ITO Vs Pravin Manilal Panchal (ITAT Mumbai)
ITAT Mumbai held that entire bogus purchases can never be treated as income only profit element embedded in the accommodation entry is to be brought to tax. Accordingly, order of CIT(A) restricting disallowance @12.5% justified.
Facts- The present appeal has been preferred by the revenue. It is contested that during assessment, AO disallowed 100% of purchases shown from alleged hawala dealers. However, CIT(A) erred in restricting the addition to the extent of 12.5%. Being aggrieved, revenue has preferred the present appeal.
Conclusion- Held that entire transaction can never by treated income of the assessee rather profit element embedded in such transaction can only be brought to tax. In the present case, the assessee is a manufacturer and the sale of assessee is not disputed, therefore, in my view, the ld. CIT(A) was reasonable in making disallowance @12.5% of such purchases, hence, the order passed by ld. CIT(A) is upheld with my additional observation. In the result, grounds of appal of revenue is dismissed.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
1. This appeal by revenue is directed against the order of Ld. CIT(A) / NFAC dated 29.08.2024 for assessment year (AY) 2011-12. The revenue has raised following grounds of appeal:
“1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A)has erred in restricted the addition @ 12.5% of alleged bogus purchases as against the addition made by the Assessing Officer by disallowing the total non- genuine purchases debited by the assessee, ignoring the facts that the assessee failed to produce sufficient documentary evidence before the Assessing Officer to prove the genuineness of the parties and the associated purchase transactions?
2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in restricting the addition on account of purchases from the bogus parties to 12.5% ignoring the findings of the Hon’ble Gujarat High Court in the case of N.K.Protein Ltd. vs DCIT, against which the SLP was dismissed by Hon’ble Supreme Court (2017) 84 taxmann.com195, wherein 100% of addition was confirmed by the Court?”
3. The appellant craves leave to add, amend, alter substitute or modify any of the above grounds or add a fresh ground as and when found necessary either before or at the time of hearing.”
2. Rival submissions of both the parties have been heard and record perused. The learned Senior Departmental Representative (ld. Sr. DR) for the revenue submits that assessing officer while passing the assessment order made addition on account of disallowance of certain purchases. The assessing officer disallowed 100% of purchases shown from alleged hawala dealers. The assessee has shown such bogus purchases only to inflate the expenses. During assessment, the assessing officer gave clear finding about non-existence of dealers, from whom the assessee has shown purchases, thus impugned purchases were not proved. Therefore, the assessing officer was fully justified in making 100% disallowance of purchases from such hawala dealers. The ld. Sr. DR for the revenue submits that sale is not a dispute. The assessee may have purchased such material from Grey Market, source which is not known. The ld. CIT(A) restricted the addition to the extent of 12.5%. The ld. CIT(A) accepted the explanation of assessee without considering the fact that assessee failed to prove the purchases. The ld Sr DR for the revenue submits that The ld. Sr. DR for the revenue relied on the decision of jurisdiction High Court of Bombay in the case of Pr. CIT Vs Kanak Impex (India) Ltd., Income Tax Appeal No. 791 of 2021.
