PRINCIPAL COMMISSIONER OF INCOME TAX VADODARA 2 vs. M/S SYNBIOTICS LTD

Facts

The appeals by the Principal Commissioner of Income Tax, Vadodara 2, challenge a common order of the Income Tax Appellate Tribunal (ITAT) for assessment years 1993-94 to 1997-98. The dispute centers on additions made for alleged bogus purchases. A search at the premises of Shri F.H. Rizvi revealed that he operated paper concerns issuing bogus bills, returning sale consideration in cash after receiving it by cheque, and that no physical goods were involved. The assessee company claimed purchases from these concerns. The Assessing Officer disallowed the entire purchases, but the Commissioner (Appeals) restricted the disallowance to 25% of the bogus purchases, a view upheld by the ITAT. The revenue contends that the entire amount should have been disallowed.

Held

The High Court held that the appeals filed by the revenue do not give rise to any substantial question of law and are, accordingly, dismissed. The Court noted that the Commissioner (Appeals) had restricted the disallowance to 25% of the bogus purchases based on a finding of fact that the assessee had produced goods by utilizing such bulk drugs, implying corresponding sales. The ITAT had not disturbed this finding of fact. The Court relied on its own previous decisions in N.K. Industries Ltd. vs. DCIT and Vijay Proteins Ltd. v. Commissioner of Income Tax, which held that when there are corresponding sales for bogus purchases, disallowing only a portion (like 25%) is justified. The Court clarified that the quantum of restriction (25%) is an estimate and not a fixed standard, and an estimate cannot give rise to a question of law. The decision in Shoreline Hotel (P.) Ltd. v. Commissioner of Income Tax was distinguished as it involved a different factual matrix and did not involve corresponding sales. Therefore, the ITAT's order, being based on concurrent findings of fact and following jurisdictional High Court precedents, was upheld.

Key Issues

1. Whether on the facts and in the circumstances of the case, the learned ITAT has erred in law and on facts in upholding the order of the CIT(A) in restricting the addition/disallowances on account of bogus purchases to 25% instead of the entire amount, ignoring that the suppliers were paper concerns with no physical movement of goods (Section 68, 69C of the Income Tax Act, 1961)? Assessee's contentions: Not recorded in the judgment. Revenue's contentions: The suppliers (Shri F.H. Rizvi and his associates) were only paper concerns, and there was no physical movement of goods relating to the bogus purchases. Therefore, the entire amount of bogus purchases should have been disallowed. 2. Whether on the facts and in the circumstances of the case, the learned ITAT has erred in law and on facts in relying upon the decision of this Hon'ble Court in the case of N.K. Industries Ltd. vs. DCIT, 292 CTR 354 (Guj) in restricting the addition of bogus purchases, ignoring that in that case, the Hon'ble Court observed that taxing only 25% of these bogus claims goes against the principles of Section 68 and 69C of the Income Tax Act?