Gujarat High Court
Principal Commissioner Of Income Tax 1 vs Enviro Control Pvt. Ltd on 23 January, 2024
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
NEUTRAL CITATION
C/TAXAP/748/2023 ORDER DATED: 23/01/2024
undefined
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/TAX APPEAL NO. 748 of 2023
==========================================================
PRINCIPAL COMMISSIONER OF INCOME TAX 1
Versus
ENVIRO CONTROL PVT. LTD.
==========================================================
Appearance:
MRS KALPANA K RAVAL(1046) for the Appellant(s) No. 1
for the Opponent(s) No. 1
==========================================================
CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR. JUSTICE NIRAL R. MEHTA
Date : 23/01/2024
ORAL ORDER
(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)
1. Heard learned advocate Mr.Rudram
Trivedi for learned advocate Mrs.Kalpana
K. Raval for the appellant.
2. This Tax Appeal is filed under Section
260A of the Income Tax Act, 1961 (for
short 'the Act') raising following
substantial questions of law arising out
of the judgment and order dated 05.04.2023
passed by the Income Tax Appellate
NEUTRAL CITATION
C/TAXAP/748/2023 ORDER DATED: 23/01/2024
undefined
Tribunal, Surat (for short 'the Tribunal')
in ITA No.345/SRT/2022 for the Assessment
Year 2011-2012:-
"(i) "Whether on the facts and in the
circumstances of the case and in law,
the Hon'ble ITAT was justified in
estimating the addition in respect of
bogus purchases @6% of such purchases
as against disallowance made by the
Assessing Officer @100% of such
purchases amounting to
Rs.7,99,56,728/- ignoring the fact
that these purchases are sham
transactions fabricated through bogus
concerns and entities which were
engaged in providing accommodation
entries and which was unearthed as a
result of the action of VAT Department
of Maharashtra and subsequently, they
were also proved bogus during
assessment proceedings by the
Assessing Officer?
(ii) "Whether on the facts and in the
circumstances of the case and in law,
the ITAT was justified in estimating
the addition in respect of bogus
NEUTRAL CITATION
C/TAXAP/748/2023 ORDER DATED: 23/01/2024
undefined
purchases @ 6% of such purchases by
relying on the decision of Hon'ble
Gujarat High Court in the case of CIT
vs. Bholanath Poly Fab Pvt. Ltd.?
(iii) Whether on the facts and in
the circumstances of the case and in
law, considering the decision of the
Hon'ble Jurisdictional High Court in
the case of M/s. N.K.Industries Ltd
and M/s. N.K. Proteins Ltd, reported
in Tax Appeal No. 240 to 242 & 260 &
261 of 2003 wherein 100% disallowance
on account of bogus purchases have
been confirmed and special Leave
Petitions of the Assessee have been
dismissed in N.K.Proteins Ltd vs.
DCIT(2017) 84 taxmann.com 195 (SC) and
N.K.Industries Ltd vs. DCIT (2016) 72
taxmann.com 289 respectively the order
of the Hon'ble ITAT is erroneous?
(iv)Whether on the facts and in the
circumstances of the case and in law,
the order of the Hon'ble ITAT is
perverse in relying on the decision of
Hon'ble Gujarat High Court in the case
of CIT vs. Bholanath Poly Fab Pvt. Ltd
NEUTRAL CITATION
C/TAXAP/748/2023 ORDER DATED: 23/01/2024
undefined
and ignoring the fact that the
business of the present Assessee is
not of textile and is of consultancy
and development and maintenance of
sewage treatment plant and both the
business are totally different?
(v) Whether on the facts and
circumstances of the case and in law,
the order of the Hon'bel ITAT is
perverse in observing that No such
report of documents were provided to
the Assessee without appreciating that
the Assessing Officer duly followed
the principle of natural justice by
incorporating all the findings of the
Maharashtra VAT Authority with regard
to the action taken at accommodation
entry providers in the show cause
notice issued to the Assessee?"
3. Brief facts of the case are that:
3.1 The respondent-assessee is engaged
in the business trading. The assessee
filed return of income for Assessment Year
NEUTRAL CITATION
C/TAXAP/748/2023 ORDER DATED: 23/01/2024
undefined
2011-12 on 28.09.2011 declaring total
income at Rs. 3,36,70,590/-.
3.2 On the basis of the information
received from DGIT(Inv.)-II, Mumbai that
the assessee has obtained accommodation
entries in the form of purchases from the
bogus concerns which are engaged in the
business of providing bills without actual
delivery of goods in exchange of cash on
commission basis during the previous year
relevant to the assessment year under
consideration, the AO came to the
conclusion that the income to the tune of
Rs. 7,99,56,728/-. had escaped assessment
within the meaning of section 147 of the
Act.
3.2 Accordingly, notice u/s. 148 of the
Act dated 26.03.2018 was issued.
NEUTRAL CITATION
C/TAXAP/748/2023 ORDER DATED: 23/01/2024
undefined
3.3 The case of the assessee was
therefore reopened and the assessment
proceedings under Section 143(3) read with
section 147 of the Act was completed on
20.12.2018 determining total assessed
income at Rs.11,36,27,320/- after making
addition of Rs. 7,99,56,728/- being 100%
of the unverifiable expenses on account of
bogus purchases in the garb of
accommodation entries.
3.3. Being aggrieved, the assessee
preferred an appeal before the CIT
(Appeals), Surat, who, vide order dated
13.10.2022, partly allowed the appeal of
the assessee and directed to charge Gross
Profit at the rate of 6% on account of
alleged bogus purchase and directed to
confirm the addition of Rs. 47,97,404/-.
NEUTRAL CITATION
C/TAXAP/748/2023 ORDER DATED: 23/01/2024
undefined
3.5. Feeling aggrieved, the Revenue has
preferred appeal before the Tribunal. The
Tribunal, by the impugned order dated
05.04.2023, dismissed the appeal.
4. At the outset, learned advocate Mr.
Rudram Trivedi for the appellant-Revenue
submitted that the Tribunal has relied
upon the decision of this Court in case of
CIT vs. Bholanath Poly Fab Private Limited
(Guj) wherein it was held that only profit
element embedded in disputed purchased
would be subject to tax.
4.1. Learned advocate Mr. Rudram
Trivedi further submitted that this Court
has dismissed the Tax Appeal No.617 of
2022 in case of Pankaj K. Choudhary
NEUTRAL CITATION
C/TAXAP/748/2023 ORDER DATED: 23/01/2024
undefined
(Supra) wherein, similar questions of law
raised by the Revenue.
5. Considering the above submissions, the
relevant extract from the order of the
Tribunal is reproduced herein below:
"24. As the issue is squarely covered
by judgment of the Co-ordinate Bench
in the case of Pankaj K. Chaudhary
(supra) wherein Tribunal held that in
respect of bogus purchases, the
addition @ 6% of bogus purchases is
fair and reasonable. There is no
change in facts and law and Ld. DR
for the Revenue unable to produce any
material to controvert the above
findings of the Co-ordinate Bench
(supra). Therefore, respectfully
following the judgment of the Co-
ordinate Bench in the case of Pankaj
K. Chaudhary (supra), we direct the
Assessing Office to make addition @
6% of bogus purchases. Hence, we
dismiss the appeal of the assesse
including additional grounds raised
by the assessee and partly allow the
appeal of the Revenue."
NEUTRAL CITATION
C/TAXAP/748/2023 ORDER DATED: 23/01/2024
undefined
6. This Court in case of Pankaj K.
Choudhary (Supra) while dismissing the Tax
Appeal No.617 of 2022 has held as under:
"5. The Assessing Officer noticed the
contentions of the assessee that
confirmation, purchase bills, bank
statement, stock register, copy of
ITR were already filed. The Assessing
Officer was, however, of the view
that transactions were bogus and
merely that it routed through the
banking channel, was not sufficient
to conclude that they were the
genuine transactions. The contention
of the assessee that he had not dealt
with the Bhanvarlal Jain group was
also negatived. The appellate
Commissioner took the view that
disallowance was required to be
sustained at 12.5% of the purchase.
The Assessing Officer was directed
accordingly to workout disallowance.
In para 10.6, the Commissioner of
Income Tax (Appeals), recorded thus,
"As held above, it is clear that
the appellants have made purchases
from elsewhere, but have obtained
bills from the impugned suppliers.
From the Trading & P & L account
and Audit report it can be seen
that the GP rate shown by
appellant is 1.85% oil sales. In
NEUTRAL CITATION
C/TAXAP/748/2023 ORDER DATED: 23/01/2024
undefined
such circumstances the
disallowance of 100% of purchases
cannot be justified. Also as held
above, the appellant would nave
indulged in above practice in
order to get some benefit. And it
is this benefit derived by the
appellant that need to be taxed.
What would be the magnitude of
benefit derived by the appellant
is the mute question. In the
appellant's case, it is seen that
GP rate shown is 0.78%".
5.1 The final view was expressed in
para 10.10,
"Following the above judicial
pronouncements and views taken by Ld.
CIT(A) & AOS in a few identical
cases. In a couple of identical
cases, where the GP shown by the
appellants is more than 5%, I have
confirmed the disallowance of the
impugned purchases to the extent of
5% of the impugned purchases. However
in the instant case the appellant is
showing measly G.P. of only 0.78% on
turnover. In view of this I am of the
considered opinion that disallowance
of 12.5% of the impugned purchases
would be reasonable and would meet
the ends of justice. Hence, the
disallowance is restricted to 12.5%
of the impugned purchases for the
assessment year in appeal."
NEUTRAL CITATION
C/TAXAP/748/2023 ORDER DATED: 23/01/2024
undefined
5.2 The disallowance at 100% was made
in the assessment order for the year
under consideration to the tune of
Rs. 4,34,00,343/-, which was reduced
to 12.5% at Rs. 54,25,040/-.
Thereafter, the issue was delat with
by the appellate Tribunal. The
appellate Tribunal endorsed to the
view taken by the appellate
Commissioner. It was observed that
Assessing Officer failed to consider
the evidence furnished by the
assessee.
5.3 Considering the facts and
relevant aspect, the Income Tax
Appellate Tribunal partially allowed
the appeal of the assessee to further
reduce the disallowance at 6%. In so
concluding, the Tribunal observed in
paragraph No.21 as under,
".......during the financial year
under consideration the assessee
has shown total turnover of Rs.
66,09,62,458/-. The assessee has
shown Gross Profit @ 78% and net
Profit @ 0.02% (page 11 of paper
Book). The assessee while filing
the return of income has declared
taxable income of Rs. 1,81,840/-
only. We are conscious of the
facts that dispute before us is
only with regard of the disputed
purchases of Rs. 4.34 Crore, which
was shown to have purchased from
NEUTRAL CITATION
C/TAXAP/748/2023 ORDER DATED: 23/01/2024
undefined
the entity managed by Bhanwarlal
Jain Group. During the search
action on Bhanwarlal Jain no stock
of goods/material was found to the
investigation party. Bhanwarlal
Jain while filing return of income
has offered commission income
(entry provider). Before us, the
Ld. CIT-DR for the revenue
vehemently submitted that the
ratio of decision of Hon'ble
Gujarat High Court in Mayank
Diamond Private Limited (supra) is
directly applicable on the facts
of the present case. We find that
in Mayank Diamonds the Hon'ble
High Court restricted the
additions to 5% of GP. We have
seen that in Mayank Diamonds P Ltd
(supra), the assessee had declared
GP @ 1.03% on turnover of Rs 1.86
Crore. The disputed transaction in
the said case was Rs. 1.68 Crore.
However, in the present case the
assessee has declared the GP @
0.78%. It is settled law that
under Income-tax, the tax
authorities are not entitled to
tax the entire transaction, but
only the income component of the
disputed transaction, to prevent
the possibility of revenue
leakage. Therefore, considering
overall facts and circumstances of
the present case, we are of the
view that disallowances @ 6% of
impugned purchases / disputed
purchases would be sufficient to
NEUTRAL CITATION
C/TAXAP/748/2023 ORDER DATED: 23/01/2024
undefined
meet the possibility of revenue
leakage. In the result the ground
No. 2 of appeal raised by the
assessee is partly allowed and the
grounds of appeal raised by
revenue are dismissed."
6. The view taken and the conclusion
arrived at by the appellant Tribunal
are based on material before it and
after analysing the facts and figure
available before it. When the
Tribunal has thought it fit to reduce
the disallowance at 6% from 12.5%,
the Tribunal had before it the facts
which were duly analysed by it. No
interference is called for in the
said conclusion and findings of the
Tribunal in the present appeal by
this court.
6.1 The another weighing aspect is
that the Tax Appeal No. 674 of 2022
in Principal Commissioner of Income
Tax 1, Surat vs. M/s. Surya Impex
which came to be decided by the co-
ordinate Bench on 16.1.2023 dealt
with the very issue of accommodation
entries provided by Bhanwarlal Jain
Group. The group involved in the said
case is the same group who is saddled
with allegations of providing
accommodation entry to the assessee.
In M/s. Surya Impex (supra) the court
held in favour of the assessee. The
questions of law involved in the said
NEUTRAL CITATION
C/TAXAP/748/2023 ORDER DATED: 23/01/2024
undefined
case were of the same nature and were
in the context of similar facts
involving the same group.
7. For all the above reasons,
substantial questions of law proposed
by the appellant in this appeal
stands already answered. No question
of law much less any substantial
questions of law arise in the facts
of the present case. No other
substantial question of law arises.
The appeal is meritless. It is
summarily dismissed."
7. In view of the above, the substantial
questions of law proposed by the appellant
in this appeal stands already answered and
therefore, no question of law much less
any substantial questions of law can be
said to have a arisen in the facts of the
present case. The appeal is accordingly
dismissed. No orders as to cost.
(BHARGAV D. KARIA, J)
(NIRAL R. MEHTA,J)
JYOTI V. JANI
