PCIT Vs Rishabhdev Tachnocable Ltd. (Bombay High Court)
In this case Tribunal noted that it was an admitted fact that the Assessing Officer did not object to the sales made by the assessee. Therefore, it was evident that they were corresponding purchases. Having noted the above, Tribunal examined the books of accounts of the assessee where from it was found that the assessee had made payments on account of the purchases through account payee cheques and the purchases were entered in its books of account. Thus, assessee was able to prove that the purchases were made only in the alternative way. If that be so, then Revenue was only required to estimate the profit at a particular rate. Referring to the figure of 2% arrived by the CIT(A), Tribunal observed that assessee’s gross profit varied from 5% to 8.77%. Since the purchases were made from the grey market, the corresponding profit element would be little higher. Therefore, Tribunal directed the Assessing Officer to make further addition of 3% on the bogus purchases and to estimate the income on such basis.
On thorough consideration of the matter, Hon’ble High Court do not find any error or infirmity in the view taken by the Tribunal. The lower appellate authorities had enhanced the quantum of purchases much beyond that of the Assessing Officer i.e., from Rs.24,18,06,385.00 to Rs.65,65,30,470.00 but having found that the purchases corresponded to sales which were reflected in the returns of the assessee in sales tax proceedings and in addition, were also recorded in the books of accounts with payments made through account payee cheques, the purchases were accepted by the two appellate authorities and following judicial dictum decided to add the profit percentage on such purchases to the income of the assessee. While the CIT (A) had assessed profit at 2% which was added to the income of the assessee, Tribunal made further addition of 3% profit, thereby protecting the interest of the Revenue. We have also considered the two decisions relied upon by learned standing counsel and we find that facts of the present case are clearly distinguishable from the facts of those two cases to warrant application of the legal principles enunciated in the two cited decisions.
In Bholanath Polyfab Limited (supra), Gujarat High Court was also confronted with a similar issue. In that case Tribunal was of the opinion that the purchases might have been made from bogus parties but the purchases themselves were not bogus. Considering the fact situation, Tribunal was of the opinion that not the entire amount of purchases but the profit margin embedded in such amount would be subjected to tax. Gujarat High Court upheld the finding of the Tribunal. It was held that whether the purchases were bogus or whether the parties from whom such purchases were allegedly made were bogus was essentially a question of fact. When the Tribunal had concluded that the assessee did make the purchase, as a natural corollary not the entire amount covered by such purchase but the profit element embedded therein would be subject to tax.
FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT
1. Heard Mr.Akhileshwar Sharma, learned standing counsel, Revenue for the appellant.
2. This appeal has been preferred by the Revenue under Section 260A of the Income Tax Act, 1961 (briefly “the Act” hereinafter) against the order dated 3rd November, 2016 passed by the Income Tax Appellate Tribunal, “D” Bench, Mumbai (briefly “the Tribunal” hereinafter) in Income Tax Appeal No.7773/Mum/2014 for the assessment year 2010-11.
3. Revenue has preferred this appeal projecting the following question as substantial question of law:-
“Whether on the facts and in the circumstances of the case and in law, Tribunal is justified in restricting the disallowance to 5% of the gross purchases when it is established that none of the supplier parties are in existence and the assessee has just taken accommodation entries without getting actual supplies from the said parties?”
4. To appreciate the question proposed, it may be apposite to advert to the orders passed by the authorities below.
5. Respondent is an assessee under the Act. It is a company which is engaged in the business of manufacturing and dealership of all kinds of industrial power controlling instrument cables and related items. For the assessment year 2010-11 assessee filed e-return of income declaring income of Rs.1,35,31,757.00. In addition, assessee also declared income of Rs.3,64,15,007.00 under Section 115JB of the Act. The case was selected for scrutiny and in scrutiny proceedings Assessing Officer noticed that Sales Tax Department, Government of Maharashtra had provided a list of persons who had indulged in the unscrupulous act of providing bogus hawala entries and purchase bills. Names of beneficiaries were also provided. Assessing Officer noticed that assessee was one of the beneficiaries of such bogus hawala bills. Assessing Officer referred to purchases allegedly made by the assessee through four hawala entries for the assessment year under consideration, the details of which are as under :-
