If Sales made by the assessee is not disputed, purchases could not be added considering them as bogus and only profit embedded in such purchases is required to be added
Short Overview Where sales made by assessee was not disputed, the entire purchases could not be added considering them as bogus and only profit embedded in such purchases was required to be added.
AO received information that assessee made bogus purchases from hawala parties. Assessee filed before the AO, copies of bank statements evidencing payments made to those parties, ledger account of all the parties, purchase invoices from those parties and sale invoices as issued against the purchases made. However, the AO was not convinced with such explanation /reply of the assessee for the reason that no direct evidence like stock register, journal, etc., and indirect evidence such as delivery challans, lorry receipts, quantity tally, etc., was produced. Accordingly, he made addition of entire purchases considering them as bogus. However, CIT(A) restricted such addition by directing the AO to estimate profit @12.5% on the disputed purchases. Aggrieved, Revenue was in appeal.
It is held that Assessee filed before AO, copies of bank statements evidencing payments made to those parties, ledger account of all the parties, purchase invoices from those parties and sale invoices as issued against the purchases made. Therefore, the AO could have made further verifications /enquiries. However, without making any verification /enquiry, the AO made addition of entire purchases. Further, as the sales made by the assessee was not disputed, the entire purchases could not be added considering them as bogus and only profit embedded in such purchases was required to be added. Further, the purchases might have been made from bogus parties; nevertheless, the purchases themselves were not bogus. Accordingly, the CIT (A) was justified in directing the AO to estimate profit @12.5% on the disputed purchases.
Decision: In assessee’s favour/Against the appellant.
Referred: CIT v. Bholanath Poly Fab Pvt Ltd. (2013) 355 ITR 290 (Guj.) : 2013 TaxPub(DT) 1852 (Guj-HC).
IN THE ITAT, MUMBAI BENCH
SAKTIJIT DEY, J.M. & N.K. PRADHAN, A.M.
ITO v. Abhay Kantilal Shah
ITA No. 1561/Mum/2019
A.Y. 2011-12
24 September, 2020
Assessee by: None
Revenue by: Uodal Raj Singh (DR)
ORDER
N.K. Pradhan, A.M.
This is an appeal filed by the revenue. The relevant assessment year is 2011-12. The appeal is directed against the order of the Commissioner (Appeals)-55, Mumbai [in short ‘Commissioner (Appeals)’] and arises out of assessment under section 143(3) r.w.s. 147 of the Income Tax Act, 1961(the Act). Though the case was fixed for hearing on 21-9-2020, neither the assessee nor his Authorized Representative (AR) appeared before the Tribunal on the above date. As there is non-compliance by the assessee, we are proceeding to dispose-off this appeal after examining the materials available on record and after hearing the learned Departmental Representative (DR).
- Briefly stated the facts of the case are that the assessee filed his return of income for the assessment year 2011-12 on 28-9-2011, declaring total income ofRs. 3,09,541. The assessee is engaged in the business of resale of iron & steel and he is the sole proprietor of Abhay K.Shah & Co. The assessing officer (AO) received information from the Director General of Income Tax (Inv.), Mumbai that the assessee had made bogus purchases from the following hawala parties during the FY 2010-11 relevant to the assessment year 2011-12
| Sr. No. | Name of the Hawala Parties | Amount (Rs.) |
| 1 | DAKSHA ENTERPRISES | 82,825 |
| 2 | PAYAL ENTERPRISES | 4,54,287 |
| TOTAL | 5,37,112 |
On the basis of the above information, the assessing officer reopened the assessment by issuing notice under section.148 of the Act. During the course of reassessment proceedings, in response to the notice under section 143(2) & 142(1), the assessee filed before the assessing officer copies of (i) bank statements for the financial year 2010-11, evidencing the payments made to these parties; (ii) ledger account of all the parties; (iii) purchase invoices from these parties and (iv) sale invoices as issued by the assessee against the purchases made.
However, the assessing officer was not convinced with the above explanation /reply of the assessee for the reason that no direct evidence like stock register, journal etc., and indirect evidence such as delivery challans, lorry receipts, octroi payment, quantity tally, confirmation from transport operator, godown rent, bank account clearance certificate etc., were produced. Considering the above facts, the assessing officer made an addition of Rs. 5,37,112.
- Aggrieved by the order of the assessing officer, the assessee filed an appeal before the learned Commissioner (Appeals). We find that videOrder, dated 13-12-2018, the learned Commissioner (Appeals) by following the decision in CIT v. Bholanath Poly Fab (P.) Ltd. (2013) 355 ITR 290 (Guj.) : 2013 TaxPub(DT) 1852 (Guj-HC) directed the assessing officer to estimate profit @12.5% on the disputed purchases of Rs. 5,37,112.
- Before us, the learned DR submits that as the assessee failed to file before the assessing officer stock register, delivery challans, lorry receipts, octroi payment, quantity tally, there was no sufficient compliance during the course of assessment proceedings. Therefore, it is stated by him that the full addition ofRs. 5,37,112 made by the assessing officer be confirmed.
- We have heard the learned DR and perused the relevant materials available on record. In instant case, as mentioned earlier, the assessee has filed before the assessing officer copies of (i) bank statements for the financial year 2010- 11, evidencing the payments made to these parties; (ii) ledger account of all the parties; (iii) purchase invoices from these parties and (iv) sale invoices as issued by the assessee against the purchases made. In such a situation, the assessing officer could have made further verifications /enquiries. However, without making any verification /enquiry, the assessing officer has made the full addition ofRs. 5,37,112.
In such a situation like the above one, the learned Commissioner (Appeals) has rightly relied on the judgment of the Hon’ble Gujarat High Court in Bholonath Poly Fab (P) Ltd. (supra) and directed the assessing officer to estimate the profit @ 12.5% embedded in the disputed purchases of Rs. 5,37,112.
In view of the above facts, we uphold the order of the learnedCommissioner (Appeals).
- In the result, the appeal filed by the revenue is dismissed
