KISHANLAL KHETARAMJI VISHNOI,MUMBAI vs. INCOME TAX OFFICER WAR 19(2)(2), MUMBAI

2. Briefly stated, the assessee who is a wholesaler of all kind of ferrous and non-ferrous metals had filed his return of income for A.Y. 2011-12 on 28.09.2011, declaring total income of Rs.5,43,236/-. The return of income filed by the assessee was processed as such under Sec. 143(1) of the I-T Act. Subsequently, on the basis of information received by the A.O from the DGIT (Inv.) Wing, Mumbai, that the name of the assessee had figured in the list of the beneficiaries who had procured bogus purchase bills from certain hawala parties, his case was reopened under Sec.147 of the I-T Act.

Name of the hawala parties Amount (in Rs.) Liberty Trading Corporation 5,14,275/- Remi Trading Company Pvt. Ltd. 35,92,539/- P a g e | Kishahlal Khetaramji Vishnoi Vs. The Income Tax Officer-19(2)(2) Nirma Metal Industries 6,75,000/- Aarco Enterprises 12,00,000/- Total 59,81,814/- The A.O in order to verify the genuineness and veracity the purchases claimed by the assessee to have been made from the aforementioned parties, issued notices under Sec.133(6) to them. However, the notices issued by the A.O u/s 133(6) were returned by the postal authorities, with the remarks “not found”. The A.O brought the said fact to the notice of the assessee and directed him to produce the aforementioned parties for necessary examination. However, the assessee despite the aforesaid specific direction of the A.O failed to produce the parties before him, as a result whereof the purchase transactions under consideration remained unverified. Apart there from, it was observed by the A.O that the assessee had also failed to place on record vital documents which would have substantiated the authenticity of the purchase transactions to the hilt viz. delivery challans, transport receipts, octroi receipts, receipt of weighbridge, goods inward register maintained at the godown/ warehouse/storage house etc. Insofar the claim of the assessee that the payments to the aforementioned parties were made by him through account payee cheques was concerned, it was observed by the A.O that the said fact would not conclusively prove the genuineness of the purchase transactions under consideration. Once again, the A.O afforded an opportunity to the assessee, and vide his order sheet noting, dated 28.07.2016, directed him to produce the aforementioned parties for cross-verification. However, the assessee again failed to do the needful. In the backdrop of the aforesaid facts, the A.O concluded that the assessee had purchased the goods under consideration from the open/grey market, and not from the aforementioned parties. On the basis of his aforesaid observations, the A.O holding a conviction that the assessee would P a g e | Kishahlal Khetaramji Vishnoi Vs. The Income Tax Officer-19(2)(2) had benefitted by procuring the goods from the open/grey market, thus, made an addition of Rs.7,47,727/- i.e @ 12.5% of the aggregate value of the purchases of Rs. 59,81,814/- that were claimed by the assessee to have been made from the aforementioned parties.

8. In the present case, as noted above, the assessee was a t r a d e r o f f a b r i c s . T h e A O f o u n d t h r e e e n t i t i e s w h o w e r e 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 sale 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 trade. 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.20,98,62 1.88 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.

In these circumstances, no question of law, therefore, arises. All 9. Income Tax Appeals are dismissed, accordingly. No order at costs.” As such, the Hon‟ble jurisdictional High Court had observed, that the addition in respect of purchases which were found to be bogus in the case of the assessee before them, who was a trader, was to be worked P a g e | Kishahlal Khetaramji Vishnoi Vs. The Income Tax Officer-19(2)(2) out by bringing the G.P rate of such bogus purchases at the same rate of other genuine purchases. We thus respectfully following the aforesaid judgment of the Hon‟ble High Court, set aside the matter to the file of the A.O, with a direction to restrict the addition as regards the bogus/unproved purchases aggregating to Rs.59,81,814/-, by bringing the G.P rate of such bogus purchases at the same rate of the other genuine purchases. Needless to say, the assessee in the course of the set aside proceedings shall furnish the requisite details before the A.O, who shall after making necessary verifications restrict the addition in terms of our aforesaid observations. The Grounds of appeal nos. 1 to 3 are allowed for statistical purposes.

9. We shall now advert to the claim of the ld. A.R, that the A.O while framing the assessment u/s 143(3) r.w.s 147, had erred in charging excess interest u/s 234B by computing the same from the 1st day of April of the assessment year viz. 01.04.2011, till the date of framing of the aforesaid assessment. It is the claim of the ld. A.R, that as per sub-section (3) of Sec. 234B, where as a result of an order of reassessment the amount on which interest was payable under sub- section (1) of Sec. 234B is increased, the assessee shall be liable to pay interest for every month or part of a month comprised in the period commencing on the day following the date of determination of its total income under sub-section (1) of Sec. 143 and ending on the date of the reassessment u/s 143(3) r.w.s 147, on the amount by which the tax on the total income determined on the basis of such reassessment exceeds the tax on total income determined under sub- section (1) of Sec.