Itxa 441.18.Docx v. The Revenue As Well As The Assessee Challenged This Order Before The

Digitally signedURMILAby URMILAPRAMODPRAMODINGALEINGALEDate:2023.07.0610:38:32 +0530 IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO. 441 OF 2018 Principal Commissioner of Income TaxVs.Hiren C. Parekh ….. Appellant ….. Respondent Ms. Sushma Nagaraj a/w Ms. Kinjal Patel and Ms. Vibhuti Keny, forAppellant.None for Respondent. CORAM:K.R.SHRIRAM, J &FIRDOSH P. POONIWALLA, J. DATED :JUNE 28, 2023 P.C. 1.The appeal is against the order passed by the Income Tax AppellateTribunal, Mumbai (‘ITAT’) on 07/06/2017 for the Assessment Year 2010- 11 by which ITAT sustained addition towards gross profit on boguspurchases but reduced the same from 12% to 8%. 2.The substantial questions of law proposed are as under: a) Whether in law and on the facts andcircumstances of the case, was the Tribunalorder not perverse, wherein it was content tomerely excerpt a portion of the orders of theCIT(A) without giving any reasons as to whyit had agreed with the decision? b) Whether the Tribunal was right in furtherreducing the addition to 8% of the value ofthe tainted purchases as against 12% of the 1/5 same as held by the CIT(A). c) Whether in law and on the facts of thecase, was the Tribunal correct in ignoring thedecision of the Gujarat High Court in N.K.Proteins? 3.Appellant’s Counsel was unable to show any formula by which thedisallowance towards gross profit on bogus purchases could be arrived at.This was a case where the Assessing Officer (‘AO’) during the course ofassessment proceedings found the assessee had made total purchases ofRs.2,03,55,145/- and accordingly, called upon the assessee to file details ofpurchases made during the year along with names and addresses of thesuppliers. During this process, AO found from the website of theGovernment of Maharashtra, Sales Tax Department certain parties fromwhom assessee had made certain purchases were engaged in providingaccommodation entries in respect of bogus purchases. The AO claims tohave issued notice under Section 133(6) of the Income Tax Act, 1961 tothe parties but the same were returned unserved with the postal remarks‘addressee are not known’ and ‘unclaimed’. The AO therefore added theentire amount of purchases made from these parties to the total income ofthe assessee for the reason that the parties were not genuine and allpurchases made by the assessee were in doubt. 4.We have considered the order of the AO. The AO does not dispute that purchases have been actually made but what is disputed is whetherpurchases have been made from the said 4 parties. The fact that paymentswere made to these parties by way of account payee cheques is also notquestioned by AO. The AO has not given any finding as to whether he haseven approached the bank or made any enquiries with the bank to find outgenuineness of those payments. It is of course recorded that the noticessent to those persons came back undelivered and assessee was unable toprovide any actual delivery challans. What is material to note is that thepurchases themselves were not being disputed and what is disputed isgenuineness of the sellers. Therefore, in view of these factors, CIT(A),relying on a judgment of the Gujarat High Court in 1CIT Vs. Simit Sheth ,came to a conclusion that not the entire purchases, but only profit elementembedded in such purchases can be added to the income of the assessee.CIT(A) while deciding what is appropriate profit element percentage hasvery correctly stated that though there is no uniform yardstick adopted,while looking at the norms in the market and considering the trade of theassessee, 12% gross profit on the impugned component of purchases isappropriate and directed the same to be added to the profit of the assesseefor that year. 5.The Revenue as well as the assessee challenged this order before the 1(2013) 356 ITR 451 (Guj) ITAT and the ITAT by impugned order dated 07/06/2017 partly allowedthe assessee’s appeal and reduced the gross profit to be applied from 12%to 8%. 5.The Revenue as well as the assessee challenged this order before the 1(2013) 356 ITR 451 (Guj) ITAT and the ITAT by impugned order dated 07/06/2017 partly allowedthe assessee’s appeal and reduced the gross profit to be applied from 12%to 8%. 6.Ms. Nagaraj submitted that except reproducing the portion of theorder of CIT(A), no reasons have been given as to why it should bereduced from 12% to 8%. 7.What is sufficient reason would vary from case to case and havingconsidered paragraph 6 of the impugned order, we are satisfied that whathas weighed in the mind of ITAT is that assessee had already declared7.5% as gross profit. Of course, assessee had taken a stand that deferencebetween 12% and 7.5% should be sustained and gross profit of 4.5% beapplied. It is this proposal, we feel, made ITAT come to a mid figure of8%. These are all calculations arrived at on the basis of the facts beforeITAT and what is argued before the ITAT. 8.Moreover, what would be actual profit margin in the business thatthe assessee was carrying on and the matter of calculation before theconcerned authority, whether the purchases were bogus and the partiesfrom whom such purchases were allegedly made were bogus are essentiallyquestions of fact for which evidence will have to be led. Therefore, in view of this, no substantial question of law arises. 9.Appeal dismissed. (FIRDOSH P. POONIWALLA, J) (K.R.SHRIRAM, J)