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12-04-2019, Mitesh Ilesh Gadhia, Section 153A, 145(3), Tribunal Mumbai

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2 months 1 week ago #9141 by amit
Section - 153A, 145(3), 133(6)
Order Date - 12-04-2019
Favouring - Assessee Partly
Court - Tribunal Mumbai
Appellant - Mitesh Ilesh Gadhia
Respondent - DCIT
Justice - B.R. Baskaran AM & Ravish Sood JM
Citation - 419Taxpundit176
Appeal No. - ITA No. 354/Mum/2019
Asstt. Year - 2010-11

Order

PER : B.R. Baskaran, AM

The appeal filed by the assessee is directed against the order dated 5.11.2018 passed by Ld CIT(A)-52, Mumbai and it relates to the assessment year 2010- 1.

2. The assessee has raised four grounds. At the time of hearing, the Ld A.R did not press ground no.2 and hence the same is dismissed as not pressed. The ground no.3 & 4 are general in nature/consequential. The surviving ground relates to the addition of Rs.197.94 lakhs relating to alleged bogus purchases sustained by Ld CIT(A).

3. The facts relating to the issue are discussed in brief. The assessee is engaged in the business of trading in steel and metal items under the name and style M/s CNK International. The revenue carried out search operations in the hands of a company named M/s Ushdev International Ltd. During the course of search, it was noticed that it has purchased goods from certain dealers, who have been identified as hawala dealers by the Sales tax department of Government of Maharashtra, i.e., those dealers were providing only accommodation bills without actually supplying materials. It was also noticed that certain other group concerns were also purchasing materials from such hawala dealers. It was noticed that the assessee has also purchased goods from a concern M/s Ragini Trading & Investments P Ltd, which, in turn, has purchased goods from some hawala dealers. The AO has stated that the assessee herein is a group concern of M/s Ushdev International. However, the Ld A.R disputed the said fact and submitted that the assessee does not belong to the above said group. Consequent to the search operations, the assessee’s case was also centralised with the present assessing officer and the present assessment has been completed u/s 143(3) r.w.s 153A of the Act.

4. The AO noticed that the assessee has purchased materials to the tune of Rs.5268.07 lakhs from M/s Ragini Trading and Investments Ltd (hereinafter referred as “RTIL”). As noticed earlier, M/s RTIL had purchased goods from some of parties identified as hawala dealers by the Sales tax department. Hence the revenue had also carried out survey operations in the hands of RTIL and it was noticed that the purchases have been made from parties identified as hawala dealers. It was also noticed that those hawala dealers had confessed before the Sales tax department that they have provided only accommodation bills without actually supplying materials.

5. M/s RTIL has sold the goods to various persons and the assessee herein is one of them. The AO noticed that the assessing officer of RTIL had rejected the books of accounts of RTIL, since it had declared loss of Rs.4.42 crores on a sales of Rs.836.63 crores and accordingly estimated profit of M/s RTIL at 0.25% of the sales. In view of the above, the AO formed the view that the purchases made by the assessee herein from M/s RTIL cannot be considered as genuine, since the assessee has also used the same modus operandi of booking bogus purchases from various hawala parties through M/s RTIL.

6. The AO further noticed that the assessee could not submit proof for delivery of materials and also did not follow the standard operating procedure for the purchases made from M/s RTIL. Before the AO, the assessee furnished copies of ledger account, sample copies of bills, details of sales and corresponding profit made, copies of bank statements. The assessee further submitted that sales made by M/s RTIL were accepted and further it has never confessed that it did not sell goods to the assessee. It was also submitted that RTIL is regularly assessed to tax and further the assessee also furnished confirmation letters obtained from M/s RTIL confirming the sales made to the assessee along with the details of corresponding purchases.

7. The AO was not convinced with the explanations furnished by the assessee. He observed that the assessee has failed to furnish inwardoutward register and also did not furnish proof for delivery of materials. By placing reliance on the decision rendered by Hon’ble Supreme Court in the case of CIT vs. Calcutta Agency Ltd (19 ITR 191), the AO held that the onus lies upon the assessee to prove all expenses. He further held that payment by account payee cheque is not sacrosanct and is not sufficient to establish genuineness of the purchases as pronounced by Hon’ble Supreme Court in the case of Kachwala Gems vs. JCIT (2007) (288 ITR 10).

The AO also observed that the real test with regard to the genuineness of transaction is “Preponderance of Probabilities” and surrounding circumstances as per the decision rendered by Hon’ble Supreme Court in the case of C. Vasantlal & Co. vs. CIT (1962)(45 ITR 206), Chaturbhuj Panauj AIR 1969 (SC) and Sumati Dayal vs. CIT (1995)(214 ITR 801)(SC) and CIT vs. Durga Prasad More (82 ITR 540). The AO also held that the purchases made from hawala dealers falls within the ambit of “colouorable devices” as observed by Hon’ble Supreme Court in the case of Mc Dowell and Co Ltd vs. CTO (154 ITR 148). The AO also relied upon various other case laws to hold that the entries made in the books of accounts are not determinative of the genuineness. He also took support of the decision
rendered by Hon’ble Delhi High Court in the case of CIT vs. La Medica (250 ITR 575) to hold that the sum paid towards fictitious purchases should be treated as undisclosed income of the assessee.

8. Accordingly, the AO held that the purchases made by the assessee remained unverifiable and accordingly rejected the books of account u/s 145(3) of the Act. In this regard, he took support of decision rendered by Hon’ble Supreme Court in the case of Kachwala Gems (supra) and Durgaprasad More (supra). The AO further took the view that the assessee has made purchases from hawala parties with the intention to inflate expenses. He further observed that the detailed investigation regarding modus operandi of such parties has shown that the payments were received by these parties against the bogus bills by cheque and the same amounts were returned in cash to the beneficiaries. The AO took the view that the assessee’s case fall in the above said category and accordingly held that the assessee has inflated the expenses by routing cash through hawala parties. Accordingly he disallowed entire purchases of Rs.5268.07 lakhs made from M/s RTIL in FY 2009-10, i.e., the year under consideration.

9. Though the AO has mentioned that the purchases have been made for AY 2009-10 to 2014-15 in paragraph 10 of the assessment order, the Ld A.R clarified that the addition has been made only in FY 2009-10 relevant to AY 2010-11

10. In the appellate proceedings, the Ld CIT(A) noticed that the assessee has not directly purchased goods from the hawala dealers. The Ld CIT(A) further took the view that the assessee cannot be given any special treatment, which is different from a case where the tainted purchases were made directly from suspicious hawala dealers. He further noticed that the assessee, in the statement taken from it during the course of survey, had stated that it would procure the materials from the market, only after receiving orders from its customers. Accordingly he noticed that the assessee has made back to back sales of materials procured from M/s RTIL. He further noticed that the softcopy of accounts impounded during

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