Ashwin Purshotam Bajaj vs. ITO (ITAT Mumbai)

DATE: December 14, 2016 (Date of pronouncement)
DATE: December 29, 2016 (Date of publication)
AY: 2010-11
FILE: Click here to download the file in pdf format
S. 69C Bogus Purchases: Though S. 133(6) notices were returned unserved and the assessee could not produce the alleged bogus hawala suppliers, the entire purchases cannot be added as undisclosed income. The addition has to be restricted by estimating Gross Profit ratio on the purchases from the alleged accommodation entry providers

(i) The assessee is an individual running a proprietorship firm namely M/s The Shoe Box INC Retail Store of footwear, bags, belts, wallets and leather goods, boutique etc. having shops at different places , and office at Mumbai. Information was received by the AO from the Sales Tax Authorities, Government of Maharashtra that the assessee has made bogus purchases to the tune of Rs. 1.13 crores from four parties who are in the list of hawala dealers giving accommodation entries without supplying any goods.

(ii) The AO issued notices u/s 133(6) of the Act to the above stated parties to seek relevant information/documents but the notices were returned unserved. The assessee was asked by the AO to produce these four parties but the assessee could not produce the parties from whom the purchases were made. The AO made additions u/s 69C of the Act of the peak credit outstanding to be payable to these four parties during the year to the tune of Rs.1,31,88,227/- as against purchases of Rs.1,13,44,778/- . The credit for purchases from these four parties of Rs.1,13,44,778/- are appearing in the books of accounts of the assessee. The assessee has to discharge the primary onus as to the genuineness and bonafide of the transaction of purchase of goods. It is observed that the A.O. has made addition of the entire purchases amount to Rs. 1.13 crores by making additions of Rs. 1,31,88,227/- being peak credit payable during the year for purchases to these parties which included balance of Rs.18,43,451/- for purchases made in the earlier year, while the AO has, however, not doubted the sales made by the assessee against these purchases. The assessee has reconciled the quantitative details of the stock reflected in these purchases with quantitative details of stock as per sale invoices. The A.O. has doubted the purchases from these four alleged accommodation entry providers being hawala dealers as concluded by Sales Tax Department of Government of Maharashtra to be bogus purchases, that these four parties only provided accommodation bills and the goods were never supplied by these parties and the assessee allegedly made purchases from some other parties for which payments were made through undisclosed income. Thus, the A.O. observed that the assessee has purchased the material from someone else while bogus bills were organized by these hawala dealers, hence, section 69C of the Act was invoked by the AO and additions were made by the AO.

(iii) The conclusion of the lCIT(A) that the assessee has purchased material from some other dealers but quantitative reconciliation of the stock was duly done by the assessee of the sale and purchase and hence the profit element in this accommodation entries are to be added to the income cannot be faulted . The CIT(A) restricted the addition by estimating GP ratio of 12.5% of Rs. 1,13,44,778/- being purchases from these alleged four accommodation entry providers. We do not find any infirmity in the well reasoned order of the ld. CIT(A) whereby net profit was estimated which was a reasonable estimation made by learned CIT(A) and we sustain/affirm the order of learned CIT(A).

Cases referred:

Addition u/s. 69C cannot be invoked in absence of the full proof evidence.

i) ITO vs. Sunsteel 92 TTJ 1126 (Ahd-ITAT)
ii) Nisraj Real Estate & Export(P) Ltd vs. ACIT 31 DTR 456 (JP-ITAT) (Trib)
ii) ACIT vs. Kishan Lal Jewels (P) Ltd 147 TTJ 308(Del-ITAT)
iii) Shubh Laxmi Exports vs. ITO 10 DTR 281 (Jp-ITAT) (Trib)

Onus is the on the Revenue to prove the payment to invoke Sec.69C

i) Himalaya Distributors vs. ITO 29 DTR 267 (Pune-ITAT)
ii) M.P. Malliwal vs. JCIT 10 SOT 319 (Hyd-ITA T) (TM)
iii) Rajmal Leknicnenc: vs. ACIT 791TD 84 (Pune-ITA T)

Only profit embedded in the ingenuine purchase could be brought to tax.

i) CIT vs. Simit P. Sheth 38 385 (Guj-HC)
ii) CIT vs. Bholanath Poly Fab Pvt Ltd 355 ITR 290 (Guj-HC)
iii) CIT vs. President Industries 258 ITR 654 (Guj-HC)
iv) CIT vs. Balchand Ajit Kumer 263 ITR 610 (MP-HC)
v) Man Mohan Sadani vs. CIT 304 ITR 152 (MP-HC)
vi) CIT vs. Leaders valves (P) Ltd 285 ITR 435 (P&H-HC)

Merely non appearance of suppliers would not conclude the purchase as ingenuine

i) CIT vs. Nikunj Eximp Enterprises (P) Ltd 35 384 (Bom-HC)

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