Rajesh Harishbhai Shah (HUF) Vs ITO (ITAT Mumbai)
100% disallowance of alleged bogus purchases unsustainable- Only profit element to be taxed by after adjusting gross profit declared
Assessee had raised multiple grounds including jurisdiction of AO, denial of natural justice & validity of reassessment u/s 147. However, during the course of hearing, no specific arguments were advanced on these issues & hence Tribunal treated ground numbers 1 to 3 as not pressed and dismissed them.
The substantive issue related to disallowance of purchases amounting to Rs. 36,92,969/- u/s 69C on account of alleged bogus purchases from Sona Engg. Co. & Sona Tools Traders. AO had relied solely on information from Investigation Wing of Income Tax Department based on Sales Tax Department’s list of hawala dealers. AO made a 100% disallowance of such purchases. Assessee submitted that it is engaged in trading of hardware items and had substantiated purchases with bills & evidences. It was further contended that sales were accepted by AO and sales could not have taken place without purchases. Books of account were not rejected. Assessee showed consistent gross profit ranging from 3.16% to 7.15% in earlier years and 6.55% in the relevant year, which indicated genuineness of transactions. Alternatively, Assessee requested that if any disallowance is warranted, only a token disallowance by applying a profit element may be made instead of disallowing entire purchases.
