2011 (8) TMI 1101 - HC - Income Tax

Bogus purchases - Held that - There was evidence on record to suggest that though purchases may not have been made from M/s. Shreenathji Industries as initially suggested by the assessee in the books of account nevertheless the factum of actual purchases was placed for verification by the assessee before the authorities. In fact assessee s assertion appears to have been that purchases had to be made from other parties who were not reflecting such sales in their account for saving taxes such as incometax sales tax etc. Be that as it may we see no material distinction in facts involved in the present case and in case of Sanjay Oilcake Industries (2008 (3) TMI 323 - GUJARAT HIGH COURT). It is true that the Delhi High Court treated the issue somewhat differently. However when the decision of our Court lays down certain ratio in the absence of any special reason to differ we would have to follow the same. Other issues are consequent in nature. As already recorded CIT (Appeals) had addressed the issue of applicability of section 40A(3) of the Act. Under the circumstances though it is true that the Tribunal did not separately discus this issue only for that reason we see no reasons to interfere.

Summary

Issues involved:
1. Challenge to Tribunal's judgment on addition of 25% of total purchases
2. Adjudication of the applicability of section 40A(3) of the Income Tax Act
3. Confirmation of CIT (A) order on adopting GP at 2% of turnover

Detailed Analysis:
1. The central issue in this case pertains to the challenge by the Revenue against the Tribunal's decision regarding the addition of 25% of total purchases amounting to Rs. 1,75,24,213. The Assessing Officer had deemed these purchases as not genuine, further invoking Section 40A(3) of the Income Tax Act due to non-payment through cheques. Additionally, a profit of Rs. 10,29,867 was added to the assessee's income based on these purchases at a 2% rate.

2. The CIT (A) disagreed with the Assessing Officer, stating that the purchases were legitimate and made from M/s. Shreenathji Industries. Consequently, the CIT (A) deleted the entire additions and concluded that Section 40A(3) did not apply as cheques were issued to M/s. Shreenathji Industries.

3. Upon the Revenue's appeal, the Tribunal partially allowed it by reinstating 25% of the Rs. 1,75,00,000 sum of purchases. The Tribunal based its decision on a previous Division Bench ruling in the case of Sanjay Oilcake Industries, where additional profit additions were deemed unnecessary.

4. The High Court, after considering the arguments presented, found the case to be substantially similar to the Sanjay Oilcake Industries case. It upheld the Tribunal's decision, emphasizing that the purchases were dubious and likely inflated, leading to the addition of 25%. The Court also noted that the issue of Section 40A(3) applicability was adequately addressed by the CIT (A) and found no reason to interfere with the Tribunal's ruling.

5. In conclusion, the Court dismissed the Tax Appeal, aligning with the precedent set by the Sanjay Oilcake Industries case and emphasizing the importance of consistent application of legal principles unless specific reasons justify deviation.