2021 (10) TMI 949 - AT - Income Tax

Estimation of income - bogus purchases - hawala transactions - HELD THAT - As observed that the assessee allegedly purchased raw materials through the Hawala purchase bills and thereafter consumed the same in the power project sites. In such a situation, it cannot be said that the entire amount of hawala purchase bills requires addition. The Hon ble jurisdictional High Court in Pr.CIT Vs. Paramshakti Distributors Pvt. Ltd., 2019 (7) TMI 838 - BOMBAY HIGH COURT has sustained the addition @ 10% of the amount of purchases, being, the profit element involved therein. Thus we are of the considered view that it would be reasonable to sustain addition @ 10% of the amount of bogus purchases, being profit element involved therein. Grounds of appeal raised by the assessee are partly allowed.

Issues Involved:
1. Validity of initiation of proceedings under Section 147 and issuance of notice under Section 148.
2. Disallowance of purchases as non-genuine and bogus.
3. Levy of interest under Section 234C.
4. Burden of proving genuineness of purchases.
5. Acceptance of hawala purchases as genuine.

Detailed Analysis:

1. Validity of Initiation of Proceedings under Section 147 and Issuance of Notice under Section 148:
The assessee contended that the initiation of proceedings under Section 147 and the issuance of notice under Section 148 were invalid. The CIT(A) upheld the initiation of proceedings, deeming them valid in law. The tribunal did not specifically address this issue in its final judgment, focusing instead on the substantive issues of the case.

2. Disallowance of Purchases as Non-Genuine and Bogus:
The Assessing Officer (AO) disallowed 100% of the hawala purchases totaling ?2,07,40,342/- from four suppliers, deeming them bogus. The CIT(A) reduced this disallowance to 25%, citing the possibility of inflated purchases. The tribunal further reduced the disallowance to 10%, aligning with the jurisdictional High Court's precedent, which taxed only the profit element embedded in such purchases.

3. Levy of Interest under Section 234C:
The assessee argued that the interest under Section 234C should be levied based on the tax due as per the original Return of Income (ROI). The tribunal did not specifically address this issue in its judgment, focusing instead on the primary issues of the case.

4. Burden of Proving Genuineness of Purchases:
The Revenue contended that the CIT(A) erred in deleting the addition of ?1,55,55,256/- by failing to appreciate that the burden of proving the genuineness of purchases lies on the assessee. The tribunal observed that the assessee had allegedly purchased raw materials through hawala purchase bills and consumed them in power project sites. The tribunal concluded that the entire amount of hawala purchase bills did not require addition, sustaining an addition of 10% of the amount of bogus purchases as the profit element involved.

5. Acceptance of Hawala Purchases as Genuine:
The CIT(A) accepted that the materials purchased were used at power project sites but were not supplied by the impugned hawala dealers, who merely issued accommodation bills. The tribunal upheld this view, concluding that the purchases were used by the assessee but were not supplied by the hawala dealers. The tribunal sustained an addition of 10% of the amount of bogus purchases, aligning with the jurisdictional High Court's precedent.

Conclusion:
The tribunal partly allowed the appeal of the assessee, reducing the disallowance of purchases to 10% of the amount of bogus purchases. The appeal of the Revenue was dismissed, as the tribunal found no error in the CIT(A)'s decision to restrict the addition to 25%, which was higher than the 10% approved in the judicial precedent. The judgment was pronounced on 04th October 2021.

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