TMI Blog2020 (2) TMI 662X X X X Extracts X X X X X X X X Extracts X X X X ..... profit, 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, Revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8874 ASIT TRADERS 2010-11 55118398 241806385 6. In this backdrop, Assessing Officer issued notice to theassessee under Section 142(1) of the Act to explain as to why suitable action should not be initiated for such undesirable act. It was mentioned in the said notice that the Assessing Officer was 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded 2% of the purchase amount of ₹ 65,65,30,470.00 as profit which worked out to ₹ 1,31,30,609.00 to the income of the assessee and the balance addition was deleted. 11. Aggrieved by the said order of the CIT(A), Revenue preferred appeal before the Tribunal. Tribunal vide the order dated 3rd November, 2016 took the view that 2% of the profit which was directed to be added by the CIT (A) was on the lower side and therefore, the Assessing 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 Medic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income of the assessee. Relevant portion of the order of the CIT (A) is extracted hereunder:- 2.7 From the perusal of the decisions of the Hon ble courts on this issue, specially the decision of the Hon ble Bombay High Court in the case of CIT Vs. Nikunj Eximp Enterprises Pvt. Ltd. (supra), it was clearly held that the A.O. and the CIT (A) had disallowed the amount of ₹ 1.33 crores on account of purchases merely on the basis of suspicion because the sellers and the canvassing 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, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue, only the reasonable profit has to be added back on the purchases made from the hawala parties. The gross profit has been reduced from 8.77 % to 5.71% during the year under consideration which is explained as major manufacturing activity in the last year and major part of the trading activity in the year under consideration. Keeping in view of these facts and circumstances, I am of the view that 2% of the purchases made from the hawala parties amounting to ₹ 65,65,30,470/- 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ases corresponded to sales which were reflected in the returns of the assessee in sales tax proceedings and in addition, were also recorded in the books of accounts with payments made through account payee cheques, the purchases were accepted by the two appellate authorities and following judicial dictum decided to add the profit percentage on such purchases to the income of the assessee. While the CIT (A) had assessed profit at 2% which was added to the income of the assessee, Tribunal made further 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 purcha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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