M/S. M.P. AGENCY,,AHMEDABAD vs. THE DY. COMMISSIONER OF INCOME TAX, CIRCLE-2(3),, AHMEDABAD

We take up IT(SS)A No.183/Ahd/2016 as the lead case. This appeal has been directed against the order dated 28.03.2016 passed by the learned CIT(A)- 12, Ahmedabad arising out of order dated 29.03.2014 passed by the DCIT, Central Circle-2(3), Ahmedabad under section 143(3) r.ws. 153A(1) of the Income-tax Act, 1961, for Assessment Year 2009-10. 3. The brief facts of the case are that a search under section 132 of the Act was carried out in the case of Jayesh Steel Group on 13.10.2011. Assessee’s case was also covered in the said search action. During the search proceedings, evidences were found that there were some bogus purchases by the assessee, which, according to the learned Assessing Officer, was done by the assessee with an intention to inflate the purchase and reduce the profit. The said assessment was ultimately finalized under section 143(3) r.w.s. 153A(1)(b) of the Act with an addition of Rs.3,06,85,523/-. In appeal, the same was restricted to the extent of Rs.18,90,106/- by the learned First Appellate Authority with the observation that “on purchases from M/s. Mehta Steel Depot, the appellant has earned a higher profit margin vis-a-vis the margin already disclosed in the audited books”. Similarly, learned CIT(A), after considering the purchase price from M/s. Mehta Steel Depot and from other suppliers and also after considering the average sale price, which according to the learned CIT(A) was fair and reasonable, finally held that an additional profit component of 7.5% is embedded as inflated purchase price on purchases of Rs.2,52,01,413/- shown from M/s. Mehta Steel Depot, which has been brought to tax while holding at the same time that the addition on account of bogus nature of purchases from M/s. Mehta Steel Depot is not sustainable. Thus, the addition has been restricted to Rs.18,90,106/- at 7.5% of entire amount of Rs.2,52,01,413/-.

At the time of hearing before us, learned Senior Counsel appearing for the assessee submitted before us that the issue in appeal is squarely covered by and under the judgment passed by the Co-ordinate Bench of this Tribunal in the matter of ITO vs. Balaji Builders vide ITA No. 593/Ahd/2016 and CO No.57/Ahd/2016 for Assessment Year 2011-12, order dated 18.06.2018, whereby and whereunder, taking into consideration the ratio laid down by the Hon’ble juri ictional High Court on the same issue in the matter of Gujarat Ambuja Exports Ltd Vs. DCIT, (2017) 250 Taxman 0482, 5% out of total purchases was disallowed.

The Learned Departmental Representative, on the other hand, has failed to controvert such submissions made by the learned Sr. Counsel appearing for the assessee.

We have heard representatives of the respective parties. We have also carefully considered the order passed by the Hon’ble juri ictional High Court in the matter of Gujarat Ambuja Exports Ltd Vs. DCIT (supra) and the judgment passed by the Co-ordinate Bench of this Tribunal, as relied upon by the learned Sr. Counsel appearing for the assessee. We find that the issue in appeal is identical with that of the judgment relied upon by the assessee. The observations made by the Co-ordinate Bench on the same issue are as follows:-

1 We find that the facts of the case in hand is identical to that of the assessee dealt in the aforesaid judgement and therefore, the case of the assessee is squarely covered by the aforesaid decision. Taking into consideration the entire aspects of the matter and the ratio of the judgement, we think it fit to modify the order passed by the Ld.CIT(A) by disallowing 5% from 12.5% as made by him in effect Rs.8,16,362/- out of the total purchase.”

Respectfully relying upon the judgment passed by the Co-ordinate Bench (supra) and in the absence of any change of circumstances, we find no alternative but to restrict such addition at 5% of the total purchases in the case of assessee before us. We, therefore, direct the Assessing Officer to extent relief to the assessee accordingly.

In the result, the appeal of the Revenue bearing IT(SS)A No. 183/Ahd/2016 and the cross-appeal thereof by the assessee bearing ITA No.

The issue raised by the assessee and Revenue in the case of Shri Jayesh P. Shah for AYs 2010-11, 2011-12 and 2012-13, by way of cross-appeals, is similar to the issue raised by both the parties in the case of MP Agency (supra) for Assessment Year 2009-10. In the case of Shri Jayesh P. Shah, the learned Authorized Representative submitted that the facts relating to the disallowance on issue of bogus purchase are similar to the facts in the case of M/s. MP Agency (supra). However, learned CIT(A) has gone one step ahead and sustained the disallowance as purchase @ 5.26% and also disallowed 5% on gross profit earned by the assessee. He submitted that once the disallowance made in purchase, it has direct impact on the profitability. Once again making similar addition in GP will not be justifiable. Accordingly, he prayed for sustaining the addition as per the judicial precedent in the case of Gujarat Ambuja Exports Ltd Vs. DCIT (supra). Considered the submissions of both the parties and we are in agreement with the assessee’s Counsel and his submissions. The similar addition which has direct impact in the profitability cannot be made.