M/S. ANANT ENTERPRISES,PUNE vs. ADDITIONAL COMMISSIONER OF INCOME-TAX, PUNE

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ITA 763/PUN/2017Status: DisposedITAT Pune16 June 2020AY 2010-117 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal, following the Bombay High Court's decision, held that additions for bogus purchases should be based on the difference in gross profit rates between genuine and bogus purchases, not a flat percentage. The matter was remitted to the Assessing Officer for recalculation.

What were the facts?

The assessee's appeals concerned additions for bogus purchases and a consequent penalty. The Assessing Officer had treated purchases from one supplier as bogus and disallowed them, leading to a penalty.

What were the issues?

Whether the addition for bogus purchases should be based on the entire amount or the difference in profit margins, and whether the penalty levied is sustainable.

Which sections of the Income-tax Act were involved?

Section 271(1)(c)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “B” BENCH, PUNE

Before: SHRI D. KARUNAKARA RAO, AM & SHRI PARTHA SARATHI CHAUDHURY, JM

For Respondent: Shri Alok Malviya
Hearing: 11.06.2020Pronounced: 22.06.2020

Heard together (2 matters)

ITA No.763/PUN/2017
ITA No.764/PUN/2017

Read from the judgment's own cause title. This page is filed under one of them.

आदेश / ORDER PER BENCH:

1.

These two appeals preferred by the assessee emanates from the different orders of the Ld. CIT(Appeals)-6, Pune dated 15.12.2016 & 16.12.2016 for the assessment year 2010-11 as per the grounds of appeal on record.

2. At the time of hearing through video conference, neither the assessee nor his Authorized representative is available. However, the Ld. DR for the Revenue fairly submitted that in Rs.46,33,142/- and in the issue is levying penalty u/s.271(1)(c) of the Income Tax Act, 1961 ( hereinafter referred to as „the Act‟) consequent to the bogus purchases addition made in ITA No.764/PUN/2017.

For the sake of convenience, first we would take up 2010-11 for adjudication.

3.

The grounds of appeal raised by the assessee in this appeal are as follows: “1) On the facts and circumstances of the case and in law, the Ld. CIT(A) was not justified in sustaining the addition made by the AO of Rs.46,33,142/- of purchases considering them as bogus purchases

solely relying upon the report of the Sales Tax Department. The Ld. CIT(A) failed to properly appreciate the various judicial precedents quoted before him. The judicial view is only the profit percentage of such purchases can be estimated for addition and 100% addition of such purchases cannot be made. It be held accordingly. 2) The Appellant craves to leave, add/amend or alter any of the above grounds of appeal.”

4. The brief facts of the case are that the assessee is engaged in the manufacture of auto components. The assessee filed its return of income for A.Y.2010-11 on 24.09.2010 declaring total income at Rs.64,28,290/-. Revised return was filed by the assessee on 25.09.2010 declaring total income of Rs.64,89,986/-. The Assessing Officer completed assessment u/s.143(3) of the Act on 19.02.2013 determining total income at Rs.1,21,39,580/-. The Assessing Officer made addition of Rs.46,33,142/- being purchases made from M/s. Rumeet Enterprises, Mumbai treating them as bogus and also disallowed an amount of Rs.10,16,450/- being prior period expenses.

5.

During the First Appellate Proceedings, the Ld. CIT(Appeals) confirmed the addition of Rs.46,33,142/- of purchases considering them as bogus purchases. Being further aggrieved the assessee has preferred this appeal before us.

6.

At the time of hearing through video conference, the Ld. DR for the Revenue has placed reliance on the ratio laid down by the Hon'ble Bombay High Court in the case of Pr.CIT Vs. Mohammad Haji Adam & Co. vide its judgment dated 11.02.2019 in of 2016. The Ld. DR further submitted that in such situation of bogus purchases, the GP rate of genuine purchases has to be identified and along with that bogus purchase GP also have to be identified. The difference of these two can be added to the income of the assessee. For example, if the GP percentage of genuine purchases comes to 8% whereas GP percentage of bogus purchases comes to 10%, then 2% of bogus purchases can be added to the income of the assessee.

7.

We have perused the case records and heard the submissions of the Ld. DR. We have also given considerable thought to the judgment of the Hon'ble Bombay High Court in the case of Pr. CIT Vs. Mohommad Haji Adam (supra.) wherein it has been held that no ad-hoc addition at the rate of 10% of bogus purchases is warranted. Rather, the addition should be made to the extent of difference between gross profit rate on genuine purchases and gross profit rate of bogus purchases.

Reverting to the facts of the present case and taking guidance from the said judgment of the Hon'ble Bombay High Court in the case of Pr.CIT Vs. Mohommad Haji Adam (supra.), we set aside the order of the Ld. CIT(Appeal) and restore the matter back to the file of the Assessing Officer for undertaking this exercise and finding out the excess gross profit rate earned from bogus purchases and then making the addition accordingly after allowing reasonable opportunity of hearing to the assessee.

8.

In the result, appeal of the assessee in is allowed for statistical purposes.

ITA No.764/PUN/2017 A.Y. 2010-11

9.

In this appeal, though the assessee has raised multiple grounds of appeal, the crux of the grievance of the assessee is with regard to the imposition of penalty u/s.271(1)(c) of the Income Tax Act, 1961 ( hereinafter referred to as „the Act‟) by the Assessing Officer and as confirmed by the Ld. CIT(Appeals).

10. Before us, the Ld. DR fairly submitted that since quantum addition on bogus purchases has been remitted back to the file of Assessing Officer for re- adjudication, similarly penalty issue should also be restored back to the file of Assessing Officer in the interest of justice.

In view of the matter, we set aside the order of the Ld. CIT(Appeals) in this appeal also and remit the matter of penalty issue back to the file of Assessing Officer to adjudicate in view of the quantum matter already in front of him as per law and after providing reasonable opportunity of hearing to the assessee.

11.

In the result, appeal of the assessee in is allowed for statistical purposes.

12.

In the combined result, both the appeals of the assessee in are allowed for statistical purposes.

Order pronounced on 22nd day of June, 2020.

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