2019 (6) TMI 1381 - AT - Income Tax

Addition on account of hawala purchases - HELD THAT - The issue of bogus purchases has recently come up for consideration in Pr.CIT Vs. Mohommad Haji Adam Co. Vide 2019 (2) TMI 1632 - BOMBAY HIGH COURT held that no ad hoc addition at the rate of 10% of bogus purchases is warranted. Rather the addition should be made to the extent of difference between the gross profit rate on genuine purchases and gross profit rate of hawala purchases. Such details are not readily available with the AR as well to facilitate the calculation of gross profit rates of genuine and hawala purchases. Set-aside the impugned and remit the matter to the file of AO for applying the ratio laid down by the Hon ble Jurisdictional High Court in the above noted case and recompute the amount of addition, if any, after allowing a reasonable opportunity of hearing to the assessee. - Appeal is allowed for statistical purposes.

Summary

Issues:
Confirmation of addition on account of hawala purchases.

Analysis:
The appeal before the Appellate Tribunal ITAT Pune arose from an order by the CIT(A)-2, Aurangabad for the assessment year 2010-11. The sole issue raised in the appeal pertained to the confirmation of addition on account of hawala purchases. The assessee had recorded purchases from a hawala dealer amounting to ?76,20,165. Upon being asked to substantiate the genuineness of the transaction, the assessee provided certain details. The Assessing Officer (AO) acknowledged the quantity received from these hawala purchases but added ?8,46,685 @12.5% for excess purchase price due to hawala transactions. The CIT(A) reduced this addition to 10%, leading the assessee to appeal before the Tribunal.

During the hearing, the Tribunal considered the issue of bogus purchases in light of a recent judgment by the Hon'ble Bombay High Court in Pr.CIT Vs. Mohommad Haji Adam & Co. The High Court ruled that no ad hoc addition of 10% of bogus purchases should be made. Instead, the addition should reflect the difference between the gross profit rate on genuine purchases and the gross profit rate of hawala purchases. As the necessary details for calculating these rates were not readily available to the ld. AR, the Tribunal set aside the impugned decision and remitted the matter back to the AO. The AO was directed to apply the High Court's ruling and recompute any addition after providing a reasonable opportunity for the assessee to present their case.

Ultimately, the appeal was allowed for statistical purposes, and the order was pronounced in the Open Court on 30th April 2019.