Steel & Alloys Ltd (248 CTR 33) and submitted that the assessing officer could not draw adverse inference without making any enquiries.

On the contrary, the Ld D.R submitted that the assessing officer should have only proper reason to believe about escapement of income at the time of reopening of assessment and it is not required that the assessing officer should prove the same. He further submitted that the assessee’s objection to the reopening of assessment has been duly addressed by the assessing officer.

Having heard rival contentions, we are unable to agree with the contentions of the assessee with regard to the issue relating to validity of reopening of assessment. We notice that the assessing officer has received information from the investigation wing on the basis of search conducted by 4 H.V. Goradia (HUF)

The next issue relates to the addition of profit estimated on the bogus purchases. The Ld A.R submitted that the assessee could not furnish lorry receipts before the AO, since the goods were transported directly from the suppliers’ place to the Customers’ place. He submitted that the assessee has made payments by way of account payee cheques and further the rate of Gross Profit and Net Profit declared by the assessee was consistent with that show in the past several years. He submitted that the AO has not brought any material to support his view that the assessee might have purchased goods from grey market. Accordingly he submitted that there is no justification in estimating the gross profit on the alleged bogus purchases @ 30%.

The Ld D.R submitted that the assessing officer has rejected the books of account, since the assessee could not prove the purchases by producing the suppliers and evidences for transportation of goods. Accordingly the AO has estimated the profit from accommodation bills at 30%. The assessing officer was fair enough in observing that the assessee could not have sold the goods without making corresponding purchases and accordingly came to the conclusion that the assessee could have purchased the goods in the grey market at lower rates. He submitted that the profit of 30% estimated by the AO was justified.

We heard the parties and perused the record. We notice that the assessing officer has not simply followed the report given by the Sales tax department. but he has carried out his own enquiries. The AO has issued

We notice that the assessee could not substantiate its contentions that the goods were transported directly from suppliers place to the customers place by producing any other evidence or confirmation from the customers. Since the suppliers were claimed to have been trading in steel products, they should be having sufficient space to stock the goods and also they should have proper business address. However, it is not understandable as to why they should refrain from claiming the notice issued by the AO u/s 133(6) of the Act, if they are carrying on business in a genuine way. Even the assessee could not produce the suppliers. When the suppliers could not be produced and when the proof for delivery of goods either direct or indirect could not be produced, in our view, the AO was justified in presuming that the assessee could have purchased goods from the grey market. This is for the reason that the assessee could not have sold the goods without purchasing them from some source. The preponderance of probabilities support this view of the AO. The assessing officer’s view is further strengthened by the fact that the suppliers have admitted before the sales tax authorities that they have provided only accommodation entries. We have already noticed that the AO has tried to make his own enquiries, but the assessee also could not afford its help in that 6 H.V. Goradia (HUF)

At the time of hearing, the Ld A.R placed reliance on various decisions rendered by co-ordinate bench of Tribunal on the additions made on account of alleged bogus purchases. On a careful perusal of the same, we notice that the assessing officer, in each of the above said cases, has proceeded to assess the income on different footing and hence the decisions have been rendered by the Tribunal depending upon the facts prevailing in each of the case. Since there is no parity of facts, we are of the view that those decisions may not come to the help of the assessee.

However, we notice that the assessing officer has not given any basis for adopting the profit rate at 30%. Since the assessee was contending that the purchases were genuine one, it did not have an opportunity to advance its arguments with regard to the rate of 30% adopted by the AO. Accordingly, we are of the view that the assessee should be provided with an opportunity to advance its arguments on the rate of profit estimated by the AO. Accordingly we set aside this matter relating to estimation of profit from bogus purchases to the file of the AO with the direction to decide the same afresh, after affording opportunity of being heard to the assessee. The order of Ld CIT(A) passed on this issue stands modified accordingly.