PRINCIPAL COMMISSIONER OF INCOME TAX, SURAT-2 V. RAMESHCHANDRA I. GANDHI(HUF)

TAXAP/1092/2018

AI Insights

The case revolves around an appeal by the Principal Commissioner of Income Tax, Surat-2 against the decision of the Income-tax Appellate Tribunal, which had upheld the CIT (Appeals)'s decision. The core issue was the addition of Rs.1,75,06,500 made by the Assessing Officer as bogus sundry creditors towards purchases under Section 41(1) of the Income-tax Act, 1961, for the assessment year 2004-05. The Tribunal and CIT (Appeals) accepted the assessee's argument that the purchases had already been disallowed in the previous assessment year (2003-04), and thus, further disallowance in 2004-05 would lead to double taxation. The Revenue's appeal focused on the contention that some creditors had no matching entries in their accounts for the relevant year, which the court found insufficient to overturn the previous decisions.

• Counselvise Citation: [2018] 140 COUNSELVISE.COM (IT) 758815 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 04-09-2018
• Assessment Year: misc
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Assessee Lawyers: KALPANAK RAVAL
• Keywords: Bogus sundry creditors; Disallowance; Double taxation; Gross profit estimation
• Section: 41(1)

Judgement Text

"C/TAXAP/1092/2018 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 1092 of 2018 ========================================================== PRINCIPAL COMMISSIONER OF INCOME TAX, SURAT-2 Versus RAMESHCHANDRA I. GANDHI(HUF) ========================================================== Appearance: MRS KALPANAK RAVAL(1046) for the PETITIONER(s) No. 1 for the RESPONDENT(s) No. 1 ========================================================== CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE B.N. KARIA Date : 04/09/2018 ORAL ORDER (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. Revenue is in appeal against the judgment of the Income­tax Appellate Tribunal dated 20.03.2018 raising following substantial questions of law :­ “(A) Whether on the facts and circumstances of the case and in law the Hon'ble ITAT has erred in upholding the order of the ld.CIT(A) deleting the addition of Rs.1,75,06,500/­ made on account of bogus sundry creditors towards purchases u/s.41(1) of the Act ? (B) Whether on the facts and circumstances of the case and in law, the Hon'ble ITAT has not appreciated that the assessee has failed to prove the genuiness of the parties from whom purchases were Page 1 of 4 C/TAXAP/1092/2018 ORDER made in A.Y. 2003­04 during the assessment proceedings ? (C) Whether on the facts and circumstances of the case and in law, the Hon'ble ITAT has erred in not appreciating that barring three parties purchases with whom were disallowed in the A.Y. 2003­04 rest of the parties in respect of which addition was made in A.Y. 2004­05 u/s.41(1) of the Act were different ?” 2. The issues pertain to the assessment year 2004­05. The Assessing Officer made addition of Rs.1,75,00,000/­ (rounded off) towards bogus sundry creditors relatable to purchases. The Assessing Officer invoked the provisions of Section 41(1) of the Income­tax Act, 1961. 3. The assessee carried the issue further in CIT (Appeals). CIT (Appeals) accepted the assessee's contention that mere passage of time would not be sufficient to hold that there was cessation of liability. The assessee's alternative contention was also accepted which was that the corresponding purchases from the creditors of Rs.1.75 crores was already disallowed in the assessment year 2003­04 and gross profit was estimated for making additions. Therefore since the purchases have already been held unexplained leading to additions being made Page 2 of 4 C/TAXAP/1092/2018 ORDER in the income, further disallowance on the same ground would amount to double taxation. 4. Revenue carried the matter in appeal. The Tribunal focused on the second contention of the assessee which was accepted, upon which, the Revenue has filed this appeal. 5. Counsel for the Revenue drew our attention to the materials on record to contend that at least three of the creditors had not shown any outstanding liabilities of the assessee. No matching creditor entries were made in their accounts for the relevant year. He, therefore, argued that view of the CIT (Appeals) and the Tribunal is not quite correct. 6. We have focused only on the second of the two contentions raised by the assessee which succeeded before the CIT (Appeals). We do not find any error in the view of the CIT (Appeals) and the Tribunal. We may recall that in the earlier assessment year the Department disbelieved the entire purchases and therefore made additions on the basis of revised estimate of gross profit. Once that was done, making disallowance of the same amount or part thereof would amount to double taxation. Page 3 of 4 C/TAXAP/1092/2018 ORDER 7. In the result, tax appeal is dismissed. (AKIL KURESHI, J) (B.N. KARIA, J) K.K. SAIYED Page 4 of 4 "