Case Law Details

Case Name : Pr. CIT Vs Jagdish H Patel (Gujarat High Court)
Appeal Number : Tax Appeal Nos. 410 & 412 of 2017
Date of Judgement/Order : 01/08/2017
Related Assessment Year : 2007-08
Courts : All High Courts (3747) Gujarat High Court (316)

The Commissioner (Appeals) as well as Tribunal both have accepted the assessee’s contention that adding the entire amount of bogus purchases would give a completely distorted figure and the gross profit would be higher than the total turnover. Such bogus purchases were for off-setting the purchases from producers and agriculturists directly who would not have the billing facility. Only question seriously paused before us was, was the Tribunal justified in adopting the gross profit rate of 8% as against 25% adopted by the Commissioner (Appeals)?

When additions are made on the basis of gross profit rates, a limited amount of estimation and gross work is always inbuilt. The assessee had pointed out that without the additions, the gross profit for the year under consideration was approximately 7%. The Tribunal therefore, did not commit any error in accepting the gross profit rate of 8% on the purchases which was otherwise found not genuine.

FULL TEXT OF THE HIGH COURT ORDER / JUDGMENT

Tax Appeal No. 410 of 2017 is filed by the Revenue to challenge the judgment of the Income Tax Appellate Tribunal dated 14-3-2016 raising following questions for our consideration :–

“(A) Whether the Appellate Tribunal has erred in law and on facts in restricting the dis allowances of bogus purchases to 8% of the total purchase ?

(B) Whether the Appellate Tribunal has erred in law and on facts in deleting the addition of Rs. 61,05,000 made on account of undisclosed income admitted during the course of survey ?”

2. The respondent assessee is engaged in the business of refining and selling edible oils. A survey operation was carried out in case of the assessee on 20-6-2008. For the assessment year 2007-08, the return of the assessee was taken in scrutiny. assessing officer found that the assessee had made bogus purchases worth of Rs. 5.66 crores (rounded off) from five different agencies. During the survey operation, in his statement, the proprietor of the assessee firm had also disclosed a sum of Rs. 61.05 lakhs on account of bogus purchases. However, subsequently such statement was retracted through an affidavit dated 7-9-2011 and in the return filed, the assessee has not disclosed such sum. The assessing officer in the order of assessment, added both the amounts i.e., the bogus purchases of Rs. 5.66 crores and declared amount of Rs. 61.05 lakhs in the statement of the assessee. The assessee carried the matter in appeal. Commissioner (Appeals) held that such purchases were bogus. Detailed discussion was made and reasons were cited for this. Before the Commissioner (Appeals), the assessee pointed out that as per the audited accounts for the year under consideration, assessee’s opening stock was Rs. 7.81 crores (rounded off) and sales plus closing stock was Rs. 8.27 crores. As per such figures, the assessee’s gross profit margin would be worked out at 7.51% of its turnover. If entire purchases of Rs. 5.66 crores are to be treated as bogus, the gross profit margin would be worked out to 100.18%. In other words, the gross profit would be higher than the total turnover. The assessee also pointed out that in the business of crushing the oil seeds, sometimes purchases of the agricultural raw material is made directly from producers and agriculturists from whom purchase bills are not available. In short, the assessee argued that the entire lot of purchases cannot be treated as bogus.

3. The Commissioner (Appeals) while holding that the purchases were not backed by documents and bills and were therefore bogus, accepted the assessee’s contention that the entire amount of purchases cannot be added back to the income of the assessee. Referring to the decision of this Court in case of Sanjay Oilcake Industries v. CIT (2009) 316 ITR 274 (Guj.), he restricted such additions to 25% of the bogus purchase amount.

4. With respect to the disclosure of Rs. 61.05 lakhs made by the assessee in his statement recorded during the survey, the Commissioner (Appeals) held that the same was part of the addition already sustained by him and no separate addition would be justified.

5. Against the order of the Commissioner (Appeals), the Revenue as well as assessee both filed appeals before the Tribunal. The Tribunal by the common impugned judgment, partially allowed the appeal of the assessee and rejected that of the Revenue. This judgment has therefore given rise to present two tax appeals at the hands of the department. In the impugned judgment, the Tribunal while sustaining the findings of the Commissioner (Appeals) recording bogus purchases, reduced the addition to 8% thereof from the standard of 25% adopted by the Commissioner (Appeals). The Tribunal confirmed the view of the Commissioner (Appeals) of not separately taxing the sum of Rs. 61.05 lakhs as admitted by the assessee in the statement recording during survey.

6. Having heard learned counsel for the Revenue and having perused the documents on record, we see no reason to interfere. The Commissioner (Appeals) as well as Tribunal both have accepted the assessee’s contention that adding the entire amount of bogus purchases would give a completely distorted figure and the gross profit would be higher than the total turnover. Such bogus purchases were for off-setting the purchases from producers and agriculturists directly who would not have the billing facility. Only question seriously paused before us was, was the Tribunal justified in adopting the gross profit rate of 8% as against 25% adopted by the Commissioner (Appeals)?

7. When additions are made on the basis of gross profit rates, a limited amount of estimation and gross work is always inbuilt. The assessee had pointed out that without the additions, the gross profit for the year under consideration was approximately 7%. The Tribunal therefore, did not commit any error in accepting the gross profit rate of 8% on the purchases which was otherwise found not genuine.

8. No question of law arises. The disclosure of Rs. 61.05 lakhs made by the assessee in his statement pertained to the bogus purchases and was therefore rightly assessed by the Commissioner (Appeals) and the Tribunal. No question of law arises. Tax Appeals are dismissed.

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