ITO 20(3)(1), MUMBAI vs. RAMNIK G. GALA (HUF), MUMBAI

Briefly stated relevant facts of the case are that the assessee is engaged in the business of „trading & manufacturing of western outfits and trading in cloth‟ and filed the return of income declaring the total income of Rs. 10,59,820/-. During the assessment proceedings, AO noticed that the assessee reported purchase of goods from suppliers whose names are appearing in the Sales Tax Department‟s website. Accordingly, AO invoked the provisions of section 69C of the Act and found relevant to add 25% of such purchases totalling to Rs. 47,97,806/-. The addition worked out to Rs. 11,99,451/-. AO also worked out the peak of such purchases amounting to Rs.35,75,920/-. Considering the peak amount of purchases, which is more than the GP, Assessing Officer made addition of Rs. 35,75,920/-. Matter travelled to the first appellate authority.

During the first appellate proceedings, CIT (A) deleted the said peak addition and, in principle, approved the GP addition with changes. CIT (A) found appropriate to restrict the additional GP of 5% over and above the GP offered by the assessee ie 10.57%. Thus, the addition confirmed by the CIT (A) worked out to Rs. 2,39,890/-. Sub-para (iv) of para 6.3 of the CIT (A)‟s order is relevant in this regard. Aggrieved with said decision of the CIT (A), Revenue is in appeal before the Tribunal.

Before me, Ld Representatives of both the parties mentioned that the Tribunal in many identical cases have confirmed the GP based additions on such bogus purchases involving such tainted suppliers, whose names listed in the Sales Tax Department‟s website ie www.mahavat.gov.in as Sales Tax defaulters. Therefore, the present appeal may also be decided in tune with the other identical appeal decided by the Tribunal. 5. After hearing both the parties and on perusal of the orders of the Revenue Authorities in general and the relevant sub-para (iv) of para 6.3 of the CIT (A)‟s order in particular, I find, the same is relevant here. Considering the significance of the said para for the sake of completeness of this order, the same is extracted as under:- “(iv) Under Income Tax Act, 1961 what can be taxed is the real income. Even though the transaction is not verifiable, what is taxable is the income component, and not the entire transaction amount. I find that in many such cases, the additions are made based on the GP / NP ratio. In the present case of appellant, in fact the AO himself has not ruled out the possibility that the assessee must have made these purchases from grey markets from some other parties by investing unaccounted cash. In such a situation, even assuming that the appellant would have purchases the goods by investing the unaccounted cash, still it is undisputed that the sale proceeds of said goods have been duly accounted for in the books and offered to tax. Hence, the addition of entire purchase amount cannot be made in the present case. Rather, the cause of justice would be met by making addition of a reasonable percentage of such purchases in order to fulfil the gap of any revenue leakage in aforesaid circumstances. In the present case, I find that the appellant has already shown GP @ 10.57% and it will be reasonable to confirm addition to the extent of 5% of the alleged purchases of Rs. 47,97,806/- from the impugned party ie Rs. 2,39,890/- so that the overall GP comes to @ 15.57%...........” 6. Considering the above, I am of the opinion that the CIT (A) discussed the issue at length and rightly adjudicated the matter before him. Therefore, in my opinion, the decision of the CIT (A) is fair and reasonable and it does not call for any interference. Accordingly, grounds raised by the Revenue are dismissed.