Income Tax

PCIT vs. Paramshakti Distributors Pvt. Ltd (Bombay High Court)-Deletion of enhanced rate of Gross Profit

The appeal was filed by the Revenue in order to challenge the Income Tax Appellate Tribunal’s (“the Tribunal” for short) judgment.

The questions presented for consideration are:  


(i) Whether based on the circumstances and facts of the case and as per law, the Hon’ble ITAT was justified in the reduction of the addition from Rs.23.16 Lakhs to Rs.2,21,600/- u/s 68 of the Income Tax Act, pertaining to the purchases made from M/s. Chevron Metal Products Pvt. Ltd., despite the fact that the Director of the said Company had confessed that the transactions were simply accommodation entries?

(ii) Whether based on the circumstances and facts of the case and as per law, the Hon’ble ITAT was justified in deletion of the enhancement of GP which was made by the Ld.

  1. The first question refers to restriction by the Tribunal on the addition of Rs.23.16 Lakhs to Rs.2,21,600/-. The said addition had been made by the Assessing Officer on the grounds that the purchases of the assessee were found to be bogus. Thus, the total purchase amount was added to the income of the assessee. The Tribunal recorded that the Assessing Officer has not rejected either the purchases or the sales made out of the said purchases. The Tribunal, therefore, opined that the addition must be restricted to only 10% of the total purchases. This proposition was disputed by the Revenue.
  2. Without any elaboration, the Tribunal by the impugned judgment held that the instance of purchases had not been rejected by the Department as the sales out of the purchase of such raw material had been accounted for and accepted. With the above position, the Tribunal applied the principle of taxing the profit hidden in such purchases shadowed by bogus bills, instead of disallowing the entire expenditure. The revenue does not find any error in this view of the Tribunal. No question of law arises.
  3. The second issue is with reference to the addition at the hands of the Assessee made by the CIT (Appeals). It appears that the profit had been disclosed by the Assessee at a GP rate of 2.59%. This disclosure had not been fiddled with, by the Assessing Officer. However, in Appeal, the SSP 2/3 31 ITXA 413 OF 2017.doc Commissioner (Appeals) once the Assessee was put to notice, the profit enhanced @ 6% GP. The Tribunal by the impugned Judgment deleted this addition and allowed the appeal of the Assessee. The Tribunal stated that no material was available to discard the book results of the Assessee. No evidence or incriminating material has been brought on record, of the Assessee’s transactions outside the books. Under these circumstances, the Tribunal deleted the addition made by the CIT (Appeals). No error was found in this view of the Tribunal by the Revenue. There, In addition, no evidence was on record to disturb the book results of the Assessee. No question of law arises. The Income Tax Appeal is dismissed.


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