Sheetal Parag Dusane Vs ITO (ITAT Mumbai)
Death of Assessee, Missing Records & Accepted Sales- Mumbai ITAT Restricts Bogus Purchase Addition to 8% Profit Element
The Mumbai ITAT held that where the assessee’s sales, manufacturing activity and audited books were substantially accepted, the entire alleged bogus purchases could not be added u/s 69C merely because the suppliers were identified as hawala dealers by the Sales Tax Department. The Tribunal restricted the addition to 8% of the disputed purchases, holding that only the profit element embedded in such transactions could be taxed.
The reassessment was initiated based on information from the Maharashtra Sales Tax Department alleging that the assessee had obtained accommodation purchase bills aggregating to ₹10.73 lakh from two alleged hawala dealers. The AO treated the entire purchases as unexplained expenditure u/s 69C on the ground that the assessee failed to furnish transport receipts, delivery challans, confirmations and evidence of movement of goods.
Before the Tribunal, the legal heir of the deceased assessee filed an affidavit explaining that the assessee had expired in 2020 and the widow pursuing the litigation was neither connected with the engineering business nor able to trace decade-old records relating to AY 2011-12. It was also pointed out that the assessee had maintained audited books, disclosed corresponding sales, and made payments through banking channels.
The ITAT observed that the Revenue had accepted the sales turnover and manufacturing activity and had not disproved the quantitative results. The Tribunal held that once corresponding sales are accepted, it cannot be presumed that no purchases existed at all. At best, the case suggested procurement from grey market sources with accommodation bills being used to regularise purchases.
Distinguishing the Bombay High Court ruling in Kanak Impex, the Tribunal noted that in the present case the assessee had participated in proceedings, maintained audited books, produced purchase bills and bank payments, and the dispute was confined only to verifiability of source parties. The Tribunal further noted that the assessee had already reversed VAT credit before Sales Tax authorities, thereby neutralising one possible tax advantage arising from grey market purchases.
Considering the peculiar circumstances including the death of the assessee, inability of the legal heir to retrieve old records, accepted sales, banking transactions and reversal of VAT credit, the ITAT held that taxing the entire purchases would lead to distorted computation of business income. Accordingly, the Tribunal directed the AO to restrict the addition to 8% of ₹10.73 lakh and delete the balance addition.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
