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Income Tax Appellate Tribunal, PUNE BENCH, ‘SMC’ PUNE – VIRTUAL COURT
Before: SHRI R.S. SYAL & SHRI S.S. VISWANETHRA RAVI
This appeal by the assessee is directed against the order passed by the CIT(A)-3 Pune on 10-12-2019 in relation to the assessment year 2009-10.
The only issue raised in this appeal through various grounds is against the confirmation of addition of Rs.6,74,204/- towards gross profit made on account of bogus purchases at 24.66% of the purchase value.
Briefly stated, the facts of the case are that the assessee is engaged in the business of manufacturing of various types of Engineering & Machinery jobs. The assessee is also into trading of various types of engineering MS & SS pipes, plate, flanges & MS & CR sheets. He filed the return of income declaring total income of Rs.17,89,250/-. Notice u/s.148 of the Act was issued on 10-03-2014 by the Assessing Officer (AO) on receiving information from the office of Director General (Investigation) that the assessee had indulged in Hawala transactions. The assessee was one of the beneficiaries having received bogus bills. The assessee made hawala purchases to the tune of Rs.31,01,264/-. During the course of the assessment proceedings, the assessee was asked to produce various details in relation to the purchases made from the so-called parties.
The assessee produced confirmations in respect of three parties, namely, M/s. Anucool Industrial Aids Pvt. Ltd., amounting to Rs.3,85,032/-; Waghmare Shoes - Rs.21,870/-; and Super Traders - Rs.60,362/-. In the absence of the assessee furnishing complete details in respect of the remaining parties, the AO made an addition @24.66% of the purchase price towards excess gross profit, which came to be affirmed in the first appeal. Aggrieved thereby, the assessee has approached the Tribunal.
We have heard both the sides through virtual court and gone through the relevant material on record. It is seen that the reassessment proceedings were initiated and the assessment was completed u/s.144 r.w.s.147 of the Income-tax Act, 1961 (hereinafter called ‘the Act’) on 23-03-2015 determining total income at Rs.24,63,460/-. The point raised herein is against the addition on account of profit on hawala purchases. The issue of bogus purchases and the consequential addition has come up for consideration before the Hon’ble Bombay High Court in Pr. CIT & Ors. vs. Mohammad Haji Adam & Co. & Ors. (2019) 104 CCH 0391 MumHC. The Hon’ble jurisdictional High Court has held in this case that no ad hoc addition of bogus purchases is warranted. Rather the addition should be made to the extent of difference between the gross profit rate on genuine purchases and gross profit rate on hawala purchases.
Firstly, it is found as an admitted position that the hawala purchases in the extant case were utilized in the trading business and not consumed in the manufacturing business. It is further clear that the assessee had properly accounted for the purchases so made against hawala transactions. In other words, the actual purchases made against the depicted hawala purchases have been either sold or available in the closing stock. Certainly addition on account of hawala purchases is required to be made, but, respectfully following the ratio in the case of Mohammad Haji Adam (supra), the quantum of addition towards bogus purchases, needs to be worked out by considering similar purchases made by the assessee from genuine transactions and thereafter finding out the excess amount of purchases recorded through hawala transactions. The differential percentage between the two prices is directed to be applied to the amount of Hawala purchases for making addition on this score. We, therefore, set aside the impugned order and remit the matter to the file of the AO for working out the correct amount of addition in terms of our above observations after allowing a reasonable opportunity of hearing to the assessee.
In the result, the appeal is allowed for statistical purposes.
Order pronounced in the Open Court on 06th October, 2021.