O/TAXAP/410/2017 ORDER IN HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 410 of 2017 With TAX APPEAL NO. 412 of 2017 PRINCIPAL COMMISSIONER OF INCOME TAX, GANDHINAGAR Appellant(s) Versus JAGDISH H PATEL Opponent(s) Appearance: MRS MAUNA M BHATT, ADVOCATE for Appellant(s) No. 1 CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE BIREN VAISHNAV Date : 01/08/2017 COMMON ORAL ORDER (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. Tax Appeal No.410 of 2017 is filed by Revenue to challenge judgment of Income Tax Appellate Tribunal dated 14.03.2016 raising following questions for our consideration: [A] Whether Appellate Tribunal has erred in law and on facts in restricting disallowances of bogus purchases to 8% of total purchase ? [B] Whether Appellate Tribunal has erred in law and on facts in deleting addition of Rs.61,05,000/ made on account of undisclosed income admitted during course of survey ? 2. respondent assessee is engaged in Page 1 of 6 HC-NIC Page 1 of 6 Created On Mon Aug 14 09:44:42 IST 2017 O/TAXAP/410/2017 ORDER business of refining and selling edible oils. survey operation was carried out in case of assessee on 20.06.2008. For assessment year 2007 08, return of assessee was taken in scrutiny. Assessing Officer found that assessee had made bogus purchases worth of Rs.5.66 crores (rounded off) from five different agencies. During survey operation, in his statement, proprietor of assessee firm had also disclosed sum of Rs.61.05 lakhs on account of bogus purchases. However, subsequently such statement was retracted through affidavit dated 07.09.2011 and in return filed, assessee has not disclosed such sum. Assessing Officer in order of assessment, added both amounts i.e. bogus purchases of Rs.5.66 crores and declared amount of Rs.61.05 lakhs in statement of assessee. assessee carried matter in appeal. Commissioner (Appeals) held that such purchases were bogus. Detailed discussion was made and reasons were cited for this. Before Commissioner of Income Tax (Appeals), assessee pointed out that as per audited accounts for year under consideration, assessee's opening stock was Page 2 of 6 HC-NIC Page 2 of 6 Created On Mon Aug 14 09:44:42 IST 2017 O/TAXAP/410/2017 ORDER Rs.7.81 crores (rounded off) and sales plus closing stock was Rs.8.27 crores. As per such figures, 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, gross profit margin would be worked out to 100.18%. In other words, gross profit would be higher than total turnover. assessee also pointed out that in business of crushing oil seeds, sometimes purchases of agricultural raw material is made directly from producers and agriculturists from whom purchase bills are not available. In short, assessee argued that entire lot of purchases cannot be treated as bogus. 3. Commissioner (Appeals) while holding that purchases were not backed by documents and bills and were therefore bogus, accepted assessee's contention that entire amount of purchases cannot be added back to income of assessee. Referring to decision of this Court in case of Sanjay Oilcake Industries v. CIT reported in (2009) 316 ITR 274 (Guj), he restricted such additions to 25% of bogus purchase amount. Page 3 of 6 HC-NIC Page 3 of 6 Created On Mon Aug 14 09:44:42 IST 2017 O/TAXAP/410/2017 ORDER 4. With respect to disclosure of Rs.61.05 lakhs made by assessee in his statement recorded during survey, Commissioner of Income Tax (Appeals) held that same was part of addition already sustained by him and no separate addition would be justified. 5. Against order of Commissioner of Income Tax (Appeals), Revenue as well as assessee both filed appeals before Tribunal. Tribunal by common impugned judgment, partially allowed appeal of assessee and rejected that of Revenue. This judgment has therefore given rise to present two tax appeals at hands of department. In impugned judgment, Tribunal while sustaining findings of Commissioner of Income Tax (Appeals) recording bogus purchases, reduced addition to 8% thereof from standard of 25% adopted by Commissioner of Income Tax (Appeals). Tribunal confirmed view of Commissioner of Income Tax (Appeals) of not separately taxing sum of Rs.61.05 lakhs as admitted by assessee in statement recording during survey. 6. Having heard learned counsel for Revenue and Page 4 of 6 HC-NIC Page 4 of 6 Created On Mon Aug 14 09:44:42 IST 2017 O/TAXAP/410/2017 ORDER having perused documents on record, we see no reason to interfere. Commissioner of Income Tax (Appeals) as well as Tribunal both have accepted assessee's contention that adding entire amount of bogus purchases would give completely distorted figure and gross profit would be higher than total turnover. Such bogus purchases were for off setting purchases from producers and agriculturists directly who would not have billing facility. Only question seriously paused before us was, was Tribunal justified in adopting gross profit rate of 8% as against 25% adopted by Commissioner of Income Tax (Appeals)? 7. When additions are made on basis of gross profit rates, limited amount of estimation and gross work is always inbuilt. assessee had pointed out that without additions, gross profit for year under consideration was approximately 7%. Tribunal therefore, did not commit any error in accepting gross profit rate of 8% on purchases which was otherwise found not genuine. 8. No question of law arises. disclosure of Rs.61.05 lakhs made by assessee in his statement Page 5 of 6 HC-NIC Page 5 of 6 Created On Mon Aug 14 09:44:42 IST 2017 O/TAXAP/410/2017 ORDER pertained to bogus purchases and was therefore rightly assessed by Commissioner of Income Tax (Appeals) and Tribunal. No question of law arises. Tax Appeals are dismissed. (AKIL KURESHI, J.) (BIREN VAISHNAV, J.) ANKIT Page 6 of 6 HC-NIC Page 6 of 6 Created On Mon Aug 14 09:44:42 IST 2017 Principal Commissioner of Income-tax, Gandhinagar v. Jagdish H Patel