46. itxa 1543-17.doc Pradnya Bhogale IN HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO. 1543 OF 2017 Principal Commissioner of Income Tax-25 ..Appellant vs. Pinaki D. Panani ..Respondent ........ Mr. Nirmal C. Mohanty for Appellant. Mr. Rahul K. Hakani for Respondent. ........ CORAM : NITIN JAMDAR & M.S.KARNIK, JJ. DATE : 8 JANUARY 2020 P.C.:- Appellant challenges order passed by Income Tax Appellate Tribunal dated 19.12.2016 in Income Tax Appeal No.119/Mum/2015 and C.O. No.117/Mum/2015 for Assessment Year 2009-10. 2. Appeal pertains to Assessment Year 2009-10. 3. Appellant-Revenue has raised following question of law as substantial question of law for consideration in this Appeal :- A. Whether, on facts and in circumstances of case and in law, Hon ble Tribunal is justified in allowing unsubstantiated purchases of Rs.1,69,48,368/- 1/6 ::: Uploaded on - 16/01/2020 ::: Downloaded on - 20/01/2020 10:57:18 ::: 46. itxa 1543-17.doc and upholding order of CIT(A) in applying net profit of 5.76% on total Contract amount ? 4. Respondent-Assessee carried on business as Civil Contractor. Respondent-Assessee filed return of income for Assessment Year 2009-10 on 29 September, 2009 declaring total income of Rs.48,65,060/-. assessment was completed under Section 143(3) of Income Tax Act on 7 December, 2011. Thereafter assessment was reopened under Section 147 of Income Tax Act. Information was received from Sales Tax Department that Respondent-Assessee had taken bogus purchase entries of Rs.1,69,48,368/- from different parties. reassessment order was accordingly passed on 17 February, 2014 determining total income of Rs.2,18,13,430/-. 5. Appeal was filed by Respondent-Assessee to Commissioner of Income Tax (Appeals) who partly allowed Appeal by order dated 21 October, 2014 and sustained addition of Rs.50,44,947/- and deleted Rs.1,19,03,421/- out of addition of Rs.1,69,48,368/-. Commissioner of Income Tax (Appeals) also observed that Respondent-Assessee had approached Settlement Commission for subsequent years and case was settled accepting additional income offered by Respondent-Assessee based on net profit @ 5.76% on total contracted amount. Aggrieved by this order Appellant- 2/6 ::: Uploaded on - 16/01/2020 ::: Downloaded on - 20/01/2020 10:57:18 ::: 46. itxa 1543-17.doc Revenue filed Appeal to Income Tax Appellate Tribunal. By impugned order same has been dismissed. 6. In support of question of law Mr. Mohanty, learned counsel for Appellant submitted that information was received from Sales Tax Department that certain parties from whom Respondent-Assessee had purchased material were Hawala dealers and when Respondent-Assessee was confronted with same he could not produce confirmation from said parties. He submitted that merely because payment was made by crossed cheque was not enough to establish that purchases were genuine. Mr. Mohanty also submitted that out of various purchases made by Reapondent-Assesee Appellant- Revenue had questioned only purchases to tune of Rs.1,69,48,368/- and that business could have been carried out by other purchases which has not been questioned. 7. Mr. Hakani, learned counsel for Respondent placed reliance on decisions of this Court in case of Principal Commissioner of Income Tax-17 vs. M/s. Mohommad Haji Adam & Co. in Income Tax Appeal No.1004/16 and Principal Commissioner of Income Tax, Central-4 vs. M/s. Paramshakti Distributors Pvt. Ltd. in Income Tax Appeal No.413/17. He submitted that even if purchases made from parties in question are to be treated as bogus, it does not 3/6 ::: Uploaded on - 16/01/2020 ::: Downloaded on - 20/01/2020 10:57:18 ::: 46. itxa 1543-17.doc necessarily mean that entire amount should be disallowed and that no benefit should be given to Respondent-Assessee. Mr. Hakani submitted that bifurcation of purchases of Rs.1,69,48,368/- and contention that genuine material purchased in question is not case urged before authorities. 8. We have perused orders passed by Commissioner of Income Tax (Appeals) and Tribunal. Commissioner of Income Tax (Appeals) has observed that Respondent-Assessee was doing work on contract basis with Municipal Corporation of Greater Mumbai. He submitted bills to Corporation which were verified by Engineers of Corporation. It is upon acceptance of quality and quantity of work that payment was released. It is also noted by Commissioner that Assessing Officer did not doubt about completion of contract work and that consumption of material by Respondent-Assessee which was duly verified by Engineers of Municipal Corporation. Commissioner of Income Tax (Appeals) and Tribunal opined that without actually consuming raw materials, work done by Appellant could not have been possible. 9. It is in this context, observations of Division Bench in case of Principal Commissioner of Income Tax- 17 vs. M/s. Mohommad Haji Adam & Co. need to be referred :- 4/6 ::: Uploaded on - 16/01/2020 ::: Downloaded on - 20/01/2020 10:57:18 ::: 46. itxa 1543-17.doc 8. In present case, as noted above, assessee was trader of fabrics. A.O. found three entities who were indulging in bogus billing activities. A.O. found that purchases made by assessee from these entities were bogus. This being finding of fact, we have proceeded on such basis. Despite this, question arises whether Revenue is correct in contending that entire purchase amount should be added by way of assessee's additional income or assessee is correct in contending that such logic cannot be applied. finding of CIT(A) and Tribunal would suggest that department had not disputed assessee's sales. There was no discrepancy between purchases shown by assessee and sales declared. That being position, Tribunal was correct in coming to conclusion that purchases cannot be rejected without disturbing sales in case of trader. Tribunal, therefore, correctly restricted additions limited to extent of bringing G.P. rate on purchases at same rate of other genuine purchases. decision of Gujarat High Court in case of N.K. Industries Ltd. (supra) cannot be applied without reference to facts. In fact in paragraph 8 of same Judgment Court held and observed as under - So far as question regarding addition of Rs.3,70,78,125/- as gross profit on sales of Rs.37.08 Crores made by Assessing Officer despite fact that said sales had admittedly been recorded in regular books during Financial Year 1997-98 is concerned, we are of view that assessee cannot be punished since sale price is accepted by revenue. Therefore, even if 6 % gross profit is taken into account, corresponding cost price is required to be deducted and tax cannot be levied on same price. We have to reduce selling price accordingly as result of which 5/6 ::: Uploaded on - 16/01/2020 ::: Downloaded on - 20/01/2020 10:57:18 ::: 46. itxa 1543-17.doc profit comes to 5.66 %. Therefore, considering 5.66 % of Rs.3,70,78,125/- which comes to Rs.20,98,621.88 we think it fit to direct revenue to add Rs.20,98,621.88 as gross profit and make necessary deductions accordingly. Accordingly, said question is answered partially in favour of assessee and partially in favour of revenue. 10. Assuming that Respondent-Assesssee purchasers from whom purchases were made were bogus, in view of finding of fact that material was consumed, question would be of extending percentage of net profit on total turnover. This would be matter of calculations by concerned authority. In this context, if Commissioner of Income Tax (Appeals) and Tribunal chose to follow percentage arrived by Settlement Commission in Respondent-Assessee s own case for other years, this exercise cannot be considered as irregular or illegal. 11. In circumstances, no substantial question of law arises in this Appeal. 12. Appeal is accordingly dismissed. (M.S.KARNIK, J.) (NITIN JAMDAR, J.) 6/6 ::: Uploaded on - 16/01/2020 ::: Downloaded on - 20/01/2020 10:57:18 ::: Principal Commissioner of Income-tax-25 v. Pinaki D. Panani