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M/s B.J. Exports Versus ACIT-30 (1) , Mumbai

2017 (9) TMI 729 - ITAT MUMBAI

Bogus purchases from alleged hawala operators - information received from DGIT (Inv) further supported by the list prepared by Maharashtra Sales-tax department - estimation of net profit on bogus purchases - Held that:- In the absence of any finding as to the incorrectness in books of account and stock registers, purchases cannot be doubted. Under these facts and circumstances it can be concluded that the assessee has obtained bills to reduce profits. Hence, what needs to be taxed in this case i .....

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f the assessee. The ITAT, Mumbai Benches in several cases has upheld estimation of net profit at 12.5% on such purchases. Therefore, considering the overall facts & circumstances of the case and also relying upon the ratio of case laws discussed above, we are of the view that in the case of bogus purchases, only profit element embedded in such purchases needs to be taxed but not total purchases. Accordingly, we direct the AO to estimate net profit at 12.5% on total alleged bogus purchases. - Dec .....

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e sake of convenience, these appeals were heard together and are disposed of by this common order. 2. In these appeals, the assessee has more or less raised common grounds. However, the only solitary issue arising from those grounds of appeal relate to additions made by the AO towards bogus purchases from alleged hawala operators and findings of the CIT(A) in reducing the disallowance made by the AO to net profit element in those alleged bogus purchases. 3. The brief facts of the case as extract .....

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wherein they have confessed to have floated dummi concerns in the name of friends and relatives of giving accommodation entries of purchases. Accordingly notice u/s 148 of the Income-tax Act, 1961 was issued. In response to notice u/s 148, the assessee filed return of income declaring total income at ₹ 12,78,131. Thereafter, the case was selected for scrutiny and accordingly notices u/s 143(2) and 142(1) of the Act were issued. In response to notices, the authorized representative of the a .....

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g it to substantiate the purchases claimed to have been made from the alleged hawala operators with necessary evidence. In response, the assessee filed purchase invoices, export invoices, shipping bills, airways bills, export bill realization certificates, bank statement showing payment for purchases and stock registers to prove the purchases made from the alleged parties are genuine. The AO, after considering relevant submissions of the assessee and also taking into account the information rece .....

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ssessee reiterated its stand taken before the AO. The assessee further submitted that merely because a third party has alleged that certain parties are involved in providing accommodation entries and also they are listed as suspicious hawala operators, addition cannot be made ignoring all evidences filed in the form of purchase invoice, export invoices, shipping bills, airways bills, export bill realization certificates, bank statement showing payment for purchases and stock details to prove tha .....

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he AO has not pointed out any discrepancy in the books of account and stock registers. In the absence of any finding as to the incorrectness of books of account and stock register, purchases from the above parties cannot be doubted, more so, when all the details have been furnished to justify the purchases. 6. The CIT(A), after considering the explanations of the assessee and also relying upon the decision of Hon ble Gujarat High Court in the case of Vijay Proteins Ltd vs CIT (2015) 58 Taxman.co .....

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postal authorities unserved also indicates that the parties are not existed at the given addresses. All these facts go to prove that purchases from the above parties are not genuine and hence, the AO was right in treating purchases from said party as bogus in nature. The CIT(A) further observed that the AO has not disputed sales declared by the assessee. The purchases / sales co-relation has not been controverted by the AO. No discrepancy in stock has been pointed out. The fact that payments ma .....

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of 30% on the alleged bogus purchases. Aggrieved by the order of CIT(A), the assessee is in appeal before us. 7. The Ld.AR for the assessee submitted that the Ld.CIT(A) erred in disallowing 30% of the purchases made from M/s Little Diam ignoring the fact that the purchases were made wholly and exclusively for the purposes of business and the purchases are exported in the normal course of business of the assessee. The Ld.AR further submitted that merely because third parties had made unsubstanti .....

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that purchases from above parties are bogus in nature which is evident from the fact that the parties have accepted before DGIT (Inv) that they are involved in providing accommodation entries. The Ld.DR referring to the decision of Hon ble Supreme Court in the case of N.K. Proteins Ltd in SLP 759 of 2017 dated 16-01-2017 submitted that once it is proved that the purchases are bogus, then addition should be made for entire purchases and not for profit element embedded in such purchases. In this c .....

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e parties as suspicious hawala operators involved in providing accommodation entries. The AO further observed that during the course of search in Bhanwarlal Jain group, Shri Bhanwarlal Jain and his son Shri Rajesh Bhanwarlal Jain admitted that they have floated dummy concerns in the name of friends and relatives, which were engaged in giving accommodation entries. The AO, based on the information received from DGIT (Inv) coupled with further independent enquiries conducted during the course of a .....

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tention of the assessee is that merely because parties have not responded to the notice, addition cannot be made towards purchases, which are supported by proper evidences. The assessee also contended that the AO has not pointed out any irregularity in the books of account or stock statement and in the absence of any finding as to the incorrectness of books of account, addition cannot be made solely on the basis of third party statement. 10. The AO made additions based on the information receive .....

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ct remains that the notices issued u/s 133(6) to the addresses given by the assessee were returned unserved with remark no such parties are available at the given address. Therefore, we are of the considered view that mere production of purchase bill and payment proof would not absolve the assessee of his initial onus to prove the purchases, more particularly, when other facts clearly show a finger on the assessee that the above parties are involved in accommodation entries and the assessee is o .....

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ee. In the absence of any finding as to the incorrectness in books of account and stock registers, purchases cannot be doubted. Under these facts and circumstances it can be concluded that the assessee has obtained bills to reduce profits. Hence, what needs to be taxed in this case is only the profit element embedded in such purchases, but not the entire purchases from the above parties. 11. Having said so, let us examine what is reasonable profit in case of these transactions. Various courts an .....

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