THE COMMISSIONER OF INCOME TAX-II vs. SHRI ANIL KUMAR CHORDIA

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ITA/142/2012HC Madhya PradeshMPHC02030143201217 January 20136 pages
AI SummaryDismissed

What did the High Court hold?

The Tribunal upheld the decision of the CIT(A) in deleting the disallowance made under Section 40A(3) of the Act. The High Court found that both the CIT(A) and the Tribunal relied on the judgment of this Court in Commissioner of Income Tax Vs. Purshottamlal Tamrakar (270 ITR 314). In that precedent, it was held that Section 40A(3) is not applicable when a net profit rate has been applied by the Assessing Officer, as the expenses are deemed to be considered while applying the net profit rate. Applying this principle, the High Court held that when a net profit rate was applied by the Assessing Officer, there was no scope for further disallowance of any expenditure. Consequently, no substantial question of law arose, and the appeal was dismissed in limine. The operative direction was dismissal of the appeal.

What were the facts?

During a search under Section 132 of the Income Tax Act, 1961, proprietors of several firms admitted to issuing bogus bills for iron and steel without actual sales. They stated they received cheques for these bills and returned the amounts in cash after deducting a commission. An inquiry revealed the respondent assessee declared purchases from these firms. The Assessing Officer (AO) treated these purchases as not genuine, initiated reassessment proceedings under Section 148, and disallowed 20% of cash payments for alternative purchases, also rejecting the assessee's books and estimating 6% extra profit on purchases from the Kothari Group. The CIT(A) found purchases from the Kothari Group were by cheque and, having already estimated profit, found no reason for further disallowance under Section 40A(3). The Tribunal upheld the CIT(A)'s decision regarding the Section 40A(3) disallowance.

What were the issues?

1. Whether the Tribunal erred in deleting the disallowance made under Section 40A(3) of the Income Tax Act, 1961, in respect of cash payments for purchases, when the Assessing Officer had already rejected the assessee's books of account and estimated a net profit rate. Assessee's Contention: The judgment does not record any specific arguments made by the assessee. The assessee is the respondent in the appeal before the Tribunal. Revenue's Contention: The revenue argued that the CIT(A) erred in deleting the disallowance made under Section 40A(3). The revenue relied on the fact that the Assessing Officer had disallowed 20% of the purchase price alleged to be paid in cash for alternative purchases and rejected the books of account, estimating 6% extra profit on purchases from the Kothari Group. The revenue's appeal to the Tribunal was against the deletion of the Section 40A(3) disallowance by the CIT(A).

Which sections of the Income-tax Act were involved?

Section 132,Section 132(4),Section 143(3),Section 148,Section 40A(3)

AI-generated summary — verify with the full judgment below

Income Tax Appeal No.142/2012 17.01.2013 Shri R.L. Jain, learned Senior Counsel with Ms. Veena Mandlik, learned counsel for the appellant. At the outset, it has been stated by the learned Senior Counsel for the appellant that the question involved in this appeal has already been answered by this Division Bench in Income Tax Appeal No.136/2012 (The Commissioner of Income Tax-II, Indore v. M/s. Hindustan Equipment Pvt. Ltd.) decided on 10.01.2013.

Having regard to the aforesaid, this appeal is also dismissed for the reasons stated in the order dated 10.01.2013 passed in Income Tax Appeal No.136/2012. A copy of the said order be retained in this appeal also.

(Shantanu Kemkar) (M.C. Garg) Judge

Judge Pithawe RC 2 HIGH COURT OF MADHYA PRADESH; INDORE BENCH (DIVISION BENCH : HON'BLE SHRI SHANTANU KEMKAR AND HON'BLE SHRI MOOL CHAND GARG JJ.) I.T.A.No.136 of 2012 The Commissioner of Income Tax-II Aayakar Bhawan, White Church Road, Indore, M.P.

APPELLANT VERSUS M/s Hindustan Equipment Pvt. Ltd. 402, Royal Estate, 9/2 South Tukoganj, Indore,. (M.P.)

RESPONDENT ***************************************************** For Appellant : Shri R.L.Jain, learned Senior counsel with Ms. Veena Mandlik. ***************************************************** O R D E R (Passed on this 10

th day of January, 2013)

PER SHANTANU KEMKAR, J :

Heard on the question of admission. 3 This order shall also govern disposal of I.T.A.Nos.137/2012, 138/2012, 139/2012 and 140/2012 as it has been stated by the learned Senior counsel for the appellant revenue that the facts and question of law raised in all these appeals are identical. For the sake of convenience facts are taken from I.T.A.No.136/2012.

Briefly stated there was a search at Bharat Kothari Group under Section 132 of the Income Tax Act, 1961 (for short the Act). 2. During the course of search proceedings in the statement, recorded under Section 132 (4) of the Act it was admitted by the proprietors of various firms namely M/s Nikita Steels, M/s Bharat Enterprises, M/s Maa Enterprises, M/s Harsh Enterprises, M/s Saluja Enterprises, M/s Sonam Steels and M/s Pratik Enterprises (for short the Bills providers) that they have indulged in the activity of issuing bogus bills without there being any actual sales of iron and steel. In their statements recorded and confirmed by their affidavits they further stated that they have received cheques 4 for the amount of bills and they returned the entire amount to the parties by making cash withdrawal from the banks deducting nominal commission ranging from Rs.10/- to Rs.40/- per ton iron. 3. In the enquiry conducted after the said search it was found that the respondent assessee has declared purchase of iron and steel from the aforesaid bill providers. In the circumstances on the basis of the statements and affidavits of the Bill providers, the purchases claimed by the assessee were held by the Assessing Officer to be not genuine. The Assessing Officer, after recording reasons and obtaining necessary approval issued a notice under Section 148 to the assessee and initiated the proceedings 4. The Assessing Officer completed the assessment under Section 143 (3)/148 of the Act and vide his order dated 27.12.2010 disallowed 20% of the purchase price alleged to be paid in cash in respect of alternative purchases. The Assessing Officer also rejected books of account of the assessee and estimated 6% extra profit in respect of purchases made from Kothari Group. 5 5. In the appeal the CIT (Appeal) vide order dated 05.12.2011 found that all the purchases made from Kothari Group was paid by cheque and when entire books of accounts were rejected and profit was estimated at 6% of such purchases made from Kothari Groups there was no reason or making further disallowance under Section 40A (3) in respect of alternative purchases alleged to be made. 6. In the appeal filed by the Revenue before the Income Tax Appellate Tribunal (for short the Tribunal) in regard to ground about deleting the disallowance made under Section 40A(3) of the Act by the CIT (Appeal) the Tribunal upheld the decision of the CIT (Appeal) in regard to the said disallowance. 7. Aggrieved by the order of CIT (A) and the Tribunal the revenue is in appeal. 8. We find that the CIT (Appeal) and the Tribunal, for deleting the said disallowance, placed reliance on the judgment of this Court in the case of Commissioner of Income Tax Vs. Purshottamlal Tamrakar 270 ITR 314. We find that in the said judgment Division Bench of this 6 Court has held that Section 40A(3) is not applicable when the net profit rate was applied by the Assessing Officer and once a net profit rate is applied. The expenses are deemed to be considered while applying the net profit rate. 9. Having regard to the law laid down in the case of Commissioner of Income Tax Vs. Purshottamlal Tamrakar (supra) and the fact that in the present case also net profit rate was applied we are of the view that when net profit rate was applied by the Assessing Officer there was no scope for further disallowance of any expenditure. 10. In the circumstances, in our considered view no substantial question of law arises in the matter. The appeal fails and is hereby dismissed in limine. ( SHANTANU KEMKAR ) (M.C.GARG)

JUDGE JUDGE AM.

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