Only the profit element on bogus purchases can be taxed
The facts and Issues of the case
The assessee is engaged in the manufacturing and trading of jewelry items. The Assessing Officer, on verification of information received from the Maharashtra Sales Tax Department, observed that the assessee was one of the beneficiaries of Hawala purchases. Such amount of bills stood at Rs.27,91,507/-. The assessee was called upon to prove the genuineness of the purchases so made. The assessee submitted certain details. Not convinced, the AO made the addition equal to the amount of Hawala purchase bills, which got confirmed in the first appeal. Aggrieved thereby, the assessee had approached the Tribunal.
Observations by the Court
The court has heard both sides and gone through the relevant material available on record, it is observed that the assessee allegedly purchased diamonds through the Hawala purchase bills and thereafter utilized the same in the manufacture of the jewellery. In such a situation, the entire amount of purchase bills does not requires addition but only the profit element because the diamonds must have been actually purchased at lower prices in lieu of which costly hawala purchases were recorded, which were used in the jewellery-making,. Respectfully following the precedent, the court deems it appropriate to restrict the addition to 10% of the amount of purchases. It is ordered accordingly.
In hawala purchases, the entire purchases are not taxed. Only the profit on those purchases can be taxed.Navin-Sirahmal-Mukim-Vs-ITO-ITAT-Pune