DEEPAK TRADING COMPANY,MUMBAI vs. INCOME TAX OFFICER 17(1)(3), MUMBAI

O R D E R

PER AMARJIT SINGH, JM:

1. On facts and in low, the learned Commissioner of Income-tax (Appeals) (hereinafter referred to as the "Ld. CIT(A)") had tailed to appreciate that the jurisdictional conditions precedent to issue of notice A.Y.2011-12 u/s.148 not complied, the assessment made u/s.143(3) r.w.s. 147 is bad- in-law.

2. On facts and in law, the Ld. CIT(A) had erred in holding that the proceedings u/s.147 are not bad-in-law.

3. On facts and in law, the Ld. CIT(A) had erred in confirming the addition of Rs.2,69,296/ being the Gross Profit @ 12.5% of the alleged purchases of Rs.21,54,371/- without appreciating the fact that the appellant has already shown the gross profit @ 31.56%, 7.37%, 18.2% and 5.55% from M/s. Nisha Enterprises, M/s. Sona Engg. Co., M/s. Sona Tools Traders & M/s. Rushabh Trades respectively, on the said purchases. Under the facts and circumstances of the matter, the Id. CIT(A) ought to have directed the learned Assessing Officer (LAO) to delete entire addition made by LAO.

4. On facts and in low, the Ld. CIT(A) had erred in confirming the addition of Rs.2,69,296/- without appreciating the fact that neither statements of the person concerned was given to the appellant nor any opportunity to cross examine the person was given to the appellant, which is against the principles of natural justice.

5. On facts and in tow, the Ld. CIT(A) had erred in confirming the addition in the absence of delivery challans, transport receipt, other receipts, etc. without appreciating the submissions made by the appellant in this regard. Under the facts and circumstances of the matter, the Ld. CIT(A) ought to have deleted the said addition.

6. On facts and in low, the Ld. CIT(A) had erred in relying on the various decisions without appreciating the fact that the Books of Accounts of the appellant has not been rejected by the LAO.

7. The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at. the time of hearing of the appeal, so as to enable the Hon. ITAT decide this appeal according to law.

3. The brief facts of the case are that the assessee filed its return of income on 27.09.2011 declaring total income to the tune of Rs.9,31,314/- for the A.Y. 2011-12. The return was processed u/s 143(1) of the I.T. Act, 1961. Thereafter, the case of the assessee was reopened and notice u/s 148 of the Act dated 24.02.2015 was issued and served upon the assessee. The A.Y.2011-12 case of the assessee was reopened on the basis of information received from the DGIT (Inv.) Mumbai in which it was conveyed that the assessee has taken the bogus accommodation entries of purchase in sum of Rs.21,54,371/- from the following four parties.

Party Name A.Y. Amount (Rs.) Nisha Enterprises 2011-12 30,375 Sona Engg. Co. 2011-12 8,10,708 Sona Tools Traders. 2011-12 4,62,263 Rushabh Traders 2011-12 8,51,025 Total 21,54,371 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 of the assessee was assessed to the tune of Rs.12,00,610/-. 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. Therefore, even if 6 % gross profit is taken into account, the corresponding cost price is required to be deducted and tax cannot be A.Y.2011-12 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.