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2024 Supreme(Guj) 1416
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
Bhargav D. Karia, Niral R. Mehta, JJ.
The Principal Commissioner Of Income Tax-1 - Appellant
Vs.
Sunil Mittal Huf - Respondent
TAX APPEAL NO. 542 of 2024
Decided On : 02-07-2024
Advocate Appeared:
For the Appellant : Mr. Karan Sanghani for Mrs Kalpana K Raval Adv.
IMPORTANT POINT
The court established that in cases of bogus purchases, only the profit margin should be added to income, and cash deposits disclosed under the PMGKY scheme are not subject to further taxation.
Headnote:
Tax - Income Tax Act - Sections 260A, 69A, 271AAC - The court upheld the Tribunal's decision to restrict the addition for bogus purchases to a gross profit percentage, emphasizing the need for evidence of sales and the treatment of cash deposits under the PMGKY scheme.
Fact of the Case:
The respondent, a HUF, filed a return for the assessment year 2017-18, which included bogus purchases and cash deposits during demonetization. The Assessing Officer made significant additions to the income, which were partially overturned by the CIT(A) and subsequently appealed by the Revenue.
Finding of the Court:
The Tribunal found no error in the CIT(A)'s decision to restrict the addition for bogus purchases to 13.05% of gross profit, noting that the Assessing Officer had accepted the sales figures and lacked evidence to disallow the entire purchases.
Issues: Whether the Tribunal erred in upholding the CIT(A)'s decision to restrict the addition for bogus purchases and whether the cash deposits during demonetization were justified under the PMGKY scheme.
Ratio Decidendi: The court affirmed that only the profit element from bogus purchases should be added to income, and that cash deposits disclosed under the PMGKY scheme should not be additionally taxed if already accounted for.
Result: The appeal was dismissed, upholding the Tribunal's order.
ORDER :
Bhargav D. Karia, J.
1. By this Tax Appeal under Section 260A of the Income- Tax Act, 1961 (for short ‘the Act’), the Appellant – Revenue has proposed the following questions of law arising from the Judgment and Order dated 21.12.2023 passed by the Income- Tax Appellate Tribunal, Surat (for short ‘the Tribunal’) in ITA No.520/SRT/2023 for Assessment Year 2017-18 :
“A. Whether on the facts and circumstances of the case and in law, the Hon’ble ITAT has justified in agreement with the view of Ld. CIT(A) in this case without appreciating the facts that the assessee has failed to prove the genuineness of transaction made with M/s.Dhaval Gems and M/s.Veer Corporation which were identified as bogus entry providers, completely controlled by Shri Chetan Kantilal Shah ?
B. Whether on the facts and circumstances of the case and in law, the Hon’ble ITAT has justified in restricting the addition from 100% to 13.05% of the bogus purchases made by the AO ignoring the fact that Shri Chetan K. Shah has admitted in his statement u/s.131(1A) given during the survey proceedings conducted by the investigating wing of department that he has engaged in the business of accommodation entries and hence AO was correct in concluding that the assessee was a beneficiary of the accommodation entry in guise of purchase?”
2. Heard learned Senior Standing Counsel Mr.Karan Sanghani for learned advocate Mrs.Kalpana Raval for the Appellant – Revenue.
3. Brief facts of the case are that the respondent – Assessee is a HUF. It filed the return of income for Rs.9,64,960/- on 01.10.2017 for Assessment Year 2017-18. The case of the respondent was selected for scrutiny, and during the course of regular assessment, an addition was made on two counts; (i) on bogus purchases of Rs.75,10,503/- and (2) cash deposit of Rs.80,00,000/-, by the Assessing Officer while finalizing the total income of Rs.1,64,75,460/-.
4. Being aggrieved, the respondent preferred an Appeal before the CIT (A), who, by order dated 02.06.2023, partly allowed the Appeal of the assessee restricting the addition made on account of bogus purchase of Rs.75,10,503/- to 13.05% of the gross profit for the year under consideration. Further, the CIT(A) deleted the addition of Rs.80,00,000/- in view of disclosure made by the assessee under the Pradhan Mantri Garib Kalyan Yojna (PMGKY) and the same money was deposited during the demonetization.
5. Being aggrieved, the Appellant – Revenue preferred an Appeal before the Income-Tax Appellate Tribunal, Surat (for short ‘the Tribunal’). With regard to Question No.1, the Tribunal, after considering the submissions made by both the sides, held as under :
“10. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. In our considered view, it was wholly erroneous on the part of the assessing officer to make addition of 100% of purchases. Only a profit element embedded in the purchases may be added in the hands of the assessee. Based on information received from Investigation wing the learned assessing officer contested that these two parties viz. Veer Corporation and Dhaval Gems, are engaged in business of providing accommodation entries and thus the underlined purchases are not genuine. The assessing officer disallowed the entire purchases claiming them to be bogus. Before, ld CIT(A), the assessee filed supporting documents containing ledger extracts of parties, vat returns, excise returns, Payment details, bank statement reflecting such payment details, copy of invoices, purchase register, stock register, bank statements, audited books of accounts etc. The learned assessing officer has not questioned the sales made by the assessee and has accepted the sales amount as appearing in the financial statements. The assessing officer has also not provided any adverse finding on inventory appearing in the books of account of the assessee. However, ld CIT(A) noted that in absence of
