THE PRINCIPAL COMMISSIONER OF INCOME TAX-1 vs. HIREN KUMUDCHANDRA MEHTA

The assessee has filed return of income for the assessment year 2011-2012 on 28.09.2011 declaring total income of Rs.13,51,944/-. The assessee is an individual running a proprietory concern being a dealer of Chemicals. The case of the assessee was selected for scrutiny. During the course of assessment proceedings, the Assessing Officer had information received from Maharashtra Sales Tax Authority about the assessee having made bogus purchases from Hawala billers namely, Darshan Sales Corporation, Dev Enterprise and Yash Enterprise.

1 The Assessing Officer therefore, on the basis of reason to believe that income to the tune of Rs.6,45,676/- has escaped assessment as the assessee made bogus purchases from the aforesaid three dealers, issued notice under section 142(1) of the Income Tax Act, 1961 (For short “the Act”) on 17.01.2014. The assessee filed his reply on 7.02.2014 contending inter- alia that the findings of the sales tax authorities are not conclusive and cannot establish that purchases made are bogus. The Assessing Officer on the basis of available material on record made addition of Rs.6,45,676/- under section 68 of the Act for the bogus purchases made by the assessee on the basis of the information received from Maharashtra VAT department and passed the assessment order under section 143(3) of the Act.

2 The assessee being aggrieved preferred appeal before CIT(Appeals) and submitted that the purchases made by the assessee were genuine and to substantiate his claim the appellant produced copies of audit report, ledger accounts before the CIT(Appeals).

3 CIT(Appeals) after considering the submissions made by the assessee and relying upon various judgments including the decision of Income Tax Appellate Tribunal, Mumbai Bench in case of Shri Tagaram G. Prajapati v. ITO in ITA No. 1613, 1614 and 1615/Mum/2008 restricted the addition by estimating 10% of the alleged bogus purchases i.e. 10% of Rs. 6,45,676/-.

4 Revenue being aggrieved by the decision of the CIT(Appeals) preferred appeal before the Income Tax Appellate Tribunal (For short “the Tribunal”).

5 The Tribunal after considering the order of CIT(Appeals) and the documentary evidence produced by the assessee before the appellate authority held as under :

Learned Senior Advocate Mr. Manish Bhatt for the Revenue submitted that the decision of CIT(Appeals) a well as the Tribunal are erroneous and perverse in view of the ratio laid down in case of M/s N. K Industries Ltd.(supra), wherein it is held by this Court that addition on basis of bogus purchases could not be restricted to certain percentage when the entire transaction was found as bogus.

On going through the orders of the Assessing Officer, CIT(Appeals) and the Tribunal, it appears that the Assessing Officer has made addition only on the basis of information received from the the Sales Tax Department of State of Maharashtra without any further inquiry being carried out whether the purchases made by the assessee were genuine or not so as to come to the conclusion that the assessee was also one of the beneficiaries of bogus billing of the said three parties and therefore, addition under section 68 of the Act made by the Assessing Officer on that basis was rightly not held to be justified by the CIT(Appeals) as well as by the Tribunal by arriving at concurrent findings of the fact on the basis of the documentary evidence made available by the assessee to establish genuineness of the purchases made from the said three parties.

CIT(Appeals) and the Tribunal however has not ruled out the factum of said three parties being engaged in bogus billing and therefore, considering the Gross Profit Ratio of 3.98% shown by the assessee for the year under consideration has made addition by estimating 10% of the alleged bogus purchases i.e. 10% of Rs.6,45,676/- in the total

2 In the decision in the case of N. K. Industries Limited (Supra) sought to be relied upon would hardly come to the rescue of the appellant department since therein the material was available during the course of search which exposed the falsity of entries made in the regular books of account. The unexplained expenditure that is bogus purchases were on the basis of the fictitious invoices debited in the trading account. The Tribunal made 25% of the total purchase on the ground that the purchase was from bogus suppliers. It was held by the High Court that the Tribunal should have made addition of total purchase and not 25%.

3 However, the facts of the present case are entirely different in absence of any dependable material for the Assessing Officer to come to the conclusion about the bogus purchases made by the assessee to make addition of the entire purchases under section 68 of the Act as income for the year under consideration. CIT(Appeals) and the Tribunal therefore, considering the possibility of bogus purchases on the basis of documentary evidence produced before the appellate authority have arrived at the concurrent findings of fact by holding that factum of said three parties already being engaged in bogus billing was not ruled out and therefore, sustained the addition by estimating 10% of alleged bogus proceedings i.e. 10% of Rs.6,45,676/- considering the Gross Profit Ratio of 3.98% shown by the assessee for the year under consideration.

In view of above concurrent findings of the fact arrived at by the CIT(Appeals) and the Tribunal, we do not find any error with the impugned order giving rise to any question of law much-less substantial question of law for consideration.

The appeal is meritless and liable to be dismissed and is accordingly dismissed.