ITO 3 (4), KALYAN vs. HARSHAD JAYANTILAL SHAH, MUMBAI

Since, all these appeals pertain to the same assessee involving common issue arising out of identical set of facts and circumstances, therefore, as a matter of convenience, these appeals were heard together and are being disposed off by way of this consolidated order.

The common issue arising in these appeals relates to addition deleted/sustained by learned Commissioner (Appeals) on account of non–genuine purchases.

Brief facts, which are common in all these appeals are, the assessee is an individual. As mentioned by the Assessing Officer, the assessee is a semi wholesaler in Iron and Steel goods. For the assessment year under dispute, the assessee filed its return of income in regular course. The returns of income filed by the assessee were initially processed under section 143(1) of the Income Tax Act, 1961

On the basis of such information, the Assessing Officer re– opened the assessments under section 147 of the Act. During the assessment proceedings, the Assessing Officer called upon the assessee to prove the genuineness of purchases in different assessment years. As alleged by the Assessing Officer, the assessee failed to produce the selling dealers as well as the bank details. The assessee could only furnish the copies of the purchase bills and audit report. Further, the notices issued under section 133(6) of the Act were returned back unserved as the selling dealers were not found returned back unserved as the selling dealers were not found in the given address. Therefore, holding that the genuineness of purchases

After considering the submissions of the assessee in the context of facts and material on record, learned Commissioner (Appeals) agreed with the Assessing Officer that the assessee was unable to prove the genuineness of purchases made in different assessment years. Thus, he observed, in such cases as per the judicial precedents profis has to be estimated at 25%. Further, he observed, the gross profit rate shown by the assessee in the assessment years under dispute are in the lower side. He observed, in assessment year 2013– 14, wherein, there is no allegation of any non–genuine purchases, the assessee had shown gross profit rate of 4.75%. Applying the gross profit rate of 4.75% to the non–genuine purchases in different assessment years under dispute, learned Commissioner (Appeals) found that the quantum of suppressed gross profit works out to ` 3,75,543 in assessment year 2009-10 would be more than the disallowance of 25% of bogus purchases. Thus, applying the same

Though, the assessee in his appeals has challenged the validity of re–opening of assessment under section 147 of the Act, however, at the time of hearing learned Authorised Representative did not press such ground. Accordingly, ground no.1, in all these appeals are dismissed as not pressed.

As regards the merits of the issue, the learned Authorised Representative submitted, the assessee is a wholesaler and the gross profit always remained within the range of 3% and 5%. She submitted, the additions sustained by the learned Commissioner (Appeals) has pushed the gross profit rate to unreasonably high rate of 6 Harshad Jayantilal Shah more than 40% in the assessment year 2009–10. She submitted, in assessment years 2010–11 and 2011–12 learned Commissioner (Appeals) has sustained the addition in its entirety which is grossly unfair and unreasonable. He submitted, considering the nature of business carried on by the assessee and the fact that he is a wholesaler, disallowance can be restricted to 5% of the non–genuine purchases.

The learned Departmental Representative submitted, the assessee has failed to prove the purchases claimed to have been made from certain parties. Therefore, in such circumstances, the entire amount representing such purchases has to be disallowed and added to the income of the assessee. Therefore, he submitted, learned Commissioner (Appeals) was not justified in granting partial relief to the assessee in the assessment year 2009–10.

We have considered rival submissions and perused the material on record. Undisputedly, the assessee is a semi–wholesaler in Iron & Steel goods. Though, it may be a fact that the assessee was not able to prove the genuineness of purchases from the declared source by furnishing any clinching evidence, however, it is a fact on record that the sales made by the assessee have not been disputed or doubted by the Revenue authorities. Therefore, logical conclusion would be, the 7 Harshad Jayantilal Shah assessee might have purchased the goods from grey market without paying VAT / Sales Tax. In such circumstances, the addition can be made in respect of the profit element embedded in such purchases. In fact, the learned Commissioner (Appeals) has also come to similar conclusion. However, the methodology adopted by him in working out the suppressed gross profit, in our view, is totally incorrect, as it has pushed the gross profit rate to almost astronomical figures. It is evident, the gross profit rate shown by the assessee in the assessment years under dispute are as under:–

The learned Commissioner (Appeals) has himself stated that in the assessment year 2013–14, wherein there is no non–genuine purchase, the assessee has shown gross profit rate of 4.75%. Thus, considering the average gross profit rate shown by the assessee and other relevant factors, we are of the considered opinion that disallowance should be restricted to 8% of the non–genuine purchases made in each assessment year under consideration. The Assessing Officer is directed to compute the disallowance accordingly. Grounds raised by the assessee are partly allowed and grounds raised by the Revenue in the assessment year 2009–10 are dismissed.

In the result, Revenue’s appeal is dismissed and assessee’s appeals are partly allowed. Order pronounced in the open Court on 28.11.2019