C/TAXAP/210/2020 ORDER IN HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 210 of 2020 PRINCIPAL COMMISSIONER OF INCOME TAX-2 Versus SANDEEPKUMAR S CHANDAK Appearance: MRS MAUNA M BHATT, SENIOR STANDING COUNSEL(174) for Appellant(s) No. 1 for Opponent(s) No. 1 CORAM:HONOURABLE CHIEF JUSTICE MR. VIKRAM NATH and HONOURABLE MR. JUSTICE J.B.PARDIWALA Date : 18/09/2020 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, Ahmedabad C Bench, Ahmedabad dated 22.10.2019 in ITA No. 3024/AHD/2015 for A.Y. 2011- 12. 2. Revenue has proposed following substantial question of law for consideration of this Court:- Page 1 of 7 Downloaded on : Wed Sep 30 07:58:58 IST 2020 C/TAXAP/210/2020 ORDER Whether Appellate Tribunal has erred in law and on facts in restricting addition of Rs. 55,61,085/- made on account of bogus purchases to extent of 5% of total bogus purchases despite fact that assessee failed to establish genuineness of purchases? 3. It appears from materials on record that assessee filed his return of income for A.Y. 2011- 12 on 29.09.2011 declaring total income of Rs.7,66,360/-. On basis of information received from Maharashtra Sales Tax Department that assessee had made bogus purchases from M/s. Fasto Traders Pvt.Ltd.of Rs. 8,54,010/-, case was re-opened under Section 147 of Act, 1961. 4. During course of assessment proceedings, further information was received that assessee had made bogus purchases from 5 other parties to tune of Rs.55,60,085/-. Assessing Officer also noticed that assessee had obtained unsecured loan. Assessing Officer also noticed difference in amount of VAT paid by assessee Page 2 of 7 Downloaded on : Wed Sep 30 07:58:58 IST 2020 C/TAXAP/210/2020 ORDER compared to taxable purchases. Assessing Officer took view that genuineness of such purchases could not be established as parties/suppliers were not found or rather non- existing at addresses furnished by assessee. In such circumstances, Assessing Officer made addition of Rs.55,61,085/- on account of bogus purchases and added it to total income of assessee. 5. assessee being dissatisfied with assessment order, preferred appeal before Commisisoner of Income Tax (A) (for short CIT(A) ). CIT(A) dismissed appeal of assessee. 6. assessee being dissatisfied with order passed by CIT(A), preferred appeal before Appellate Tribunal. Appellate Tribunal partly allowed appeal of assessee by holding that ad hoc addition at rate of 5% of such purchases would meet with ends of justice and may also put quietus to entire litigation. Page 3 of 7 Downloaded on : Wed Sep 30 07:58:58 IST 2020 C/TAXAP/210/2020 ORDER 7. assessee being dissatisfied with order passed by Appellate Tribunal is here before this Court with present appeal. 8. We have heard Ms. Mauna Bhatt, learned Senior Standing Counsel appearing for Revenue. 9. We take notice of findings recorded by Tribunal. findings are as under:- 10.2 From preceding discussion we also note that assessee has claimed to have made sales against such purchases which have been admitted by Revenue. As such in our considered view, such sales cannot be executed without having coresponding purchases. There was no defect pointed out by authorities below insofar sales made against such purchases. Moreover, there is also no allegation regarding genuiness of books of accounts which were duly audited under Income Tax Act. 10.3 However, before parting we cannot ignore practice prevailing in business Page 4 of 7 Downloaded on : Wed Sep 30 07:58:58 IST 2020 C/TAXAP/210/2020 ORDER industries to purchase goods from grey market and subsequently justify such purchases by obtaining purchase bill from parties engaged in providing accomodation entries. It is because assessee in present case has claimed to have purchased goods from parties not having valid VAT/CST registration certificate though he is claiming to have purchased goods from registered party. Moreover, there was no submission from side of assessee against finding of Maharashtra Sales Tax Department wherein it was alleged that parties are not genuine.In view of above, we can presume that actual purchases were made by assessee from grey market but shown in name of impugned parties. 10.4 WE are also conscious to fact that assessee has already declared GP in its books of accounts by recording sales and corresponding purchases. But to prevent possible leakage of Revenue, as purchases from local/grey market is normally cheaper, we are inclined to make ad hoc addition at rate of 5% of such purchases in order to meet end of justice and to stop ongoing dispute. In holding so, we find suport and guidance from judgment of Page 5 of 7 Downloaded on : Wed Sep 30 07:58:58 IST 2020 C/TAXAP/210/2020 ORDER ITAT Ahmedabad in case of ITO vs.Sun Steel reported in 92 TTJ 1126 wherein it was held as under: At most it can be presumed that assessee did not make purchases from above parties but made from other unregistered dealer and got benefit of margin of purchases from unregistered dealer. We find that to that extent estimation of profit can be made which will be fair and reasonable under facts and circumstances of case. Therefore, for above purposes we estimate Rs. 50,000 and accordingly order of CIT(A) is modified and addition to extent of Rs.50,000 is sustained and balance addition of Rs.26,89,407 is deleted out of total addition made of Rs.27,39,407. In view of above, we direct AO to make ad-hoc addition on suc purchases as discussed above, Hence ground of appeal of assessee is allowed. 10. Thus, if Appellate Tribunal in overall facts of case and having regard to materials on record thought fit to make ad hoc addition at rate of 5% of such purchases, then, Tribunal could not be said to have committed any serious error warranting any interference in this appeal. Page 6 of 7 Downloaded on : Wed Sep 30 07:58:58 IST 2020 C/TAXAP/210/2020 ORDER 11. We are of view that question as proposed by Revenue cannot be termed as substantial question of law. 12. In result, this appeal fails and is hereby dismissed. (VIKRAM NATH, CJ) (J. B. PARDIWALA, J) NAIR SMITA V./A.M. PIRZADA Page 7 of 7 Downloaded on : Wed Sep 30 07:58:58 IST 2020 Principal Commissioner of Income-tax-2 v. Sandeepkumar S Chandak