MITAL VARDHIBHAI DOSHI,MUMBAI vs. ACIT-19(2), MUMBAI

O R D E R

PER AMARJIT SINGH, JM:

1. On facts and circumstances of the case and law, the Ld. CIT(A) erred in confirming disallowance of Rs.7,82,406/- being 3% of suspicious purchases of Rs.2,60,80,192/- assumed by the Ld. AO.

2. Assessee craves leave to reserve right to add to, alter or amend any of the aforesaid grounds of appeal at or before A.Y.2014-15 the time of hearing and to produce such further evidence, documents and papers in support of claim.”

3. The brief facts of the case are that the assessee filed its return of income on 26.11.2014 declaring total income to the tune of Rs.28,25,610/- for the A.Y. 2014-15. The return was processed u/s 143(1) of the I.T. Act, 1961. The case was selected for scrutiny, therefore, notices u/s 143(2) and 142(1) of the Act were issued and served upon the assessee. Thereafter, the case of the assessee was reopened upon the information received from the DGIT (Inv.) Mumbai in which it was conveyed that the search and seizure action was taken Shri Bhanwarlal Jain Group who was indulged in the business providing accommodation entries and the assessee was found one of the beneficiary who has taken the accommodation entries of purchase in sum of Rs.2,60,80,192/- from the following three parties. The name of the four party are hereby mentioned as under: - Party Name Amount (Rs.) Sun Diiam 5738762 Arihant Exports 96,99,398 AVI Exports 1,06,42,032 Total 2,60,80,192

4. After the reply of the assessee, the AO raised the addition to the extent of 12.5% of the bogus purchase. The total income to the tune of Rs.36,08,020/-. 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 3 A.Y.2014-15 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.