The DCIT, Circle-2(2), Ahmedabad V. Shree Sadhikrupa Infra, Ahmedabad

ITA 12/AHD/2020

AI Insights

The case involves an appeal by the Revenue against the order of the CIT(A) which partially allowed the assessee's appeal concerning the disallowance of bogus purchases. The assessee, a partnership firm engaged in real estate, was initially assessed by the AO who disallowed purchases from seven parties amounting to Rs. 1,84,77,669, treating them as bogus. The CIT(A) upheld the disallowance but only to the extent of 10% of the alleged bogus purchases, citing various case laws and the principle that only the profit element in such transactions should be taxed, not the entire purchase amount. The Tribunal, after considering the arguments and evidence presented, agreed with the CIT(A)'s decision and dismissed the Revenue's appeal.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 135645 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 2 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-03-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 02-01-2023
• Assessment Year: 2016-2017
• Appeal Filed On: 31-12-2019
• Other Referred Cases: ITO vs. Sun Steel (2005) 92 TTJ (Ahmedabad) 1126, ACIT vs. Karamchand Rubber Ind. Pvt. Ltd. ITA No. 6599/Delhi/2014, CIT v. Motor General Finance Ltd. 254 ITR 449(Delhi), CIT v Krishnaveni Ammal (1986) 158 ITR 826,829,830 (Mad.), Jayshree Roy Chowdhary Vs. DCIT - 92 ITD 400 (Kol.), CIT Vs. Gurubachhan Singh J. Juneja [2008] 302 ITR 63 (Guj.), CIT Vs. Bholanath Poly Fab. Pvt. Ltd. 355 ITR 0290 (Guj.), Dineshbhai Dhansukhlal Mithaiwala Vs. ITO 152 ITD 874 (And.), Sanjay Oilcake Industries Vs. CIT 316 ITR 274 (Guj.), CIT Vs. Kishore Amrutlal Patel, CIT Vs. Pradeep Shantilal Patel 42 Taxmann.com 2 (Gujarat)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bogus purchase; Unexplained investment; Bogus
• Section: 274

Judgement Text

आयकर आयकरआयकर आयकर अपी अपीअपी अपीलीय लीयलीय लीय अिधकरण अिधकरणअिधकरण अिधकरण, अहमदाबाद अहमदाबादअहमदाबाद अहमदाबाद यायपीठ यायपीठ यायपीठ यायपीठ IN THE INCOME TAX APPELLATE TRIBUNAL, ‘’A’’ BENCH, AHMEDABAD BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER And Ms MADHUMITA ROY, JUDICIAL MEMBER आयकर अपील सं./ITA No.12/AHD/2020 िनधा रण िनधा रणिनधा रण िनधा रण वष वष वष वष /Asstt. Year: 2016-2017 D.C.I.T, Circle-2(2), Ahmedabad. Vs. Shree Sadhikrupa Infra, H-44, Karnawati Society, GHB Chandkheda, Ahmedabad-382424. PAN : ACMFS0740D (Applicant) (Respondent) Revenue by : Shri Mukesh Kumar Sharma, Sr.D.R Assessee by : Shri Urvashi Shodhan, A.R सुनवाई क तारीख/Date of Hearing : 03/01/2023 घोषणा क तारीख /Date of Pronouncement: 31/03/2023 आदेश आदेशआदेश आदेश/O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: The captioned appeal has been filed at the instance of the Assessee against the order of the Learned Commissioner of Income Tax(Appeals)-10, Ahmedabad, dated 17/10/2019 arising in the matter of assessment order passed under s.143 of the Income Tax Act, 1961 (here-in-after referred to as "the Act") relevant to the Assessment Year 2016-2017. ITA no.12/AHD/2020 A.Y. 2016-17 2 2. The only issue raised by the Revenue is that the learned CIT(A) erred in deleting the addition made by the AO on account of bogus purchases. 3. The briefly stated facts are that the assessee is partnership firm and engaged in the business of real estate. The AO during the assessment proceeding has made bogus purchases from 7 parties amounting to Rs. 1,84,77,669/- only. Thus, the AO disallowed the same and added to the total income of the assessee. On appeal by the assessee, the learned CIT(A) held that genuineness of impugned purchases cannot be accepted as the assessee failed to discharge its onus fully but entire gross amount of purchase also cannot be disallowed. Accordingly, the learned CIT(A) confirmed addition to extent of 10% of alleged bogus purchases. The relevant finding of the learned CIT(A) reads as under: The appellant has submitted all possible submission as can be perused from the table above. The appellant claimed that the whole of purchase expenditure is required to be allowed and discussed a few case laws as under: - ITO vs. Sun Steel (2005) 92 TTJ (Ahmedabad) 1126 - ACIT vs. Karamchand Rubber Ind. Pvt. Ltd. ITA No. 6599/Delhi/2014 The AR tried to advance the argument as if no disallowance is called for even if the suppliers were not found at the listed premises. At this juncture, I disagree with the appellant that no disallowance is called for. There has been a doubt on the purchase expenditure and the onus has not been discharged fully jay the appellant, as a result. there is justification to go for disallowance of proportionate expenditure as per ratio laid down in following case laws : (a) CIT v. Motor General Finance Ltd. 254 ITR 449(Delhi) (b) CIT v Krishnaveni Ammal (1986) 158 ITR 826,829,830 (Mad.) (c) Jayshree Roy Chowdhary Vs. DCIT - 92 ITD 400 (Kol.) In the circumstances, the truth lies somewhere in between with the comment that in no way the stand of AO can be justified to disallow the full expenditure viz.a.viz. plethora of evidences brought on record by the appellant during assessment proceedings itself. Total sales in this case have been undisputed and brought to tax, therefore, such huge turnover cannot be created by the appellant without incurring expenditure on purchases. The Courts have taken a consistent view that the entire amount of unaccounted receipts/unaccounted sale /on-money receipts cannot be brought to tax in the cases of builders and developers. Only the net profit embedded in the gross unaccounted receipts can be taxed. In the case of CIT Vs. Gurubachhan Singh J. Juneja [2008] 302 ITR 63 (Guj.) it has been held by the Hon'ble High court of Gujarat that:- "in absence of any material on record to show that there was any unexplained investment made by the assessee which was reflected by the alleged unaccounted sales the finding of the Tribunal that only the gross profit on the said amount can be brought to tax does not call for any interference." Hon'ble Gujarat High Court in the case of CIT Vs. Bholanath Poly Fab. Pvt. Ltd. 355 ITR 0290 (Guj.) has stated, ITA no.12/AHD/2020 A.Y. 2016-17 3 "5. Having come to such conclusion, however, the Tribunal was of the opinion that the purchases may have been made from bogus parties, nevertheless, the purchases themselves were not bogus. The Tribunal adverted to the facts and data on record and came to the conclusion that the entire quantity of opening stock, purchases and the quantity manufactured during the year under consideration were sold by the assessee. Therefore, the purchases of entire 102514 meters of cloth were sold during the year under consideration. The Tribunal, therefore, accepted the assessee's contention that the finished goods were purchased by the assessee, may be not from the parties shown in the accounts, but from other sources. In that view of the matter, the Tribunal was of the opinion that not the entire amount, but the profit margin embedded in such amount would be subjected to tax. The Tribunal relied on its earlier decision in the case of M/s. Sanket Steel Traders and also made reference to the Tribunal's decision in the case of Vijay Proteins. 6. We are of the opinion that the Tribunal committed no error. Whether the purchases themselves were bogus or whether the parties from whom such purchases were allegedly made were bogus is essentially a question of fact. The Tribunal having examined the evidence on record came to the conclusion that the assessee did purchase the cloth and sell finished goods. In that view of the matter, as natural corollary, not the entire amount covered under such purchase, but the profit element embedded therein would be subject to tax. This is the view of this Court in the case of Sanjay Oilcake Industries Vs. CIT 316 ITR 274 (Guj.). Such decision also followed by this Court in a judgment dated 16.08.2011 in Tax Appeal No.679 of 2010 in the case of CIT Vs. Kishore Amrutlal Patel." Hon'ble Gujarat High Court in the case of CIT Vs. Pradeep Shantilal Patel 42 Taxmann.com 2 (Gujarat) has held "Where assessee admitted that cash deposits pertained to his retail business but details and nature of business were not forthcoming from record, considering total turnover of assessee, net income had to be determined under section 44AF." Hon'ble ITAT, Ahmedabad in the case of Dineshbhai Dhansukhlal Mithaiwala Vs. ITO 152 ITD 874 (And.) has held "Where aggregate credits in undisclosed bank account of assessee were considered as cash sales, entire sales could not be considered as income but only profit embedded in it be considered as income of assessee. .....Profit at 3.5 percent of total estimated turnover was held to be reasonable for a trader of farsan items." The range of disallowance is from 25% of bogus purchases to a mere Rs. 50,000/- or no disallowance at all, in the various case laws studied for this purpose. The quality of evidence such as ITR / PAN / Confirmation etc. brought on record during assessment proceedings itself and a very limited time of less than a week given to the appellant to produce the parties before AO, have strong bearing on the mind while deciding the disallowance in this case. In my opinion, 10 % of the impugned expenditure can be disallowed for certain alleged shortcoming on the part of appellant and the same is considered to meet the ends of justice as per various case laws (supra). Consequently, I confirm the addition of 10 % of the alleged bogus purchases of Rs. 1,84,77,669/-. Hence addition of Rs.18,47,700/- is confirmed and the appellant gets relief of Rs. 1,66,29,969/-. The ground no. 2 & 3 are partly allowed. 4. Being aggrieved by the order of the learned CIT(A) the revenue is in appeal before us. ITA no.12/AHD/2020 A.Y. 2016-17 4 5. The learned DR before us reiterated the findings contained in the assessment order. 6. On the other hand, the learned AR before us filed a paper book running from pages 1 to 80 and contended that the assesse out of the purchases has shown sales which have not been doubted by the authorities below. Therefore, there is no question of treating hundred percent purchases as income of the assessee. The learned AR vehemently supported the order of the learned CIT-A. We have heard the rival contentions of both the parties and perused the materials available on record. Admittedly, the purchases made by the assessee firm from 7 parties amounting to Rs. 1,84,77,669/- were treated as bogus. However, it is undisputed fact that the sales declared by the assessee out of such bogus purchases has nowhere been doubted by the authorities below. As such, no sale can be made without being corresponding purchases. Therefore, the entire amount of alleged bogus purchases cannot be treated as income despite the fact that the assessee failed to discharge onus with respect to such purchases. Generally, the assessee adopts the practice for taking the bogus bills from the market when it makes purchases of the goods from the grey market in cash and without the bills which cannot be accounted in the books of accounts. Accordingly the assessee to bring such purchase of goods in accounting form, arranges the bogus bills from the market. Accordingly, the entire amount of bogus purchases shown by the assessee cannot be treated as income of the assessee. What best can be added in the given facts and circumstances is the profit embedded in such transaction of bogus purchases. To determine the profit embedded in such bogus purchases, there is no standard formula prescribed under the provisions of law. However, we note that, the different Hon’ble Court in such facts and circumstances have adopted the basis of estimating the income based on some percentage. In the case on hand, the learned CIT(A) after referring to the judgment of Hon’ble Gujarat High Court in case of CIT vs. Gurubachhan Singh J ITA no.12/AHD/2020 A.Y. 2016-17 5 Juneja 302 ITR 63 and CIT vs. Bholanath Poly Fab. Pvt. Ltd. reported in 355 ITR 290 estimated the profit embedded in alleged bogus purchases @ 10% of such purchases. The learned DR before us has not brought any contrary material against the finding of the learned CIT(A). Therefore, we do not find any reason to interfere in finding of the learned CIT(A). Hence the ground of appeal of the Revenue is hereby dismissed. 7. In the result, the appeal filed by the Revenue is dismissed. Order pronounced in the Court on 31/03/2023 at Ahmedabad. Sd/- Sd/- (MADHUMITA ROY) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 31/03/2023 Manish