PRINCIPAL COMMISSIONER OF INCOME TAX vs. M/S. PANKAJ COTTON INDUSTRIES

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TAXAP/428/2018HC GujaratGJHC24020577201802 May 2018Bench: HONOURABLE MR. JUSTICE AKIL KURESHI,HONOURABLE MR. JUSTICE B.N. KARIA2 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that no question of law arose from the ITAT's order. Regarding the first issue concerning bogus purchases, the Court broadly agreed with the authorities (CIT(A) and ITAT) that while purchases might be found to be bogus, the entire amount should not be added as income. The reasoning was that the AO had not found discrepancies in the stock register and sales, implying that only the profit element embedded in such purchases should be considered income. For the remaining two issues concerning unexplained cash deposits and undisclosed income, the Court noted that these additions were either reduced or deleted by the CIT(A) and ITAT, and were related to the additions sustained regarding bogus purchases. The CIT(A) had specifically reasoned that after making an addition of 25% of doubtful purchases, separate additions were not justified as they would be telescoped. The Court concluded that these issues were essentially factual in nature. Therefore, the Tax Appeal was dismissed.

What were the facts?

The Revenue, Principal Commissioner of Income Tax, filed an appeal against an order of the Income Tax Appellate Tribunal (ITAT) dated October 27, 2017. The appeal concerned assessment year(s) not explicitly stated in the judgment. The ITAT had deleted additions made by the Assessing Officer (AO) and confirmed in part by the CIT(A). The disputed amounts were Rs. 2,84,58,054/- on account of bogus purchases, Rs. 3,23,85,600/- on account of unexplained cash deposits, and Rs. 56,91,610/- on account of undisclosed income. The CIT(A) and ITAT had reasoned that while purchases might be bogus, the entire amount should not be added as income, as stock registers and sales were not faulted, and the profit element was the only income to be taxed. Furthermore, the CIT(A) had already made an addition of 25% of doubtful purchases, and separate additions were deemed unjustified as they would be telescoped.

What were the issues?

The Tribunal had to decide the following questions of law: 1. Whether the Appellate Tribunal has erred in law and on facts of the case in deleting the addition of Rs. 2,84,58,054/- made on account of bogus purchase? 2. Whether the Appellate Tribunal has erred in law and on facts of the case in deleting the addition of Rs. 3,23,85,600/- made on account of unexplained cash deposit in bank accounts? 3. Whether the Appellate Tribunal has erred in law and on facts of the case in deleting the addition of Rs. 56,91,610/- made on account of addition made on account of undisclosed income? Assessee's Contentions: The judgment does not record specific contentions made by the assessee. The reasoning of the CIT(A) and ITAT, as described in the judgment, suggests that the assessee likely argued that the entire amount of bogus purchases should not be treated as income, and that the profit element embedded therein was the only taxable income. It was also likely argued that separate additions for cash deposits and undisclosed income were not justified, especially after an addition was made for doubtful purchases. Revenue's Contentions: The Revenue contended that the ITAT erred in deleting the additions made by the AO, particularly concerning bogus purchases, unexplained cash deposits, and undisclosed income. The Revenue likely argued that the entire amount of bogus purchases represented income and that the other additions were also valid.

AI-generated summary — verify with the full judgment below

C/TAXAP/428/2018 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 428 of 2018 ========================================================== PRINCIPAL COMMISSIONER OF INCOME TAX Versus M/S. PANKAJ COTTON INDUSTRIES ========================================================== Appearance: MRS MAUNA M BHATT(174) for the PETITIONER(s) No. 1 for the RESPONDENT(s) No. 1 ========================================================== CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE B.N. KARIA

Date : 02/05/2018 ORAL ORDER (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. Revenue is in appeal against the judgement of the Income Tax Appellate Tribunal dated 27.10.2017 raising following questions for our consideration: “1. Whether the Appellate Tribunal has erred in law and on facts of the case in deleting the addition of Rs. 2,84,58,054/- made on account of bogus purchase? 2. Whether the Appellate Tribunal has erred in law and on facts of the case in deleting the addition of Rs. 3,23,85,600/- made on account of unexplained cash deposit in bank accounts? 3. Whether the Appellate Tribunal has erred in law and on facts of the case in deleting the addition of Rs. 56,91,610/- made on account of addition made on account of undisclosed income?” Page 1 of 2

C/TAXAP/428/2018 ORDER 2. First question pertains to the assessee's purchases which were found to be bogus. CIT (A) and the Tribunal, while confirming these findings, however, refused to add the entire amount of such purchases by way of income of the assessee on the ground that the Assessing Officer had not found any discrepancy or fault with the stock register and sales of the assessee. In essence thus, in opinion of the said authorities, the profit element embedded in such purchases is not accounted. Entire amount should be added. We are broadly in agreement with the authority. No question of law arises. 3. The remaining two additions which were either reduced or deleted also have relation to the additions sustained by the CIT(A) and the Tribunal regarding bogus purchases. The CIT(A) in particular, gave elaborate reasons to record that having made addition of 25% of the amount of doubtful purchases, separate additions, as suggested by the Assessing Officer were not justified since these amounts would be telescoped into the additions sustained. Essentially, the issues are factual in nature, no question of law arises. Tax Appeal is dismissed. (AKIL KURESHI, J) (B.N. KARIA, J) JYOTI V. JANI Page 2 of 2

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