PURARAM MODI,MUMBAI vs. INCOME TAX OFFICER 19(2)(5), MUMBAI

O R D E R

PER AMARJIT SINGH, JM:

“Ground 1 - Estimated Addition of Suspicious Purchases of Rs.2.00,07,408/- On the facts of and in the circumstances of the case and in law, the learned CIT(A) erred in making estimated addition on suspicious purchases and not appreciating the facts of the case wherein the assessee has submitted the invoices, Bank Statement (reflecting payment though account payee cheque) and Stock Movement - being A.Y.2009-10 inwards of material (from suspicious dealer) and its subsequent sales with profit margin on the same Thus, onus of proving transactions genuine was completed. Further, no error or mistakes were found or noted by Id. AO with respect to such details, and in particular with respect to stock movements and thus, considering the purchases as genuine, addition is bad in law and needs to be deleted. Ground 2— Addition @ 12.5% minus gross profit offered instead of 6.5% minus GP. On the facts of and in the circumstances of the case and in law, the learned CIT(A) erred in restricting the disallowance to 12.5% minus gross profit already offered, without appreciating the fact that such 12.5% should be constructed as 6.5%. Thus, should have made addition as 6.5% minus gross profit offered. Ground 3- No Opportunity to Cross - Examine the Parties On the facts of and in the circumstances of the case and in law, the learned CIT(A) erred in understanding that AO has merely relied on information received from sales tax department without making independent enquiries. Further neither any statement on which reliance was paid for addition was provided to appellant nor opportunity of cross examination was provided, denying principle of natural justice, and thus addition is bad in law and needs to be deleted. Ground 4- Restriction of Addition up to Gross Profit or Net Profit Ratio. On the facts of and in the circumstances of the case and in law, the learned CIT(A) erred in not restricting Additions to Net Profit or Gross Profit (if not Net Profit) although AO agreed that only profit embedded in such purchases to be taken as the profit earned from purchases shown to have been made from non-existence parties. The appellant craves leave to add, amend, alter or delete any of the above grounds of appeal

.”

3. The brief facts of the case are that the assessee filed his return of income on 24.09.2009 declaring total income to the tune of Rs.2,71,480/- for the A.Y. 2009-10. The case of the assessee was reopened by issuance of notice u/s 148 of the Act dated 19.02.2014. The reason recorded for reopening of the assessment was also communicated to the assessee. The notices u/s 143(2) & 142(1) of the Act were issued and served upon the A.Y.2009-10 assessee. In this case, the case of the assessee was reopened on the basis of information received from the DGIT(Inv.) dated 26.12.2013 in which it was communicated that the assessee has taken the accommodation entries of purchase of Rs.2,00,07,408/- from the following six parties.

S. No. Name of the party Amount 1 Navratan Impex 6,405,807 2 Anand Deep Metal 9,448,863 3 Asian Steel 126,770 4 Tyson Steel & Tubes 319,488 5 Hardik Metal Corp 1,044,763 6 Corus steel & Alloys 2,661,717 Total 2,00,07,408 4. After the reply of the assessee, the addition was restricted to the extent of 25% of the bogus purchase in sum of Rs.2,00,07,408/-. The total income of the assessee was assessed to the tune of Rs.15,55,240/-. Thereafter, assessee filed an appear before the CIT(A) who restricted the addition to the extent of 12.5% of the bogus purchase in sum of Rs.2,00,07,408/-. The assessee was not satisfied, therefore, the assessee has filed the present appeal before us.

“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. Industries Ltd. (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 accordingly. Accordingly, the said question is answered partially in favour of the assessee and partially in favour of the revenue.”