547-Itxa-1278-2018.Doc v. Itr 451 (Guj

Digitally1/5signed byPURTIPURTIPRASADPRASADPARABsigned byPURTIPURTIPRASADPRASADPARABDate: IN THE HIGH COURT OF JUDICATURE AT BOMBAYPARAB2024.02.16PARAB2024.02.1613:54:46ORDINARY ORIGINAL CIVIL JURISDICTION+0530+0530 INCOME TAX APPEAL NO. 1278 OF 2018 The Principal Commissioner of IncomeTax – 32, Mumbai….Appellant V/s.Hitesh Mody (HUF)…Respondent ---- Ms. Swapna Gokhale (through V.C.) a/w Mr. Vaibhav Date for Appellant.Mr. Atul K. Jasani for Respondent. ---- CORAM : K.R. SHRIRAM & DR. NEELA GOKHALE, JJ. DATED : 7[th] FEBRUARY 2024 P.C. : 1.Appellant is impugning an order dated 24[th] May 2017 passed by the Income Tax Appellate Tribunal (ITAT) allowing assessee’s appeal anddismissing Revenue’s appeal. 2.The following substantial questions of law are proposed : QUESTIONS OF LAW I.Whether in law and on the facts and circumstances of the case,was the Tribunal order not perverse, wherein it was content to dismissthe Appeal, by merely excerpting a major part of the order of the CIT(A)without giving reasons for doing so? II. Whether the Tribunal was right in upholding the orders of theCIT(A), that had held 8% of the purchases as non-genuine u/s 69C? III. Whether in law, when purchases are not satisfactorily explainedand added back u/s 69C, could the addition be limited to a certainpercentage as held by the CIT(A) and upheld by the Tribunal in theirperfunctory order? 3. Assessee was a trader in chemicals. During the assessment of his returns filed for the Assessment Year 2011-12, the Assessing Officer(A.O.) came to a conclusion that assessee had indulged in bogus purchasesand disallowed the entire purchases worth Rs.1.35 Crores holding it to beunexplained expenditure under Section 69C of the Income Tax Act, 1961(the Act). Aggrieved with the order, assessee filed an appeal to theCommissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) held, relyingon the Commissioner of Income Tax v. Simit P. Sheth[1]that the entirepurchases could not have been disallowed but only the profit element andproceeded to restrict the unexplained expenditure to only 8% of the totalpurchases made. Against the said order both assessee as well as theRevenue filed an appeal before the ITAT. The ITAT dismissed both theappeals by the order impugned dated 24[th] May 2017. After perusing recordswhich we also go through with the assistance of the counsel, the ITAT foundthat the A.O. has added the entire amount of purchases in assessee’s incomeunder Section 69C of the Act on the basis that assessee has purchased goodsfrom bogus suppliers who only issued bills but do not effect any realtransaction. On the other hand, the CIT(A) restricted the addition to theextent of 8% of the alleged purchases on arriving at a factual finding thatthe A.O. has not doubted the genuineness of the payments being shown byappellant through banking channels. The A.O. has also not questioned theinventory that was subsequently sold. The fact that payments were beingmade through cheque is also not something that was doubted. Therefore, the CIT(A) came to the conclusion that when the A.O. himself has notdoubted the quantity of purchases which has been entered in the books ofaccounts of appellant but only proceeds based on the information receivedfrom Sales Tax authorities that the purchases were made through bogusparties. The CIT(A) relying on Simit P. Sheth (supra) came to a conclusionthat when the total sale is accepted by the A.O., then the entire purchasescannot be added to the income of assessee and what should be added isonly what can be termed a fair profit margin. On facts the CIT(A) came to aconclusion that 8% of the purchases of Rs.1,35,46,250/- would a be fairprofit margin. This factual finding has been accepted by the ITAT. There aremany orders and judgments which also have taken the same stand. the CIT(A) came to the conclusion that when the A.O. himself has notdoubted the quantity of purchases which has been entered in the books ofaccounts of appellant but only proceeds based on the information receivedfrom Sales Tax authorities that the purchases were made through bogusparties. The CIT(A) relying on Simit P. Sheth (supra) came to a conclusionthat when the total sale is accepted by the A.O., then the entire purchasescannot be added to the income of assessee and what should be added isonly what can be termed a fair profit margin. On facts the CIT(A) came to aconclusion that 8% of the purchases of Rs.1,35,46,250/- would a be fairprofit margin. This factual finding has been accepted by the ITAT. There aremany orders and judgments which also have taken the same stand. 4. Ms.Gokhale relied upon a judgment of the Gujarat High Courtin N.K. Industries Ltd. v. Deputy Commissioner of Income Tax[2] to submitthat when it was established that the purchases are bogus the entire amountshould have been added to the income of the assessee. There is no questionof granting any relief in the facts of the case. In the said judgment, the Courtobserved as under : The Tribunal in the case of Vijay Proteins Ltd. Vs. CIT hadobserved that it would be just and proper to direct theAssessing Officer to restrict the addition in respect of theundisclosed income relating to the purchases to 25 % of thetotal purchases. The said decision was confirmed by thisCourt as well. On consideration of the matter, we find thatthe facts of the present case are identical to those of M/sIndian Woolen Carpet Factory (supra) or M/s Vijay ProteinsLtd. In the present case the Tribunal has categoricallyobserved that the assessee had shown bogus purchasesamounting to Rs.2,92,93,288/- and taxing only 25 % of thesebogus claim goes against the principles of Sections 68 andobserved that it would be just and proper to direct theAssessing Officer to restrict the addition in respect of theundisclosed income relating to the purchases to 25 % of thetotal purchases. The said decision was confirmed by thisCourt as well. On consideration of the matter, we find thatthe facts of the present case are identical to those of M/sIndian Woolen Carpet Factory (supra) or M/s Vijay ProteinsLtd. In the present case the Tribunal has categoricallyobserved that the assessee had shown bogus purchasesamounting to Rs.2,92,93,288/- and taxing only 25 % of thesebogus claim goes against the principles of Sections 68 and 69C of the Income Tax Act. The entire purchases shown onthe basis of fictitious invoices have been debited in thetrading account since the transaction has been found to bebogus. The Tribunal having once come to a categoricalfinding that the amount of Rs.2,92,93,288/- representedalleged purchases from bogus suppliers it was not incumbenton it to restrict the disallowance to only Rs.73,23,322/-. Ms.Gokhale submitted that one of the appeal that was disposed by the Gujarat High Court had been filed by one N.K. Proteins Ltd. whoseSLP against the decision of the Gujarat High Court was dismissed by anorder dated 16[th] January 2017. 5.This court in PCIT v. Mohammad Haji Adam & Co.[3] has earlierdistinguished N. K. Industries (supra) observing that the same cannot beapplied without reference to the facts. 6.Also, the Hon’ble Gujarat High Court in PCIT v. JigishaSatishkumar Mehta[4] itself has distinguished N. K. Industries (supra) holdingthat therein the material was available during the course of search whichexposed the falsity of entries made in regular books of accounts. Theunexplained expenditure that is bogus purchases were on the basis offictitious invoices debited in trading account. Hence, the decision of the Hon’ble Gujarat High Court N. K.Industries (supra) has no application to the facts of the present caseinasmuch as herein assessee could not have made sales (which are notdoubted), without making corresponding purchases. 6.Also, the Hon’ble Gujarat High Court in PCIT v. JigishaSatishkumar Mehta[4] itself has distinguished N. K. Industries (supra) holdingthat therein the material was available during the course of search whichexposed the falsity of entries made in regular books of accounts. Theunexplained expenditure that is bogus purchases were on the basis offictitious invoices debited in trading account. Hence, the decision of the Hon’ble Gujarat High Court N. K.Industries (supra) has no application to the facts of the present caseinasmuch as herein assessee could not have made sales (which are notdoubted), without making corresponding purchases. 3. (2019) 103 taxmann.com 459 (Bom) 4. (2023) 155 taxmann.com 279 (Guj) 7.In fact paragraph 8 of N.K. Industries (supra) reads as under : So far as the question regarding addition of Rs.3,70,78,125/-as gross profit on sales of Rs.37.08 Crores made by theAssessing Officer despite the fact that the said sales hadadmittedly been recorded in the regular books duringFinancial Year 1997-98 is concerned, we are of the view thatthe assessee cannot be punished since sale price is acceptedby the revenue. Therefore, even if 6 % gross profit is takeninto account, the corresponding cost price is required to bededucted and tax cannot be levied on the same price. Wehave to reduce the selling price accordingly as a result ofwhich profit comes to 5.66 %. Therefore, considering 5.66 %of Rs.3,70,78,125/- which comes to Rs.20,98,621.88 wethink it fit to direct the revenue to add Rs.20,98,621.88 asgross profit and make necessary deductions accordingly.Accordingly, the said question is answered partially in favourof the assessee and partially in favour of the revenue. 8.It is impossible in this appellate jurisdiction to investigate whatthe product was and what should have been the profit margin. Moreover,the CIT(A) and the ITAT have on facts come to a conclusion that 8% is thereasonable figure. Therefore, in our view, the judgment of N.K. Industries(supra) does not assist Ms.Gokhale’s case. 9.Therefore, we do not find any reason to interfere. 10.Appeal dismissed. (DR. NEELA GOKHALE, J.) (K.R. SHRIRAM, J.)