Case Law Details
PCIT 1 Vs Jigisha Satishkumar Mehta (Gujarat High Court)
Revenue Appeal Dismissed as AO Failed to Independently Verify Alleged Bogus Purchases; Entire Bogus Purchase Addition Rejected Because AO Relied Only on Sales Tax Information; Gujarat High Court Distinguishes N.K. Industries, Upholds Estimated Bogus Purchase Addition; No Substantial Question of Law in 5% Bogus Purchase Addition; 5% Addition Sustained as Documentary Evidence Supported Purchases Despite Bogus Billing Allegation; Gujarat High Court Refuses Full Addition Where Bogus Purchases Were Not Independently Established; Concurrent Findings on Bogus Purchase Estimation Upheld Due to Insufficient Evidence.
The Gujarat High Court dismissed the Revenue’s appeal under Section 260A of the Income-tax Act, 1961, arising from the order of the Income Tax Appellate Tribunal relating to Assessment Year 2010-11. The Revenue challenged the Tribunal’s decision restricting the addition on account of alleged bogus purchases to 5% of such purchases, contending that the Tribunal had overlooked the High Court’s decision in N.K. Industries Ltd., where the entire bogus purchases had been added. The High Court examined whether any substantial question of law arose from the Tribunal’s order.
The assessee, an individual carrying on business as a dealer in chemicals through a proprietary concern, filed the return of income declaring a total income of ₹10,80,530. The assessment was reopened under Section 147 based on information received from the Maharashtra Sales Tax Authority, alleging that the assessee had made bogus purchases amounting to ₹15,38,784 from a hawala dealer, Nina Enterprise. The Assessing Officer issued notices under Sections 148 and 142(1). As the assessee neither attended the assessment proceedings nor filed submissions despite opportunities, the Assessing Officer completed the assessment under Section 144 read with Section 147 and made an addition of ₹15,38,784 under Section 68, relying solely on the information received from the Maharashtra Sales Tax Authority.
Before the Commissioner of Income Tax (Appeals), the assessee contended that the reassessment had been initiated merely on the basis of borrowed satisfaction from the information received from the Maharashtra Sales Tax Authority and that no independent material was available with the Assessing Officer to justify the addition. The assessee submitted that its accounts had been audited under Section 44AB, quantitative details were maintained, the alleged supplier possessed valid sales tax registration, and the goods purchased had been sold, which was not disputed. The assessee also pointed out that the gross profit ratios for the relevant financial years did not show any material variation that could indicate bogus purchases.
After considering the submissions and relying on judicial precedents, the CIT(A) held that although the supplier’s involvement in bogus billing could not be ruled out, the entire purchases could not be treated as bogus on the available material. Accordingly, the CIT(A) restricted the addition to 5% of the alleged bogus purchases, i.e., 5% of ₹15,38,784.
The Revenue challenged this relief before the Income Tax Appellate Tribunal. The Tribunal observed that the addition had been made solely on the basis of information received from the Maharashtra Sales Tax Authorities and that no independent enquiry or corroborative material had been brought on record by the Revenue to establish that the purchases were bogus or that the purchase amount had been returned to the assessee. The Tribunal further noted that the assessee had produced documentary evidence before the appellate authority supporting the genuineness of the purchases. While observing that the possibility of the supplier being engaged in bogus billing could not be completely ruled out, the Tribunal found no infirmity in the approach adopted by the appellate authority in sustaining only an estimated addition and accordingly upheld the appellate order.
Before the High Court, the Revenue relied on the decision in N.K. Industries Ltd., arguing that where purchases are found to be bogus, the addition should not be restricted to a percentage and that the entire amount ought to be added.
The High Court observed that the Assessing Officer had made the addition solely on the basis of information received from the Maharashtra Sales Tax Department without conducting any further enquiry to verify whether the purchases made by the assessee were genuine or whether the assessee had actually benefited from bogus billing. It noted that both the CIT(A) and the Tribunal had recorded concurrent findings of fact after considering the documentary evidence produced by the assessee and had concluded that while the supplier’s involvement in bogus billing could not be ignored, the entire purchases could not be treated as bogus in the absence of dependable material.
The High Court distinguished the decision in N.K. Industries Ltd. by observing that in that case material gathered during a search exposed fictitious entries and bogus invoices, leading to the conclusion that the purchases themselves were fictitious. In contrast, the present case lacked any such dependable material, and therefore the facts were entirely different.
Holding that the concurrent findings of fact recorded by the CIT(A) and the Tribunal did not disclose any error giving rise to a question of law, much less a substantial question of law, the High Court found no reason to interfere. Accordingly, it held that the Revenue’s appeal was without merit and dismissed it.
FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT
The present appeal under section 260A of the Income Tax Act, 1961 is directed against the judgment and order dated 17.11.2021 of the Income Tax Appellate Tribunal, Ahmedabad delivered in common ITA No. 1798 of 2019 to ITA No. 1800 of 2019, in so far as the said common judgment relates to ITA No. 1800 of 2019 for the assessment year 2010-11.
2. The revenue has proposed that substantial question of law arises in respect of the issue where the Appellate Tribunal has restricted the addition made on account of bogus purchases to the extend of 5% of such purchases and in that the Tribunal has overlooked the decision of the High Court in the case of M/s N. K Industries Ltd. V/s Deputy Commissioner of Income Tax reported in [2017] 292 CTR 354 Gujarat.
3. The assessee has filed return of income for the assessment year 2010-2011 on 30.9.2011 declaring total income of Rs.10,80,530/-. The assessee is an individual running a proprietory concern being a dealer of Chemicals. The case of the assessee was reopened under section 147 of the Act, 1961 (for short “the Act”) on the basis of the information received from Maharashtra Sales Tax Authority relating to bogus purchases by the assessee from Hawala biller namely, Nina Enterprise.
3.1 The Assessing Officer therefore, on the basis of reason to believe that income to the tune of Rs.15,38,784/- has escaped assessment as the assessee made bogus purchases from the aforesaid dealer, issued notice under section 148 of the Act on 01.04.2014 and notices under section 142(1) of the Act were issued on 12.06.2014 and 24.06.2014. The assessee did not attend the assessment proceedings nor made any submissions inspite of sufficient opportunity being given by the Assessing Officer. The Assessing Officer therefore, made addition of Rs.15,38,784/- under section 68 of the Act for the bogus purchases made by the assessee on the basis of the information received from Maharashtra Sales Tax Authority and passed the assessment order under section 144 read with section 147 of the Act.
3.2 The assessee being aggrieved preferred appeal before CIT(Appeals) and submitted the explanation that the assessment was reopened on the basis of borrowed satisfaction from the information of Maharashtra Sales Tax Authority and except general information nothing was before the Assessing Officer for making the addition. The assessee also submitted that the accounts of the assessee were audited under section 44AB of the Act, quantitative details were maintained and the alleged bogus biller have valid sales tax numbers and goods purchased from them were sold by the assessee which is not in dispute. It was also submitted before CIT(Appeals) that for the financial years 2007-2008,2008-2009 and 2009-2010 Gross Profit Ratio was 3.08%, 4.71% and 3.87% respectively. It was also pointed out that previous year Gross Profit Ratio and current year Gross Profit Ratio did not show any material variation so as to doubt the alleged bogus purchases.
3.3 CIT(Appeals) after considering the submissions made by the assessee and relying upon various judgments restricted the addition by estimating 5% of the alleged bogus purchases i.e. 5% of Rs. 15,38,784/-.
3.4 Revenue being aggrieved by the decision of the CIT(Appeals) preferred appeal before the Income Tax Appellate Tribunal (For short “the Tribunal”).
3.5 The Tribunal after considering the order of CIT(Appeals) and the documentary evidence produced by the assessee before the appellate authority held as under :
“8. After hearing, the ld.DR, we have gone through the record carefully and also orders of the Revenue authorities. We find that the impugned addition on account of alleged bogus purchased was made by the 1d.AO on account of information received from Maharashtra Sales Tax Authorities. There is no other material with the Revenue to corroborate the information so received from the Sales Tax Department in order to make the impugned addition nor established that the so-called bogus purchase or the sum equivalent thereof was returned to the assessee in any manner. It appears from the record that no internal inquiry has been carried out by the Revenue to vouch the fact of bogus purchases. The ld.CIT(A) has recorded that the appellant has submitted documentary evidence to establish the genuineness of purchase made from the parties, but the factum of the said billings parties being engaged in the bogus bills was not ruled out. Accordingly, after examining all the facts and circumstances and also relying upon decision on the ITAT, Mumbai Benches cited (supra) on similar issue, he restricted the impugned addition and estimated the same at 10% of alleged bogus purchases i.e. Rs.14,91,767/-. We do not find any infirmity in the approach of the ld.CIT(A) in restricting the impugned additions, and therefore, his order does not warrant our intervention in this score. We confirm the order of the 1ld.CIT(A) and dismiss this ground of appeal of the Revenue.”
4. Learned Senior Advocate Mr. Manish Bhatt for the Revenue submitted that the decision of CIT(Appeals) as well as the Tribunal are erroneous and perverse in view of the ratio laid down in case of M/s N. K Industries Ltd.(supra), wherein it is held by this Court that addition on basis of bogus purchases could not be restricted to certain percentage when the entire transaction was found as bogus.
5. On going through the orders of the Assessing Officer, CIT(Appeals) and the Tribunal, it appears that the Assessing Officer has made addition only on the basis of information received from the the Sales Tax Department of State of Maharashtra without any further inquiry being carried out whether the purchases made by the assessee were genuine or not so as to come to the conclusion that the assessee was also one of the beneficiaries of bogus billing of the said dealer and therefore, addition under section 68 of the Act made by the Assessing Officer on that basis was rightly not held to be justified by the CIT(Appeals) as well as by the Tribunal by arriving at concurrent findings of the fact on the basis of the documentary evidence made available by the assessee to establish genuineness of the purchases made from the said dealer.
5.1. CIT(Appeals) and the Tribunal however has not ruled out the factum of said dealer being engaged in bogus billing and therefore, for the year under consideration has made addition by estimating 5% of the alleged bogus purchases i.e. 5% of Rs.15,38,784/- in the total facts and circumstances which emerged before it by way of material on record.
5.2 In the decision in the case of N. K. Industries Limited (Supra) sought to be relied upon would hardly come to the rescue of the appellant department since therein the material was available during the course of search which exposed the falsity of entries made in the regular books of account. The unexplained expenditure that is bogus purchases were on the basis of the fictitious invoices debited in the trading account. The Tribunal made 25% of the total purchase on the ground that the purchase was from bogus suppliers. It was held by the High Court that the Tribunal should have made addition of total purchase and not 25%.
5.3 However, the facts of the present case are entirely different in absence of any dependable material for the Assessing Officer to come to the conclusion about the bogus purchases made by the assessee to make addition of the entire purchases under section 68 of the Act as income for the year under consideration. CIT(Appeals) and the Tribunal therefore, considering the possibility of bogus purchases on the basis of documentary evidence produced before the appellate authority have arrived at the concurrent findings of fact by holding that factum of said dealer already being engaged in bogus billing was not ruled out and therefore, sustained the addition by estimating 5% of alleged bogus proceedings i.e. 5% of Rs.15,38,784/- by the assessee for the year under consideration.
6. In view of above concurrent findings of the fact arrived at by the CIT(Appeals) and the Tribunal, we do not find any error with the impugned order giving rise to any question of law much-less substantial question of law for consideration.
7. The appeal is meritless and liable to be dismissed and is accordingly dismissed.
Author Bio
