Itxa.1004.2016.Db.doc v. M/S Mohommad Haji Adam & Co

dik IN THE HIGH COURT OF JUDICATURE AT BOMBAY O.O.C.J. INCOME TAX APPEAL NO. 1004 OF 2016 The Principal Commissioner of Income Tax-17 vsM/s Mohommad Haji Adam & Co. ...Appellant ...Respondent. WITH INCOME TAX APPEAL NO. 1013 OF 2016 The Principal Commissioner of Income Tax-17 vsM/s Mohommad Haji Adam & Co. ...Appellant ...Respondent. WITH INCOME TAX APPEAL NO. 1059 OF 2016 The Principal Commissioner of Income Tax-17 vsM/s Mohommad Haji Adam & Co. ...Appellant ...Respondent. WITH INCOME TAX APPEAL NO. 1064 OF 2016 The Principal Commissioner of Income Tax-17...Appellant vsM/s Mohommad Haji Adam & Co....Respondent. WITH INCOME TAX APPEAL NO. 1075 OF 2016 The Principal Commissioner of Income Tax-17 vsM/s Mohommad Haji Adam & Co. ...Appellant ...Respondent. WITH INCOME TAX APPEAL NO. 1095 OF 2016 The Principal Commissioner of Income Tax-17 ...Appellant Pg 1 of 7 vs M/s Mohommad Haji Adam & Co. ...Respondent. WITH INCOME TAX APPEAL NO. 1204 OF 2016 The Principal Commissioner of Income Tax-17 vsM/s Mohommad Haji Adam & Co. ...Appellant ...Respondent. WITH INCOME TAX APPEAL NO. 1012 OF 2016 The Principal Commissioner of Income Tax-17 vsM/s Mohommad Haji Adam & Co. ...Appellant...Respondent. ..... Mr P.C.Chhotaray for the Appellant in all appealsMs Aasifa Khan for the Respondent in all appeals. ..... CORAM : AKIL KURESHI & B.P.COLABAWALLA, JJ.FEBRUARY 11, 2019. P.C. : All these appeals arise out of common Judgment of the Income Tax Appellate Tribunal. The facts in all these appeals being same, we make it from ITXA No. 1004 of 2016. The revenue - appellant has raised following questions for our consideration “(a)Whether on the facts and in the circumstances of the case and in law, theHon'ble ITAT was justified in not confirming the addition made by theAssessing Officer on account of bogus purchases shown to have been madethrough hawala transactions from certain parties who were only providingaccommodation sale bills? Hon'ble ITAT was justified in not confirming the addition made by theAssessing Officer on account of bogus purchases shown to have been madethrough hawala transactions from certain parties who were only providingaccommodation sale bills? (b)Whether on the facts and in the circumstances of the case and in law, whereevidently no purchases were made from these parties who were issuing onlyevidently no purchases were made from these parties who were issuing only Pg 2 of 7 bogus accommodation bills and this finding has been accepted by theCIT(A) and the ITAT, the ITAT, without any evidence, was justified inpresuming that there must have been purchases and thereupon giving hugerelief to the assessee ? (c)Whether on the facts and in the circumstances of the case and in law, theorder of the Hon'ble ITAT is perverse as no reasonable person actingjudicially and properly instructed in the relevant law could arrive at such afinding on the evidence on record?” 2 The issues relate to the Assessment Year ( "A.Y." for short) concerning the respondent - assessee who is a trader offabrics. During the survey operations in case of the entities fromwhom the assessee had claimed to have made purchases, thedepartment collected information suggesting that such purchaseswere not genuine. The Assessing Officer ("A.O." for short) noticed that the assessee had shown purchases of fabrics worth Rs.29.41 Lacs(rounded off) from three group concerns, namely, M/s Manoj Mills,M/s Astha Silk Industries and M/s Shri Ram Sales & Synthetics. Onthe basis of the statement recorded during such survey operations,the A.O. concluded that the selling parties were engaged only insupplying the bogus bills, that the goods in question were neversupplied to the assessee, and therefore, the purchases were bogus.He, therefore, added the entire sum in the hands of the assessee as itsadditional income. the assessee had shown purchases of fabrics worth Rs.29.41 Lacs(rounded off) from three group concerns, namely, M/s Manoj Mills,M/s Astha Silk Industries and M/s Shri Ram Sales & Synthetics. Onthe basis of the statement recorded during such survey operations,the A.O. concluded that the selling parties were engaged only insupplying the bogus bills, that the goods in question were neversupplied to the assessee, and therefore, the purchases were bogus.He, therefore, added the entire sum in the hands of the assessee as itsadditional income. 3The assessee carried the matter in the appeal before theCommissioner of Appeals who accepted the factum of purchases being Pg 3 of 7 2.itxa.1004.2016.db.doc bogus. However, he compared the purchases and sales statement ofthe assessee and observed that the department had accepted the sale,and therefore, there was no reason to reject the purchases, becausewithout purchases there cannot be sales. He, therefore, held thatunder these circumstances A.O. was not correct in adding the entireamount of purchases as the assessee's income. He, therefore, deletedthe addition refreshing it to 10 % of the purchase amount. He alsodirected the A.O. to make addition to the extent of difference betweenthe gross profit rate as per the books of accounts on undisputedpurchases and gross profit on sales relating to the purchases madefrom the said three parties. 4The assessee carried the matter before the Tribunal. TheRevenue also carried the issue before the Tribunal. The Tribunal inthe impugned Judgment allowed the appeal of the assessee partly anddismissed that of the Revenue. The Tribunal noted that the CIT(A)had not given any reasons for retaining 10 % of the purchases by wayof ad hoc additions. The Tribunal, therefore, deleted such additions,but retained the portion of the order of the CIT(A) to that extent hepermitted the A.O. to tax the assessee on the basis of difference in theGP rates. Pg 4 of 7 2.itxa.1004.2016.db.doc 5Learned counsel Mr Chhotaray for the Revenuestrenuously contended that the CIT(A) and the Tribunal committedserious error. In the present case when it was established that thepurchases are bogus, the entire amount should have been added tothe income of the assessee. There is no question of granting any reliefin the facts of the case. In this context he relied on a decision of theDivision Bench of Gujrat High Court in the case of N.K. IndustriesLtd. Vs Dy. C.I.T. in Tax Appeal No. 240 of 2003 and connectedappeals decided on 20[th] June, 2016. In such judgment the Courthad observed as under - “The Tribunal in the case of Vijay Proteins Ltd. Vs. CIT had observedthat it would be just and proper to direct the Assessing Officer torestrict the addition in respect of the undisclosed income relating to thepurchases to 25 % of the total purchases. The said decision wasconfirmed by this Court as well. On consideration of the matter, wefind that the facts of the present case are identical to those of M/s IndianWoolen Carpet Factory (supra) or M/s Vijay Proteins Ltd. In thepresent case the Tribunal has categorically observed that the assesseehad shown bogus purchases amounting to Rs.2,92,93,288/- and taxingonly 25 % of these bogus claim goes against the principles of Sections68 and 69C of the Income Tax Act. The entire purchases shown on thebasis of fictitious invoices have been debited in the trading account sincethe transaction has been found to be bogus. The Tribunal having oncecome to a categorical fiding that the amount of Rs.2,92,93,288/-represented alleged purchases from bogus suppliers it was notincumbent on it to restrict the disallowance to only Rs.73,23,322/-.” 6Counsel pointed out that the S.L.P. against such decision was dismissed by the Supreme Court. 7On the other hand, Ms Khan learned counsel for the Pg 5 of 7 2.itxa.1004.2016.db.doc 6Counsel pointed out that the S.L.P. against such decision was dismissed by the Supreme Court. 7On the other hand, Ms Khan learned counsel for the Pg 5 of 7 2.itxa.1004.2016.db.doc assessee opposed the appeals contending that the Tribunal hasgiven proper reasons. The assessee was a trader. Even if thepurchases are found to be bogus, entire purchase amount cannotbe added by way of assessee's income. 8In the present case, as noted above, the assessee was atrader of fabrics. The A.O. found three entities who wereindulging in bogus billing activities. A.O. found that the purchasesmade by the assessee from these entities were bogus. This being afinding of fact, we have proceeded on such basis. Despite this, thequestion arises whether the Revenue is correct in contending thatthe entire purchase amount should be added by way of assessee'sadditional income or the assessee is correct in contending thatsuch logic cannot be applied. The finding of the CIT(A) and theTribunal would suggest that the department had not disputed theassessee's sales. There was no discrepancy between thepurchases shown by the assessee and the sales declared. Thatbeing the position, the Tribunal was correct in coming to theconclusion that the purchases cannot be rejected withoutdisturbing the sales in case of a trader. The Tribunal, therefore,correctly restricted the additions limited to the extent of bringingthe G.P. rate on purchases at the same rate of other genuine Pg 6 of 7 purchases. The decision of the Gujarat High Court in the case of N.K. Industries Ltd. (supra) cannot be applied without reference to the facts. In fact in paragraph 8 of the same Judgment the Court held and observed as under- “ Sofar as the question regarding addition of Rs.3,70,78,125/- as grossprofit on sales of Rs.37.08 Crores made by the Assessing Officer despite thefact that the said sales had admittedly been recorded in the regular booksduring Financial Year 1997-98 is concerned, we are of the view that theassessee cannot be punished since sale price is accepted by the revenue.Therefore, even if 6 % gross profit is taken into account, the correspondingcost price is required to be deducted and tax cannot be levied on the sameprice. We have to reduce the selling price accordingly as a result of whichprofit comes to 5.66 %. Therefore, considering 5.66 % of Rs.3,70,78,125/-which comes to Rs.20,98,621.88 we think it fit to direct the revenue to addRs.20,98,621.88 as gross profit and make necessary deductions accordingly.Accordingly, the said question is answered partially in favour of the assesseeand partially in favour of the revenue.” 9In these circumstances, no question of law, therefore, arises. All Income Tax Appeals are dismissed, accordingly. No order as to costs. (B.P.COLABAWALLA, J.) (AKIL KURESHI, J.) Pg 7 of 7