MR. SURESHCHANDRA R. MITTAL,MUMBAI vs. ITO 25(1)(3), MUMBAI

O R D E R

PER AMARJIT SINGH, JM:

1. On the facts and circumstances of the case the Ld. CIT(A) has erred in confirming AO’s order of reopening the assessment u/s 148 of the Income tax Act, 1961.

2. On the facts and circumstances of the case the Ld. CIT(A) has erred in confirming the addition of Rs.5,85,128/- on account of non-genuine purchases.

3. The appellant craves leave to add, alter or amend aforesaid grounds of appeal.”

4. The brief facts of the case are that the assessee filed his return of income on 26.09.2010 declaring total income to the tune of Rs.3,36,120/- for the A.Y.2010-11. The assessment of the assessee was reopened u/s 147 of the Act. Notice u/s 148 of the Act dated 18.03.2016 was issued and served upon the assessee. In response to the notice, the assessee filed the return of income which he had already filed on 26.09.2010. Thereafter, the notices u/s 143(2) & 142(1) of the Act were also issued and served upon the assessee. The assessee was a sole proprietor of M/s. Plus International and Padam Enterprises which was engaged in the business of importing and exporting of hindi films and was also engaged in the business of trading of blank video cassettes and degaussing facility. The case of the assessee was reopened on the basis of information received from DGIT(Inv.), Mumbai in which it was conveyed that the assessee has taken the accommodation entries of bogus purchase in sum of Rs.46,81,024/- from the following three parties.

TIN Name of the Party Amount 27280526504V Rajendra Impex India 213,283 27120366639V Rajgala Traders P. Ltd. 2,003,211 27930587111V Newzone Multitrade P. Ltd. 2,464,530 A.Y. 2010-11 & 2011-12 Total 46,81,024 5. After the reply of the assessee, the AO restricted the addition to the extent of 12.5% of the bogus purchase. The total income of the assessee was assessed to the tune of Rs.9,21,250/-. Feeling aggrieved, the assessee filed an appeal before the CIT(A) who confirmed the addition to the extent of 12.5%, 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 A.Y. 2010-11 & 2011-12 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 coining 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.I. 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 the question regarding addition of Rs.3,70,78,125/- as gross profit on sale 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 F.Y. I997-98 is concerned; we are of the view that the assessee 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 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 if fit to direct the revenue to add Rs.20,98,621.88 as gross profit and made necessary deductions accordingly. Accordingly, the said question is answered partially in favour of the assessee and partially in favour of the revenue.