{"id":21494,"date":"2020-01-18T11:28:57","date_gmt":"2020-01-18T05:58:57","guid":{"rendered":"http:\/\/itatonline.org\/archives\/?p=21494"},"modified":"2020-01-18T11:28:57","modified_gmt":"2020-01-18T05:58:57","slug":"pcit-vs-pinaki-d-panani-bombay-high-court-s-68-69c-bogus-purchases-even-if-the-purchases-made-by-the-assessee-are-to-be-treated-as-bogus-it-does-not-mean-that-entire-amount-can-be-disallowed-as-t","status":"publish","type":"post","link":"https:\/\/itatonline.org\/archives\/pcit-vs-pinaki-d-panani-bombay-high-court-s-68-69c-bogus-purchases-even-if-the-purchases-made-by-the-assessee-are-to-be-treated-as-bogus-it-does-not-mean-that-entire-amount-can-be-disallowed-as-t\/","title":{"rendered":"PCIT vs. Pinaki D. Panani (Bombay High Court)"},"content":{"rendered":"

IN THE HIGH COURT OF JUDICATURE AT BOMBAY
\nORDINARY ORIGINAL CIVIL JURISDICTION
\nINCOME TAX APPEAL NO. 1543 OF 2017
\nThe Principal Commissioner of Income Tax-25 ..Appellant
\nvs.
\nPinaki D. Panani ..Respondent
\n\u2026……..
\nMr. Nirmal C. Mohanty for Appellant.
\nMr. Rahul K. Hakani for Respondent.
\n\u2026……..
\nCORAM : NITIN JAMDAR &
\nM.S.KARNIK, JJ.
\nDATE : 8 JANUARY 2020
\nP.C.:-
\nThe Appellant challenges the order passed by the
\nIncome Tax Appellate Tribunal dated 19.12.2016 in Income Tax
\nAppeal No.119\/Mum\/2015 and C.O. No.117\/Mum\/2015 for
\nAssessment Year 2009-10.
\n2. The Appeal pertains to the Assessment Year 2009-10.
\n3. The Appellant-Revenue has raised following question
\nof law as a substantial question of law for consideration in this
\nAppeal :-
\n\u201cA. Whether, on the facts and in the circumstances of the
\ncase and in law, the Hon\u2019ble Tribunal is justified in
\nallowing unsubstantiated purchases of Rs.1,69,48,368\/-
\n1\/6
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\nand upholding the order of CIT(A) in applying net profit
\nof 5.76% on total Contract amount ?\u201d
\n4. The Respondent-Assessee carried on business as a
\nCivil Contractor. The Respondent-Assessee filed return of income
\nfor the Assessment Year 2009-10 on 29 September, 2009
\ndeclaring total income of Rs.48,65,060\/-. The assessment was
\ncompleted under Section 143(3) of the Income Tax Act on 7
\nDecember, 2011. Thereafter the assessment was reopened under
\nSection 147 of the Income Tax Act. Information was received
\nfrom the Sales Tax Department that Respondent-Assessee had
\ntaken bogus purchase entries of Rs.1,69,48,368\/- from the
\ndifferent parties. The reassessment order was accordingly passed
\non 17 February, 2014 determining the total income of
\nRs.2,18,13,430\/-.
\n5. Appeal was filed by the Respondent-Assessee to the
\nCommissioner of Income Tax (Appeals) who partly allowed the
\nAppeal by order dated 21 October, 2014 and sustained addition of
\nRs.50,44,947\/- and deleted Rs.1,19,03,421\/- out of addition of
\nRs.1,69,48,368\/-. The Commissioner of Income Tax (Appeals)
\nalso observed that the Respondent-Assessee had approached the
\nSettlement Commission for the subsequent years and the case was
\nsettled accepting the additional income offered by the
\nRespondent-Assessee based on the net profit @ 5.76% on total
\ncontracted amount. Aggrieved by this order the Appellant-
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\nRevenue filed an Appeal to the Income Tax Appellate Tribunal.
\nBy the impugned order the same has been dismissed.
\n6. In support of the question of law Mr. Mohanty, the
\nlearned counsel for the Appellant submitted that an information
\nwas received from the Sales Tax Department that certain parties
\nfrom whom the Respondent-Assessee had purchased material were
\nHawala dealers and when the Respondent-Assessee was
\nconfronted with the same he could not produce the confirmation
\nfrom the said parties. He submitted that merely because payment
\nwas made by crossed cheque was not enough to establish that the
\npurchases were genuine. Mr. Mohanty also submitted that out of
\nvarious purchases made by the Reapondent-Assesee the Appellant-
\nRevenue had questioned only purchases to the tune of
\nRs.1,69,48,368\/- and that business could have been carried out by
\nthe other purchases which has not been questioned.
\n7. Mr. Hakani, the learned counsel for the Respondent
\nplaced reliance on the decisions of this Court in the case of The
\nPrincipal Commissioner of Income Tax-17 vs. M\/s. MohommadHaji Adam & Co<\/a>. in Income Tax Appeal No.1004\/16 and
\nPrincipal Commissioner of Income Tax, Central-4 vs. M\/s.Paramshakti Distributors Pvt. Ltd<\/a>. in Income Tax Appeal
\nNo.413\/17. He submitted that even if the purchases made from
\nthe parties in question are to be treated as bogus, it does not
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\nnecessarily mean that entire amount should be disallowed and that
\nno benefit should be given to the Respondent-Assessee.
\nMr. Hakani submitted that bifurcation of purchases of
\nRs.1,69,48,368\/- and the contention that genuine material
\npurchased in question is not the case urged before the authorities.
\n8. We have perused the orders passed by the
\nCommissioner of Income Tax (Appeals) and the Tribunal. The
\nCommissioner of Income Tax (Appeals) has observed that the
\nRespondent-Assessee was doing work on contract basis with the
\nMunicipal Corporation of Greater Mumbai. He submitted the
\nbills to the Corporation which were verified by the Engineers of
\nthe Corporation. It is upon the acceptance of quality and quantity
\nof the work that the payment was released. It is also noted by the
\nCommissioner that the Assessing Officer did not doubt about the
\ncompletion of the contract work and that the consumption of the
\nmaterial by the Respondent-Assessee which was duly verified by
\nthe Engineers of the Municipal Corporation. The Commissioner
\nof Income Tax (Appeals) and the Tribunal opined that without
\nactually consuming the raw materials, the work done by the
\nAppellant could not have been possible.
\n9. It is in this context, the observations of the Division
\nBench in the case of the Principal Commissioner of Income Tax-17 vs. M\/s. Mohommad Haji Adam & Co<\/a>. need to be referred :-
\n4\/6
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\n\u201c8. In the present case, as noted above, the assessee
\nwas a trader of fabrics. The A.O. found three entities
\nwho were indulging in bogus billing activities. A.O.
\nfound that the purchases made by the assessee from these
\nentities were bogus. This being a finding of fact, we have
\nproceeded on such basis. Despite this, the question arises
\nwhether the Revenue is correct in contending that the
\nentire purchase amount should be added by way of
\nassessee’s additional income or the assessee is correct in
\ncontending that such logic cannot be applied. The
\nfinding of the CIT(A) and the Tribunal would suggest
\nthat the department had not disputed the assessee’s sales.
\nThere was no discrepancy between the purchases shown
\nby the assessee and the sales declared. That being the
\nposition, the Tribunal was correct in coming to the
\nconclusion that the purchases cannot be rejected without
\ndisturbing the sales in case of a trader. The Tribunal,
\ntherefore, correctly restricted the additions limited to the
\nextent of bringing the G.P. rate on purchases at the same
\nrate of other genuine purchases. The decision of the
\nGujarat High Court in the case of N.K. Industries Ltd.
\n(supra) cannot be applied without reference to the facts.
\nIn fact in paragraph 8 of the same Judgment the Court
\nheld and observed as under –
\n\u201cSo far as the question regarding addition of
\nRs.3,70,78,125\/- as gross profit on sales of Rs.37.08
\nCrores made by the Assessing Officer despite the fact
\nthat the said sales had admittedly been recorded in the
\nregular books during Financial Year 1997-98 is
\nconcerned, we are of the view that the assessee cannot be
\npunished since sale price is accepted by the revenue.
\nTherefore, even if 6 % gross profit is taken into account,
\nthe corresponding cost price is required to be deducted
\nand tax cannot be levied on the same price. We have to
\nreduce the selling price accordingly as a result of which
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\nprofit comes to 5.66 %. Therefore, considering 5.66 % of
\nRs.3,70,78,125\/- which comes to Rs.20,98,621.88 we
\nthink it fit to direct the revenue to add Rs.20,98,621.88
\nas gross profit and make necessary deductions
\naccordingly. Accordingly, the said question is answered
\npartially in favour of the assessee and partially in favour
\nof the revenue.\u201d
\n10. Assuming that the Respondent-Assesssee the
\npurchasers from whom the purchases were made were bogus, in
\nview of the finding of fact that the material was consumed, the
\nquestion would be of extending the percentage of net profit on
\ntotal turnover. This would be a matter of calculations by the
\nconcerned authority. In this context, if the Commissioner of
\nIncome Tax (Appeals) and the Tribunal chose to follow the
\npercentage arrived by the Settlement Commission in the
\nRespondent-Assessee\u2019s own case for the other years, this exercise
\ncannot be considered as irregular or illegal.
\n11. In the circumstances, no substantial question of law
\narises in this Appeal.
\n12. The Appeal is accordingly dismissed.
\n(M.S.KARNIK, J.) (NITIN JAMDAR, J.)
\n6\/6
\n::: Uploaded on – 16\/01\/2020 ::: Downloaded on – 16\/01\/2020 18:38:27 :::<\/p>\n","protected":false},"excerpt":{"rendered":"

Assuming that the purchasers from whom the purchases were made were bogus, in view of the finding of fact that the material was consumed, the question would be of extending the percentage of net profit on total turnover. This would be a matter of calculations by the concerned authority<\/p>\n

Read more ›<\/a><\/div>\n

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