HARESH HANSRAJ PRASAD HUF,NAVI MUMBAI vs. INCOME TAX OFFICER WARD 28(1)(5),MUMBAI, VASHI

During the year under consideration the assessee transacted with M/s. Raghuveer Singh Davinder Kumar, Karnal (Firm belongs to the entry provider) mentioned (supra). Thereafter the case of the assessee was reopened u/s. 148 of the Act vide notice dated: 29.03.2019. In response to the same, the assessee filed his return u/s. 148 of the Act vide dated: 23.04.2019 declaring the same figure of income, i.e. 14, 73,577/-. The AO treated the same as bogus purchase transaction, hence the case of the assessee was assessed by making addition of Rs. 36, Haresh Hansraj Prasad HUF 57,360/-. The assessee being aggrieved with the same, preferred an appeal before the Ld. CIT (A), who in turn confirmed the order of the AO passed u/s. 143(3) r.w.s. 147 of the Act. The assessee being further aggrieved with the order of the Ld. CIT (A) passed u/s. 250 of the Act preferred the present appeal before us.

We have gone through the order of the AO, order of the Ld. CIT (A) and submissions of the assessee alongwith grounds taken before us. It is observed that the AO himself agreed for sales made by the assessee vide para 5 of the assessment order, wherein he stated “In order to avoid disallowance u/s. 40A (3) of the Act, the assessee has obtained only the bills from the said party. The purchases have been made from the undisclosed parties in grey market in cash, since the purchase price will be significantly lower. If the purchases are made without bill on account of non-payment of sales tax etc. the supplier also does not pay any income tax and other applicable taxes, which results in lower purchase price for the assessee.”In view of this finding, it is crystal clear that the whole modus-operandi was in the knowledge of the AO and he understood that the whole manipulation was done to procure cheaper goods by avoiding applicable taxes on the purchase.

We have gone through the order of the Ld. CIT(A) also, wherein a log of hearing notices issued to the assessee and response received is reproduced vide para 4 of the appeal order. Out of 5 hearing notices, the assessee responded against 3 notices. We have considered the facts of the case in the light of judicial pronouncements by the Hon’ble Jurisdictional High Court, Apex Court and coordinate benches also on similar facts. Considering the facts of the case we relied upon the decision of Hon’ble Jurisdictional High Court in the case of [2019] “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."

In view of the facts of the matter and finding of the Hon’ble jurisdictional High Court on similar issue, we deem it fit to restore the matter back to the file of the Jurisdictional AO with a direction to work out the figures of applicable taxes saved by the assessee with this modus-operandi and applicable G.P. rate in such type of trade to be the only addition he can made. It is further directed that G.P.

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