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Income Tax Appellate Tribunal, “SMC”, BENCH
Before: SHRI R.C.SHARMA, AM & SHRI VIKAS AWASTHY, JM
O R D E R PER: R.C. SHARMA, A.M. These are the appeals filed by the assessee against the separate orders of the ld. CIT(A)-56, Mumbai dated 06/07/2018 for the A.Y. 2010- 11 and 2011-12 respectively in the matter of order passed U/s 143(3) r.w.s. 147 of the Income Tax Act, 1961 (in short, the Act).
Common grievance of the assessee in both the years relate to addition of 12.5% in respect of bogus purchases made by the assessee.
Rival contentions have been heard and record perused. Facts in brief are that the assessee is engaged in the business of ferrous and non-ferrous metals. The A.O. got information from the Sales Tax
2 & 6655/Mum/2018 Hiralal Tarachand Jain Vs ITO Department regarding the assessee having taken bill of purchases without having actual purchases. After making detailed enquiry, the A.O. found the purchases to be bogus, accordingly, worked out 12.5% on such purchases and added the same in the assessee’s income. By the impugned order, the ld. CIT(A) confirmed the action of the A.O. against which the assessee is in further appeal before the ITAT.
We have considered the rival contentions and carefully gone through the orders of the authorities below and found from the record that the assessee is engaged in trading of ferrous and non-ferrous metals. The A.O.reopened the assessment on the information of Sales Tax Department regarding the assessee’s involvement in taking accommodation bills with regard to bogus purchases. The Hon’ble Jurisdictional High Court in the case of Pr.CIT Vs M/s Mohommad Haji Adam & Co. in of 2016 vide its order dated 11/02/2019 have held as under:
“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 assesses 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
3 & 6655/Mum/2018 Hiralal Tarachand Jain Vs ITO 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."
It is clear from the above decisions that in case of bogus purchases where sales are accepted, the addition is required to be made only to the extent of difference between the GP declared by the assessee on normal purchases vis a vis bogus purchases. Respectfully following the order of the Hon’ble Jurisdictional High Court and the Coordinate Bench of the ITAT, Mumbai, we direct the A.O. to restrict the addition to the 4 & 6655/Mum/2018 Hiralal Tarachand Jain Vs ITO extent of lower GP declared by the assessee in respect of bogus purchases as compared to GP on normal purchases. The assessee is also directed to give full details to the A.O. with regard to GP earned on normal purchases and also GP earned on alleged bogus purchases. we direct accordingly.
In the result, appeal of the revenue is allowed for statistical purposes only.
Order pronounced in the open court on 23rd December, 2019.