AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2026 (5) TMI 1555
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....g total income at Rs. 7,67,900/-. The return was processed under section 143(1) of the Act on 12.11.2011. Subsequently, information was received from the DGIT (Investigation), Pune vide letter dated 06.02.2013 stating that the Sales Tax Department, Maharashtra had unearthed a racket involving hawala dealers issuing bogus purchase bills without actual supply of goods and that the beneficiaries had availed accommodation entries and bogus tax credits. Based upon such information, the Assessing Officer observed that the assessee was one of the beneficiaries who had allegedly obtained bogus purchase bills from hawala dealers. The Assessing Officer noted that the assessee had shown purchases aggregating to Rs. 10,73,994/- from two parties, namely, (i) Nimesh Steels Private Limited amounting to Rs. 4,32,935/- and (ii) Naina Multitrade Private Limited amounting to Rs. 6,41,059/-. 3. According to the Assessing Officer, such purchases represented accommodation entries resulting in suppression of profits. Accordingly, the assessment was reopened by issuance of notice under section 148 dated 07.05.2013. 4. The Assessing Officer recorded that notices issued under section....
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....according to the Assessing Officer amounted to admission regarding non-genuineness of purchases. Accordingly, the Assessing Officer rejected the books of account under section 145(3) of the Act and treated the purchases of Rs. 10,73,994/- as unexplained expenditure under section 69C of the Act. 7. Apart from the above, the Assessing Officer further observed that various expenses debited under the heads travelling and conveyance, repairs and maintenance, vehicle expenses, staff welfare, sales promotion and miscellaneous expenses were not fully supported by evidences and involved personal element. Accordingly, an ad hoc disallowance of Rs. 30,000/- was made. Consequently, the assessment was completed under section 143(3) r.w.s. 147 of the Act determining total income at Rs. 18,71,890/- as against returned income of Rs. 7,67,900/-. Penalty proceedings under section 271(1)(c) of the Act were also initiated separately. 8. Aggrieved by the assessment order, the assessee preferred appeal before the Ld. CIT(A). During the course of appellate proceedings, the assessee through legal heir Mrs. Sheetal Parag Dusane filed written submissions contending that the Assessing Officer had merel....
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....ugh banking channels were insufficient to establish genuineness of purchases when the suppliers themselves were identified as bogus dealers. 11. The Ld. CIT(A) further held that the burden to substantiate purchases lay entirely upon the assessee and referred to the decisions in the cases of N.K. Proteins Ltd. (SC), CIT vs. La Medica (Delhi High Court), Simit P. Sheth (Gujarat High Court) and Bholanath Polyfab (Gujarat High Court) to hold that where purchases remain unverifiable and the assessee fails to establish actual delivery of goods, the addition is justified. The Ld. CIT(A) thus confirmed the addition of Rs. 10,73,994/- made under section 69C of the Act by holding that the assessee had utterly failed to establish genuineness of purchases or actual movement of goods. The Ld. CIT(A) further observed that information received from Government Department constituted valid material and reliance was placed on the judgments of the Hon'ble Supreme Court in Raymond Woollen Mills and Rajesh Jhaveri Stock Brokers. Accordingly, the appeal of the assessee came to be dismissed. 12. Aggrieved by the aforesaid order of the Ld. CIT(A), the assessee is now in appeal before us raising the ....
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....ing to Assessment Year 2011-12. It was further stated in the affidavit that the issue involved purchases aggregating to Rs. 10,73,994/- in respect of which the Sales Tax Department had retrospectively cancelled VAT registration of the sellers and treated them as bogus dealers and the matter was thereafter forwarded to DGIT (Investigation), Pune. The deponent further affirmed that the representative who attended before the Assessing Officer had accepted the ad hoc disallowance of Rs. 30,000/- out of expenses but had denied the addition relating to alleged bogus purchases. It was also stated that after the demise of the assessee, the papers pertaining to the old assessment year were not traceable and the books of account and supporting documents could not be located. The deponent therefore requested that the peculiar facts, the long lapse of time and the demise of the assessee be considered while adjudicating the appeal. 14. The Ld. AR further submitted that copies of bank statements and invoices were not presently available with the legal heir, though the same formed part of assessment records before the Assessing Officer. It was contended that the assessee had disclosed correspo....
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....ment proceedings relating to hawala purchases, the entire amount of bogus purchases is liable to be added under section 69C of the Act and not merely the profit element embedded therein. 19. We have heard rival submissions and perused the material available on record including the orders of the lower authorities, affidavit filed by the legal heir of the assessee and judicial precedents relied upon by both the parties. The solitary issue requiring adjudication is whether the entire purchases of Rs. 10,73,994/- treated by the Assessing Officer as non-genuine are liable to be added under section 69C of the Act or whether only profit element embedded in such purchases is liable to be brought to tax. 20. From perusal of the assessment order, it is evident that the addition has been made solely on the basis of information received from the Sales Tax Department through DGIT (Investigation), Pune alleging that certain parties were engaged in providing accommodation bills without actual supply of goods. The Assessing Officer has doubted the genuineness of purchases primarily for the reason that the assessee failed to produce transportation receipts, delivery challans, octroi receipts ....
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....valuating the assessee's inability to furnish further documentary evidence at this distant point of time. 23. At the same time, we are unable to completely accept the contention of the assessee that no addition at all is warranted. The information received from the Sales Tax Department identifying the suppliers as suspicious dealers cannot be ignored altogether. The assessee could not produce the suppliers before the Assessing Officer nor furnish independent evidence regarding actual movement of goods. Therefore, possibility of inflation of purchase price or suppression of profits through accommodation bills cannot be ruled out. In such circumstances, judicial precedents have consistently recognised that estimation of reasonable profit element would meet the ends of justice. 24. The Ld. Departmental Representative has strongly relied upon the recent judgment of the Hon'ble jurisdictional Bombay High Court in the case of Principal Commissioner of Income-tax v. Kanak Impex (India) Ltd.(supra) to contend that the entire bogus purchases are liable to be added under section 69C of the Act. We have carefully gone through the said judgment. In our considered view, the facts of the p....
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....ess there exists cogent and specific material conclusively proving bogus nature of purchases, wholesale addition of entire purchases would not be justified and only profit element embedded therein could be brought to tax. 27. Considering the entirety of facts and circumstances of the case, we are unable to sustain the addition made by the Assessing Officer in respect of entire disputed purchases. It is an undisputed position emerging from record that the assessee was engaged in manufacturing activity and the corresponding sales disclosed by the assessee have been accepted by the Revenue without pointing out any suppression in turnover or discrepancy in quantitative results. The Assessing Officer has also not disturbed the production activity carried on by the assessee nor rejected the books of account in entirety. The books of account were duly audited and the purchases were recorded in regular books while payments against such purchases were admittedly made through banking channels. Therefore, once the manufacturing activity and corresponding sales have been accepted, complete disallowance of purchases would result in distorted computation of business income since raw material ....
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....ite accepted sales and already declared gross profit, which would lead to wholly unrealistic and distorted computation of business income. In the peculiar facts of the present case, only the possible suppression of profit embedded in the disputed purchases requires to be brought to tax. 32. The reliance placed by the Ld. DR on the judgment of the Hon'ble Bombay High Court in Principal Commissioner of Income-tax v. Kanak Impex (India) Ltd. (supra), in our considered view, is distinguishable on facts. In the said case, the assessee had failed to discharge the primary onus of proving purchases and the matter arose in the context where the Revenue authorities had found complete absence of satisfactory explanation regarding source and genuineness of expenditure. In the present case, however, the manufacturing activity, corresponding sales and books of account have substantially been accepted by the Revenue and the dispute is confined only to unverifiable source parties and possible inflation in purchase price. Therefore, the ratio laid down in Kanak Impex cannot be mechanically applied to the peculiar facts of the present case. 33. At the same time, we are equally unable to accept....