SHRI HARDIK D. DOSHI,MUMBAI vs. INCOME TAX OFFICER WARD NO.25(2)(4), MUMBAI

O R D E R

PER AMARJIT SINGH, JM:

1. The Ld. AO has erred in making addition of Rs.10,47,598/- being “Addition on account of non-genuine purchase @ 12.50% on total purchase for Rs.83,80,786/- and the Ld. CIT(A)-37 vide his appeal order no. CIT(A)-37/IT-443/ITO-25(2)(4)/2015-16 dated 18.05.2018 confirming the same

2. Your appellant, prays that the addition of Rs.10,47,598/- should be deleted.

3. Your appellant keeps the right to add, amend or alter any of the above grounds on or before hearing.”

4. The brief facts of the case are that the assessee filed his return of income on 29.09.2009 declaring total income to the tune of Rs.6,57,068/- for the A.Y.2009-10. The return was processed u/s 143(1) of the I.T. Act, 1961. The case was selected for scrutiny under CASS. Accordingly, notices u/s 143(2) & 142(1) of the Act were issued and served upon the assessee. The assessee was a proprietor of one M/s. Yash Impex. The main activity of the assessee is to purchase from importers for industrial use and resale the same. Thereafter the assessment of the assessee was completed assessing the income to the tune of Rs.6,96,090/-. Thereafter, the case of the assessee was reopened on the basis of the information received from the DGIT(Inv.), Mumbai in which it was conveyed that the assessee has taken the accommodation entries of bogus purchase in sum of Rs.83,80,786/- from the following thirteen parties.

Name of the Party Amount Vitarag Trading Co. 2,46,565 Bhagwati Trading Co. 10,19,803 A.Y. 2009-10 & 2010-11 Shriji Traders 11,09,644 Prayan Trading Co. 4,48,500 Sampark Steels 14,18,321 Tara Enterprises 8,78,000 Blue Nile Enterprises 5,03,592 Payal Enterprises 5,62,520 Shree Enterprises 3,98,029 Bhumi Enterprises 6,90,604 DD Corporation 1,35,000 Deepak Sales Corporation 3,09,180 Arihant Enterprises 6,61,028 Total 83,80,786 5. Thereafter, the notice u/s 147/148 of the Act was given. Notices u/s 143(2) & 142(1) of the Act were also issued and served upon the assessee. After the reply of the assessee, the AO raised the addition to the extent of 12.5% of the bogus purchase in sum of Rs.83,80,786/- i.e. in sum of Rs.10,47,598/-. 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 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. A.Y. 2009-10 & 2010-11 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.

6. We respectfully following the aforesaid judgment of the Hon’ble Jurisdictional High Court, set aside the matter to the file of the AO with the direction to restrict the addition as regards the bogus purchases by bringing the gross profit rate on such bogus purchases at the same rate as that of the other genuine purchases. Needless to say that an opportunity of being heard is required to be given to the assessee in accordance with law.

ITA. Nos. 4718/M/2018 7. The facts of the present case are quite similar to the fact of the case as narrated above while deciding the therefore, there is no need to repeat the same. However, the figure is different. The matter of controversy is also the same. The finding given above while deciding the appeal of the assessee bearing ITA. No.4717/M/2018 is quite applicable to the facts of the present case as mutatis mutandis.