(PER : HONOURABLE
MR.JUSTICE AKIL KURESHI)
Revenue
is in appeal against the judgement of Income Tax Appellate Tribunal
( the Tribunal for short) dated 24.02.2012 raising following
substantial question of law for our consideration:
Whether
on the facts and in the circumstances of the case the Tribunal was
right in law in restricting the disallowance to the extent of 12.5%
of the bogus purchase, without appreciating the factual aspect and
by ignoring the manifest evidence relies upon by the Assessing
Officer and overlooking the ratio laid down by the Hon ble High
Court in the case of Pawanraj B. Bokadia in Tax Appeal No. 2345 of
2009 dated 29.09.2011?
Briefly
stated facts are:
2.1 That
the respondent assessee is engaged in the business of trading in
steel on wholesale basis. For the
assessment year 2006-07, the assessee filed return of income
declaring total income of Rs. 1,95,500/-. The assessment was
re-opened by issuing notice under Section 148 of the Income-tax Act
on 28.03.2008.
2.2 During
the course of the re-assessment proceedings, Assessing Officer
noticed that some of the alleged suppliers of steel to the assessee
had made their statements on oath to the effect that they had not
supplied the steel to the assessee but had only provided sale bills.
In turn, they were receiving a small commission.
2.3 The
Assessing Officer pursued the issue further. In the assessment
order, he recorded that the case of the three so-called suppliers
viz. Bhavna Trading Co., M/s. Minaxi Enterprise and Arun Industrial
Corporation, there were no documents other than the delivery
challans and sale invoices. There was no movement
of goods. Assessing Officer, therefore, concluded that
total purchases of Rs. 41,04,903/- cumulatively
made from the said three parties were bogus. He thus, treated such
purchases as bogus purchases and added the entire amount of Rs.
41,04,903/- to the gross profit of the assessee. He also rejected
the books of accounts and estimated the assessee s business profit
at Rs. 5 lacs.
2.4. The
assessee thereupon preferred appeal before the Commissioner
(Appeals). The Commissioner (Appeals) though confirmed the view of
the Assessing Officer that the purchases were not made by the said
three parties viz. Bhavna Trading Co.,
M/s. Minaxi Enterprise and Arun Industrial Corporation but believed
that the appellant assessee had made the purchases from other
parties in the open market. Thereupon, he retained 30% of the
purchase cost as the probable profit of the assessee. The
Commissioner (Appeals) reduced the additions from Rs. 41,04,903/- to
Rs. 12,31,471/- and deleted the balance of Rs. 28,73,432/-. While
doing so, he deleted the addition of Rs. 5 lacs as made by the
Assessing Officer on the ground that since the addition on account
of bogus purchases had already been made the same cannot be formed
the basis for books of accounts and estimating the income.
2.5 Such
order of the Commissioner (Appeals) gave rise to two appeals one by
the assessee and another by the revenue. Such appeals came to be
disposed by the Tribunal by common judgement dated 24.02.2012. The
Tribunal was of the opinion that twelve and half percent of the
disputed purchases should be retained in the hands of the assessee
as business profit. In the result, Tribunal partially allowed the
assessee s appeal. In the final conclusion though the revenue s
appeal was also partly allowed, we fail to see in what manner.
It
is this judgement of the Tribunal which is in challenge before us at
the hands of the revenue. Learned counsel, Mr. Parikh vehemently
contended that the Commissioner (Appeals) and the Tribunal both
committed a serious error in overturning the Assessing Officer s
decision to make full addition of Rs.
41,04,903/- when the purchases are
found to be bogus. There was thereafter no question of retaining
only portion thereof for addition to the income of the assessee.
Counsel heavily relied on the decision of Division Bench of this
Court in case of ACIT (OSC) Ward 5(3) Nadiad Vs. Pawanraj B Bokadia
in Tax Appeal No. 2345 of 2009 dated 27.09.2011 wherein thus court
was pleased to allow the revenue s appeal and reinstate the entire
additions of the bogus purchases made by the Assessing Officer.
In
the present case, however, we notice that before the Commissioner
(Appeals), the assessee pointed out that the assessee was trading in
steel. Once his sale of x quantity of steel is accepted, the
purchases of the same quantity had to be believed. It was canvassed
that the assessee had made sales of Rs. 1,10,786/- metric tone of
steel. Therefore, there had to be a matching quantity of purchase of
steel also. It was argued that since the Assessing Officer accepted
the sales of the steel, equivalent of purchase also must be
believed. It was in this background that the Commissioner (Appeals)
made the following observations:
4.3
I have considered the submissions of the Authorized Representative
and the order of the Assessing Officer. It has been admitted that
there was a regular arrangement for providing accommodation sales
bills. The appellant has not been able to provide a confirmation
from the supplier that the goods where indeed supplied to the
appellant. It is an established fact that the onus lies on the
appellant to prove that the purchases are genuine. The appellant has
made the payments in cheque and the sales made by the appellant have
been accepted in toto by the Assessing Officer. Hence,
it is to be presumed that though bills made have been given by M/s.
Bhavna Tradign Co., Mis. Minakshi Enterprises
and M/s. Arun Industrial Corporation the actual purchases have not
been made for them. It can therefore be concluded that the appellant
has made purchases from persons in the open market. Taking into
account all the relevant facts of the case I hold that 30% of the
purchase cost would be a reasonable amount to be confirmed, to cover
the profits of the appellant. Hence addition to the extent of Rs.
12,31,471/- is confirmed and the balance of Rs. 28,73,432/- is
directed to be deleted.
We
are broadly in agreement with the reasoning adopted by the
Commissioner (Appeals) with respect to the nature of disputed
purchases of steel. It may be that the three suppliers from whom the
assessee claimed to have purchased the steel did not own up to such
sales. However, vital question while considering whether the entire
amount of purchases should be added back to the income of the
assessee or only the profit element embedded therein was to
ascertain whether the purchases themselves were completely bogus and
non existent or that the purchases were actually made but not from
the parties from whom it was claimed to have been made and instead
may have been purchased from grey market without proper billing or
documentation.
In
the present case, CIT believed that when as a trader in steel the
assessee sold certain quantity of steel, he would have purchased the
same quantity from some source. When the total sale is accepted by
the Assessing Officer, he could not have questioned the very basis
of the purchases. In essence therefore, the Commissioner (Appeals)
believed assessee s theory that the purchases were not bogus but
were made from the parties other than those mentioned in the books
of accounts.
That
being the position, not the entire purchase price but only profit
element embedded in such purchases can be added to the income of the
assessee. So much is clear by decision of this Court. In particular,
Court has also taken a similar view in case of Commissioner of
Income Tax-IV vs. Vijay M Mistry Construction Ltd. vide
order dated 10.01.2011 passed in Tax Appeal No. 1090 of 2009 and in
case of Commissioner of Income Tax-I vs. Bholanath Poly Fab
Pvt. Ltd. vide order dated 23.10.2012 passed in Tax Appeal
No. 63 of 2012. The view taken by the Tribunal in case of Vijay
Proteins Pvt. Ltd. Vs. CIT reported in 58 ITD 428
came to be approved.
If
the entire purchases were wholly bogus and there was finding of fact
on record that no purchase were made at all, counsel for the revenue
would be justified in arguing that the entire amount of such bogus
purchases should be added back to the income of the assessee. Such
were the facts in case of ACIT (OSC) Ward 5(3) Nadiad Vs.
Pawanraj B Bokadia (supra).
This
being the position, the only question that survives is what should
be the fair profit rate out of the bogus purchases which should be
added back to the income of the assessee. The Commissioner adopted
ratio of 30% of such total sales. The Tribunal, however, scaled down
to 12.5%. We may notice that in the immediately preceding year
to the assessment year under consideration the assessee had declared
gross profit @ 3.56% of the total turnover. If the yardstick of 30%,
as adopted by the Commissioner, is accepted GP rate will be much
higher. In essence, the Tribunal only estimated the possible profit
out of purchases made through
non-genuine parties. No question of law in such estimation would
arise. The estimation of rate of profit return must necessarily vary
with the nature of business and no uniform yardstick can be adopted.
In
the result, tax appeal is dismissed.
(AKIL KURESHI, J.)
(MS SONIA GOKANI, J.)
Jyoti
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