The High Court of Bombay held that though genuineness of the purchases and sales were not proved, yet it was noted that the Assessing Officer(AO) had accepted the sales and gross profit declared in the return of income. CIT(A) held that there can be no sales without purchases. When the sales were accepted, then the entire purchases could not be disallowed.
The respondent, Rishabhdev Technocable Ltd. is a company that is engaged in the business of manufacturing and dealership of all kinds of industrial power controlling instrument cables and related items. For the assessment year, 2010-11 assessee filed e-return of income declaring income of Rs.1,35,31,757.00. In addition, the assessee also declared income of Rs. 3,64,15,007.00 under Section 115JB of the Act. The case was selected for scrutiny and in scrutiny, proceedings Assessing Officer noticed that the Sales Tax Department, Government of Maharashtra had provided a list of persons who had indulged in the unscrupulous act of providing bogus hawala entries and purchase bills. Names of beneficiaries were also provided. Assessing Officer noticed that assessee was one of the beneficiaries of such bogus hawala bills. Assessing Officer referred to purchases allegedly made by the assessee through four hawala entries for the assessment year under consideration.
In this case, Tribunal noted that it was an admitted fact that the Assessing Officer did not object to the sales made by the assessee. Therefore, it was evident that they were corresponding purchases. Having noted the above, Tribunal examined the books of accounts of the assessee wherefrom it was found that the assessee had made payments on account of the purchases through account payee cheques and the purchases were entered in its books of account. Thus, the assessee was able to prove that the purchases were made only in an alternative way. If that be so, then Revenue was only required to estimate the profit at a particular rate.
Referring to the figure of 2% arrived by the CIT(A), Tribunal observed that assessee’s gross profit varied from 5% to 8.77%. Since the purchases were made from the grey market, the corresponding profit element would be a little higher. Therefore, Tribunal directed the Assessing Officer to make further addition of 3% on the bogus purchases and to estimate the income on such a basis.
The court consists of Justice Milind N. Jadhav and Justice Ujjal Bhuyan did not found any error or infirmity in the view taken by the Tribunal and held that though genuineness of the purchases and sales were not proved, yet it was noted that the Assessing Officer had accepted the sales and gross profit declared in the return of income. CIT(A) held that there can be no sales without purchases. When the sales were accepted, then the entire purchases could not be disallowed.
Therefore, it was held that whether the purchases were bogus or whether the parties from whom such purchases were allegedly made were bogus was essentially a question of fact.
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