Facts of the Case

Assesse is an individual running a proprietorship firm namely M/s The Shoe Box INC Retail Store of footwear, bags, belts, wallets and leather goods, boutique etc. having shops at Pune, Ahmedabad, Jalandhar and office at Mumbai.

It was observed by the Assessing Officer (AO) that the Assesse had incurred expenditure in terms of purchases of Rs. 4,89,88,555.31 out of which it was alleged by the AO that purchases of Rs. 1,13,44,77/- was made from the bogus parties as per information received from Sales Tax Department, Government of Maharashtra, who as per web-site of Government of Maharashtra are suspicious parties providing accommodation entries and are thus bogus bill giving entities without doing any business.

The sales tax department conducted independent enquiries in each of the parties and concluded that these parties were engaged in the business of providing accommodation entries only.

Assesse submits that its purchases had been made only through brokers who supplied the goods at premise (on site) of the assesse and furnished the bills of such four parties to the assesse for making the payment at agreed terms. The AO accepted the fact that Assesse had actually received the goods, through brokers, at its site office.

The Assesse in audited P&L account, disclosed a higher Gross profit@ 45.49 % on sales (85% on purchase) which is most reasonable in trading activity of footwears. In respect of disputed purchase made from the 4 parties, the appellant disclosed the Gross profit @ 41.75 % on sales.

AO had made addition under section 69C of Income tax act of Rs. 1,31,88,227/- (Rs. Rs.1,13,44,776/- Purchases + Rs.18,43,451/- Opening Balance) which is liable to the tax.

The assesse filed First Appeal before the CIT (A).

Question of law

  1. Addition of Rs.1,31,88,227/- (Rs. Rs.1,13,44,776/- Purchases + Rs.18,43,451/- Opening Balance) under Section 69C is Justified?
  2. Whether transaction includes Suppression of Gross Profit Ratio to the tune of Rs. 5%?

Contention of CIT (A)

  1. Quantitative details were maintained and the assessee being a trader of goods, the AO has not doubted the genuineness of sales & recorded a finding that the assessee made the purchases from some other party (broker). Hence Transaction is not bogus in nature.
  2. The learned CIT(A) observed that the AO had held that the assesse must have purchased the goods from brokers and not from the four parties in whose names the bills were procured and hence, the only recourse left is to estimate the profit element embedded in the purchases made during the year of Rs. 1,13,44,778/- , rather than on Rs. 1,31,88,227/-which were estimated by learned CIT(A) @12.5% of the purchases made during the year of Rs.1,13,88,227/-
  3. To find out whether there is suppression of profit or not, one needs to know that the element of profit embedded in bogus purchases which the assessee would have made from some unknown entities. The purchases made from four parties during the year was Rs. ,13,44,778/- on which the GP reflected was 41% as against 46% reflected on over all basis, hence, there was a suppression of GP ratio to the tune of 5%.

Aggrieved by the appellate orders dated 02-05-2014 passed by the ld. CIT(A) , both the assesse and Revenue made appeal before the Tribunal.

Decision by Tribunal

Tribunal did not find any infirmity in the order of CIT & sustain the order of Learned CIT(A) & dismiss both the appeals of Assessee as well of revenue

Date of Judgment/Order: 14th Dec, 2016

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