CHETAN SHASHIKANT SHAH,MUMBAI vs. INCOME TAX OFFICER 13(3)(1), MUMBAI

Briefly stated the facts are that, the assessee engaged in the business of trading in medicine i.e. Ayurvedic, Unani Botanical Herbs Root

Before me Ld. Counsel for the assessee reiterated the submissions made before the lower authorities. In respect of the reopening of assessment, on hearing both the parties, I am of the view that the assessment was reopened based on the information received from the DGIT(Inv.) and therefore, I am of the view that there is tangible material came on record after passing intimation u/s.143(1) of the Act. In the case of CIT v. Rajesh Jhaveri Stock Brokers (P) Ltd. [291 ITR 500], the Hon’ble Supreme Court held that intimation u/s 143(1)(a) is not an assessment and upheld the validity of the notice issued u/s 148 and the reopening of assessment. Their Lordships clarified the matter as under: “17. The scope and effect of section 147 as substituted with effect from 1-41989, as also sections 148 to 152 are substantially different from the provisions as they stood prior to such substitution. Under the old provisions of section 147, separate clauses (a) and (b) laid down the circumstances under which income escaping assessment for the past assessment years could be assessed or reassessed. To confer jurisdiction under section 147(a) two conditions were required to be satisfied firstly the Assessing Officer must have reason to believe that income profits or gains chargeable to income tax have escaped assessment, and secondly he must also have reason to believe that such escapement has occurred by reason of either (i) omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for his assessment of that year. Both these conditions were conditions precedent to be satisfied before the Assessing Officer could have jurisdiction to issue notice under section 148 read with section 147(a). But under the substituted section 147 existence of only the first condition suffices. In other words if the Assessing Officer for whatever reason has reason to believe that income has escaped assessment it confers jurisdiction to reopen the assessment. It is however to be noted that both the conditions must be fulfilled if the case falls within the ambit of the proviso to section 147. The case at hand is covered by the main provision and not the proviso.”

Ld. DR vehemently supported the orders of the authorities below.

Heard rival submissions, perused the orders of the authorities below. The case law relied on by the Ld. Counsel for the assessee is in respect of the dealer who is in the business of iron and steel trading and therefore the Gross Profit rate estimated by the Tribunal at 2% cannot be applied to the assessee who is engaged in the business of trading in medicine. The Hon'ble Bombay High Court in the case of PCIT v. M/s. Mohommad Haji Adam and Company in ITA.No. 1004 of 2016 dated 11.02.2019 reported in 2019-TIOL-High Court–Mum-IT 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 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- (A.Y: 2009-10) Shri Chetan Shashikant Shah "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 favour of the assessee and partially in favour of the revenue."

As could be seen from the above judgement the Tribunal restricted the Gross Profit rate on non-genuine purchases to the same rate of Gross Profit at which the assessee has shown in respect of genuine purchases in the Books of Accounts. This was confirmed by the Hon'ble Bombay High Court for the reason that there is no discrepancy between the purchases shown by the assessee and sales declared and also for the reason that purchases cannot be rejected without disturbing the sales in the case of a trader. Thus, respectfully following the said decision, I direct the Assessing Officer to estimate the Gross Profit in respect of non- genuine purchases at the same Gross Profit rate at which the assessee has shown on the genuine purchases and compute the disallowance. Thus, I restore this issue to the file of the Assessing Officer to ascertain

In the result, appeal of the assessee is partly allowed for statistical purposes.