Case Law Details
Anil K. Shah (Huf) Vs ITO (ITAT Mumbai)
In the case of Ranbaxy Laboratory Ltd. vs. CIT (supra), the Hon’ble High Court has explained the effect of Explanation 3 to section 147 inserted by Finance Act, 2009 which empowers the AO to assess the any income which comes to his notice subsequently even though no reasons have been recorded in respect thereof holding that Explanation 3 does not empower the AO to make roving enquiries in respect of other matters. Since, the Ld. CIT (A) has held in principle that the AO has made fishing enquiry in the course of reassessment proceedings and allowed the legal ground raised by the assessee for statistical purposes and since the department has not challenged the findings of the Ld. CIT (A), in our considered view, the addition made by the AO except the addition made on account of bogus purchases which was the subject matter of reassessment, are not sustainable. Once, it is established that the AO has made fishing and roving enquiry, the additions made as a result of such enquiry cannot be confirmed. Hence, we allow the legal ground raised by the assessee and delete all the additions sustainrd by the Ld. CIT (A) except the addition made on account of bogus purchases.
Bogus Purchase- Only profit element embedded in such purchases can be added to income of assessee
So far as the addition on account of bogus purchases is concerned, we notice that the assessee did not produce delivery challan, transport bill, stock register, quantitative reconciliation of purchases and sales. As per the audit report, the assessee had not maintained the stock register. In our considered view, the assessee has failed to establish the genuineness of the purchases made from two bogus traders amounting to Rs. 17,19,214/-, therefore, the authorities below have rightly held the said transaction as bogus. We further notice that the authorities below have not rejected the sales of the assessee. As contended by the Ld. counsel, there can be no sales without any purchases. The facts and the circumstances of the case suggest that the assessee had purchased the material from grey market and evaded the applicable taxes. Therefore, addition to the extent of profit earned from such transaction and the applicable taxes evaded by the assessee is required to be made. The Hon’ble Gujarat High Court in CIT vs. Simit P. Seth 356 ITR 451(Guj) has upheld the decision of the Tribunal and sustained the addition 12.5% of the total bogus purchases shown by the assessee holding that only profit element embedded in such purchases can be added to income of the assessee.
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