C/TAXAP/888/2019 ORDER IN HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 888 of 2019 PRIN. COMMISSIONER OF INCOME TAX - 6 Versus NILESH RAMESHCHANDRA SHAH Appearance: MR M.R.SHAH, Ld.Sr.Adv. for MRS MAUNA M BHATT(174) for Appellant(s) No. 1 for Opponent(s) No. 1 CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALA and HONOURABLE MR. JUSTICE BHARGAV D. KARIA Date : 20/01/2020 ORAL ORDER (PER : HONOURABLE MR.JUSTICE J.B.PARDIWALA) 1. This Tax Appeal, under Section 260A of Income-tax Act, 1961 (for short Act, 1961 ), is at instance of Revenue and is directed against order passed by Income Tax Appellate Tribunal, B Bench, Ahmedabad dated 15.07.2019, in ITA No.2248/Ahd/2017 for A.Y.2010-11. 2. substantial question of law, as proposed by Revenue arising in this Tax Appeal, reads thus: Whether Appellate Tribunal has erred in law and on facts in reversing decision of CIT(A) and restricting disallowance of Rs.63,44,324/- made on account of bogus purchases to extent of 5% of bogus purchases? Page 1 of 5 Downloaded on : Fri Jan 24 10:18:30 IST 2020 C/TAXAP/888/2019 ORDER 3. It appears from materials on record that assessee filed his original return of income declaring total income at Rs.18,50,640/-. return was proposed u/s 143(1) of Act. Later, case was re-opened by issuance of notice dated 06.05.2014 under Section 148 of Act. 4. case was re-opened on basis of information received from DGIT (Investigation), Mumbai, which was gathered during course of search action conducted by Maharashtra Sales Tax Department. information contained details of bogus purchases by beneficiary firms from Hawala billers in F.Y. 2008-09, 2009-10 and 2010-11. According to information, assessee Shri Nilesh Rameshchandra Shah, Proprietor of Shagun Art, was involved in such bogus purchases in F.Y.2009- 10 relevant to A.Y. 2010-11 to tune of Rs.63,44,326/-. 5. It also appears that in statement recorded during course of search conducted by Sales Tax department, Mumbai u/s 14 of Maharashtra Value Added Tax 2002, in case of all eight parties, they have confessed that they had given bogus entries/bills to various persons and never entered into actual purchase/sales transaction with any person. 6. Ultimately, Assessing Officer took view that parties concerned had provided only bogus entries/bills and no actual delivery of goods had Page 2 of 5 Downloaded on : Fri Jan 24 10:18:30 IST 2020 C/TAXAP/888/2019 ORDER taken place. Assessing Officer has also noticed that assessee had shown total purchases during year at Rs.2,72,72,367/-. assessee had entered into bogus purchases transactions to tune of Rs.63,44,326/- with various parties and therefore, out of total purchases shown by assessee, transaction worth Rs.63,44,326/- were evidently bogus. 7. Being aggrieved and dis-satisfied with order passed by Assessing officer, assessee preferred Appeal before Appellate Tribunal. Appellate Tribunal placed reliance on decision rendered in ITA No.313/Ahd/2015 in assessee s case for A.Y.2009-10 and affirmed addition made by assessing officer. 8. Appellate Tribunal allowed appeal of assessee, restricting dis-allowance to extent of 5% of total bogus purchases. Revenue, being dis-satisfied by such order, has come up before this Court with present Appeal. 9. Having heard learned Senior Advocate Mr.M.R.Bhatt appearing for Revenue and having gone through materials on record, we take notice of fact that Appellate Tribunal has relied upon its earlier order, so far as A.Y.2009-10 is concerned. Paragraph No.7 of said order has been reproduced in impugned order, which reads thus: Page 3 of 5 Downloaded on : Fri Jan 24 10:18:30 IST 2020 C/TAXAP/888/2019 ORDER 7. We have carefully considered rival submissions and orders of authorities below. maintainability of estimated disallowance out of alleged bogus purchases is in controversy. In this regard, we notice that assessee is engaged in trading of goods and therefore every purchase gets matched by corresponding sales/closing stock. Thus, scope of manipulation in bills towards purchase quantity is nearly non- existance. What at best thus can be manipulated is price/value of goods purchase. In other words, while it may be possible that purchases might have been made from bogus parties, nevertheless, purchases themselves cannot be treated as bogus. sale recorded in books is not in question. Contextually, assessee had declared 7.31% towards profit on such alleged bogus purchases. As stated, relevant documents including invoice, payment through banking channel, quantity tally were made available to Revenue authorities. cross examination of suppliers was not provided despite requests. In these circumstances, we find considerable merit in case of assessee in light of decision of Hon ble Gujarat High Court in Gujarat Ambuja Exports (Supra); CIT Vs. Bholanath Poly Fab Pvt. Ltd. 355 ITR 290 (Guj) and decision of Hon ble Supreme Court in case of PCIT Vs. Tejua Rohitkumar Kapadia arising out of decision of Hon ble Gujarat High Court in Tax Appeal No.691 of 2017, judgment dated 18.09.2017. In view of facts recorded, it is difficult to dispute quantitative aspects of purchases made. This leaves us to limited aspect of pricing of alleged bogus purchase. Having regard to facts and circumstances of case and more particularly in view of profits already declared on alleged bogus purchases in vicinity of 7%, we are of view that estimated disallowance of 5% alleged bogus purchases over and above profits already declared would cover possible suppression in profit and will balance equity. Such estimation would also be in tune with judgment of Hon ble Gujarat High Court in Gujarat Page 4 of 5 Downloaded on : Fri Jan 24 10:18:30 IST 2020 C/TAXAP/888/2019 ORDER Ambuja Exports (Supra). Accordingly, we direct AO to restrict estimated disallowance to Rs.6,42,657/- on account of alleged bogus purchase. 10. What is relevant in aforesaid paragraph of order passed by Tribunal is that assessee had declared 7.31% towards profit on such alleged bogus purchases. Tribunal took view that in view of profits already declared in alleged bogus purchases in vicinity of 7% and estimated dis-allowance of 5% alleged bogus purchases over and above profits already declared would cover possible suppression in profits and will balance equity. Tribunal also relied upon decision of this Court in case of CIT V/s Bholanath Poly Fab Pvt. Ltd. 355 ITR 290 (Guj). 11. We are of view that, we should not interfere with impugned order passed by Tribunal as view taken by Tribunal is quite reasonable. 12. In such circumstances, this Appeal fails and is hereby, dismissed. (J. B. PARDIWALA, J) (BHARGAV D. KARIA, J) PALAK Page 5 of 5 Downloaded on : Fri Jan 24 10:18:30 IST 2020 Prin. Commissioner of Income-tax-6 v. Nilesh Rameshchandra Shah