The Bombay High Court Ruled that only the Profit Element of Bogus Purchases to be Included in Taxable Income.
Facts
Respondent was carrying on sole proprietary business in the name and style of M/s. Shoe Box Inc. Respondent had a retail store selling footwear, bags, belts, wallets etc. Respondent filed his return of income on 29th September 2009 for Assessment Year 2009-10 declaring a total income of Rs.6,64,570/-.
Regular assessment was completed under Section 143(3) of the Income Tax Act, 1961 on 12th December 2011 accepting the returned income. On 28th March 2013 the assessment was re-opened under Section 148 of the Act and addition on account of alleged accommodation entries taken by respondent from Hawala dealers were added to his income.
The Assessing Officer (A.O.) had received information from the Sales Tax Authority, Government of Maharashtra. The A.O. came to a conclusion after considering the depositions and affidavits filed before the Sales Tax Authority that the entities from whom the respondent is alleged to have purchased were only indulging in bogus accommodation entries without supply of any goods.
Since none of the parties to whom notice under Section 133(6) of the Act was issued had responded, the A.O. treated purchase amounting to Rs.90,33,191/- as bogus and added the same to the returned income for Assessment Year 2009-10.
Decision
The division bench of Justice Firdosh P. Pooniwalla And Justice K.R. Shriram noted that the A.O. has observed that respondent has purchased material from someone else while bogus bills were organized by these Hawala Traders. Therefore, at least to the extent even if it has been purchased from Hawala Traders the indisputable fact is that the purchases have been made and admittedly quantitative reconciliation of the stock was done by respondent of sale and purchase.
The bench observed that the ITAT therefore accepted the explanation of respondent that only the profit element in these accommodation entries are to be added to the income. The CIT(A) has restricted the addition by estimating the gross profit at 12.5%.
Case title: The Principal Commissioner of Income v/s Ashwin Purshotam Bajaj
Citation: INCOME TAX APPEAL NO. 576 OF 2018
