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Facts
The Revenue appealed against the CIT(A)'s order which restricted the addition of bogus purchases to 12.5% of the total amount, against the 100% addition made by the AO. The assessee, a proprietor of a leather goods business, had allegedly made purchases from three parties found to be issuing bogus bills. The AO added the entire purchase amount as income after the assessee failed to provide a plausible explanation.
Held
The Tribunal, following the decision of the Bombay High Court in PCIT vs. Mohommad Haji Adam & Co., observed that if sales are not disputed and the assessee is a trader, the purchases cannot be rejected entirely without disturbing the sales. Additions should be limited to the extent of bringing the GP rate on purchases to the same rate as other genuine purchases.
Key Issues
Whether the entire amount of alleged bogus purchases should be added as income, or if the addition should be restricted to the profit element.
Sections Cited
143(1), 103
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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SHRI NARENDRA KUMAR BILLAIYA, HON’BLE & SHRI SUNIL KUMAR SINGH, HON’BLE
O R D E R
PER NARENDRA KUMAR BILLAIYA, AM :
This appeal by the revenue is preferred against the order dated 12/03/2024 by National Faceless Appeal Centre, Delhi [in short ‘ld. CIT(A)], pertaining to AY 2010-11.
The sum and substance of the grievance of the revenue is that, the ld. CIT(A) erred in restricting the addition to 12.5% of the alleged bogus purchases as against 100% addition made by the AO. 3. None appeared on behalf of the assessee in spite of notices. We decided to proceed ex-parte. 4. Briefly stated the facts of the case are that the assessee is an individual and is proprietor of M/s. Shama Impex, engaged in the 2 business of dealership in leather goods. The return for the year was filed on 15/10/2010 declaring total income of Rs.4,02,650/-. The returned income was processed u/s 143(1) of the Act. Thereafter, the case was reopened after recording reasons. The case was reopened as per the information available with the office of the AO from DGIT (Inv.), Mumbai, that the assessee had obtained bills of bogus purchases from three parties, namely, Real Traders – Rs.1,78,244/- ; Sunrise Enterprises – Rs. 35,329/- & Shalaka International – Rs. 30,058/-. It came to the notice of the AO that the Sales Tax Department, Mumbai, carried out detailed inquiries in respect of the above mentioned parties and came to the conclusion that these concerns are into providing bogus bills. The AO accordingly issued a showcause notice to the assessee asking it to furnish details to establish the genuineness of the transactions. On receiving no plausible reply, the AO added the entire alleged bogus purchases of Rs. 2,43,631/- 5. The assessee carried the matter before the ld. CIT(A) and strongly contended that the alleged purchases were made in cash as and when the material was required for manufacturing of the leather goods for export. It was brought to the notice of the ld. CIT(A) that the assessee was not aware whether the sellers were providing accommodation bills and was only interested in procuring the material for its manufacturing activities. It was pleaded that only the profit element imbibed in the purchases should be added. After considering the submissions, the ld. CIT(A) restricted the addition to the expenditure of 12.5% of such bogus purchases. 6. Before us, the ld. D/R strongly supported the findings of the AO.
We find that under identical circumstances, the Hon’ble High Court of Bombay in the case of PCIT vs. Mohommad Haji Adam & Co. reported in [2019] 103 taxmann.com 459 (Bombay), has 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 he 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 favour of the assessee and partially in favour 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.”
Respectfully following the decision of the Hon’ble Bombay High Court, we decline to interfere. 9. In the result, appeal of the revenue is dismissed. Order pronounced in the Court on 28th August, 2024 at Mumbai. (SUNIL KUMAR SINGH) ACCOUNTANT MEMBER Mumbai, Dated 28/08/2024 *SC SrPs SC SrPs SC SrPs SC SrPs