THE PRINCIPAL COMMISSIONER OF INCOME TAX-2 vs. KINTECH SYNERGY PVT. LTD.

C/TAXAP/713/2019 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 713 of 2019 With R/TAX APPEAL NO. 714 of 2019 ========================================================== THE PRINCIPAL COMMISSIONER OF INCOME TAX-2 Versus KINTECH SYNERGY PVT. LTD. ========================================================== Appearance: MRS MAUNA M BHATT(174) for the Appellant(s) No. 1 for the Opponent(s) No. 1 ========================================================== CORAM: HONOURABLE MS.JUSTICE HARSHA DEVANI and HONOURABLE MS. JUSTICE SANGEETA K. VISHEN

Date : 25/11/2019

COMMON ORAL ORDER (PER : HONOURABLE MS.JUSTICE HARSHA DEVANI) 1. By these appeals under section 260A of the Income Tax Act, 1961 (hereinafter referred to as “the Act”), the appellant revenue has called in question the common order dated 5.4.2019 passed by the Income Tax Appellate Tribunal, Ahmedabad Bench ‘A’, Ahmedabad (hereinafter referred to as “the Tribunal”) in ITA No.2377/Ahd/2015 for assessment year 2009-10 and ITA No.2378/Ahd/2015 for assessment year 2010- 11 by proposing the following two common questions, stated to be substantial questions of law. The questions as proposed in Tax Appeal No.713 of 2019 read thus :- “(A) Whether the Appellate Tribunal had erred in law and on facts in deleting the disallowance of M/s. Dharmesh Trading Company at Rs.13,83,471/-, Jain Page 1 of 9

C/TAXAP/713/2019 ORDER Corporation at Rs.17,36,445/-, Krsna Enterprise at Rs.13,73,964/-, Om Enterprise at Rs.20,99,599/- and Yash Impex at Rs.24,41,674/- and directing the Assessing Officer to compute the profit on the alleged bogus purchases @ 12.5%? (B) Whether the Appellate Tribunal has erred in law and on facts in not following the decision of Hon’ble Gujarat High Court in the case of N.K. Industries Ltd. v. DCIT [2016] 72 taxmann.com 289 (Gujarat), which was also confirmed by the Hon’ble Supreme Court, wherein it was held that addition on basis of undisclosed income could not be restricted to certain percentage the entire transaction was found as bogus?” 2. While question (B) is common in both the appeals, in Tax Appeal No.714 of 2019, question (A) reads as under:- “(A) Whether the Appellate Tribunal had erred in law and on facts in deleting the disallowance of Bharat Steel Corporation at Rs.16,11,480/-, Jain Corporation at Rs.8,36,160/-, Krsna Enterprise at Rs.72,563/-, Mahavir Enterprise at Rs.6,76,915/- and Riddhi Siddhi Trading Co. at Rs.5,70,960/- and directing the Assessing Officer to compute the profit on the alleged bogus purchases @ 12.5%?” 3. Since the facts and contentions in both these appeals are more or less identical and the parties are also common, the same were taken up for hearing together and are decided by this common judgment. For the sake of convenience, reference Page 2 of 9

C/TAXAP/713/2019 ORDER is made to the facts as appearing in Tax Appeal No.713 of 2019. 4. The respondent assessee filed its return of income on 26.9.2009 declaring total income of Rs.73,38,651/- Assessment came to be framed under sub-section (3) of section 143 of the Act on 30.3.2011, determining the total income at Rs.93,62,451/-. Subsequently, the case was reopened on account of revenue audit objection and assessment came to be framed under section 143(3) read with section 147 of the Act on 27.8.2014 determining the revised assessed income at Rs.1,68,70,980/- after making disallowance of Rs.90,35,153/- on account of bogus purchases. During the course of assessment proceedings, the Assessing Officer had received information from the Value Added Tax Department about the assessee having made bogus purchases from parties namely M/s. Dharmesh Trading Company of Rs.13,83,471/-, Jain Corporation of Rs.17,36,445/-, Krsna Enterprise of Rs.13,73,964/-, Om Enterprise of Rs.20,99,599/- and Yash Impex of Rs.24,41,674/- without any movement of goods. The entry provider Shri Mitesh Hakani admitted that they were engaged in the business of issuing bogus sale invoices without movement of goods for the sake of commission and also disclosed the modus operandi of their business. The Assessing Officer thereafter, made disallowance of bogus purchases and held that the genuineness of the purchases made by the assessee from the firms stated by the Value Added Tax Department could not be proved and made addition of Rs.90,35,153/- to the total income on account of bogus purchases. 5. Being aggrieved, the respondent assessee preferred an Page 3 of 9

C/TAXAP/713/2019 ORDER appeal before the Commissioner (Appeals), who partly allowed the appeal of the assessee on this issue. Revenue carried the matter in appeal before the Tribunal, but did not succeed. 6. Mrs. Mauna Bhatt, learned senior standing counsel for the appellant submitted that the Assessing Officer had information about the bogus purchases made by the assessee from the aforesaid parties, which is evident from their statements recorded by the Value Added Tax authorities, and subsequently confirmed in their affidavits filed independently, which had remained uncontroverted by the assessee. Moreover, in the assessment proceedings, the assessee submitted the details of purchases and corresponding sales but the same were not verifiable for the reason that the details were given only in respect of the said purchases made from the above parties and the sales thereof were claimed to have been made to different parties. It was submitted that in the absence of quantitative details of purchase and sales for opening and closing stock for the full year, the purchases cannot be said to be genuine, more so, when the assessee had totally failed to prove the movement of goods transacted. 6.1 It was further submitted that the assessee had failed to submit any details in respect of movement of goods with vehicle numbers, both in respect of purchase items and sale items, though specifically asked for by the Assessing Officer during the course of assessment proceedings. It was submitted that in the absence of any details and evidence of movement of goods and freight payment, the transactions of purchase and sale cannot be said to be genuine, and hence, the Commissioner (Appeals) as well as the Tribunal were not Page 4 of 9

C/TAXAP/713/2019 ORDER justified in partly allowing the said ground of appeal. It was, accordingly, urged that the appeals require consideration on the questions as proposed or as may be deemed fit by this court. 7. Insofar as proposed question [A] is concerned, a perusal of the order passed by the Commissioner (Appeals) reveals that he has, after appreciating the material on record, found that the respondent assessee had done construction work of certain companies which are in the business of installation of windmills and the assessee had issued bills and installation certificate for those parties. It was noted that the assessee had been able to reconcile the purchases made and the material consumed by it against which it had issued bills to the parties for whom it had done construction work. The Commissioner (Appeals) also noted that the assessee had shown consistent gross profit ratio in earlier years and the ratio of the years under appeal was also in line with the earlier years. On consideration of the overall facts, the Commissioner (Appeals), found as a matter of fact, that the assessee had consumed the material which had been purchased, but at the same time the inquiries made by the Sales Tax Department also showed that the bills issued by the above mentioned parties from whom the assessee had claimed to have made purchases were bogus. He, therefore, was of the view that these facts show that the assessee had purchased the material from the open market and obtained bills from the above mentioned parties. It was further noted that there is no finding by the Assessing Officer to show that the assessee had tried to inflate the raw material purchases. On examination of the record and the details furnished by the assessee, it was found that the assessee was Page 5 of 9

C/TAXAP/713/2019 ORDER issuing separate bills for material consumed against the construction at different sites, and labour bills in respect of those works were issued separately. Therefore, it was possible to reconcile the amount of material consumed at each site. The assessee had given reconciliation of the material purchased and consumed. Having regard to the fact that the assessee was able to reconcile the quantity of purchases with the consumption and the bills issued, the Commissioner (Appeals) found that the assessee had purchased raw materials from one person and obtained the bill from somebody else. He, therefore, found that it would not be appropriate to disallow the entire purchases as the assessee had consumed the raw material and there was no inflation in purchases, and deemed it fit to tax a reasonable percentage of the total purchases made for which the bills have been found to be bogus. 7.1 Since the assessee had failed to prove that the claim of expenditure through purchases was genuine, the Commissioner (Appeals) placed reliance upon the decision of this High Court in the case of CIT v. Sathvanarayan P. Rathi, (2013) 351 ITR 150 (Guj.), wherein this court noticed that the Commissioner (Appeals) as well as the Tribunal found that the purchase of raw material, in which the assessee was trading, were only made, but not from disclosed sources. In other words, the case against the assessee was that the purchases were made in the grey market through cash payment and some entries were obtained from certain suppliers who had not sold such goods. The court held that the said case being one of only purchase but not from disclosed sources, it would be only the profit element embodied in such purchase which could be added in the income of the assessee. Page 6 of 9

C/TAXAP/713/2019 ORDER The court further held that in determining whether such profit element should be estimated at the rate of 30% or 12 ½ %, some reasonable estimation is always permissible and any question of law would hardly arise on such aspect. The Commissioner (Appeals) also placed reliance upon the decision of this court in CIT v. Simit P. Sheth, (2013) 219 Taxmann 85 (Guj.), wherein the Commissioner (Appeals) had found that the assessee had made purchases, though not from the named parties but other parties from grey market, and sustained addition of 30% of purchase cost as probable profit of the assessee. The Tribunal, however, sustained addition to the extent of 12.5%. This court held that since purchases were not bogus, but were made from parties other than those mentioned in books of account, it was only the profit element embedded in such purchases that could be added to the assessee’s income, and upheld the decision of the Tribunal. The Commissioner (Appeals) further placed reliance upon the decision of this court in the case of CIT v. Bholanath Polyfab (P) Ltd., (2013) 355 ITR 290 (Guj.) wherein the above view was reiterated. 7.2 Thus, the Commissioner (Appeals) merely applied the above referred decisions of the jurisdictional High Court to the facts of the present case and, accordingly, made an addition of a profit percentage of 12.5% on such bogus purchases. 7.3 As can be seen from the impugned order, the Tribunal, upon appreciation of the material on record, has concurred with the findings of fact recorded by the Commissioner (Appeals). From the concurrent findings of fact recorded by the Tribunal, it is evident that while it has found that the assessee Page 7 of 9

C/TAXAP/713/2019 ORDER had not made the purchases from the named parties, it has found as a matter of fact that the assessee had made such purchases, but from other parties viz. the grey market. The assessee has been able to reconcile the purchases with the material used for construction in respect of different parties. The Commissioner (Appeals), after appreciating the material on record, has been satisfied that the assessee had reconciled the purchases made and the material consumed by it against which it had issued bills to the parties for whom it has done construction work. The Tribunal has concurred with the aforesaid findings of fact recorded by the Commissioner (Appeals). Thus, whether the purchases themselves were bogus or whether the parties from whom the purchases were allegedly made were bogus is essentially a question of fact. Nothing has been pointed out to this court to dislodge the concurrent findings of fact recorded by the Tribunal, nor is there anything to show that the Tribunal has placed reliance on any irrelevant material or that any relevant material has been ignored. 7.4 In the opinion of this court, having regard to the fact that goods were in fact purchased though not from the named parties but from the grey market, no infirmity can be found in the approach adopted by the Commissioner (Appeals) in restricting the addition to 12.5% of such bogus purchases, which would be the approximate differential amount between the actual price of the goods and the expenditure claimed on the basis of the bogus bills. The Tribunal was, therefore, wholly justified in upholding the order passed by the Commissioner (Appeals). The controversy raised vide proposed question (A), therefore, does not give rise to any question of Page 8 of 9

C/TAXAP/713/2019 ORDER law. 8. Insofar as proposed question (B) is concerned, a perusal of the impugned judgment and order of the Tribunal reveals that there is no reference to the decision of this High Court in the case of N.K. Industries Ltd. v. DCIT (2016) 72 taxmann.com 289 (Guj.). Neither of the parties, either before the Commissioner (Appeals) or before the Tribunal, has placed reliance upon such decision. In the impugned order, the Tribunal has only placed reliance upon the decisions of this court in the case of CIT v. Sathvanarayan P. Rathi, (supra), CIT v. Simit P. Sheth, (supra) and CIT v. Bholanath Polyfab (P) Ltd., (supra). Under the circumstances, the question of applicability or otherwise of the decisions of this High Court in the case of N.K. Industries Limited v. DCIT (supra) does not arise out of the impugned order passed by the Tribunal. Proposed question (B), therefore, does not arise out of the impugned order. 9. In the light of the above discussion, no question of law, much less, a substantial question of law can be said to arise out of the impugned order passed by the Tribunal, so as to warrant interference. The appeals, therefore, fail and are, accordingly, summarily dismissed. (HARSHA DEVANI, J) (SANGEETA K. VISHEN,J) Z.G. SHAIKH Page 9 of 9