The Pune bench of the Income Tax Appellate Tribunal ( ITAT ) has held that the Taxing of Bogus purchase GP rate violates Income Tax Act,100% disallowance towards Bogus /Hawala Purchase is valid.
The Revenue challenged the order of the Commissioner of Income Tax passed under section 250 of the Income tax Act, 1961. Shri Pritam S Mahale, the respondent-assessee is an individual and Govt Civil Contractor who had filed his return of income declaring a total income of ₹1,38,98,500/-.
The sales tax department of Maharashtra conducted several raids on sales tax evader who are found to have engaged in hawala transaction extending tax invoices without actual transaction, and the information of such Hawala Operators / Entry Providers were passed on to DGIT (Inv) Pune, which in turn shared the information in respect of the responded assessee who alleged to have involved in hawala transactions with ten hawala operators/entry providers for a total amounting to ₹64,33,495/-
The case of the assessee was reopened by a service of notice u/s 148 dt. 13/03/2014 and was put to notice to prove the genuineness of alleged hawala purchases and the existence of ten hawala operators. In the absence of a shred of evidence showcasing the existence of hawala dealers and physical movement of goods viz; purchase order, lorry receipt, weigh-ment slips, octroi receipts, goods received a note, gate entry register and stock register etc.
The AO treating the total hawala purchases of ₹64,33,495/- as bogus, culminated in the assessment u/s 143 r.w.s. 147 of the Act, by disallowing the entire amount debited to the profit & loss account [“P&L”]. The CIT(A) restricted the disallowance to recomputed gross profit ratio/margin [“GP”] @16.96%
It was argued that the action of CIT(A) merits reversal for the reasons that, the respondent-assessee is not a dealer or trader but a Civil Contractor who has failed to prove the existence of hawala operators and showcase physical movement vis-à-vis consumption of goods by placing on record stock register, goods received a note, gate entry register, octroi receipts, lorry receipts etc.
In light of the case of “NK Proteins Ltd vs DCIT” (Supra) a Coram comprising Shri S S Godara, Judicial Member and Shri G D Padmahshali, Accountant Member observed that the amount of bogus purchases ₹64,33,495/- is debited to P&L by fictitious tax invoices and the respondent-assessee failed to establish the consumption of such goods in the execution of the civil contract by adducing such stock movement records to the satisfaction of AO.
Further held that taxing such bogus purchases GP rate of goes against the principles of taxation embedded in chapter VI of the Act and upheld the assessment order of the AO in making 100% disallowance towards bogus / hawala purchases. The appeal of the appellant revenue was allowed.
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