B)Whether On The Facts And In The Circumstances Of The Case, The Learned Itat Has Erred In Law And On Facts In Relying Upon The Decision Of This Hon'ble Court I v. For The Sake Of Convenience, Reference Is Made To The Facts Of Tax Appeal

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 1209 of 2018With R/TAX APPEAL NO. 1210 of 2018With R/TAX APPEAL NO. 1211 of 2018With R/TAX APPEAL NO. 1212 of 2018With R/TAX APPEAL NO. 1213 of 2018 ========================================================== PRINCIPAL COMMISSIONER OF INCOME TAX VADODARA 2VersusM/S SYNBIOTICS LTD ========================================================== Appearance:MR.VARUN K.PATEL(3802) for the APPELLANT (s) No. 1MR B S SOPARKAR(6851) for the RESPONDENT(s) No. 1 ========================================================== CORAM: HONOURABLE MS.JUSTICE HARSHA DEVANIandHONOURABLE DR.JUSTICE A. P. THAKER Date : 05/02/2019 COMMON ORAL ORDER (PER : HONOURABLE MS.JUSTICE HARSHA DEVANI) 1.All these appeals under section 260A of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) arise out of a common order dated 13.12.2017 passed by the Income Tax Appellate Tribunal, Ahmedabad Bench, Ahmedabad (hereinafter referred to as “the Tribunal”) and hence, the same were taken up for hearing and are decided by this common judgment. 2.The appellant revenue has called in question the above referred order passed by the Tribunal in relation to assessment years 1993-94, 1994-95, 1995-96, 1996-97 and 1997-98 by proposing the following two common questions stated to be substantial questions of law:- “(a) Whether on the facts and in the circumstances of the case, the learned ITAT has erred in law and on facts in upholding order of the CIT(A) in restricting the addition/disallowances on account of bogus purchases to 25% Instead of entire amount of bogus purchase ignoring the fact that Shri F. H. Rizvi and his associates are only paper concerns and there was no physical movement of goods relating to bogus purchase bill?case, the learned ITAT has erred in law and on facts in upholding order of the CIT(A) in restricting the addition/disallowances on account of bogus purchases to 25% Instead of entire amount of bogus purchase ignoring the fact that Shri F. H. Rizvi and his associates are only paper concerns and there was no physical movement of goods relating to bogus purchase bill? (b)Whether on the facts and in the circumstances of the case, the learned ITAT has erred in law and on facts in relying upon the decision of this Hon'ble Court in the case of N.K. Industries Ltd. vs. DCIT, 292 CTR 354 (Guj) in restricting the addition of bogus purchases ignoring the fact that in that case, this Hon'ble Court observed that taxing only 25% of these bogus claim goes against the principles of section 68 and 69C of the Income Tax Act?”case, the learned ITAT has erred in law and on facts in relying upon the decision of this Hon'ble Court in the case of N.K. Industries Ltd. vs. DCIT, 292 CTR 354 (Guj) in restricting the addition of bogus purchases ignoring the fact that in that case, this Hon'ble Court observed that taxing only 25% of these bogus claim goes against the principles of section 68 and 69C of the Income Tax Act?” 3.For the sake of convenience, reference is made to the facts of Tax Appeal No.1213 of 2018, which relates to assessment year 1993-94. 4.The assessee is engaged in the business of manufacturing and marketing of various bulk drugs and pharmaceutical preparations. Search came to be carried out at manufacturing and marketing of various bulk drugs and pharmaceutical preparations. Search came to be carried out at 3.For the sake of convenience, reference is made to the facts of Tax Appeal No.1213 of 2018, which relates to assessment year 1993-94. 4.The assessee is engaged in the business of manufacturing and marketing of various bulk drugs and pharmaceutical preparations. Search came to be carried out at manufacturing and marketing of various bulk drugs and pharmaceutical preparations. Search came to be carried out at the business as well as residential premises of Shri F.H. Rizvi on 8.12.1998 and it was found that Shri Rizvi was running ten concerns which were mainly used for issuing bogus bills. Shri Rizvi admitted that for a nominal commission they used to issue bogus bills to various parties and the amount received by way of sale consideration by cheque was returned to them in cash. Since the entire transaction was only on paper, no actual movement of goods had taken place. From the statement of Shri Rizvi, the Assessing Officer found that he had confirmed that the firms named therein were nonexistent and were created by him in various names only to issue bogus sale bills to various Pharmaceutical Companies. Shri Rizvi confirmed bogus sales to Sun Pharma Group and further confirmed that the total sales made by him to any company were bogus, there was no physical movement of goods and that the bills, delivery challans, transport receipts, etc. issued by them were bogus. The assessee company claimed to have made purchases from the group concerns of Shri Rizvi. 5.During the financial year relevant to assessment year 1993-94, the assessee company purchased 3000 kilograms of Tetracycline HCL for Rs.41,73,000/- from M/s R.V. Chem. The assessee company had not furnished the details of gross profit and yield in the format called for. The assessee company furnished copies of purchase bills issued by M/s. R.V. Chem, its ledger account, relevant portion of purchase journal, test reports of tests carried out by the assessee company, details of payments made to M/s. R.V. Chem, relevant portion of stores register, lorry receipts and produced purchase ledger, bank books and stores register. Relying upon this evidence, the assessee claimed that the purchases made by it were genuine and the goods were physically received. 6.In the light of the statement made by Shri Rizvi, the Assessing Officer held that the evidence produced by the assessee was not genuine. He, thereafter, called upon the assessee to provide the details of gross profit and yield in the format specified in the notice under section 142(1) of the Act. The assessee was also called upon to explain the fall in the ratio. The assessee submitted such details. On the basis of the details provided by the assessee company, the Assessing Officer worked out the yield ratio and found that during the period from assessment years 1992-93 to 1997-98, there was a big variation in actual yield achieved from 94.75% to 108.12% and that the actual yield achieved by the assessee company for assessment year 1994-95 is 107.95%. According to the Assessing Officer, it is impossible to generate anything from thin air and that the assessee had not explained this abnormal output. That there are standard formulas for pharmaceutical companies as per which such big variation is not possible. 7.The assessee submitted that if the purchases are considered bogus, this would result in a situation of abnormal input-output ratio and in some cases the output would be more than the input. The Assessing Officer held that in the absence of yield ratio, the consumption of raw material has not been satisfactorily explained by the assessee which proves that the purchased quantity of tetracycline from Rizvi Group never reached the assessee company in physical form and this fact has been admitted by the supplier of the goods. 7.The assessee submitted that if the purchases are considered bogus, this would result in a situation of abnormal input-output ratio and in some cases the output would be more than the input. The Assessing Officer held that in the absence of yield ratio, the consumption of raw material has not been satisfactorily explained by the assessee which proves that the purchased quantity of tetracycline from Rizvi Group never reached the assessee company in physical form and this fact has been admitted by the supplier of the goods. 8.The assessee also submitted that if the purchases are held to be bogus, the corresponding sales be excluded. The Assessing Officer did not accept the plea on the ground that the purchase from M/s. R.V. Chem was just 4.0% of the total cost of material consumed. The assessee company had not provided the reason for decrease in gross profit ratio and details of yield as called for. He, accordingly, held that the assessee had accounted a meagre amount of bogus purchases in its books of account and there was no actual purchase of goods. He further held that looking to the variation in yield, it could not be proved that without receipt of material shown as purchased, production was not possible, and rejected the assessee’s contention regarding corresponding set off of sales. 9.From the suppliers ledger control account, the Assessing Officer found that up to 31.3.1993, out of the purchases, the assessee had accounted for bill No.111 dated 13.11.1991 for Rs.21,02,500/- on 30.9.1992 in financial year 1992-93 relevant to assessment year 1993-94. According to the Assessing Officer, there was no reason for keeping the bill unaccounted for such a long period. Since during the course of assessment proceedings, the assessee had claimed to have purchased goods worth Rs.41,73,000/- the Assessing Officer held such purchases to be bogus purchases made from M/s R.V. Chem and disallowed such purchases of Rs.41,73,000/- as bogus and added Rs.21,02,500/- to the total income of the assessee. He, accordingly, made addition of Rs.62,75,500/- towards bogus purchases for that assessment year. 10.The assessee carried the matter in appeal before the Commissioner (Appeals), who, vide order dated 27.2.2014 observed that similar issues were involved in the assessee’s own case for assessment year 1992-93 wherein he had upheld the disallowance on account of bogus purchases but had restricted the disallowance to 25% of such bogus purchases and directed that the balance disallowance be deleted. In respect of assessment year 1992-93, before the Commissioner (Appeals) it had inter alia been contended by the assessee that the sales of bulk drug as such, finished products manufactured and stock of finished products were offered for taxation in the return of income and that without the purchase of materials from the party, the production, sales and stocks would not have been to the extent as declared by the assessee and taxed by the Assessing Officer. The Commissioner (Appeals) noted that the assessee had purchased Kollidone and Tetracycline HCL and Amphotericyn compound as well as various formulations. The Commissioner (Appeals) after appreciating the material on record came to the conclusion that the purchases shown by the assessee as having been made from the concerns of Shri Rizvi are not genuine. He, however, was of the view that at the same time, the fact remains that the assessee had produced goods by utilizing such bulk drugs, and hence, the entire purchases cannot be disallowed. Following the ratio of the decision of the Tribunal in Themis Medicare, the Commissioner (Appeals) directed that the disallowance made by the Assessing Officer be restricted to 25% of the total purchases made by the assessee from the concerns of Shri F.H. Rizvi and the balance disallowance be deleted. 11.Revenue went in appeal before the Tribunal. By the common impugned order passed in respect of assessment years 1992-93 to 1997-98, the Tribunal dismissed the appeals. The Tribunal found that the Assessing Officer had treated certain purchases as bogus but, at the same time, he had accepted the corresponding sales made out of such bogus purchases. The Tribunal further observed that the general principle of accounting says that all expenses have to be debited and all income has to be credited and since the purchases are debit entries, it failed to understand as to how the debit entries have been treated as income of the assessee. The Tribunal found that an identical issue was considered by the jurisdictional High Court in N. K. Industries Limited v. DCIT, 292 CTR 354 (Guj). Following the said decision the Tribunal did not interfere with the findings of the Commissioner (Appeals) in restricting the addition/disallowances to 25% of the bogus purchase and dismissed all the appeals. 12.Mr. Varun Patel, learned senior standing counsel for the appellant submitted that the Tribunal had erred in upholding the order of the Commissioner (Appeals) in restricting the addition/disallowance on account of bogus purchases to 25% instead of the entire amount of bogus purchases, ignoring the fact that the concerns of Shri F.I. Rizvi and his associates are only paper concerns and there was no physical movement of goods relating to bogus purchase bills. 12.1The attention of the court was invited to the decision of this court in the case of N.K. Industries Ltd. v. DCIT (supra), to point out that in the facts of the said case, the court had held that the assessee had shown bogus purchases amounting to Rs. 2 crore and odd and taxed only 25% of these bogus claims against the provisions of sections 68 and 69C of the Income Tax Act. The entire purchases shown on the basis of fictitious invoices have been debited in the trading account since the transaction was found to be bogus. The Tribunal having once come to a categorical finding that the amount of Rs.2 crore and odd represented alleged purchases from bogus suppliers, it was not incumbent on it to restrict the disallowance to only Rs.73 lakh and odd. It was submitted that, therefore, on the contrary, the above decision goes against the assessee and could not have been placed reliance upon by the Tribunal for restricting the disallowance up to to 25% of the bogus purchases. 12.2It was submitted that the decision of this court in the case of Vijay Proteins Ltd. v. Commissioner of Income Tax, (2015) 58 taxmann.com 44(Gujarat) does not lay down any absolute proposition of law that in every case of bogus purchases, the disallowance should be limited to 25% 12.3The learned counsel also relied upon the decision of the Bombay High Court in the case ofShoreline Hotel (P.) Ltd. v. Commissioner of Income Tax Central-I, (2018) 98 taxmann.com 234 (Bombay), where on the basis of information received from Sales Tax authorities, the Assessing Officer found that the assessee was the beneficiary of bogus purchase bills and the assessee could not produce any material purchased by it nor could it ensure presence of the supplier, the court held that the Assessing Officer was unjustified in limiting addition under section 69C on the basis of GP ratio. 12.4Reliance was also placed upon the order dated 18.6.2018 made by a coordinate Bench in Tax Appeal No.606 of 2018 and allied matters, wherein the tax appeals came to be admitted on the question as to whether the Appellate Tribunal had erred in law and on facts of the case in restricting the addition of 25% of the value of alleged purchases after categorically finding it to be bogus. It was submitted that the question involved in the present case being similar to the question involved in that case, the appeals deserve to be admitted on such question of law. limiting addition under section 69C on the basis of GP ratio. 12.4Reliance was also placed upon the order dated 18.6.2018 made by a coordinate Bench in Tax Appeal No.606 of 2018 and allied matters, wherein the tax appeals came to be admitted on the question as to whether the Appellate Tribunal had erred in law and on facts of the case in restricting the addition of 25% of the value of alleged purchases after categorically finding it to be bogus. It was submitted that the question involved in the present case being similar to the question involved in that case, the appeals deserve to be admitted on such question of law. 12.5It was, accordingly, urged that the appeals do give rise to a substantial question of law as proposed or as may be deemed fit by this court. 13.Opposing the appeal, Mr. B. S. Soparkar, learned advocate for the respondent assessee tried to address the court on the merits of the findings of the authorities as regards the purchase being bogus. However, since the assessee has not preferred any appeal against the order of the Commissioner (Appeals), the finding regarding the purchases not being genuine has become final. Hence, it is not permissible for this court to go into the merits of such finding. 13.1The learned advocate further invited the attention of this court to the decision of this court in the case of Vijay Proteins Ltd. v. Commissioner of Income Tax (supra) to submit that the Tribunal having recorded a concurrent finding of fact to the effect that there were corresponding sales in respect of the alleged bogus purchases, has rightly restricted the disallowance to 25% of the bogus sales. It was submitted that the issue involved in this case being squarely covered by the decision of this court in the case of Vijay Proteins Ltd. v. Commissioner of Income Tax (supra), the Tribunal did not commit any error and that the impugned order passed by the Tribunal does not give rise to any question of law so as to warrant interference. 14.In the light of the rival submissions, the question that arises for consideration is whether the restriction of disallowance in respect of bogus purchases to 25% thereof is justified. 15.As can be seen from the order passed by the Commissioner (Appeals), he, after appreciating the material on record, has recorded a finding of fact to the effect that the assessee had produced goods by utilising such bulk drugs and it is in the light of such finding of fact recorded by him that he has restricted the disallowance on account of bogus purchases to 25%. The Tribunal has not disturbed such finding of fact recorded by the Commissioner (Appeals). A perusal of the proposed questions shows that the appellant has neither challenged the concurrent finding of fact recorded by the Commissioner (Appeals) and the Tribunal, nor has it been pleaded that the findings of fact recorded by the Tribunal are perverse. The Tribunal has concurred with the finding of fact recorded by the Commissioner (Appeals) that the assessee had produced goods by utilising bulk drugs and has followed the decision of this court in the case of N.K. Industries Ltd. v. Deputy Commissioner of Income-tax (supra), wherein the court has relied upon its earlier decision in Vijay Proteins Ltd. v. Commissioner of Income Tax (supra), wherein it has been held thus:- “16. It is a matter of fact that the goods were not received from the parties from whom it is shown to have been purchased but, such material was received from a different source which is exclusively within the knowledge of the assessee and none else. Therefore, it is evident that the assessee had inflated the expenditure in question by showing higher amount of purchase price through the fictitious invoices in the names of 33 bogus suppliers. Considering the overall factual scenario, the Tribunal was justified in disallowing 25% of the purchase price.” court has relied upon its earlier decision in Vijay Proteins Ltd. v. Commissioner of Income Tax (supra), wherein it has been held thus:- “16. It is a matter of fact that the goods were not received from the parties from whom it is shown to have been purchased but, such material was received from a different source which is exclusively within the knowledge of the assessee and none else. Therefore, it is evident that the assessee had inflated the expenditure in question by showing higher amount of purchase price through the fictitious invoices in the names of 33 bogus suppliers. Considering the overall factual scenario, the Tribunal was justified in disallowing 25% of the purchase price.” 16.This court in Sanjay Oilcake Industries v. CIT, (2009) 316 ITR 274 (Gujarat), on which reliance has been placed in the case of Vijay Proteins Ltd. v. Commissioner of Income-tax (supra), recorded the findings of the Tribunal, wherein the Tribunal had concurred with the action of the Commissioner (Appeals) for confirming 25% of the amount claimed as fair and reasonable. The Tribunal found that the parties from whom the purchases were shown to have been made were perhaps creation of the assessee itself for the purpose of banking purchases into books of account because the purchases with bills were not feasible. Thus, the said parties become conduit pipes between the assessee firm and the sellers of the raw materials. Under the circumstances, it was not impossible for the assessee to inflate the prices of raw materials. The Tribunal, accordingly, held that an addition of 25% for extra price paid by the assessee than over and above the prevalent price is fair and reasonable and, accordingly, confirmed the findings of the Commissioner (Appeals). This court concurred with the findings of the Commissioner (Appeals) and the Tribunal and held that the estimate made by the two appellate authorities did not warrant interference as even otherwise, whether the estimate should be at a particular sum or at a different sum, can never be an issue of law. 17.In the facts of the present case, the Tribunal, having concurrently found that there were corresponding sales in respect of the bogus purchases, was wholly justified in confirming the order passed by the Commissioner (Appeals) in restricting the bogus purchases to 25% of the bogus purchases. Since the Tribunal as well as the Commissioner (Appeals), have merely followed the decision of the jurisdictional High Court, no infirmity can be found in the impugned order passed by the Tribunal warranting interference. However, it may be clarified that the quantum of deduction, namely, 25% cannot be said to be a fixed standard, inasmuch as, in the case of Sanjay Oilcake Industries v. Commissioner of Income tax (supra) what the court has held was that the extent of restriction was merely an estimate and that an estimate cannot give rise to a question of law. Nonetheless, having regard to the facts and circumstances of this case, this court does not find any warrant for interference. 18.Insofar as the decision of the Bombay High Court in the case of Shoreline Hotel (P.) Ltd. v. Commissioner of Income Tax (supra) is concerned, the controversy involved in the said case was as regards the validity of exercise of power under section 263 of the Act and while the case involved bogus purchases, no principle has been enunciated in that regard. Moreover, in the facts of the said case, the assessee was engaged in running a hotel and there were no corresponding sales against those purchases. The said decision, therefore, would have no applicability to the facts of the present case. 18.Insofar as the decision of the Bombay High Court in the case of Shoreline Hotel (P.) Ltd. v. Commissioner of Income Tax (supra) is concerned, the controversy involved in the said case was as regards the validity of exercise of power under section 263 of the Act and while the case involved bogus purchases, no principle has been enunciated in that regard. Moreover, in the facts of the said case, the assessee was engaged in running a hotel and there were no corresponding sales against those purchases. The said decision, therefore, would have no applicability to the facts of the present case. 19.In the light of the above discussion, the conclusion arrived at by the Tribunal being based upon a finding of fact, namely, that there were corresponding sales in respect of the bogus purchases, the impugned order passed by the Tribunal cannot be said to give rise to any question of law, much less, a substantial question of law warranting interference. The appeals, therefore, fail and are, accordingly, dismissed. (HARSHA DEVANI, J) Z.G. SHAIKH (A. P. THAKER, J)