RAGHUBIRDAYAL KHANDELWAL,,PUNE vs. INCOME-TAX OFFICER, WARD - 9 (2),, PUNE

आयकर अपीलीय अिधकरण, पुणे �यायपीठ “एक-सद�य मामला” पुणे म� IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH “SMC”, PUNE �ी डी. क�णाकरा राव, लेखा सद�य के सम� BEFORE SHRI D. KARUNAKARA RAO, AM आयकर अपील सं. / ITA Nos.311 & 312/PUN/2019 िनधा�रण वष� / Assessment Years : 2010-11 & 2011-12 Raghubirdayal Khandelwal, Laxmi Niwas, Plot No.159, Sector- 27, Nigdi-Pradhikaran, Pune-411044. अपीलाथ�/Appellant PAN : ABJPK9531C …. Vs. ITO, Ward-9(2), …. ��थ� / Respondent Pune. अपीलाथ� क� ओर से / Appellant by : Shri Parag Bhujwal ��थ� की ओर से / Respondent by : Mrs. Shabana Parveen, Shri Manoj Kumar Mrs. Deepa Hairy सुनवाई क� तारीख / घोषणा क� तारीख / Date of Hearing : 04.09.2019 Date of Pronouncement: 23.09.2019 आदेश / ORDER PER D. KARUNAKARA RAO, AM : There are two appeals under consideration filed by the assessee. Both the appeals are directed against the order of CIT(A)-8, Pune commonly dated 20.12.2018 for the Assessment Years 2010-11 and 2011-12 respectively. Since the facts and issues are common in both the appeals, therefore, these were heard together and are being disposed of by this composite order.

-2- ITA Nos.311 & 312/PUN/2019 2. The grounds raised by the assessee are common in both the appeals. Therefore, for the sake of brevity, we proceed to extract the effective ground raised in ITA No.311/PUN/2019 for the assessment year 2010-11 as follows :- “1. Whether on facts and circumstances of case, the Ld. CIT(A) was justified in confirming the addition of Rs.1,08,035/- for purchases made from suspected hawala suppliers as bogus purchases.” 3. Before us, at the outset, ld. Counsel for the assessee demonstrated that this is a case of bogus purchases where the trail of goods were demonstrated. Further, bringing our attention to the order of the Assessing Officer and the CIT(A), ld. Counsel submitted that both the officers i.e. Assessing Officer and CIT(A) resorted to make the addition applying the ad- hoc rate of 25% of the said bogus purchases for the assessment years 2010-11 and 2011-12 respectively. The additions are Rs.1,08,035/- for A.Y. 2010-11 and Rs.4,09,915/- for A.Y. 2011-12. 4. In this background, ld. Counsel mentioned that in this case the decision of the Tribunal in the case of M/s. Chhabi Electricals Pvt. Ltd. and others Vs. DCIT in ITA No.795/PUN/2014, relating to assessment year 2010-11, decided on 28-04-2017 should apply and the disallowance should be restricted only @ 10% of the bogus purchases. 5. The ld. DR for the Revenue, on the other hand, relied heavily on the orders of the Assessing Officer and the CIT(A). 6. On hearing both the parties, I find this is a case of bogus purchases reassessed by reopening the completed assessment. The assessee raised

-3- ITA Nos.311 & 312/PUN/2019 the issue of violation to the principle of natural justice raised in the grounds on the basis of “change of opinion”. Deviating from the above legal issue, referring to the merits of addition, the assessee relied heavily on the order of the Co-ordinate Bench of the Tribunal in the case of M/s. Chhabi Electricals Pvt. Ltd. and others (supra). The assessee pleaded for restricting the disallowance @ 10% of the bogus purchases. Meanwhile, I find the Jurisdictional High Court has decided similar issue in the case of Pr.CIT vs. M/s. Mohommad Haji Adam & Co. vide Income Tax Appeal No.1004 of 2016 dated 11.02.2019. In para 8 of this judgement (supra), I find the Hon’ble Jurisdictional High Court dismissed the appeals filed by the Revenue with the following observations :- “8. In the present case, as noted above, the assessee was a trader of fabrics. The A.O. found three entities who were indulging in bogus billing activities. A.O. found that the purchases made by the assessee from these entities were bogus. This being a finding of fact, we have proceeded on such basis. Despite this, the question arises whether the Revenue is correct in contending that the entire purchase amount should be added by way of assessee's additional income or the assessee is correct in contending that such logic cannot be applied. The finding of the CIT(A) and the Tribunal would suggest that the department had not disputed the assessee's sales. There was no discrepancy between the purchases shown by the assessee and the sales declared. That being the position, the Tribunal was correct in coming to the conclusion that the purchases cannot be rejected without disturbing the sales in case of a trader. The Tribunal, therefore, correctly restricted the additions limited to the extent of bringing the G.P. rate on purchases at the same rate of other genuine purchases. The decision of the Gujarat High Court in the case of N.K. I (supra) cannot be applied without reference to the facts. In fact in paragraph 8 of the same Judgment the Court held and observed as under- “ So far as the question regarding addition of Rs.3,70,78,125/- as gross profit on sales of Rs.37.08 Crores made by the Assessing Officer despite the fact that the said sales had admittedly been recorded in the regular books during Financial Year 1997-98 is concerned, we are of the view that the assessee cannot be punished since sale price is accepted by the revenue. Therefore, even if 6 % gross profit is taken into account, the corresponding cost price is required to be deducted and tax cannot be levied on the same price. We have to reduce the selling price accordingly as a result of which profit comes to 5.66 %. Therefore, considering 5.66 % of Rs.3,70,78,125/- which comes to Rs.20,98,621.88 we think it fit to direct the revenue to add Rs.20,98,621.88 as gross profit and make necessary deductions

-4- ITA Nos.311 & 312/PUN/2019 accordingly. Accordingly, the said question is answered partially in favour of the assessee and partially in favour of the revenue.” 7. Following the above said ratio of the judgment (supra), the Co- ordinate Bench of the Tribunal remanded the issue to the file of the Assessing Officer in the case of Shri Nandkishore Kishanrao Dilerao vs. ITO vide ITA No.1851/PUN/2018 for the assessment year 2010-11 dated 30.04.2019 as per the discussion given in para 4 of the order of the Tribunal. In this case also, the CIT(A) restricted the disallowance @ 10% of the bogus purchases. For the sake of completeness of this order, the relevant para 4 of the order of the Tribunal (supra) is extracted hereunder :- “4. I have heard both the sides and gone through the relevant material on record. The issue of bogus purchases has recently come up for consideration before the Hon’ble Bombay High Court in Pr.CIT Vs. Mohommad Haji Adam & Co. Vide its judgment dated 11-02-2019 in ITA No.1004 of 2016 and others, the Hon’ble jurisdictional High Court has held that no ad hoc addition at the rate of 10% of bogus purchases is warranted. Rather the addition should be made to the extent of difference between the gross profit rate on genuine purchases and gross profit rate of hawala purchases. Such details are not readily available with the ld. AR as well to facilitate the calculation of gross profit rates of genuine and hawala purchases. Under these circumstances, I set-aside the impugned and remit the matter to the file of AO for applying the ratio laid down by the Hon’ble Jurisdictional High Court in the above noted case and recompute the amount of addition, if any, after allowing a reasonable opportunity of hearing to the assessee.” 8. From the above, it is evident that restricting the disallowance @ 10% of the bogus purchases on ad-hoc basis is not approved by the Hon’ble Jurisdictional High Court (supra). Rather, the addition should be restricted to the extent of difference between the “gross profit rate on genuine purchases” and “gross profit rate of hawala purchases”. For these purposes, the matter stands remanded to the file of the Assessing Officer. Considering the commonality of the facts, I am of the opinion the issue under consideration should also be remanded to the file of the Assessing

-5- ITA Nos.311 & 312/PUN/2019 Officer with similar direction as given in para 4 of the order of the Tribunal (supra). The Assessing Officer is also directed to examine the arguments relating to the change of opinion while passing a speaking order on technical ground after granting reasonable opportunity of being heard to the assessee. Accordingly, the issues raised by the assessee in both the appeals on legal as well as on merits are allowed for statistical purposes. 9. In the result, both the appeals of the assessee are allowed for statistical purposes. Order pronounced on this 23rd day of September, 2019. Sd/- (D. KARUNAKARA RAO) लेखा सद� / ACCOUNTANT MEMBER पुणे / Pune; �दनांक Dated : 23rd September, 2019. Sujeet आदेश क� �ितिलिप अ�ेिषत/Copy of the Order is forwarded to : अपीलाथ� / The Appellant; 1. ��यथ� / The Respondent; 2. 3. The CIT(A)-8, Pune; 4. The Pr. CCIT, Pune; िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, पुणे “एक-सद�य मामला” / 5. DR ‘SMC’, ITAT, Pune; गाड� फाईल / Guard file. 6. आदेशानुसार/ BY ORDER, स�यािपत �ित //True Copy// Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune