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2020 (2) TMI 662

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..... ofit, thereby protecting the interest of the Revenue. In Bholanath Polyfab Limited [2013 (10) TMI 933 - GUJARAT HIGH COURT] was also confronted with a similar issue. In that case Tribunal was of the opinion that the purchases might have been made from bogus parties but the purchases themselves were not bogus. Considering the fact situation, Tribunal was of the opinion that not the entire amount of purchases but the profit margin embedded in such amount would be subjected to tax. Gujarat High Court upheld the finding of the Tribunal. It was held that whether the purchases were bogus or whether the parties from whom such purchases were allegedly made were bogus was essentially a question of fact. When the Tribunal had concluded that the assessee did make the purchase, as a natural corollary not the entire amount covered by such purchase but the profit element embedded therein would be subject to tax. No substantial question of law - INCOME TAX APPEAL (IT) NO.1330 OF 2017 - Dated:- 10-2-2020 - UJJAL BHUYAN & MILIND N. JADHAV, JJ. Mr.Akhileshwar Sharma, Advocate for the Appellant. P.C.:- 1. Heard Mr. Akhileshwar Sharma, learned standing counsel, Revenue for the appellant. 2. This a .....

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..... vested with the authority of passing an order of best judgment assessment under Section 144 of the Act. Assessee did not respond to the notice issued under Section 142(1) of the Act. Therefore, Assessing Officer drew the inference that assessee had no plausible explanation and had admitted the fact of bogus purchases mentioned in the notice under section 142(1) of the Act. Accordingly, Assessing Officer proceeded to finalize the assessment under Section 144 of the Act. For the grounds and reasons given in the assessment order dated 6th March, 2013 passed under Section 144 of the Act, Assessing Officer disallowed the entire expenditure shown as incurred by the assessee amounting to ₹ 24,18,06,385.00. 7. Respondent/assessee assailed the aforesaid order of the Assessing Officer in appeal before the Commissioner of Income Tax (Appeals)-18, Mumbai, (shortly referred to as CIT(A) hereinafter). 8. CIT(A) in the appellate proceedings admitted additional evidence furnished by the assessee under Section 46A of the Income Tax Rules, 1962 (briefly the Rules hereinafter) and allowed opportunity to the Assessing Officer to examine the documents and thereafter, to submit remand reports. Fol .....

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..... Officer was directed to make further addition of 3%. 12. It is against this order of the Tribunal that Revenue is before us in appeal under Section 260-A of the Act. 13. Mr.Sharma learned standing counsel, Revenue submits that when the purchases were bogus, the entire amount covered by such purchases should have been added to the total income of the assessee. There is no question of only adding the profit margin to the income of the assessee. In this connection learned standing counsel has referred to a decision of the High Court of Allahabad in Kaveri Rice Mills Vs. Commissioner of Income-Tax, (2006)157 Taxman 376. He has also placed reliance on a decision of the Delhi High Court in Commissioner of Income-Tax Vs. La Medica, 250 ITR 575, wherein it was held that once it was accepted that the supplies made were fictitious, question of the assessee making purchases from other sources ought not to have been considered by the Tribunal. It was not open to the Tribunal to make out a third case which was not even the case of the assessee. He therefore submits that atleast an arguable case is made out by the department and therefore, the appeal should be admitted on the question of law pro .....

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..... sing agents have not been produced before them. The Hon ble Mumbai Tribunal in the case of Saroj Anil Steel Pvt. Ltd. Vs. ITO vide order dated 30-10-2012 has also decided this issue that only profit margin @ 1 % is to be added back. Similar view has been taken by the Hon ble Tribunal Mumbai in the case of Anil Goyal Exim (P) Ltd. Vs. ITO vide order dated 25-04-2005. The Hon ble Gujarat High Court in the case of CIT Vs. Bholanath Polyfab Pvt. Ltd., 40 Taxman.com 494 has held that whether the assessee did purchase cloth and sell finished goods and purchasers were not traceable, profit element embedded in purchases would be subject to tax and not entire amount. From the facts of the present case, it is noticed that the assessee has made circular purchases and sales with 12 parties as declared in sales tax return. The genuineness of purchases and sales were not proved before the A.O. and even during the appellate proceedings. The A.O. has treated the purchases as bogus but accepted the sales and gross profit declared in the return of income. Now question arise whether there can be any sales without purchases. The answer is always in the negative that no sales can be made without purcha .....

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..... /- which works out at ₹ 1,31,30,609/- is fair and reasonable, hence, upheld and the balance addition made is deleted. Ground of appeal is partly allowed. 17. Before the Tribunal, Revenue expressed the grievance that CIT (A) had erred in disallowing bogus purchases at 2% being profit on purchases made by the assessee from the grey market. Tribunal vide its order dated 3rd November, 2016 held as under :- 4. We have heard rival contentions and gone through the facts and circumstances of the case. Admitted facts are that the AO neither in the original proceedings nor during remand proceedings objected to sales made by assessee. In that eventuality it is imperative on our part to hold that there must be purchases. Whether the purchases are from Grey Market or whatever the assessee has made purchases although payments are made to hawala dealers. In that eventuality it is to be seen whether the payments are recorded in the books of account or not. This fatum is not denied by Revenue, rather the assessee has proved that the payments are made through accounts payee cheques and purchases are entered in its books of account. Once the assessee is able to prove that the purchases were mad .....

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..... er addition of 3% profit, thereby protecting the interest of the Revenue. We have also considered the two decisions relied upon by learned standing counsel and we find that facts of the present case are clearly distinguishable from the facts of those two cases to warrant application of the legal principles enunciated in the two cited decisions. 20. In Bholanath Polyfab Limited (supra), Gujarat High Court was also confronted with a similar issue. In that case Tribunal was of the opinion that the purchases might have been made from bogus parties but the purchases themselves were not bogus. Considering the fact situation, Tribunal was of the opinion that not the entire amount of purchases but the profit margin embedded in such amount would be subjected to tax. Gujarat High Court upheld the finding of the Tribunal. It was held that whether the purchases were bogus or whether the parties from whom such purchases were allegedly made were bogus was essentially a question of fact. When the Tribunal had concluded that the assessee did make the purchase, as a natural corollary not the entire amount covered by such purchase but the profit element embedded therein would be subject to tax. 21. .....

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