JYOTI ARCHITECTURAL PRODUCTS PVT. LTD.,MUMBAI vs. DCIT- RG- 4(2)(2), MUMBAI

2.1 Facts on record reveal that the assessee has been subjected to an assessment u/s 143(3) r.w.s. 147 on 26/03/2015 wherein the income of the assessee has been determined at Rs.62.94 Lacs as against returned income of Rs.45.63 Lacs filed by the assessee on 17/09/2009 which was processed u/s 143(1). 2.2 The reassessment proceedings were triggered upon receipt of certain information from Sales Tax Department, Maharashtra that the assessee stood beneficiary of alleged bogus purchases aggregating to Rs.14.33 Lacs stated to be made from 3 parties as per details given in para 2 of the quantum assessment order. Accordingly, notice u/s 148 was issued on 20/03/2014 which was followed by statutory notice u/s 143(2) wherein the assessee was, inter-alia, directed to produce the stated parties. 2.3 In response, the assessee submitted ledger extracts, stock details etc. and submitted that the payments to suppliers were through banking channels. However, notices sent u/s 133(6) were returned back unserved by the postal authorities and the assessee failed to substantiate the delivery of material. The factual matrix led the Ld. AO to believe that the assessee inflated its purchases to reduce the tax liability. Accordingly, the purchase of Rs.14.33 Lacs were treated as bogus purchases and added to the income of the assessee. The stand of Ld. AO, upon confirmation by first appellate authority, is under challenge before us.

The Ld. Authorized Representative for Assessee [AR], on the strength of documents placed in the paper-book, drew our attention to the Gross Profit Rate / Net Profit Rate reflected by the assessee during impugned AY and contested the impugned additions. The Ld. DR justified full addition in view of the judgment of Hon’ble Supreme Court rendered in N.K.Proteins Ltd. Vs. CIT [2017-TIOL-23-SC-IT].

We have carefully heard the rival submissions and perused relevant material on record. We are of the considered opinion that there could be no sale without actual purchase of material keeping in view the nature of business activities being carried out by the assessee. The assessee was in possession of primary purchase documents and the accounts were subjected to audit. The payments to the suppliers were through banking channels. The sales turnover has not been disputed by the revenue. The Gross Profit Rate / Net Profit Rate during impugned AY were commensurate with earlier years. The quantitative details were placed on record. At the same time, the assessee failed to conclusively substantiate the delivery of material. Notices issued u/s 133(6) to the suppliers did not elicit satisfactory response and the assessee failed to produce any of the supplier before lower authorities. 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. Keeping in view the same, we restrict the impugned additions to 12.5% of alleged bogus purchases of Rs.14,33,564/- which comes to Rs.1,79,196/-. The balance additions stand deleted.

Our decision 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: - 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- “ 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.

Resultantly, the appeal stands partly allowed in terms of our above order. Order pronounced in the open court on 14th June, 2019.