Swaran Lata Sharma, New Delhi V. ACIT, New Delhi

CO 323/DEL/2011

• Counselvise Citation: [2011] 122 COUNSELVISE.COM (IT) 6733 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 13 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 02-12-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2007-2008
• Appeal Filed On: 19-09-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K C SINGHAL
• Assessee Lawyers: B R R KUMAR
• Keywords: Bogus purchase
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G, NEW DELHI BEFORE SHRI G.E. VEERABHADRAPPA, HONBLE PRESIDE NT & SHRI A.D. JAIN, JUDICIAL MEMBER ITA NO. 3665/DEL/2011 ASSESSMENT YEAR: 2007-08 ACIT, VS. SWARAN LATA SHARMA, CENTRAL CIRCLE 5, L/H OF LT. SH. ANIL SHARMA, ROOM NO. 361, PROP. M/S SITA STEEL, ARA CENTRE, JHANDEWALAN EXTN., G-6, HAUZ KHAS, NEW DELHI. NEW DELHI. ABBPS8336D (APPELLANT) (RESPONDENT) & CROSS OBJECTION NO. 323/DEL/2011 (IN ITA NO. 3665/DEL/2011) ASSESSMENT YEAR: 2007-08 SWARAN LATA SHARMA, VS. ACIT, L/H OF LT. SH. ANIL SHARMA, CENTRAL CIRCLE 5, PROP. M/S SITA STEEL, ROOM NO. 361, G-6, HAUZ KHAS, NEW DELHI. ARA CENTRE, ABBPS8336D JHANDEWALAN EXTN., NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SH. B.R.R. KUMAR, DR RESPONDENT BY : SH. K.C. SINGHAL , ADV. ITA NO. 3665/D/2011 & C.O NO. 323/D/2011 SWARAN LATA SHARMA 2 ORDER PER A.D. JAIN, J.M. THIS IS DEPARTMENTS APPEAL AND ASSESSEES CROSS OBJECTION AGAINST THE ORDER DATED 18.11.2010 PASSED BY THE LD. CIT(A)-XXIII, NEW DELHI. THE DEPARTMENT, IN IT S APPEAL, HAS CONTENDED THAT THE LD. CIT(A) HAS ERRED IN DELE TING THE ADDITION OF RS. 47,95,526/- MADE BY THE AO ON ACCOU NT OF BOGUS PURCHASES AND IN DIRECTING THE AO TO APPLY A GROSS PROFIT (GP) RATE OF 8.5% OF THE TURNOVER SO AS TO C ONFIRM THE ADDITION TO THE EXTENT OF RS. 22,81,572/- ONLY ON A CCOUNT OF SUPPRESSION OF PROFIT BY MANIPULATING THE PURCHASES . 2. THE ASSESSEE, IN ITS CROSS OBJECTION, HAS CONTEN DED THAT THE LD. CIT(A) HAS ERRED, IN THE ABSENCE OF ANY COM PARABLE CASE, IN APPLYING THE GP RATE OF 8.5% OF THE TOTAL TURNOVER, PARTICULARLY WHEN THE GP RATE DECLARED BY THE ASSES SEE WAS BETTER THAN THE GP RATE ASSESSED FOR THE PRECEDING YEAR. 3. THE FACTS ARE THAT THE ASSESSEE INDIVIDUAL IS TH E PROPRIETOR OF M/S SITA STEEL, WHICH IS ENGAGED IN T HE BUSINESS OF TRADING IN IRON & STEEL GOODS. THE ASSESSEE HAD MADE ITA NO. 3665/D/2011 & C.O NO. 323/D/2011 SWARAN LATA SHARMA 3 PURCHASES FROM SIX PARTIES. THE AO CARRIED OUT VER IFICATION PROCEEDINGS. THEREON, THE AO OBSERVED THAT REGARDI NG ONE OF THE PARTIES, M/S RAJIV KUMAR SANJIV KUMAR, SH. SANJ IV KUMAR EX-PARTNER OF THE FIRM HAD SUBMITTED VIDE AFFIDAVIT DATED 13.11.2009 THAT HIS FIRM WAS DISSOLVED IN THE YEAR 2001 AND NO SALES WERE MADE TO SH. ANIL SHARMA, PROP. OF M/S SITA SALES; AND THAT THE NOTICE ISSUED TO ANOTHER PARTY, M/S RENUKA BROTHERS, CAME BACK WITH THE REMARK NO SUCH PERSON EXISTENCE AT THE GIVEN ADDRESS; THAT AN INSPECTOR OF INCOME TAX WAS DEPUTED TO MAKE SPOT ENQUIRIES IN THE CASE OF M/S RENUKA BROS.; THAT THE INSPECTOR REPORTED THAT NO S UCH ADDRESS, AS MENTIONED IN THE BILLS ISSUED BY M/S RE NUKA BROS., WAS FOUND TO BE IN EXISTENCE. THE AO OBSERV ED THAT IN A.Y. 2006-07, THE ASSESSEE HAD SURRENDERED AN AMOUN T OF RS. 3,41,430/- ON ACCOUNT OF PURCHASES MADE FROM TH E SAID TWO PARTIES; THAT THE PURCHASES MADE FROM THESE TWO PARTIES BETWEEN JUNE, 2006 & JANUARY, 2007 WERE REFLECTED I N THE ASSESSEES CLOSING STOCK AND THE ASSESSEE HAD NOT G IVEN ANY REASON OR EXPLANATION FOR NOT SELLING THIS STOCK; T HAT THE COPIES OF ACCOUNT AND STOCK REGISTER SUBMITTED BY THE ASSE SSEE, BEING COMPUTER GENERATED SHEETS, WERE MERELY SELF S ERVING EVIDENCE AND WERE NOT WORTHY OF RELIANCE; AND THAT THE ITA NO. 3665/D/2011 & C.O NO. 323/D/2011 SWARAN LATA SHARMA 4 CONTENTION OF THE ASSESSEE THAT THE PURCHASES WERE REFLECTED IN THE STOCK REGISTER, WHICH ESTABLISHED THE GENUIN ENESS OF THE TRANSACTION, WAS NOT ACCEPTABLE, SINCE MERELY QUANT ITATIVE DETAILS ENTERED IN THE STOCK REGISTER COULD NOT PRO VE THE GENUINENESS OF THE PURCHASES. IN THIS MANNER, THE AO MADE AN ADDITION OF RS. 47,95,526/-. 4. BY VIRTUE OF THE IMPUGNED ORDER, THE LD. CIT(A) CONFIRMED THE ADDITION MADE BY THE AO TO THE EXTENT OF RS. 22 ,81,572/-. WHILE DOING SO, IT WAS OBSERVED, INTER-ALIA, THAT T HE AO HAD NOWHERE DISPUTED THAT THE PURCHASES MADE BY THE ASS ESSEE FROM THE CONCERNED TWO PARTIES STAND REFLECTED IN T HE CLOSING STOCK; THAT THE AO HAD ERRED IN DISBELIEVING THE AS SESSEES CONTENTION REGARDING THE CLOSING STOCK; THAT HOWEVE R, THE PURCHASES FROM THESE TWO PARTIES HAD NOT BEEN CONFI RMED; THAT THEREFORE, THE BOOKS OF ACCOUNT OF THE ASSESSE E HAD BECOME HIGHLY UNRELIABLE; THAT THEREFORE, THE BOOKS OF ACCOUNT OF THE ASSESSEE REQUIRED TO BE REJECTED AND A GP RA TE WAS REQUIRED TO BE APPLIED TO INCORPORATE THE LIKELY SU PPRESSION OF PROFIT BY THE ASSESSEE BY MANIPULATING THE PURCHASE S/SALES; THAT THE ASSESSEE HAD SHOWN GP OF RS. 84,32,993/- O N A TURNOVER OF RS. 12,60,21,246/-, RESULTING IN A GP O F 6.69%, ITA NO. 3665/D/2011 & C.O NO. 323/D/2011 SWARAN LATA SHARMA 5 WHICH WAS HIGHER AS COMPARED TO THAT OF THE PRECEDI NG ASSESSMENT YEAR; THAT THE BOOKS OF THE ASSESSEE HAV ING BEEN REJECTED, THE GP RATE AS PER THE BOOKS IN THE YEAR UNDER CONSIDERATION AS ALSO IN THE EARLIER YEARS COULD NO T BE A RELIABLE GP; AND THAT IT WOULD BE FAIR TO APPLY A G P RATE OF 8.5% TO THE TURNOVER. 5. THE LD. DR HAS CONTENDED THAT THE PURCHASES FROM BOTH THE PARTIES WERE NOT PROVED; THAT THESE WERE BOGUS PURCHASES; THAT IN THE VERIFICATION MADE BY THE AO, AS CONTAIN ED IN THE ASSESSMENT ORDER, IN THE CASE OF RAJIV KUMAR SANJIV KUMAR, THE PARTY STATED ON AFFIDAVIT THAT THERE WAS NO TRA NSACTION; THAT APROPOS RENUKA BROS., THE SAID PARTY WAS NOT TRACEA BLE AND THE INSPECTOR REPORTED THE ADDRESS TO BE A NON-EXIS TENT ADDRESS. 6. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER H AND, HAS CONTENDED THAT ALL PURCHASES ARE DULY RECORDED IN THE BOOKS AND STOCK REGISTER AND THEY ARE ALSO DULY REC ORDED AS SALES/CLOSING STOCK; THAT THIS HAS NOT BEEN DISPUTE D BY THE AO; THAT THE PURCHASES DISPUTED BY THE AO WERE NOT SOLD AND WERE SHOWN IN THE CLOSING STOCK, WHICH WAS ALSO NOT DISP UTED BY THE ITA NO. 3665/D/2011 & C.O NO. 323/D/2011 SWARAN LATA SHARMA 6 AO; THAT THE OBJECTION OF THE AO WAS THAT THE ASSES SEE COULD NOT EXPLAIN AS TO WHY THE PURCHASES COULD NOT BE SO LD; THAT THE COPY OF STOCK REGISTER WAS FURNISHED BEFORE THE AO AND THE SAME HAS NOT BEEN QUESTIONED; THAT THE AO ONLY DISP UTED THAT THE COPY OF THE STOCK REGISTER WAS A COMPUTERIZED C OPY AND IT COULD NOT BE RELIED ON, AS IT WAS A SELF SERVING PI ECE OF EVIDENCE; THAT THE ASSESSEE HAS SINCE DIED ON 17.12 .2009 AND THE PRESENT ASSESSEE, SWARAN LATA SHARMA IS THE ONL Y LEGAL HEIR OF THE ASSESSEE AND IS UNAWARE OF ANY FACTUAL ASPECT OF THE CASE. THE LD. COUNSEL FOR THE ASSESSEE HAS ALS O FURNISHED A WRITTEN SYNOPSIS. IT HAS BEEN CONTENDED THAT THE RE IS A DISTINCTION BETWEEN BOGUS PURCHASES AND UNVERIFIABL E PURCHASES; THAT THE PRESENT CASE IS A CASE OF NOT B OGUS PURCHASES, BUT UNVERIFIABLE PURCHASES, SINCE UNDISP UTEDLY, THE SAID PURCHASES WERE ENTERED IN THE STOCK REGISTER M AINTAINED BY THE ASSESSEE AND WERE SHOWN AS CLOSING STOCK; TH AT IN SUCH A SCENARIO, IN KEEPING WITH KACHWALA GEMS VS. CIT, 288 ITR 10 (SC), THE LD. CIT(A) WAS JUSTIFIED IN RE JECTING THE BOOKS OF ACCOUNT AND PROCEEDING TO ESTIMATE THE GP; THAT HOWEVER, THE LD. CIT(A) WAS NOT JUSTIFIED IN ESTIMA TING THE GP @ 8.5% IN THE ABSENCE OF ANY MATERIAL TO SUBSTANTIA TE SUCH AN ESTIMATE; THAT THE GP RATE SHOWN BY THE ASSESSEE IS 4.88% ITA NO. 3665/D/2011 & C.O NO. 323/D/2011 SWARAN LATA SHARMA 7 FOR A.Y. 2006-07, 7.34% FOR A.Y. 2005-06 AND 7.91% FOR A.Y. 2004-05; AND THAT IN THESE FACTS AND CIRCUMSTANCES, THE GROSS PROFIT BE ESTIMATED AT THE AVERAGE RATE OF THE SAID PRECEDING THREE YEARS. 7. WE HAVE HEARD THE PARTIES AND HAVE PERUSED THE MATERIAL ON RECORD. AS RIGHTLY OBSERVED BY THE LD. CIT(A), THE PURCHASES MADE BY THE ASSESSEE FROM BOTH THE PARTIE S, I.E. M/S RAJIV KUMAR SANJIV KUMAR AND M/S RENUKA BROS. S TAND REFLECTED IN THE STOCK REGISTER MAINTAINED BY THE A SSESSEE. THE SAME STAND REFLECTED AS CLOSING STOCK. THIS HA S NOWHERE BEEN DENIED BY THE ASSESSING OFFICER. HE REJECTED T HE STOCK REGISTER MERELY BECAUSE THE COPY THEREOF, AS PRODUC ED BY THE ASSESSEE BEFORE HIM, WAS A COMPUTER PRINTOUT COPY. THE LD. CIT(A) HAS CORRECTLY NOT GONE BY THIS ACTION OF THE AO. THE LD. CIT(A) REJECTED THE ASSESSEES BOOKS OF ACCOUNT AND DIRECTED APPLICATION OF GP RATE OF 8.5%. THE QUESTION IS AS TO WHETHER THE GP RATE APPLIED BY THE LD. CIT(A) IS CORRECT. 8. FOR APPLYING A GP RATE OF 8.5% TO THE TURNOVER, THE LD. CIT(A) HAS NOT GIVEN ANY REASON WHATSOEVER. IT IS WELL SETTLED THAT ESTIMATION CANNOT BE MADE IN THE AIR. IT HAS TO BE BASED ITA NO. 3665/D/2011 & C.O NO. 323/D/2011 SWARAN LATA SHARMA 8 ON SOME MATERIAL. NOW, OBVIOUSLY, WHEN NO COMPARAB LE CASE OR INSTANCE HAS BEEN CITED BY THE LD. CIT(A) TO ARR IVE AT AN ESTIMATE OF 8.5%, WE FIND THE ASSESSEE TO BE JUSTIF IED IN CONTENDING THAT AN ESTIMATE OF THE GROSS PROFIT BE MADE AT THE AVERAGE RATE OF THE PRECEDING THREE YEARS, I.E., A. Y.S 2006-07 TO 2004-05. THE ASSESSEE CONTENDS THAT THE GP RATE SHOWN FOR A.Y. 20006-07 WAS 4.88%, WHEREAS AS PER THE ASS ESSMENT MADE U/S 143(3) OF THE ACT, IT WOULD BE 5.2%, THAT THE GP RATE FOR A.Y. 2005-06 WAS SHOWN AT 7.34% AND THAT FOR A. Y. 2004- 05 WAS SHOWN AT 7.91%. THE AO IS DIRECTED TO APPLY THE GROSS PROFIT ESTIMATED AT THE AVERAGE RATE OF THE G P IN THE THREE PRECEDING ASSESSMENT YEARS, AS AVAILABLE. 9. IN THE RESULT, THE APPEAL OF THE DEPARTMENT IS D ISMISSED AND THE CROSS OBJECTION FILED BY THE ASSESSEE IS AL LOWED. ORDER WAS PRONOUNCED IN THE OPEN COURT ON 02.12.2 011 SD/- SD/- (G.E. VEERABHADRAPPA) (A.D. JAIN ) PRESIDENT JUDICIAL ME MBER DATED: 02.12.11 *KAVITA ITA NO. 3665/D/2011 & C.O NO. 323/D/2011 SWARAN LATA SHARMA 9 COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR