21. Principal CIT vs. Rishabhdev Technocable Ltd. [2020] 115 taxmann.com 333 (Bom.) Date of order: 10th February, 2020 A.Y.: 2010-11
Cash credits (Bogus purchases) – Section 68 of ITA, 1961 – Assessee had
declared certain purchases to be made during year and A.O. added entire quantum
of purchases to income of assessee on plea that purchases were bogus purchases
– Tribunal held that only reasonable profit at rate of 5% on purchases should
be added back to income of assessee – Tribunal was justified in its view; A.Y.:
2010-11
The assessee is a company engaged in the business of manufacturing and
dealership of all kinds of industrial power controlling instrument cables and
related items. For the A.Y. 2010-11, the assessee filed return of income
declaring income of Rs. 1,35,31,757. The A.O. noticed that the Sales Tax
Department, Government of Maharashtra, had provided a list of persons who had
indulged in the unscrupulous act of providing bogus hawala entries and
purchase bills. The names of beneficiaries were also provided. The A.O. also
noticed that the assessee was one of the beneficiaries of such bogus hawala
bills. He referred to the purchases allegedly made by the assessee through four
hawala entries for the assessment year under consideration. He
disallowed the entire expenditure shown as incurred by the assessee on
purchases and made the addition.
The CIT(A) enhanced the quantum of such purchases from Rs. 24,18,06,385
to Rs. 65,65,30,470. The CIT(A) held that there can be no sales without
purchases. When the sales were accepted, then the corresponding purchases could
not be disallowed. Therefore, the CIT(A) held that only the profit element
embedded in the purchases would be subject to tax and not the entire purchase
amount. The CIT(A) added 2% of the purchase amount of Rs. 65,65,30,470 as
profit which worked out to Rs. 1,31,30,609 to the income of the assessee and
the balance addition was deleted. On appeal by the Revenue, the Tribunal
increased the profit element from 2% to 5% and increased the addition
accordingly.
On appeal by the Revenue, the Bombay High Court upheld the decision of
the Tribunal and held as under:
‘i) In Bholanath Polyfab
(P.) Ltd. (Supra), the Gujarat High Court was also confronted with a
similar issue. In that case the Tribunal was of the opinion that the purchases
might have been made from bogus parties but the purchases themselves were not
bogus. Considering the facts of the situation, the Tribunal was of the opinion
that not the entire amount of purchases but the profit margin embedded in such
amount would be subjected to tax. The Gujarat High Court upheld the finding of
the Tribunal. It was held that whether the purchases were bogus or whether the
parties from whom such purchases were allegedly made were bogus, was
essentially a question of fact. When the Tribunal had concluded that the
assessee did make the purchase, as a natural corollary not the entire amount
covered by such purchase but the profit element embedded therein would be
subject to tax.
ii) We are in respectful
agreement with the view expressed by the Gujarat High Court.
iii) Thus, we do not find any
merit in this appeal. No substantial question of law arises from the order
passed by the Tribunal. Consequently, the appeal is dismissed.’
