Case Law Details

Case Name : Hemant M Mehta HUF Vs ACIT (ITAT Mumbai)
Appeal Number : ITA No.6483/Mum/2018
Date of Judgement/Order : 06/12/2019
Related Assessment Year : 2008-09
Courts : All ITAT (7623) ITAT Mumbai (2174)

Hemant M Mehta HUF Vs A.C.I.T. (ITAT Mumbai)

In case of bogus purchases where sales are accepted, the addition is required to be made only to the extent of difference between the GP declared by the assessee on normal purchases vis a vis bogus purchases. Respectfully following the order of the Hon’ble Jurisdictional High Court and the Coordinate Bench of the ITAT, Mumbai, I direct the A.O. to restrict the addition to the extent of lower GP declared by the assessee in respect of bogus purchases as compared to G.P. on normal purchases. The assessee is also directed to give full details to the A.O. with regard to GP earned on normal purchases and also GP earned on alleged bogus purchases.

FULL TEXT OF THE HIGH COURT ORDER / JUDGMENT

This appeal by the assessee is directed against the order dated 09/07/2018 of ld. CIT(A)-45, Mumbai for the A.Y. 2008-09 in the matter of order passed u/s 143(3) r.w.s. 147 of the Income Tax Act, 1961 (in short, the Act).

2. In this appeal, the assessee is basically aggrieved by the action of ld. CIT(A) for upholding the addition to the extent of 12.5% of bogus purchases.

3. Rival contentions have been heard and record perused. The facts in brief are that the assessee is engaged in the business of trading of cut and polished diamonds. The A.O. got information regarding the assessee being involved in bogus purchases. After making enquiry by issuing notice U/s 133(6) taxguru.in of the Act, the A.O. added entire amount of alleged bogus purchases in assessee’s income amounting to Rs. 14,37,867/-.

4. By the impugned order, the ld. CIT(A) observed that there is a reason for such purchase of diamonds without bills in the market and getting bogus purchase bills particularly without any specification of quality of diamonds in the bills. The ld. CIT(A) also observed that in the purchase bills filed by the assessee, there is no mention of quality of diamonds, accordingly, the ld. CIT(A) has restricted the addition to the extent of 12.5% of such purchases.

5. I have considered the rival contentions and carefully gone through the orders of the authorities below. With respect to issue regarding addition in respect of bogus purchases, the Hon’ble Jurisdictional High Court in the case of Pr.CIT Vs M/s Mohommad Haji Adam & Co. in ITA No. 1004 of 2016 vide its order dated 11/02/2019 have held as under:

“8. In the present case, as noted above, the assessee was a trader of fabrics. The A.O. found three entities who were indulging in bogus billing activities. A.O. found that the purchases made by the assessee from these entities were bogus. This being a finding of fact, we have proceeded on such basis. Despite this, the question arises whether the Revenue is correct in contending that the entire purchase amount should be added by way of assesses additional income or the assessee is correct in contending that such logic cannot be applied. The finding of the CIT(A) and the Tribunal would suggest that the department had not disputed the assessee’s sales. There was no discrepancy between the purchases shown by the assessee and the sales declared. That being the position, the Tribunal was correct in coming to the conclusion that the purchases cannot be rejected without disturbing the sales in case of a trader. The Tribunal, therefore, correctly restricted the additions limited to the extent of bringing the G.P. rate on purchases at the same rate of other genuine purchases. The decision of the Gujarat High Court in the case of N.K. Industries Ltd.. (supra) cannot be applied without reference to the facts. In fact in paragraph 8 of the same Judgment the Court held and observed as under-

So far as the question regarding addition of Rs.3, 70,78,125/- as gross profit on sales of Rs.3 7.08 Crores made by the Assessing Officer despite the fact that the said sales had admittedly been recorded in the regular books durin Financial Year 1997-­98 is concerned, we are of the view that the assessee cannot be punished since sale price is accepted by the revenue. Therefore, even if 6 % gross profit is taken into account, the corresponding cost price is required to be deducted and tax cannot be levied on the same price. We have to reduce the selling price accordingly as a result of which profit conies to 5.66%. Therefore, considering 5.66 % of Rs.3,70,78,125/which comes to Rs.2098.62 1.88 we think it fit to direct the revenue to add Rs.20,98.621.88 as gross profit and make necessary deductions accordingly. Accordingly, the said question is answered partially in favour of the assessee and partially in favour of the revenue.”

6. The Coordinate Bench of the ITAT, Mumbai in the case of Shri Rameshkumar Daulatraj Vs ITO in ITA No. 4192/Mum/2018 order dated 07/05/2019 taxguru.in has held as under:

“9. When these facts were confronted to the learned Sr. DR, he requested for application of reasonable profit rate and according to him the profit rate applied by the AO and confirmed by CIT(A) is quite reasonable in view of the decision of Hon’ble Gujarat High court in the case of Smith P.Seth (supra). We have considered the rival contentions ITA No. 4192/Mum/2018 and are of the view that Hon’ble Bombay High Court in the case of Mohammad Haji Adam & Co. and Ors. (supra) has considered this issue and respectfully following the same, we direct the AO to restrict the profit rate only to the extent of differential percentage as declared on the bogus purchases and as declared on the regular purchases, Hence, we direct the AO accordingly.”

7. It is clear from the above decisions that in case of bogus purchases where sales are accepted, the addition is required to be made only to the extent of difference between the GP declared by the assessee on normal purchases vis a vis bogus purchases. Respectfully following the order of the Hon’ble Jurisdictional High Court and the Coordinate Bench of the ITAT, Mumbai, I direct the A.O. to restrict the addition to the extent of lower GP declared by the assessee in respect of bogus purchases as compared to G.P. on normal purchases. The assessee is also directed to give full details to the A.O. with regard to GP earned on normal purchases and also GP earned on alleged bogus purchases. I direct accordingly.

8. In the result, appeal of the assessee is allowed in part.

Order pronounced in the open court on 06th December, 2019.

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