PCIT Vs Suraj Infrastructures Pvt. Ltd. (Bombay High Court)
Summary: The Bombay High Court dismissed the Revenue’s appeal under Section 260A of the Income-tax Act, 1961, against the order of the Income Tax Appellate Tribunal restricting the addition on alleged bogus purchases to 12.5% of the disputed purchase amount. The assessee, Suraj Infrastructures Pvt. Ltd., had filed a return declaring nil income for Assessment Year 2009-10. Following reassessment under Sections 143(3) and 147, the Assessing Officer made an addition of Rs.1,97,35,311 on the basis of information received from the Investigation Wing alleging that the assessee had obtained accommodation bills from hawala operators.
The Assessing Officer questioned the genuineness of purchases from eight parties, observing that they had not been produced for examination despite the assessee furnishing invoices, ledger accounts and banking documents. The Commissioner of Income Tax (Appeals) deleted the addition, noting that it was principally based on the appearance of the suppliers’ names in the Sales Tax Department’s list and their non-production before the Assessing Officer. On the Revenue’s appeal, the Tribunal directed estimation of the profit element at 12.5% of the alleged bogus purchases. The assessee had argued that its declared gross profit of 30.12% was already higher than that of comparable businesses and that the Assessing Officer’s estimation at 60.24% was arbitrary. Relying on the Gujarat High Court decisions in Vijay Proteins Ltd. and CIT v. Simit P. Sheth, the Tribunal held that there could be no uniform yardstick for estimating the profit embedded in disputed purchases and that the appropriate rate depended upon the facts of each case.
The High Court also noted the Tribunal’s finding that the Assessing Officer’s approach to reopening the assessment was incorrect. Holding that the Tribunal had adopted a reasonable and possible view, the Court found that no substantial question of law arose and dismissed the Revenue’s appeal. The decision reinforces the principle that estimation of profit on alleged bogus purchases requires consideration of the surrounding facts and evidence rather than mechanical application of the entire disputed purchase value.
Cases Discussed
1. Commissioner of Income Tax v. Vijay Proteins Ltd. — 58 taxmann.com 44 (Gujarat High Court). The ITAT relied on this judgment while considering the appropriate profit element in alleged bogus purchases. The Bombay High Court recorded that the Tribunal had applied the principle that no uniform gross-profit rate can be adopted in every case.
2. Commissioner of Income Tax v. Simit P. Sheth — (2013) 356 ITR 451 (Gujarat High Court). The Tribunal relied on this precedent in restricting the addition to the profit element embedded in disputed purchases. The distinction between the genuineness of the suppliers and the actual purchase of goods is also discussed in the TaxGuru discussion reproducing the Simit Sheth principle.
3. N. K. Proteins Limited — Supreme Court decision referred to in the Revenue’s proposed substantial questions of law. The Revenue contended that the Tribunal had granted relief despite the dismissal of the special leave petition concerning this precedent. The present judgment did not separately analyse or distinguish its ratio. The different factual outcomes in N.K. Industries and Vijay Proteins are examined in a related TaxGuru judgment discussion; that page is not the dedicated judgment page for N. K. Proteins Limited.
4. Shewtamber Limited — Supreme Court proceedings referred to in the Revenue’s third proposed substantial question of law. The source order does not specify the full case title, citation, appeal number or decision date. No separate analysis of the precedent appears in the High Court’s reasoning.
FULL TEXT OF THE ORDER OF BOMBAY HIGH COURT
1. Mr. Suresh Kumar states that Respondent has been served. Respondent, however, is absent.
2. This is an Appeal under Section 260A of the Income Tax Act, 1961 (“the Act”) filed by the Revenue impugning an order dated 25th September 2017 passed by the Income Tax Appellant Tribunal (“ITAT”).
3. Respondent-assessee had filed return of income for the Assessment Year 2009-2010 declaring ‘nil’ income. Subsequently an order under Section 143(1) of the Act dated 25th March 2011 was passed accepting the income returned by assessee. A further order under Section 143(3) read with Section 147 of the Act was passed on 27th March 2015 assessing income at Rs. 20,00,050/-. Assessing Officer (“AO”) had made an addition of Rs. 1,97,35,311/- on account of bogus purchases and added the same to the total income. Assessee impugned the order before the Commissioner of Income Tax (Appeals) (“CIT(A)”), who allowed the Appeal on the ground that the addition was made only because the name of party appears in the list of Sales Tax Department and the party was not produced before AO. The Revenue challenged the order of CIT(A) passed on 14th December 2016 before the ITAT. The ITAT partly allowed the Appeal of Revenue vide the impugned order holding that AO made addition towards gross profit on alleged bogus purchases.
4. The following substantial questions of law are proposed :
i. Whether on the facts and circumstances of the case and in law the Hon’ble ITAT is justified in estimating the profit element embedded in the amount represented by bogus purchases recorded in the books of account at 12.5% of the total bogus purchases without appreciating that any expenditure not found to be incurred at all, least of all that the same is also not laid out or expended wholly and exclusively for the purposes of business is not admissible in terms of the provisions of Section 37 of the Act ?
ii. Whether prejudice to ground no. 1 above, whether on the facts and in the circumstances of the case and in law, the Hon’ble ITAT is justified in taking only 12.5% of the total amount of bogus purchases as income and thus allowing 87.5% of such total amount of purchases as expenditure in contravention of the provisions of Section 37 of the Act ?
iii. Whether on the facts and in the circumstances of the case and in law, the Hon’ble ITAT is justified in allowing the relief to the assessee ignoring the judgment of Hon’ble Apex Court in the case of N. K. Proteins Limited and Shewtamber limited on this issue wherein, the SLP filed by the assessee have been dismissed by Hon’ble Apex Court ?
iv. Whether on the facts and circumstances of the case and in law, the Hon’ble ITAT was justified in directing the AO to restrict disallowance out of bogus/unproved purchases to 12.5% of such purchases without appreciating the fact that the assessee could not establish the genuineness of the transaction by producing 8 parties from whom purchases were stated to have been made and an independent enquiry conducted by the A.O. also revealed that these parties were non-existent and have been declared as Hawala Dealers by VAT department as they were found to be engaged in providing bogus bills without actual supply of goods and mere submission of copies of invoices, ledger account, bank statement etc. does not prove the genuineness of the transaction ?
v. Whether on the facts and in circumstances of the case and in law, Hon’ble ITAT justified in directing the Assessing Officer to disallow 12.5% of the bogus purchases rather than whole of such bogus purchases without appreciating that allowance of such expenditure implies allowance of purchases made in cash from the ‘grey’ market, thereby rendering the provisions of section 40A(3) of Income Tax Act, 1961 totally redundant, which could not have been the intention of the statute ?
5. All questions relate to the issue of bogus purchases.
6. AO had made addition towards gross profit on alleged bogus purchases based on the information received from the Investigation Wing which stated that assessee was one of the beneficiaries of bogus purchase bills obtained through hawala operators. AO was of the opinion that though assessee furnished certain documents to justify purchases, it failed to produce the parties in person.
7. It is assessee’s case that just because the party did not appear in person before AO, the genuineness of purchases can not be doubted when all details are furnished to justify the purchases. It is also assessee’s case that it had declared the gross profit of 30.12% which was higher than the gross profit declared in similar line of business and AO was not justified in estimating the gross profit @ 60.24%, which was arbitrary.
8. The ITAT in its impugned order had relied upon the judgment of Gujarat High Court in the case of Commissioner of Income Tax v. Vijay Proteins Ltd.1 and also in the case of Commissioner of Income Tax v. Smith P. Sheth2 and held that no uniform yardstick can be applied for estimating gross profit on bogus purchases which is depending upon the facts of different cases. The ITAT held that the Co-ordinate Bench in number of cases has taken a consistent view and directed AO to estimate gross profit of 12.5% on alleged bogus purchases and therefore, in the case at hand also directed AO to estimate gross profit at 12.5% on the bogus purchases.
9. Even on merits, the ITAT found that the approach of AO for re-opening the assessment was not correct.
10. We find that the view taken by the ITAT is a reasonable and possible view and hence, no substantial question of law arises for our consideration.
11. Appeal dismissed.
Notes:
1 58 taxmann.com 44 (Guj.).
2 2013(356) ITR 451 (Guj.).
