PCIT v. SVD Resins & Plastics Pvt. Ltd.

Case snapshot

Sections / provisions: 133(6); 145(3); 69C

Questions before the Court / Tribunal

• Bogus purchases and 12.5% profit estimation: The reported High Court judgment affirms the Tribunal's 12.5% estimation on alleged bogus purchases where sales were not doubted and books were not rejected, while also stressing the Assessing Officer's duty to conduct proper inquiry.

Material facts and background

IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO. 1662 OF 2018 Pr. Commissioner Of Income Tax-1

Mr. Suresh Kumar, for the Appellant. Mr. Tanzil Padvekar a/w Ms. Tejal Kharkar, for Respondent. _______________________ CORAM:

G. S. KULKARNI & SOMASEKHAR SUNDARESAN, JJ. DATED: 7 August 2024 _______________________ Oral Judgment (Per: G. S. Kulkarni, J.) 1.

dated 3 August 2017 passed by the Income Tax Appellate Tribunal (for short “the Tribunal”) whereby the appeals filed by the revenue stand partially allowed and the appeals filed by the assessee, were dismissed. 2.

The revenue has raised the following questions of law :“(A) “Whether on the facts & in the circumstances of the case, and in view, the Hon’ble ITAT was justified in restricting Page 1 of 11 7 August 2024

the addition u/s.69C of the I.T. Act to the extent of 12.5%, when the assessee had failed to prove the genuineness of purchase transaction in entirety? (B) “Whether on the facts & in the circumstances of the case and in law, the Hon’ble ITAT was justified in relying upon the decision of the Hon’ble Bombay High Court in the case of CIT v/s. Hariram Bhambhani (ITXA No.313 of 2013), when the issue of addition u/s.69C as to the Bogus Sales was not involved in the present case?”

2010-2011. Briefly, the facts are the assessee is stated to be engaged in the business of trading in resins and chemicals on wholesale basis. On information received from the DGIT (Investigation), Mumbai the Assessing Officer (AO) invoked Section 147 of the Income Tax Act, 1961 (for short “the Act”) to reopen the completed assessment by issuing notice under Section 148 dated 12 March 2013. In response thereto the assessee filed a revised return on 20 March 2013, as also sought the reasons as recorded by the A.O. The A.O. was of the opinion that the assessee had made purchases amounting to Rs.1,34,25,500/- from six parties who were declared by the Sales Tax Department as ingenuine dealers. It is not in dispute that during the assessment proceedings, the assessee filed ledger accounts, conformation of suppliers, purchase bills, delivery bank statements and other documentary evidences to justify the genuineness of the purchases. The AO nonetheless was of the opinion that the disputed purchases did not have nexus with the corresponding sales. Accordingly, he made an addition of the said amount Page 2 of 11 7 August 2024 Kiran Kawre

Appellant / assessee submissions

Mr. Suresh Kumar, learned counsel for the appellant/revenue has

On the other hand, learned counsel for the assessee has opposed these

Revenue / respondent submissions

The judgment copy does not separately set out this component in a distinct section; refer to the full order and the reasoning section below.

Court / Tribunal analysis and reasoning

contentions as urged on behalf of the revenue passed the impugned order in which it was observed that the CIT(A) has rightly estimated the profit in regard to the purchases at 12.5%, however, the Tribunal observed that CIT(A) was not correct in reducing the gross profit already returned by the assessee at 4.74% out of the 12%, for the reason that the gross profit returned by the assessee related to the sales made by the assessee and did not have link to the purchases for which assessee might have procured bills by making savings in VAT etc. For such reason the tribunal partly allowed the grounds as raised by the revenue and directed the AO to estimate the income at 12.5% in each of the assessment year, on the purchases so made. The Tribunal rejected the assessee’s challenge to the orders passed by the 1 356 ITR 451 2 355 ITR 290 Page 4 of 11 7 August 2024 Kiran Kawre

limited submissions in assailing the impugned order. It is his primary submission that the approach of the CIT(A) as also the part acceptance of such approach by the tribunal in the impugned order needs interference of this Court on the question of law as raised by the revenue. It is submitted that entire purchases of Rs. 1,34,25,500/- were required to be discarded as bogus purchases and the relevant amounts brought to tax by making additions to the assessee’s income, as rightly undertaken by the AO. However, in making such submission, Mr. Suresh Kumar is not in a position to dispute that the assessee had furnished all the relevant documents in so far as the purchases are concerned namely the ledger accounts, confirmation of suppliers, purchase bills, delivery statements and other documentary evidence, despite which the A.O. on the basis of information received from the Sales Tax Department had decided to

amounts on the ground that the purchases were presumed to be doubtful. Mr. Suresh Kumar is also not in a position to point out anything from the orders passed by the AO and/or from the order passed by the CIT(A) as to whether the information which was received by the department qua the transactions of the assessee was specific to the assessee’s transactions as

questioned by the department. Mr. Suresh Kumar has fairly stated that notices were issued to some of the suppliers. He also states that the suppliers were not independently examined nor their evidence was recorded. Mr. Suresh Kumar would accordingly submit that the Court needs to consider the present appeal on the questions of law as raised. 9.

appeals. He submits that all these are factual issues which are being raised by the revenue and no question of law raises for consideration of the Court. He has also placed reliance on the decision of a co-ordinate bench of this Court in the case of Pr. Commissioner of Income Tax-17 Vs. Mohammad Haji Adam & Company,3 to contend that in similar circumstances the Court had not entertained the revenue’s appeal and the same was dismissed, with observations that no question of law had arisen for consideration of the Court in similar facts. He has accordingly prayed for dismissal of the appeal. 10.

orders passed by the AO as also of the CIT(A) and the impugned order passed by the Tribunal, we are not inclined to accept the contentions as urged on behalf of the Revenue for the reasons we discuss hereunder. 11.

on the part of the A.O. so as to form an opinion that the disputed purchases 3 [2019] 103 taxmann.com 459 (Bombay) Page 6 of 11 7 August 2024 Kiran Kawre

were not having nexus with the corresponding sales, appears to be not correct. It is seen that what was available with the department was merely information received by it in pursuance of notices issued under Section 133(6) of the Act, as responded by some of the suppliers. However, an unimpeachable situation that such suppliers could be labeled to be not genuine qua the assessee or qua the transaction entered with the assessee by such suppliers, was not available on the record of the assessment proceedings.

proceedings, the assessee filed all necessary documents in support of the returns on which the ledger accounts were prepared, including confirmation of the supplies by the suppliers, purchase bills, delivery bank statements etc. to justify the genuineness of the purchases, however, such documents were doubted by the AO on the basis of general information received by the AO from the Sales Tax Department. In our opinion, to wholly reject these documents merely on a general information received from the Sales Tax Department, would not be a proper approach on the part of the AO, in the absence of strong documentary evidence, including a statement of the Sales Tax Department that qua the actual purchases as undertaken by the assessee from such suppliers the transactions are bogus.

Operative decision and relief

the assessee, looked from any angle. However, in a given case if the Income Tax Authorities are of the view that there are questionable and / or bogus purchases, in that event, it is the solemn obligation and duty of the Income Tax Authorities and more particularly of the A.O. to undertake all necessary enquiry including to procure all the information on such transactions from the other departments / authorities so as to ascertain the correct facts and bring such transactions to tax. If such approach is not adopted, it may also lead to assessee getting away with a bonanza of tax evasion and the real income would remain to be taxed on account of a defective approach being followed by the department.

on behalf of assessee is also quite apposite in the context in hand. In this decision, the Court observed that the findings which were arrived by the CIT(A) as also by the tribunal would suggest that the department did not dispute the assessee's sales, as there there was no discrepancy between the purchases as shown by the the assessee and the sales declared. This was held to be an acceptable position, in dismissing the revenue’s appeal on the ground that no substantial question of law had arisen for consideration of the Court. 18.

to a substantial question of law. The appeals are accordingly dismissed. No costs.

Authorities and precedents appearing in the judgment

• No reliable precedent list was extracted automatically; use the full judgment for the citation chain.

This list is machine-assisted from the judgment text and is not a substitute for checking the full citation chain in the PDF.

Ratio and legal principle

The decision turns on Bogus purchases and 12.5% profit estimation. The operative result is classified as Partly allowed. Read the rule only with the statutory version, factual findings and precedent chain recorded in the full judgment.

Why this judgment matters

The case is relevant to taxpayers, advisers and litigators dealing with Bogus purchases and 12.5% profit estimation. Its practical value lies in the interaction between the statutory text, the evidentiary record and the procedural route followed in this case.

Practitioner action points

• Build a transaction-level evidence file: confirmations, bank trail, invoices, ledger, tax/GST records and counter-party material rather than relying on a generic explanation.
• Where the addition depends on a third-party statement or investigation report, record the request for the relied material and cross-examination at the earliest stage.
• For litigation, attach the full judgment/order to the working paper and cite the paragraph/page supporting the proposition rather than relying on a headnote alone.

Full judgment and source trail

Read / download the clean local judgment copy

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