ITO 33 (1)(2), MUMBAI vs. BHUPENDRA N. SHAH, MUMBAI

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ITA 6397/MUM/2018Status: DisposedITAT Mumbai06 December 2019AY 2007-086 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that in cases of bogus purchases where sales are accepted, the addition should be restricted to the difference in the Gross Profit (GP) rate between genuine and bogus purchases. The Assessing Officer was directed to recalculate the addition on this basis.

What were the facts?

During a search operation, it was revealed that the assessee obtained accommodation entries for bogus purchases amounting to Rs. 16,60,419/-. The Assessing Officer added the entire amount to the assessee's income.

What were the issues?

Whether the entire amount of bogus purchases should be added to the income, or if the addition should be restricted to the difference in GP rates when sales are accepted.

Which sections of the Income-tax Act were involved?

Section 132,Section 143(3),Section 147,Section 69C

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “SMC”, BENCH

Before: SHRI R.C.SHARMAShri Bhupendra N Shah,

For Appellant: Ms. Kinjal Bhuta
For Respondent: Shri Kumar Padmapani Bora (Sr.DR), Ms. Kinjal Bhuta
Hearing: 04/12/2019Pronounced: 06/12/2019

Revenue by Shri Kumar Padmapani Bora (Sr.DR) Assessee by Ms. Kinjal Bhuta Date of Hearing 04/12/2019 Date of Pronouncement 06/12/2019 आदेश / O R D E R PER: R.C. SHARMA, A.M. This is the appeal filed by the revenue against the order of the ld. CIT(A)-45, Mumbai dated 09/08/2018 for the A.Y. 2007-08 in the matter of order passed U/s 143(3) r.w.s. 147 of the Income Tax Act, 1961 (in short, the Act).

2.

In this appeal, the revenue is basically aggrieved by the action of ld. CIT(A) for upholding the addition to the extent of 12.5% of bogus purchases.

3.

Rival contentions have been heard and record perused. Facts in brief are that a search & seizure action u/s. 132 of the Act was carried out by the DGIT(Inv.), Mumbai in Bhanwarlal Jain Group of cases on ITO Vs Bhupendra N Shah 03.10.2013. On the basis of statement of Shri Bhanwarlal Jain recorded as well as detailed enquiries made by the Wing, information was passed on to this A.O. that Shri Bhanwarlal Jain alongwith his sons Shri Rajesh Bhanwarlal Jain and Shri Manish Bhanwarlal Jain are operating and managing 70 benami concerns in the names of their employees through which they provide accommodation entries of unsecured loans and bogus purchases. Further, from the details received from the DGIT(Inv.), Mumbai it is seen that the assessee, Shri Bhupendra N. Shah is also one of the beneficiary who obtained accommodation entries of Rs.16,60,419/- during the F.Y.

2006-07 relevant to the year under consideration under the garb of 'Bogus Purchases' from the following group concerns of Shri Bhanwarlal Jain:

Sr. No. Name of the bogus party Amount involved (Rs) 1. Jewel Diam 16,60,416 Total 16,60,419 Accordingly, the then A.O. had reason to believe that an amount of Rs.16,60,419/- is simply an accommodation entry and no actual transactions were carried out by the assessee and thus, the said amount has escaped assessment for A.Y. 2007-08.

4.

After reopening of the assessment, the A.O. made independent enquiry by issuing notice U/s 133(6) of the Act. The assessee was also asked to produce the parties. However, the assessee expressed his

ITO Vs Bhupendra N Shah inability to produce these parties for cross verification. Accordingly, the A.O. added entire amount of such bogus purchases to the income of the assessee U/s 69C of the Act.

5.

By the impugned order, the ld. CIT(A) confirmed the addition only to the extent of 12.5% of alleged bogus purchases which comes to Rs. 2,07,540/-, against which the revenue is in further appeal before the ITAT.

6.

It was argued by the ld AR of the assessee that the assessee has furnished all the documents and evidence to prove genuineness of purchases and the notices issued U/s 133(6) of the Act was also duly served on the respective party, therefore, no addition should have been made in respect of such bogus purchases.

7.

On the other hand, the ld DR has relied on the order of the A.O.

8.

I have considered the rival contentions and carefully gone through the orders of the authorities below and found from the record that addition has been made in respect of bogus purchases. With respect to issue regarding addition in respect of 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 ITO Vs Bhupendra N Shah 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 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 durin 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 conies to 5.66%. Therefore, considering 5.66 % of Rs.3,70,78,125/which comes to Rs.2098.62 1.88 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."

ITO Vs Bhupendra N Shah 9. The Coordinate Bench of the ITAT, Mumbai in the case of Shri Rameshkumar Daulatraj Vs ITO in order dated 07/05/2019 has held as under:

“9. When these facts were confronted to the learned Sr. DR, he requested for application of reasonable profit rate and according to him the profit rate applied by the AO and confirmed by CIT(A) is quite reasonable in view of the decision of Hon’ble Gujarat High court in the case of Smith P.Seth (supra). We have considered the rival contentions and are of the view that Hon'ble Bombay High Court in the case of Mohammad Haji Adam & Co. and Ors. (supra) has considered this issue and respectfully following the same, we direct the AO to restrict the profit rate only to the extent of differential percentage as declared on the bogus purchases and as declared on the regular purchases, Hence, we direct the AO accordingly.”

10.

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, I direct the A.O. to restrict the addition to the 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. I direct accordingly.

ITO Vs Bhupendra N Shah 11. In the result, appeal of the revenue is allowed in part.

Order pronounced in the open court on 06th December, 2019.

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