Case Law Details

Case Name : Dharmendra N. Zaveri Vs ACIT (ITAT Mumbai)
Appeal Number : ITA No.7520&7521/MUM/2018
Date of Judgement/Order : 31/01/2020
Related Assessment Year : 2009-10

Dharmendra N. Zaveri Vs ACIT (ITAT Mumbai)

The issue under consideration is to confirm whether a disallowance of Rs.6,91,911/- being 12.5% of the alleged bogus purchases of Rs.55,38,294/-  is correct or not?

The facts in brief are that the assessee filed return of income on 29.09.2009 declaring a total income of Rs.11,71,889/-. The case of the assessee was reopened u/s 147 by issuing a notice u/s 148 dated 10.03.2014 after AO received information from DGIT(Inv.) Mumbai that the assessee has made some purchases from hawala parties during the financial year 2009­-10 amounting to Rs. 55,38,294/- namely Hiten Enterprises & Adigin Enterprises which were declared hawala dealers by the Sales Tax Department, Mumbai, Govt. of Maharashtra. The assessee is engaged in the business of wholesale trading and the GP rate of the assessee is only 2.32%. The AO called upon the assessee during the assessment proceedings to prove the genuineness of the purchases and also issued notices u/s 133(6) of the Act dated 19.12.2014 to the said parties which were returned unserved. The assessee furnished before the AO, the copies of challans, bank details, corresponding sales bills, IT returns, and audit annual accounts. However, the assessee could not produce the relevant details/proofs of transportation and confirmations of these parties and finally, the AO treated the said purchases as non-genuine and applied @12.5% thereby adding the same to Rs.6,91,911/- in the assessment framed u/s 143(3) r.w.s. 147 of the Act dated 17.03.2015.

After hearing the both the parties and perusing the material on record, ITAT observe that the undisputed facts are that the assessee was beneficiary of hawala purchase entries as reported by the Sales Tax Department, Govt. of Maharashtra. ITAT find that the authorities below has not disputed the sales of the assessee as assessee could produce before the authorities below the corresponding sales out of material purchased. The only issue remains to be decided as to whether the addition sustained by the CIT(A) by upholding the order of AO is reasonable or not. In this case, ITAT note that GP rate of the assessee was 2.31% as the assessee is in the business of wholesale trading. The said fact has been noted in the assessment order in para 9 also. Considering the facts and circumstances of the case, ITAT are of the view that since the assessee is in wholesale business, the addition @12.5% is excessive and unreasonable. The counsel of the assessee also relied on the decision of jurisdictional high court in the case of PCIT vs. M/s Mohammad Haji Adam & Co. ITA No.1004 of 2006 order dated 11.02.2019 in defence of this arguments in which the hon’ble Court has held that the addition has to be made on the basis of GP of the assessee. Accordingly, ITAT set aside the order of CIT(A) and direct the AO to apply a rate of 3% on the bogus purchases.

Now coming to ITA No.7521/Mum/2018, the identical issue has been decided in ITA No.7520/Mum/2018 (supra), ITAT have directed the AO to apply a rate of 3% on the bogus purchases. Accordingly, in this case also a rate of 3% is to be applied. The AO is directed accordingly.

In the result, the appeals of the assessee are partly allowed.

FULL TEXT OF THE ITAT JUDGEMENT

The present two appeals has been preferred by the assessee against the order dated 27.08.2018 & 19.11.2018 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2009-10 and 2010-11 respectively.

2. The only issue raised by the assessee in the grounds of appeals is against the CIT(A) confirming a disallowance of Rs.6,91,911/- being 12.5% of the alleged bogus purchases of Rs.55,38,294/- thereby upholding the order of AO.

3. The facts in brief are that the assessee filed return of income on 29.09.2009 declaring a total income of Rs.11,71,889/-. The case of the assessee was reopened u/s 147 by issuing a notice u/s 148 dated 10.03.2014 after AO received information from DGIT(Inv.) Mumbai that the assessee has made some purchases from hawala parties during the financial year 2009­10 amounting to Rs.55,38,294/- namely Hiten Enterprises & Adigin Enterprises which were declared hawala dealers by the Sales Tax Department, Mumbai, Govt. of Maharashtra. The assessee is engaged in the business of wholesale trading and the GP rate of the assessee is only 2.32%. The AO called upon the assessee during the assessment proceedings to prove the genuineness of the purchases and also issued notices u/s 133(6) of the Act dated 19.12.2014 to the said parties which were returned unserved. The assessee furnished before the AO, the copies of challans, bank details, corresponding sales bills, IT returns, and audit annual accounts. However, the assessee could not produce the relevant details/proofs of transportation and confirmations of these parties and finally, the AO treated the said purchases as non-genuine and applied @12.5% thereby adding the same to Rs.6,91,911/- in the assessment framed u/s 143(3) r.w.s. 147 of the Act dated 17.03.2015.

4. In the appellate proceedings, the ld. CIT(A) confirmed the addition as made by the AO on the ground that the assessee could not produce the relevant details, confirmations from these parties and proofs of transportation of goods and the ld. CIT(A) also was of the view that the assessee might have purchased goods from grey market at the lower rate and thus justified the addition @12.5%.

5. After hearing the both the parties and perusing the material on record, we observe that the undisputed facts are that the assessee was beneficiary of hawala purchase entries as reported by the Sales Tax Department, Govt. of Maharashtra. We find that the authorities below has not disputed the sales of the assessee as assessee could produce before the authorities below the corresponding sales out of material purchased. The only issue remains to be decided as to whether the addition sustained by the CIT(A) by upholding the order of AO is reasonable or not. In this case, we note that GP rate of the assessee was 2.31% as the assessee is in the business of wholesale trading. The said fact has been noted in the assessment order in para 9 also. Considering the facts and circumstances of the case, we are of the view that since the assessee is in wholesale business, the addition @12.5% is excessive and unreasonable. The counsel of the assessee also relied on the decision of jurisdictional high court in the case of PCIT vs. M/s Mohammad Haji Adam & Co. ITA No.1004 of 2006 order dated 11.02.2019 in defence of this arguments in which the hon’ble Court has held that the addition has to be made on the basis of GP of the assessee. Accordingly, we set aside the order of CIT(A) and direct the AO to apply a rate of 3% on the bogus purchases.

6. Now coming to ITA No.7521/Mum/2018, the identical issue has been decided in ITA No.7520/Mum/2018 (supra), we have directed the AO to apply a rate of 3% on the bogus purchases. Accordingly, in this case also a rate of 3% is to be applied. The AO is directed accordingly.

7. In the result, the two appeals of the assessee are partly allowed.

Order pronounced in the open court on 31.01.2020.

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