Pavankumar M. Sanghvi, Vadodara V. The Income Tax Officer, Ward-3(1)(2), Vadodara

ITA 2448/AHD/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5891 (ITAT-AHMEDABAD)
• Duration Of Justice: 7 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-05-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Next Hearing Date: 01-03-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 28-09-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KAILASH D RATNOO HEARING CONCL
• Keywords: Bogus purchase; Cost of acquisition
• Section: 143(3)

Judgement Text

I.T.A. NO.244 8 /AHD/201 6 ASSESSMENT YEARS: 20 11 - 12 PAGE 1 OF 4 IN THE INCOME TAX APPELLATE TRIBUNAL, AHMEDABAD SMC BENCH, AHMEDABAD [CORAM : PRAMOD KUMAR AM ] I.T.A. NO. 244 8 /AHD/201 6 ASSESSMENT YEAR S: 20 11 - 12 PAVANKUMAR M SANGHVI, ............APPELLANT C/O. L AXMI METAL DISTRIBUTORS, NARSINGH ESTATE, WADI YAMUNA MILL ROAD, PRATAPNAGAR, VADODARA. [PAN: A GIPS 3322 F ] VS INCOME TAX OFFICER WARD 3(1)(2), VADODARA. ...........RESPONDENT APPEARANCES BY HITESH SHAH FOR THE APPELLANT KAILASH D RATNOO FOR THE RESPONDENT HEARING CONCLUDED ON: 01.03. 2017 ORDER PRONOUNCED ON : 17 .05.2017 O R D E R 1. BY WAY OF THIS APPEAL, THE A SSESS EE APPELLANT HAS CHALLENGED CORRECTNESS OF THE ORDER DATED 1 9 .08.2016 PASSED BY THE LEARNED CIT(A), IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) R.W.S. 147 OF THE INCOME TAX ACT 1961, FOR THE ASSESSMENT YEAR 20 11 - 12 . 2. GRIEVANCES RAISED BY THE ASSESSEE ARE AS FOLLOWS : - GROUND I: - ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL) - 2, VADODARA ( HE REINAFTER REFERRED TO AS THE CIT(A) ) HAS ERRED IN CONFIRMING AN ADDITION OF RS. 33,51,520 / - AS UNEXPLAINED BOGUS PURCHASES MADE DURING THE YEAR FROM M/S. MACOS IRON & STEEL PVT. LTD U/S.69 BY TREATING THEM AS BOGUS. I.T.A. NO.244 8 /AHD/201 6 ASSESSMENT YEARS: 20 11 - 12 PAGE 2 OF 4 THE APPELLANT BEING AGGRIEVED, PRAYS T HAT THE ADDITION MADE ON ACCOUNT OF UNEXPLAINED PURCHASES TO THE EXTENT OF RS.33,51,520/ - BEING UNJUSTIFIED UNWARRANTED, BAD - IN - LAW BE DELETED AND ILLEGAL BE DELETED . WITHOUT PREJUDICE TO THE ABOVE GROUND II : - O N THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME T AX (APPEAL) - 2, VADODARA ( HEREINAFTER REFERRED TO AS THE CIT(A ) ) HAS ERRED IN CONFIRMING AN ADDITION OF R S. 33,51,520/ - AS UNEXPLAINED BOGUS PURCHASES MADE DURING THE YEAR FROM M/S. MACOS IRON & STEEL PVT. L T D . U/S.69 BY TREATING THEM AS BOGUS. THE APPELLANT BEING AGGRIEVED , PRAYS THAT THE ADDITION MADE ON ACCOUNT OF UNEXPLAINED PURCHASES TO THE EXTENT OF RS.33,51,520/ - BEING UNJUSTIFIED, UNWARRANTED, BAD IN LAW AND ILLEGAL BE SUITABLY REDUCED TO 125% AS PER THE PREVAILING GUJAT HIGH COURT DECISION IN THE CASE OF SIMIT P SHETH 356 ITR 451. 3. WHEN THIS APPEAL WAS CALLED OUT FOR HEARING, LEARNED COUNSEL FOR THE ASSESSEE INVITED OU R ATTENTION TO THE ORDER DATED 2 9 TH SEPTEMBER , 2016 PASSED BY THE DIVISION BENCH OF THIS T RIBUNAL IN ASSESSEE S OWN CASE FOR THE A SSESSMENT YEAR 2009 - 10 WHEREBY THE DISALLOWANCE IN RESPECT OF BOGUS PURCHASE IS RESTRICTED TO 12.5% . L EARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE PRESENT APPEAL IS SQUARELY COVERED BY THE AFORESAID ORDER OF THE TR IBUNAL, A COPY OF WHICH WAS ALSO PLACED BEFORE ME AT PAGES 56 TO 58 OF THE COMPILATION OF PAPERS. 4. LEARNED DEPARTMENTAL REPRESENTATIVE DID NOT HAVE MUCH TO SAY BUT HE NEVERTHELESS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 5. I SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO T AKEN BY THE DIVISION BENCH OF THIS TRIBUNAL IN ASSESSEE S OWN CASE VIDE ORDER DAT E D 29 TH SEPTEMBER 2016 . I N THIS ORDER , THE TRIBUNAL HAS INTER ALIA OBSERVED AS FOLLOWS : - I.T.A. NO.244 8 /AHD/201 6 ASSESSMENT YEARS: 20 11 - 12 PAGE 3 OF 4 2. WITH THE ASSISTANCE OF THE LD. REPRESENTATIVES, WE HAVE GONE THROUGH THE RECORD CAREFULLY. THE ADMITTED FACTS ARE THAT THE ASSESSEE WAS ENGAGED IN TRADING OF STEEL. ACCORDING TO THE AO, PURCHASES HAVING VALUE OF RS.18,02,736/ - COULD NOT BE PROVED BY THE ASSESSEE. THEREFORE, HE TREATED SUCH PURCHASES AS BOGUS. HE MADE ADDITION OF RS.18,02,736/ - TO THE INCOME OF THE ASSESSEE. DISSATISFIED WITH THIS ADDITION, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A). THE LD. CIT(A), IN PRINCIPLE, CONCURRED WITH THE AO, BUT CONFIRMED THE ADDITI ON TO THE EXTENT OF 25%. THE LD. CIT(A) WAS OF THE OPINION THAT ELEMENT OF PROFIT INVOLVED IN SUCH BOGUS PURCHASES COULD BE TO THE EXTENT OF 25%, BECAUSE SALES OF THE ASSESSEE ARE NOT IN DISPUTE. ACCORDING, THE LD. CIT(A) HAS CONFIRMED THE ADDITION TO THE EXTENT OF RS.4,50,684/ - . 3. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE, ON THE STRENGTH OF HON BLE GUJARAT HIGH COURT JUDGMENT IN THE CASE OF CIT VS. SIMIT P. SHETH, 38 TAXMANN.COM 385 (GUJ) (COPY OF THE JUDGMENT PLACED ON RECORD) CONTENDED THAT HON BL E GUJARAT HIGH COURT HAS UPHELD THE ADDITION IN A SIMILAR TYPE OF CASE AT THE RATE OF 12.5% OF THE PURCHASES. HE PRAYED THAT AT THE MOST, ADDITION COULD BE CONFIRMED AT 12.5% OF THE PURCHASES. ON THE OTHER HAND, THE LD. DR CONTENDED THAT ASSESSEE MIGHT HAV E BEEN INVOLVED IN THIS MODUS OPERANDI FROM LONG BACK. IN THIS YEAR, HE HAS BEEN CAUGHT, AND THEREFORE, HIS TOTAL PURCHASES SHOULD BE ADDED, NO DEDUCTION OUGHT TO BE ALLOWED TO THE ASSESSEE ON ACCOUNT OF PURCHASE COST. 4. ON DUE CONSIDERATION OF THE ABO VE FACTS, WE ARE OF THE VIEW THAT NO DOUBT THE ASSESSEE COULD NOT PROVE CREDENTIAL OF HIS SUPPLIER. BUT IT IS ALSO TRUE THAT THE LD.AO HAS NOT DOUBTED THE SALES MADE BY THE ASSESSEE. FOR ACHIEVING PARTICULAR SALES FIGURE, THE ASSESSEE MUST HAVE MADE PURCHA SES. HE MUST HAVE PURCHASED FROM X , Y , Z , BUT PRODUCED BILLS FROM A , B , C , AND THIS WAY, HE FAILED TO PROVE CREDENTIAL OF HIS SUPPLIERS. IN THIS SITUATION, THE LD. CIT(A) THOUGHT THAT ASSESSEE MUST HAVE EARNED A PROFIT AT THE RATE OF 25% OF THE PURCHASE, BECAUSE, IF THERE IS NO HIGHER RATE OF PROFIT, THEN, THERE IS NO NEED FOR THE ASSESSEE TO INDULGE IN THIS TYPE OF ACTIVITIES. IN THE CASE OF SIMIT P. SHETH (SUPRA), THE CIT(A) HAS ESTIMATED THE PROFIT IN THIS MODUS OPERANDI AT 30%, WHICH HAS BEE N SCALED DOWN BY THE TRIBUNAL TO 12.5%. THIS ORDER OF THE TRIBUNAL HAS BEEN UPHELD BY THE HON BLE GUJARAT HIGH COURT. IN OUR OPINION, IN DIFFERENT TRADE ITEMS, THERE MAY BE DIFFERENT RATE OF PROFIT. WHENEVER ANY PROFIT IS BEING ESTIMATED, THE ELEMENT OF GU ESSWORK WOULD ALWAYS BE INVOLVED. IN THE CASE OF SIMIT P. SHETH (SUPRA) ON AN ANALYSIS OF THE MATERIAL, TRIBUNAL DREW AN INFERENCE THAT IN THE TRADE OF STEEL PROFIT AT THE RATE OF 12.5% MAY BE REASONABLE PROFIT WHEN THE ASSESSEE HAS PROCURED MATERIAL FROM DIFFERENT SOURCES AND BILLS FROM DIFFERENT SOURCES. THIS FORMATION OF OPINION WAS NOT DISTURBED BY THE HON BLE HIGH COURT. THEREFORE, WE FIND FORCE IN THE CONTENTIONS OF THE LD. COUNSEL FOR THE ASSESSEE THAT THIS DECISION IS A GUIDING FACTOR FOR ESTIMATING ELEMENT OF PROFIT INVOLVED IN THE ACTIVITY OF THE ASSESSEE. WE ALLOW THE APPEAL OF THE ASSESSEE PARTLY, AND MODIFY THE ORDER OF THE LD. CIT(A). ADDITIONS CONFIRMED BY THE LD. CIT(A) AT THE RATE OF 25% OF THE TOTAL BOGUS PURCHASES IS RESTRICTED TO 12.50% ( TWELVE POINT FIVE PERCENT). THE LD.AO SHALL GIVE NECESSARY EFFECT WHILE COMPUTING THE INCOME OF THE ASSESSEE AFTER TRIBUNAL S ORDER. I.T.A. NO.244 8 /AHD/201 6 ASSESSMENT YEARS: 20 11 - 12 PAGE 4 OF 4 6. RESPECTFULLY FOLLOWING THE ABOVE BINDING PRECEDENT, I UPHOLD THE CONTENTION OF THE ASS ESSEE AND DIRECT THE ASSESSING O FFICER TO RESTRICT THE DISALLOWANCE TO 12.5% OF THE ALLEGED BOGUS PURCHASE . THE ASSESSEE GETS THE RELIEF ACCORDINGLY. 7. IN THE RESULT, T HE APPEAL IS PARTLY ALLOWED IN THE TERMS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT TODAY ON THE 17 TH DAY OF MAY , 2017 . SD/ - PRAMOD KUMAR (ACCOUNTANT MEMBER) DATED: AHMEDABAD, THE 17 TH DAY OF MAY , 2017. COPIES TO : (1) THE APPELLANT (2) THE RESPONDENT (3) CIT (4) CIT(A) (5) DR (6) GUARD FILE BY ORDER A SSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD