THE PRINCIPAL COMMISSIONER OF INCOME TAX-2 vs. SANDEEPKUMAR S CHANDAK

C/TAXAP/210/2020 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 210 of 2020 ========================================================== THE PRINCIPAL COMMISSIONER OF INCOME TAX-2 Versus SANDEEPKUMAR S CHANDAK ========================================================== Appearance: MRS MAUNA M BHATT, SENIOR STANDING COUNSEL(174) for the Appellant(s) No. 1 for the Opponent(s) No. 1 ========================================================== CORAM: HONOURABLE THE CHIEF JUSTICE MR. VIKRAM NATH and HONOURABLE MR. JUSTICE J.B.PARDIWALA

Date : 18/09/2020

ORAL ORDER (PER : HONOURABLE MR. JUSTICE J.B.PARDIWALA) 1. This Tax Appeal under Section 260A of the Income Tax Act, 1961 (for short “the Act, 1961”) is at the instance of the Revenue and is directed against the order passed by the Income Tax Appellate Tribunal, Ahmedabad “C” Bench, Ahmedabad dated 22.10.2019 in ITA No. 3024/AHD/2015 for A.Y. 2011- 12. 2. The Revenue has proposed the following substantial question of law for the consideration of this Court:- Page 1 of 7

C/TAXAP/210/2020 ORDER “Whether the Appellate Tribunal has erred in law and on facts in restricting the addition of Rs. 55,61,085/- made on account of bogus purchases to the extent of 5% of the total bogus purchases despite the fact that the assessee failed to establish genuineness of purchases? “ 3. It appears from the materials on record that the assessee filed his return of income for the A.Y. 2011- 12 on 29.09.2011 declaring the total income of Rs.7,66,360/-. On the basis of the information received from the Maharashtra Sales Tax Department that the assessee had made bogus purchases from M/s. Fasto Traders Pvt.Ltd.of Rs. 8,54,010/-, the case was re-opened under Section 147 of the Act, 1961. 4. During the course of the assessment proceedings, further information was received that the assessee had made bogus purchases from 5 other parties to the tune of Rs.55,60,085/-. The Assessing Officer also noticed that the assessee had obtained unsecured loan. The Assessing Officer also noticed the difference in the amount of VAT paid by the assessee Page 2 of 7

C/TAXAP/210/2020 ORDER compared to the taxable purchases. The Assessing Officer took the view that the genuineness of such purchases could not be established as the parties/suppliers were not found or rather non- existing at the addresses furnished by the assessee. In such circumstances, the Assessing Officer made addition of Rs.55,61,085/- on account of the bogus purchases and added it to the total income of the assessee. 5. The assessee being dissatisfied with the assessment order, preferred appeal before the Commisisoner of Income Tax (A) (for short “CIT(A)”). The CIT(A) dismissed the appeal of the assessee. 6. The assessee being dissatisfied with the order passed by the CIT(A), preferred appeal before the Appellate Tribunal. The Appellate Tribunal partly allowed the appeal of the assessee by holding that ad hoc addition at the rate of 5% of such purchases would meet with the ends of justice and may also put a quietus to the entire litigation. Page 3 of 7

C/TAXAP/210/2020 ORDER 7. The assessee being dissatisfied with the order passed by the Appellate Tribunal is here before this Court with the present appeal. 8. We have heard Ms. Mauna Bhatt, the learned Senior Standing Counsel appearing for the Revenue. 9. We take notice of the findings recorded by the Tribunal. The findings are as under:- “10.2 From the preceding discussion we also note that the assessee has claimed to have made sales against such purchases which have been admitted by the Revenue. As such in our considered view, such sales cannot be executed without having the coresponding purchases. There was no defect pointed out by the authorities below insofar the sales made against such purchases. Moreover, there is also no allegation regarding the genuiness of the books of accounts which were duly audited under the Income Tax Act. 10.3 However, before parting we cannot ignore the practice prevailing in the business Page 4 of 7

C/TAXAP/210/2020 ORDER industries to purchase the goods from the grey market and subsequently justify such purchases by obtaining a purchase bill from the parties engaged in providing accomodation entries. It is because the assessee in the present case has claimed to have purchased the goods from the parties not having valid VAT/CST registration certificate though he is claiming to have purchased goods from the registered party. Moreover, there was no submission from the side of the assessee against the finding of the Maharashtra Sales Tax Department wherein it was alleged that the parties are not genuine.In view of the above, we can presume that the actual purchases were made by the assessee from the grey market but shown in the name of the impugned parties. 10.4 WE are also conscious to the fact that the assessee has already declared the GP in its books of accounts by recording the sales and the corresponding purchases. But to prevent the possible leakage of the Revenue, as the purchases from the local/grey market is normally cheaper, we are inclined to make ad hoc addition at the rate of 5% of such purchases in order to meet the end of justice and to stop the ongoing dispute. In holding so, we find suport and guidance from the judgment of the Page 5 of 7

C/TAXAP/210/2020 ORDER ITAT Ahmedabad in case of ITO vs.Sun Steel reported in 92 TTJ 1126 wherein it was held as under: “At the most it can be presumed that the assessee did not make purchases from the above parties but made from other unregistered dealer and got benefit of margin of purchases from unregistered dealer. We find that to that extent an estimation of profit can be made which will be fair and reasonable under the facts and circumstances of the case. Therefore, for the above purposes we estimate Rs. 50,000 and accordingly the order of the CIT(A) is modified and the addition to the extent of Rs.50,000 is sustained and balance addition of Rs.26,89,407 is deleted out of the total addition made of Rs.27,39,407.”

In view of the above, we direct the AO to make the ad-hoc addition on suc purchases as discussed above, Hence the ground of appeal of the assessee is allowed.” 10. Thus, if the Appellate Tribunal in the overall facts of the case and having regard to the materials on record thought fit to make ad hoc addition at the rate of 5% of such purchases, then, the Tribunal could not be said to have committed any serious error warranting any interference in this appeal. Page 6 of 7

C/TAXAP/210/2020 ORDER 11. We are of the view that the question as proposed by the Revenue cannot be termed as substantial question of law. 12. In the result, this appeal fails and is hereby dismissed. (VIKRAM NATH, CJ) (J. B. PARDIWALA, J) NAIR SMITA V./A.M. PIRZADA Page 7 of 7