AI Drafter 
TaxTMI 
TaxTMI 
2021 (4) TMI 663
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....ormation received from DGIT(Inv.), Mumbai, that the assessee has availed accommodation entries from various dealers who are said to be providing accommodation entries without there being transportation of any goods. In the reassessment proceedings, the assessee was required to prove the genuineness of the purchases made from various parties referred in Assessment Order. In response assessee furnished invoices of the parties, copies of bank statements, details of purchases of the alleged parties, quantitative tallying respect of entire purchases from the alleged parties and the corresponding sales and submitted that the purchases made are genuine. Assessee further submitted that the payments are made through account payee cheques as such contended that all the purchases are genuine. However, parties were not produced before the Assessing Officer. 3. Not convinced with the submissions of the assessee the Assessing Officer treated the purchases as non-genuine and he was of the opinion that assessee had obtained only accommodation entries without there being any transportation of materials and the assessee might have made purchases in the gray market. It is the finding of the Assess....
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....epth independent investigation on the issue. It is not the case of the appellant that he has maintained a proper stock register. The appellant has not been able to establish one to one relationship/nexus between the purchases and sales. The assessee has not been able to produce the parties from whom purchases have been alleged to have been made. The appellant has also failed to produce corroborative evidence in the form of transportation bills etc to establish that the alleged purchases were actually transported to its premises and entered in the stock register. It is also a fact that the AO has not confronted the assessee with all the information in his possession like statements of the alleged hawala operators. Further, the AO stopped his investigation with the return of his 133(6) notices. He did not go ahead with money trail of cheques debited in the appellant's bank account towards the alleged purchases though such investigation do not lead to concrete results in the case of hawala dealers and investigators often reach dead end in such cases. It is not the case of the AO that the impugned purchases have conclusively been established as not having been effected at ....
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....ct approach in such transactions would be to estimate the additional benefit or profit earned on these purchases and not to disallow the entire purchases from the aforesaid parties. In my view either the purchases from such parties is over invoiced or the purchases were actually made but not from the parties from which it was claimed to have been made and instead may have been purchased from grey market without proper billing or documentation. 7.3.2 In many judicial pronouncements on the issue, the Courts have taken a consistent view that in case of non-existent parties from which the purchases are shown to have been made, only a part of such purchases can be disallowed, particularly in such cases where the corresponding sales are not doubted. Alternatively the profit embedded in such sales against the alleged bogus purchases should be brought to tax. 6.4.3.1 In the case of CIT-1 Vs Simit P. Sheth, ITA no. 553 of 2012, order dated 16/01/2013, while deciding a similar issue, the Hon'ble High Court of Gujarat has held that: '"We are broadly in agreement with the reasoning adopted ' by the Commissioner (Appeals) with respect to the nature of disp....
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....rollary, not the entire amount covered under such purchase, but the profit element embedded therein would be subject to tax. This was the view of this court in the case of Sanjay Oilcake Industries v. CIT [2009] 316 ITR 274 (Guj). Such decision is also followed by this court in a judgment dated August 16,2011, in Tax Appeal No.679 of 2010 in the case of CIT v. KishorAmrutlal Patel. In the result, tax appeal is dismissed." (emphasis supplied) 4.5 In view of the facts and circumstances of the case and the judicial pronouncements cited above, what can be disallowed or taxed in the instant case, is the excess profit element embedded in such purchases shown to have been made from aforesaid parties. As narrated earlier, the AO in this case has held that various parties from whom the purchases were made by the appellant were found to be bogus, estimations ranging from 12.5% to 25% have been upheld by the Hon'ble Gujarat High Court, depending upon the nature of the business. 6.4.5.1 In a number/series of recent cases involving the scam unearthed by the Sales Tax Dept of Maharashtra whereby the hawala dealers were found to be issuing bogus purchase bills witho....