Case Law Details
ITO Vs Rajesh Amulakhrai Sanghvi (ITAT Mumbai)
In a recent decision, the Income Tax Appellate Tribunal (ITAT) Mumbai addressed an appeal filed by the Revenue against an order passed by NFAC, Delhi. The case, ITO Vs Rajesh Amulakhrai Sanghvi, involved the assessment for the Assessment Year 2009-10.
The dispute arose from the Revenue’s challenge against the decision of the ld. CIT(A) to restrict the disallowance to 12.5% of the purchases instead of the entire amount. The assessee had declared a total income of Rs.4,72,510/- and shown purchases amounting to Rs.15,77,629/- from two parties.
The ld. AO added the entire purchase amount under section 69C, citing discrepancies in the notices served and business operations of the involved parties. However, the ld. CIT (A) restricted the addition, estimating a GP rate of 12.5% on the bogus purchases.
Upon review, the ITAT Mumbai found the AO’s action unjustified, considering that the purchases were recorded in the books of accounts with corresponding material transactions. While acknowledging the possibility of purchases from hawala dealers, the tribunal deemed the 12.5% GP rate reasonable, following the precedent set by the Bombay High Court in similar cases.
As a result, the Revenue’s appeal was dismissed, upholding the decision of the ld. CIT (A) and confirming the 12.5% profit addition as determined by NFAC.
The ITAT Mumbai’s decision in the ITO Vs Rajesh Amulakhrai Sanghvi case reinforces the importance of assessing profit additions judiciously. By affirming NFAC’s determination and applying a reasonable GP rate, the tribunal balanced the interests of both parties while ensuring fair taxation practices. This ruling sets a precedent for similar cases involving profit estimations and underscores the significance of adhering to established legal principles in tax assessments.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The aforesaid appeal has been filed by the Revenue against order dated 15/06/2023 passed by NFAC, Delhi for the quantum of assessment passed u/s. 143(3) r.w.s. 147 for the A.Y.2009-10.
2. In the grounds of appeal, the Revenue has challenged the action of the ld. CIT(A) in restricting the disallowance to 12.5% of the purchases instead of addition made by the ld. AO for the entire purchases of Rs.15,77,629/-.
3. The facts in brief are that assessee had filed his return of income on 29/09/2009 declaring total income of Rs.4,72,510/-and the said return was processed u/s.143(1). Subsequently, based on information from DGIT (Inv.) that the Sales Tax Department, Mumbai has unearthed a racket involving various auditors involved in issuing purchases. Based on this information, the assessee’s case has been reopened u/.147. The assessee had shown purchases for a sums aggregating to Rs. 15,77,629/- from two parties. The ld. AO has made the addition on the ground that notice u/s. 133(6) sent to one party, M/s. J.B. Interlink has not been served and for other party M/s. Jindal Steel Corporation, it was found that no such business was carried out as per the report of the Inspector. Accordingly, he added the entire amount of Rs.15,77,629/- u/s.69C.
4. The ld. CIT (A) has restricted the addition while estimating the GP rate of 12.5% on the total bogus purchases from two parties.
5. After hearing both the parties and on perusal of the impugned order, we find that AO has made addition on account of entire purchases which is wholly unjustified, because once the source of purchases have been debited in the books of accounts and corresponding quantity of material purchased had been recorded in the books and corresponding quantity of sales has also been accepted then, it cannot be held that purchases are outside books.
6. At the most, it could be the case of purchases made from hawala dealers for inflating the cost and suppressing GP rate. If parties have not confirmed the transaction then in such a case the principle laid down by the Hon’ble Bombay High Court in the case of PCIT vs. Vishwashakti construction 15 & 20 ITXA 1016 & 1026 of 2018, wherein GP rate of 12.5% has been held to be reasonable in such cases, is applied in the present case also, then CIT (A) is justified. Accordingly, the grounds raised by Revenue is dismissed.
7. In the result, appeal of the Revenue is dismissed.
Order pronounced on 20th March, 2024.
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