ILESH JITENDRA SHAH,MUMBAI vs. INCOME TAX OFFICE, WARD 2(3), THANE, MUMBAI

PDF · subscribers
ITA 327/MUM/2023Status: DisposedITAT Mumbai06 April 2023AY 2009-105 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that when sales are accepted as genuine, the entire purchases cannot be treated as non-genuine. Following judicial precedents, the Tribunal directed that only the profit element embedded in such purchases should be taxed, estimating it at 12.5%.

What were the facts?

The assessee, engaged in hardware and furniture business, had purchases treated as non-genuine by the Assessing Officer based on information from the Sales Tax Department. The AO added the entire purchase amount to the assessee's income as the suppliers were unresponsive and not produced.

What were the issues?

Whether the entire non-genuine purchases can be added to income, or only the profit element embedded therein, when sales from such purchases are accepted as genuine.

Which sections of the Income-tax Act were involved?

Section 147,Section 133(6)

AI-generated summary — verify with the full judgment below

Cases cited in this judgment(3)Show list

Detected automatically from the text. Citations are also linked where they appear in the judgment. The count shows how many other judgments on BharatTax rely on the same authority.

Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI

Before: SHRI S. RIFAUR RAHMAN, HONBLE

For Appellant: Shri Satish Mody
For Respondent: Shri S.N. Kabra
Hearing: 03.04.2023Pronounced: 06.04.2023

O R D E R PER S. RIFAUR RAHMAN (AM) 1. These appeals are filed by the assessee against different orders of the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter in short “Ld.CIT(A)”] dated 22.12.2022 for the A.Ys. 2009-10 and 2010-11 in sustaining the action of the Assessing Officer.

2 & 326/MUM/2022 Ilesh Jitendra Shah 2. Briefly stated the facts are that, assessee an individual engaged in the business of manufacturing and reseller of hardware items, furniture and fittings and general hardware supplier filed return of income on 25.09.2009 and 19.09.2010 declaring income of ₹.2,83,112/- and ₹.2,46,178/- for the A.Y. 2009-10 and A.Y.2010-11 respectively, and the returns were processed u/s. 143(1) of Income-tax Act, 1961 (in short “Act”). Subsequently, Assessing Officer received information from the Sales Tax Department, Government of Maharashtra about the accommodation entries provided by various dealers and assessee was also one of the beneficiary from those dealers. The assessments were reopened u/s. 147 of the Act based on the information received from Sales Tax Department, Government of Maharashtra, that the assessee has availed accommodation entries from various dealers who are said to be providing accommodation entries without there being transportation of any goods. In the reassessment proceedings, the assessee was asked to prove the genuineness of the purchases made from various dealers as referred in notice . In response assessee submitted that the purchases made are genuine.

3.

Not convinced with the submissions of the assessee the Assessing Officer treated the purchases as non-genuine and he was of the opinion

3 & 326/MUM/2022 Ilesh Jitendra Shah that assessee had obtained only accommodation entries without there being any transportation of materials and the assessee might have made purchases in the gray market. Assessing Officer issued notices u/s. 133(6) to the alleged parties and there was no response and the assessee has not produced the parties before the Assessing Officer. Therefore, Assessing Officer treated total purchases made from the alleged parties as mentioned in Assessment Order i.e., ₹.52,000/- and ₹.4,11,819/- as non-genuine for the A.Y. 2009-10 and A.Y.2010-11 respectively and added to the income of the assessee. On appeal Ld.CIT(A) after considering the submissions of the assessee, sustained the action of the Assessing Officer. Against these orders of the Ld.CIT(A) assessee is in appeal before us.

4.

Ld. Counsel for the assessee reiterated the submissions made before the Ld.CIT(A). Ld. AR of the assessee further submitted that the assessee is in the business of manufacturing & Reseller of Hardware Items, Furniture & Fittings and General Hardware Supplier. Further, he submitted that assessee has declared G.P at 20.72 in A.Y.2009-10 and 21.83 in A.Y. 2010-11. He prayed that suitable percentage of Gross Profit may be sustained as income of the assessee.

6.

Considered the rival submissions and material placed on record and perused the orders of the authorities below. It is not in dispute that sales have been accepted as genuine from out of these purchases. When the sales have been accepted as genuine the entire purchases cannot be treated as non-genuine. The Hon'ble Gujarat High Court in the case of Bholanath Polyfab Pvt. Ltd [355 ITR 290] held that when the assessee made purchases and sold the finished goods as a natural corollary not the entire amount covered under such purchases would be subject to tax but only the profit element embedded therein. Similar view has been taken by the Hon'ble Gujarat High Court in the case of CIT v. Simit P. Seth [38 taxman.com 385]. Simply because the parties were not produced the entire purchases cannot be added as held by the Bombay High Court in the case of CIT v. Nikunj Eximp [216 Taxman.com 171]. In view of various judicial precedents, I am of the opinion that there should be an estimation of profit element from these purchases and should be estimated reasonably as the assessee could not conclusively prove that the purchases made are from the parties as claimed, especially in the absence of any confirmations from them. Taking the totality of facts and 5 & 326/MUM/2022 Ilesh Jitendra Shah circumstances, keeping in view the nature of business of the assessee, it would be justified if the profit element embedded in those purchases are estimated at 12.5%. Accordingly, I direct the Assessing Officer to estimate the profit element from the non-genuine purchases at 12.5% for both the Assessment Years i.e., A.Y. 2009-10 and A.Y. 2010-11 and restrict the disallowance of purchases to 12.5% and compute the income accordingly.

7.

In the result, appeals filed by the assessee are partly allowed.

Order pronounced in the open court on 06th April, 2023.

More judgments on Section 147

All 49,210 judgments and leading authorities on Section 147 →

Recent GST High Court judgments

Search GST case law →