SERUM INSTITUTE OF INDIA LTD.,PUNE vs. DEPUTY COMMISISONER OF INCOME-TAX,

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ITA 1184/PUN/2015Status: DisposedITAT Pune20 June 2023AY 2009-106 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that when purchases are bogus, only the profit element, not the full amount, should be added to income. The addition sustained at Rs. 6,60,106/- was found to be excessive and was directed to be deleted.

What were the facts?

The assessee claimed purchases of Rs. 43,47,750/- from parties identified as 'Hawala operators' by the Sales Tax Department. The Assessing Officer (AO) disallowed these purchases due to lack of substantiation, but adjusted it against a prior surrender, leading to a net disallowance of Rs. 6,60,106/-.

What were the issues?

Whether the entire amount of bogus purchases should be disallowed or only the profit element therein, considering the assessee's prior surrender and profit margin.

Which sections of the Income-tax Act were involved?

Section 68

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Income Tax Appellate Tribunal, PUNE BENCH, ‘A’ PUNE

Before: SHRI R.S. SYAL & SHRI S.S. VISWANETHRA RAVI

For Appellant: Shri Eugene Waradkar
For Respondent: Shri Keyur Patel, CIT-DR

आदेश / ORDER

PER R.S. SYAL, VP :

1.

This appeal by the assessee is directed against the order passed by the CIT(A)-11, Pune on 28-11-2014 in relation to the assessment year 2009-10.

2.

It is a recalled matter inasmuch as the earlier order passed by the Tribunal on 08-06-2018 was subsequently recalled vide its latter order dated 07-02-2023 in M.A.No.45/PUN/2022 for disposal of Ground No.10 taken by the assessee in its memorandum of appeal, which inadvertently remained to be disposed off.

3.

Ground No.10 raised by the assessee, reads as under :

“10. On the facts and in the circumstances of the case and in law the learned CIT(A) erred in upholding the disallowances of purchases of Rs.43,47,750/- by treating the same as ‘Bogus purchases’.

4.

The facts concerning this issue are that the Assessing Officer received information from the Sales Tax Department through DGIT (Inv.), Pune containing list of parties which were declared by Sales Tax Department as Hawala operators, who provided only accommodation entries without supplying materials. On verification of such list, it was found that the assessee had taken accommodation entries from six parties totaling to Rs.43,47,750/- during the year under consideration.

The assessee was called upon to furnish the details of items purchased from these parties along with supporting vouchers, gate passes and lorry receipts etc. so as to prove the genuineness of the transactions. In the absence of the assessee furnishing requisite details, the AO opined that the aforesaid amount of Rs.43,47,750/- was liable to be added as non-business expenditure. The assessee’s contention that it had non-business expenditure offered during the course of search amounting to Rs.2.00 crore and the unutilized part of the same should be adjusted against the instant disallowance, came to be accepted by the AO, who eventually made disallowance at Rs.6,60,106/-, thereby adjusting unutilized amount of surrender at Rs. Rs.36,83,644/-. The ld. CIT(A) echoed the assessment order on this point. Aggrieved thereby, the assessee has come up in appeal before the Tribunal.

5.

Having heard the rival submissions and perused the relevant material on record, it is seen as an admitted position that the assessee could not substantiate the genuineness of transactions representing purchase recorded from six parties totaling to Rs.43,47,750/- in respect of which information was received from Sales Tax Department about the assessee having obtained accommodation entries. In that view of the matter, the genuineness of the purchase transactions does not get established.

At the same time, it is an admitted position that the assessee maintained proper stock records and the said purchases were duly recorded in the books of account. When purchases are bogus and recorded in the books of account, addition can be made only to the extent of difference between the gross profit rate on genuine purchases and gross profit rate on bogus purchases and not the full amount of purchases. The Hon’ble Bombay High Court in Pr.CIT Vs. M/s. Mohammad Haji Adam and Company (2019) 104 CCH 0391 Mum-HC has held to this extent. The Hon’ble Bombay High Court in Pr.CIT Vs. Batilboi Environmental Engineering Ltd. (2022) 446 ITR 238 (Bom.) held that only the profit element in the bogus purchases should be added, which in that case was 12.5%. Still in another case, the Hon’ble Bombay High Court in Pr.CIT Vs. Jakharia Fabric Pvt. Ltd. (2020) 429 ITR 332 (Bom.) upheld the order of the Tribunal making addition towards the additional profit @17.5% of bogus purchases. In view of the above discussion and the ratio laid down in the aforenoted judgments, it is clear that only the profit element can be added and not the gross amount of bogus purchases.

6.

Adverting to the facts of the instant case, it is seen that the assessee made bogus purchases of Rs.43,47,750/-. As against the amount of such bogus purchases, unutilized surrender of Rs.36,83,644/- was adjusted by the AO towards the addition, meaning thereby that the addition to that extent got confirmed and adjusted against the amount already surrendered by the assessee, leaving the net amount of disallowance at Rs.6,60,106/-. The amount of set off of Rs.36,87,644/- represents 85% of the amount of bogus purchases. The ld. AR submitted that the assessee had profit margin of 22.83%. Addition confirmed and adjusted at 85% of the bogus purchases is far in excess of the gross profit margin on such accommodation entries. This proves that the amount of addition sustained at Rs.6,60,106/- is not called for. The same is directed to be deleted. This ground is allowed.

7.

In the result, the appeal of the assessee is partly allowed in totality. Order pronounced in the Open Court on 20th June, 2023.

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