2016 (10) TMI 318 - AT - Income Tax

GP addition - non-genuine and unproved purchase from the parties declared as Hawala Operator by the Sales Tax Department of Maharastra State - Held that - we are of the considered opinion that end of justice will be met whereby further addition of 5% of the alleged bogus purchases of ₹ 95,25,636/- are made to income of the assessee to cover payment of commission in cash by the assessee to these bogus hawala dealers who have provided accommodation entries to the assessee by providing bogus bills whereby cash was returned to the assessee by these 20 dealers after deducting their commission in lieu of cheque given by the assessee which is corroborated by the statement / affidavits of these 9 bogus dealers. We order accordingly. Decision in the case of M/s Prakash Metals 2016 (2) TMI 888 - ITAT MUMBAI followed - Decided partly in favor of assessee.

Summary

Issues Involved:

1. Genuineness of purchases from parties declared as "Hawala Operators."
2. Responsibility of the assessee to prove the genuineness of purchases.
3. Adoption of 3% as income escaped tax by the CIT(A).
4. Validity of the CIT(A)'s order directing the AO to accept the G.P. @3%.

Issue-wise Detailed Analysis:

1. Genuineness of Purchases from Parties Declared as "Hawala Operators":

The AO observed that the assessee made purchases from 20 parties listed as "Hawala Operators" by the Sales Tax Department of Maharashtra. These parties allegedly provided accommodation entries without actual business. The AO treated the amount of ?95,25,636/- as unexplained expenditure under Section 69C of the Income Tax Act, 1961, after the assessee failed to produce these parties or provide their new addresses. The CIT(A) directed the AO to accept a G.P. rate of 3% on these purchases and deleted the balance addition.

2. Responsibility of the Assessee to Prove the Genuineness of Purchases:

The AO contended that it was the assessee's responsibility to prove the genuineness of the purchases. Despite providing documentary evidence, the assessee could not produce the parties for verification. The CIT(A) noted that the onus was on the assessee to bring evidence to prove the genuineness of the purchases, which was not satisfactorily done.

3. Adoption of 3% as Income Escaped Tax by the CIT(A):

The CIT(A) adopted 3% of ?95,25,636/- as the income that escaped tax without explaining the basis for this percentage. The CIT(A) justified this by stating that the AO accepted the sales corresponding to the bogus purchases, and thus, a G.P. rate of 3% was reasonable.

4. Validity of the CIT(A)'s Order Directing the AO to Accept the G.P. @3%:

The Tribunal noted that the AO had received information from the Sales Tax Department about the bogus nature of the transactions. The AO issued notices under Section 133(6) to the parties, which were returned unserved. The CIT(A) directed the AO to accept a G.P. rate of 3%, considering the sales were accepted as genuine. The Tribunal, however, found that further addition of 5% of the alleged bogus purchases should be made to cover the payment of commission in cash by the assessee to these bogus hawala dealers.

Conclusion:

The Tribunal partly allowed the Revenue's appeal, concluding that an additional 5% of the alleged bogus purchases should be added to the income of the assessee to cover the commission paid to the bogus dealers. This decision was based on similar cases and the principle of consistency, ensuring that justice was met while acknowledging the peculiar facts and circumstances of the case.