COMMISSIONER OF INCOME TAX vs. RAMESHCHANDRA A. SHAH

O/TAXAP/616/2005 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 616 of 2005 With TAX APPEAL NO. 627 of 2005

FOR APPROVAL AND SIGNATURE:

HONOURABLE MR.JUSTICE KS JHAVERI

and HONOURABLE MR.JUSTICE K.J.THAKER

================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ COMMISSIONER OF INCOME TAX....Appellant(s) Versus RAMESHCHANDRA A. SHAH....Opponent(s) ================================================================ Appearance: Tax Appeal No. 616/2005 MRS MAUNA M BHATT, ADVOCATE for the Appellant(s) No. 1 MR SN DIVATIA, ADVOCATE for the Opponent(s) No. 1 Page 1 of 5

O/TAXAP/616/2005 JUDGMENT Tax Appeal No. 627/2005 MR VARUN K PATEL, ADVOCATE for the Appellant MR SN DIVATIA, ADVOCATE for the Opponent ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER

Date : 05/11/2014

ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. By of these appeals, the appellant of Tax Appeal No. 616/2005 has challenged the judgment and order dated 21.8.2003 passed by the Income Tax Appellate Tribunal, Ahmedabad Bench ‘B’ in ITA No. 1186/Ahd/2001 for A.Y. 1997-98 and the appellant of Tax Appeal No. 627/2005 has challenged the judgment and order dated 23.10.2005 passed by the Income Tax Appellate Tribuna, Ahmedabad Bench ‘B’ in ITA No. 2341/Ahd/1996 for A.Y. 1991-92. 2. While admitting these appeals, this Court has framed the following substantial question of law: Question in Tax Appeal No. 616/2005: “Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in restricting the addition on account of Page 2 of 5

O/TAXAP/616/2005 JUDGMENT alleged

bogus

purchases

Rs. 3,13,725/- out of total purchases amounting to Rs. 8,36,601/- ?” Question in Tax Appeal No. 627/2005: “Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in restricting the addition on account of alleged

bogus

purchases

Rs. 2,40,605/- out of total purchases amounting to Rs. 16,04,032/- ?” 3. The facts of the present case are that the return of income was filed by the assessee on 29.10.197 declaring a total income of Rs. 2,38,321/- which was accepted u/s. 143(1)(a) on 26.3.98. The tax payable was determined at Rs.NIL after considering prepaid taxes of Rs. 63,776/-. The assessee is the proprietor of M/s. Jyoti Electricals which is engaged in the trading business of electrical goods was like preceding A.Ys. The system of accounting has been adopted as mercantile on the basis of which annual accounts for F.Y. 1996-97 have been prepared and furnished as a statutory requirement under the provisions of section 44-AB of the IT Act, 1961. The value of closing stock has been shown at Rs. 9,456/- on the basis of inventory of unsold goods prepared at the end of the year. Therefore, Page 3 of 5

O/TAXAP/616/2005 JUDGMENT notice under sec. 143(2) came to be issued to the assessee and after considering the material, the assessment order has been passed. 4. Heard the learned advocates appearing for the respective

parties

and

considered

the submissions. Mr. Patel learned advocate appearing for appellant-Revenue in Tax Appeal No. 627/2005 has tried to distinguish the judgment on facts and argued for enhancement of disallowance on account of bogus purchase. In our view, in fact, the Tribunal has rightly assessed the disallowance at the rate of 15%. The Tribunal has observed as under in paragraph-5: “The ld. AR submitted that 25% disallowance taken in the said decision of the Tribunal is excessive looking to the nature and business activities of the assessee. The assessee is dealing in iron and steel wherein sales tax rate if 4 paise in one rupee. He further submitted that the other taxes including excise duty etc. are also less than the commodities of the said decision. After considering the totality of the case, we find that it is an admitted fact that the purchase were bogus and for this purpose, we confirm the order of AO but for the purpose of calculating amount of disallowance, we follow the decision of the Tribunal in the case of Vijay Proteins (supra) and after considering the submissions of the ld. AR and after considering the submission of the ld. AR and after considering the nature of Page 4 of 5

O/TAXAP/616/2005 JUDGMENT business of the assessee and other circumstances, we find it reasonable and fair to both the parties if 15% disallowance of bogus purchases of Rs. 16,04,032/- is made. Accordingly, an addition of Rs. 2,40,605/- is confirmed out of the addition of Rs. 13,63,427/- is deleted. In the light of above discussion, we modify the orders of authorities below accordingly. The first common ground of both the appeals is disposed of accordingly.” 5. The decision of this Court in the case of Sanjay Oil Cake Industries vs. Commissioner of Income Tax, reported in (2009) 316 ITR 274 will govern the issue involved in the present appeals. 6. Therefore, the questions posed in both the appeals are answered against the Revenue and in favour of the assessee. Both these appeals are dismissed accordingly. (K.S.JHAVERI, J.) (K.J.THAKER, J) mandora Page 5 of 5