SANJAYKUMAR MEHTA,MUMBAI vs. ACIT 19(3), MUMBAI

1 Aforesaid matter is a recalled matter since the appeal was initially disposed-off ex-parte by the Tribunal vide order dated 22/10/2018. However, the said order has subsequently been recalled vide MA

2 This is an appeal by assessee for Assessment Year [AY] 2009-10 which contest the order of Ld. Commissioner of Income-Tax (Appeals)-30, Mumbai, [in short referred to as ‘CIT(A)’], Appeal No.CIT(A)- 30/19(3)/890/15-16 dated 17/02/2017 on following grounds of appeal:-

On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeal) erred in (a) confirming addition of Rs. 8349395/- which is made on account of estimation of profit @ 12.50% on alleged bogus purchases of Rs.66795161/- to the total income of the Appellant. (b) estimating rate of profit at 12.50% on alleged bogus purchases over and above gross profit declared of 4.10% by the appellant on such purchases. Reasons assigned by him are wrong and insufficient to justify estimating rate of profit @ 12.50% on alleged bogus purchases and making addition of Rs. 8349395/- over and above profit declared by appellant on such purchases.

On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeal) erred in confirming rejection of books of accounts of the appellant by invoking provisions of section 145(3) of the Act.

On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals) failed to appreciate that (a) Proceeding initiated under section 147 /148 of the Act is on the basis of reason to suspect and not on reason to believe. (b) There is no new tangible material in possession of the Assessing Officer which justify issuance of notice u/s 148 of the Act (c) The initiation of proceeding under section 147 of the Act and issuance of notice under section 148 is bad in law and contrary to the provisions of the Act and liable to be cancelled / annulled

On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals) erred in confirming order made under section 143(3) rws 147 of the Act by the learned Assessing Officer which is illegal, bad-in-law, ultra vires and without allowing reasonable opportunity of the hearing, without appreciating the facts, submission and evidences in their proper perspective, without providing copies of material used against the appellant and without providing cross examination of parties whose statement are relied upon is liable to be annulled.

The learned assessing officer erred in charging interest under section 234A, 234B, 234C and 234D of the Act.

We have carefully heard the rival submissions and perused relevant material on record and deliberated on judicial announcements as cited before us. We find that during assessment proceedings, on the basis of material on record as supplied by DGIT (Investigation), the allegations were made by revenue against the assessee that the assessee procured bogus purchase bills from as many as 11 suppliers. Notices issued u/s 133(6) were issued to these suppliers to confirm the transactions, however, the same remained unserved in 10 cases. The field inquiries made by ward inspector established that none of the supplier was existing at the given addresses. The assessee was confronted with all those facts and show-

On the other hand, the revenue authorities, on factual matrix, was quite justified to make estimated additions since the assessee was a trader and there could be no sale without actual purchase of material. The assessee was in possession of primary purchase documents and the payments were through banking channels. The books of accounts were audited and the assessee maintained quantitative details of the items being dealt with by him. The sales turnover reflected by the assessee was not disturbed by the revenue. Therefore, in such a situation, the addition, which could be made, was to account for profit element embedded in these purchase transactions to factorize for profit earned by assessee against possible purchase of material in the grey market and undue benefit of VAT against such bogus purchases, which lower authorities has rightly done so. However, keeping in view the fact that the assessee was a trader and dealing in low-margin item like metal, which bears a lower VAT rate and also in view of the fact that the assessee had already reflected Gross Profit Rate of more than 4%, the estimation of 12.5% was on the higher side. We estimate the same @2% of alleged bogus purchases. The same works out

Our aforesaid view is in line with the recent decision of Hon’ble Bombay High Court rendered in bunch of appeals titled as Pr.CIT Vs. M/s Mohommad Haji Adam & Co. [ITA No.1004 & others of 2016, dated 11/02/2019] wherein Hon’ble Court distinguishing the cited case law of Hon’ble Gujarat High Court rendered in N.K. Industries Ltd. Vs Dy. C.I.T. in Tax Appeal No. 240 of 2003 and connected appeals decided on 20th June, 2016 observed as under: -

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 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 favor of the assessee and partially in favor of the revenue.” 9 In these circumstances, no question of law, therefore, arises. All Income Tax Appeals are dismissed, accordingly. No order as to costs.

The appeal stands partly allowed to the extent indicated in the order.