PR. COMMISSIONER OF INCOME TAX, SURAT-1, SURAT vs. JUNED B. MEMON

TAXAP/379/2018HC GujaratGJHC24011244201825 April 2018Author: HONOURABLE MR. JUSTICE AKIL KURESHI,HONOURABLE MR. JUSTICE B.N. KARIA5 pages
AI SummaryDismissed

What did the High Court hold?

The High Court agreed with the view of the Commissioner of Income Tax (Appeals) as confirmed by the Tribunal. The Court held that when the Assessing Officer doubted the genuineness of the expenditure, it was appropriate to bring to tax the profit element that was avoided by the assessee. The Commissioner of Income Tax (Appeals), in limiting the additions, had brought the assessee's declared gross profit ratio to the same rate as in the previous year, which was also in line with the percentage of the assessee's doubtful purchases. Therefore, no question of law arose from the order of the Tribunal.

What were the facts?

The Revenue has filed an appeal against the Income Tax Appellate Tribunal's order for assessment year 2009-10. The assessee, an individual engaged in trading art silk cloth, had made payments totaling Rs. 2.08 crores through modes other than account payee cheque or bank draft, exceeding Rs. 20,000 per day. The Assessing Officer (AO) disallowed these expenses, suspecting inflated purchases and suppressed profits, viewing the explanation regarding payments to GMCPL's agents as a colourable device. The Commissioner (Appeals) limited the disallowance to Rs. 47.28 lakhs, revising the gross profit ratio to 5.8% from the assessee's declared 2.9%, citing a previous year's ratio of 5.2%. The Tribunal confirmed the Commissioner's view.

What were the issues?

1. Whether, on the facts and in law, the Appellate Tribunal was justified in not deciding the primary question of whether the assessee violated the provisions of Section 40A(3) read with Rule 6DD(k) of the Income-tax Rules, 1962? 2. Whether, on the facts and in law, the Appellate Tribunal was justified in holding that the Assessing Officer had rejected the books of accounts under Section 145(3), and therefore, the GP addition was reasonable, without considering that the Assessing Officer had not rejected the books of accounts under Section 145(3) and no such intention was drawn? Assessee's contentions: The assessee argued that the payments were made to GMCPL's agents as per trade practice, where cheques for purchases made by GMCPL were handed over to their agents, who then passed them on to GMCPL or its creditors. The assessee also relied on the principles laid down in Vijay Proteins Pvt. Ltd. Vs. CIT reported in 58 ITD 428. Revenue's contentions: The Revenue contended that the AO had not rejected the books of accounts under Section 145(3) and that the Tribunal erred in upholding the Commissioner's decision to limit the disallowance to the profit element.

Which sections of the Income-tax Act were involved?

Section 40A(3),Section 145(3),Section 37

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Cause title — parties, addresses and appearances
C/TAXAP/379/2018 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 379 of 2018 ========================================================== PR. COMMISSIONER OF INCOME TAX, SURAT-1, SURAT Versus JUNED B. MEMON ========================================================== Appearance: MR.NIKUNT K. RAVAL, ADVOCATE for MRS KALPANAK RAVAL(1046) for the PETITIONER(s) No. 1 ========================================================== CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE B.N. KARIA Date : 25/04/2018

ORAL ORDER (PER : HONOURABLE MR.JUSTICE AKIL KURESHI)

1.

This appeal is filed by the Revenue to challenge the   judgment   of   the   Income   Tax   Appellate   Tribunal dated 14.07.2017 raising following questions for our consideration: “(i) Whether on the facts and circumstances of case and in laws, the Appellate Tribunal is   justified   in   not   deciding   the   primary question   as   to   whether   the   assessee   has violated   the   provisions   of   section   40A(3) r.w.   Rule   6DD(k)   of   the   Income­tax   Rules, 1962 or not? (i

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