It Was Also Observed That The A.o. Did Not Doubt The Sale And Himself Hasheld That Purchases Were Made From Parties Other Than The Bogus Billprovider. The Cit[A v. Simit Sheth[1] Estimated The Profitelement At 12.5% On Such Purchase, I.e., 12.5% Of Rs.9,43,858/- Afterholding That Only Profit Element Embedded In Such Purcha

Digitally IN THE HIGH COURT OF JUDICATURE AT BOMBAYsigned byPURTIPURTIPRASADORDINARY ORIGINAL CIVIL JURISDICTIONPRASADPARABPARABDate:2023.07.1514:39:24+0530 INCOME TAX APPEAL NO. 576 OF 2018 The Principal Commissioner of IncomeTax – 19 V/s.Ashwin Purshotam Bajaj ….Appellant …Respondent ---- Mr. Akhileshwar Sharma a/w Ms. Shilpa Goel for Appellant.Mr. Jignesh R. Shah for Respondent. ---- CORAM : K.R. SHRIRAM & FIRDOSH P. POONIWALLA, JJ. DATED : 12[th] JULY 2023 P.C. : 1.The following four substantial questions of law have been proposed in the appeal. QUESTION OF LAW 1.In the facts and circumstances of the case and in Law whether theHon’ble ITAT order is correct in view of the Hon’ble Supreme Courtdecision in N.K. Protein Ltd. Which is upheld 100% addition in that caseon account of bogus purchases? 2.Whether on the facts and circumstances of the case and in Law,the Hon’ble ITAT erred in confirming the decisions of Ld. CIT(A) ofrestricting the estimation of profit at 12.5% of total non-genuinepurchase when it has accepted that these purchases are non genuine asheld by the AO? 3.Whether on the facts and circumstances of the case and in Law,the Hon’ble ITAT erred in overlooking the fact that the addition made bythe AO was based on the details of the scam unearthed by the Sales TaxDepartment wherein it was established that the assessee has taken billsfrom bogus parties without actually making purchases from them? 4.The appellant craves leave to amend or alter any ground or add anew ground which may be necessary. 2.It is appellant’s case that respondent was carrying on soleproprietary business in the name and style of M/s. Shoe Box Inc.Respondent had a retail store selling footwear, bags, belts, wallets etc.Respondent filed his return of income on 29[th] September 2009 forAssessment Year 2009-10 declaring a total income of Rs.6,64,570/-.Regular assessment was completed under Section 143(3) of the Income TaxAct, 1961 (the Act) on 12[th] December 2011 accepting the returned income.On 28[th] March 2013 the assessment was re-opened under Section 148 of theAct and addition on account of alleged accommodation entries taken byrespondent from Hawala dealers were added to his income. The AssessingOfficer (A.O.) had received information from Sales Tax Authority,Government of Maharashtra. The A.O. came to a conclusion afterconsidering the depositions and affidavits filed before the Sales TaxAuthority that the entities from whom respondent is alleged to havepurchased were only indulging in bogus accommodation entries withoutsupply of any goods. Since none of the parties to whom notice underSection 133(6) of the Act was issued had responded, the A.O. treated purchaseamounting to Rs.90,33,191/- as bogus and added the same to the returnedincome for Assessment Year 2009-10. The assessment under Section 143read with Section 147 of the Act was completed on 30[th] March 2014determining total income at Rs.97,58,670/-. 3.The Assessment Order was impugned before the Commissionerof Income Tax (Appeals) (CIT[A]). The CIT[A] partly allowed the appeal.Purti Parab It was also observed that the A.O. did not doubt the sale and himself hasheld that purchases were made from parties other than the bogus billprovider. The CIT[A] relying upon the decision of the Hon’ble Gujarat HighCourt in Commissioner of Income Tax vs Simit Sheth[1] estimated the profitelement at 12.5% on such purchase, i.e., 12.5% of Rs.9,43,858/- afterholding that only profit element embedded in such purchases could beadded to the assessee’s income. 4.Both Revenue as well as assessee were unhappy with thefindings of CIT[A] and filed an appeal before the Income Tax AppellateTribunal (ITAT). The ITAT dismissed both the appeals by the impugnedorder pronounced on 13[th] April 2017. It was also observed that the A.O. did not doubt the sale and himself hasheld that purchases were made from parties other than the bogus billprovider. The CIT[A] relying upon the decision of the Hon’ble Gujarat HighCourt in Commissioner of Income Tax vs Simit Sheth[1] estimated the profitelement at 12.5% on such purchase, i.e., 12.5% of Rs.9,43,858/- afterholding that only profit element embedded in such purchases could beadded to the assessee’s income. 4.Both Revenue as well as assessee were unhappy with thefindings of CIT[A] and filed an appeal before the Income Tax AppellateTribunal (ITAT). The ITAT dismissed both the appeals by the impugnedorder pronounced on 13[th] April 2017. 5.We need not go into the details because there have beenmany such matters which have come up before us where similar issues havebeen raised. It has been repeatedly held that Section 69 of the Act was notapplicable to these bogus purchases as only profit has to be added in theincome of the assessee. The only issue that requires to be considered is withrespect to the extent of ad-hoc dis-allowance with respect to boguspurchases. Whether purchases were bogus or whether the parties fromwhom such purchases were allegedly made were bogus is essentially aquestion of fact. Mr. Sharma relied upon a Judgment of theHon’ble Gujarat High Court in the case of N.K. Industries Limited vs. Deputy 1 (2013) 38 Taxmann.com. 385 (Guj) Commissioner of Income Tax [2] and connected appeals decided on 20[th] June2016. 6.In the present case, one thing is clear is that the A.O. has notdoubted the sales made by respondent against the purchases. Similarcase of respondent was also considered by the Tribunal with regard to issuesfor Assessment Year 2010-11. In that also the Tribunal has observed thatthe A.O. has not doubted the sales made by assessee against the purchasesand assessee has reconciled the quantitative details of stock as per saleinvoices. The A.O. has observed that respondent has purchased materialfrom someone else while bogus bills were organized by these HawalaTraders. Therefore, at least to the extent even if it has been purchased fromHawala Traders the indisputable fact is that the purchases have been madeand admittedly quantitative reconciliation of the stock was done byrespondent of sale and purchase. The ITAT therefore accepted theexplanation of respondent that only the profit element in theseaccommodation entries are to be added to the income. The CIT(A) hasrestricted the addition by estimating the gross profit at 12.5%. Whetherthat is the right estimate is a question of fact. Therefore, we see no reasonto interfere. 7.Appeal dismissed. (FIRDOSH P. POONIWALLA, J.) (K.R. SHRIRAM, J.) 2 Tax Appeal No. 240 of 2003 Purti Parab