The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) in its recent ruling in the case of Dhanesh Mulji Gala has held that the profit element from bogus purchases made through the hawala dealers are subject to income tax.
Facts of the Case:
The assessee, Dhanesh Mulji Gala engaged in the business of trading in Ferrous metals. The AO received information that these assessees have purchased materials from persons, who were identified as hawala dealers. The allegation is that these hawala dealers were providing bogus bills only, without actually supplying the materials. Accordingly, the AO reopened the assessments and held that the purchases made by these assessees from the alleged hawala dealers are bogus in nature.
The AO further took the view that the profit element embedded in the alleged bogus purchases is liable to assessed in the hands of these assessees. Accordingly, the AO estimated the profit element embedded in the non-genuine purchases @ 12.50% of the value of purchases and assessed it in all the years under consideration in the hands of respective assessees.
The Assessee filed appeal before CIT(A) against the above order which were dismissed and assessee have filed appeal before the ITAT now.
Order of ITAT:
ITAT observed that that the Ld CIT(A) has confirmed the additions by following the decision rendered by Hon’ble Gujarat High Court in the case of Simit P Sheth wherein it has been held that the profit element involved in the bogus purchases should be brought to tax.
Since Learned CIT(A) has followed the decision rendered by Hon’ble Gujarat High Court, ITAT did not find any reason to interfere with the orders so passed by him in the hands of both the assessees for the years under consideration.
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Frah Saeed is a law graduate specializing in the core field of indirect taxes and is the Co-founder of taxwallah.com. She has authored many publications on GST and is into full-time consultancy on GST to big corporates. She as a part of taxwallah.com heads a team comprising of Chartered Accountants and Advocates and plays a key role in our mission to disseminate GST knowledge to all.
