Shri Kawaljitsingh Chhabra, Baroda V. The Dy.CIT.,Circle-2(1), Baroda

ITA 1119/AHD/2011

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 9394 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 9 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-01-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 11-01-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 15-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: M J SHAH
• Keywords: Bogus purchase; Gross profit estimation
• Section: 40A(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH AHMEDABAD BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER, AND SHRI S. S. GODARA, JUDICIAL MEMBER. ITA NO.1119/AHD/2011 (ASSESSMENT YEAR:2007-08) SHRI KAWALJITSINGH CHHABRA, B-2, NILAMBER II BUNGLOWS, VASNA ROAD, BARODA APPELLANT VS. DCIT, CIRCL 2(1), BARODA R ESPONDENT PAN: ABKPC6445Q /BY ASSESSEE : SHRI M. J. SHAH, A.R. /BY REVENUE : SHRI JAMES KURIAN, SR. D.R. /DATE OF HEARING : 11.01.2017 /DATE OF PRONOUNCEMENT : 24.01.2017 ORDER PER S. S. GODARA, JUDICIAL MEMBER THIS ASSESSEES APPEAL FOR ASSESSMENT YEAR 2007-08 ARISES AGAINST CIT(A)-II, BARODAS ORDER DATED 20.01.2011 PASSED I N APPEAL NO. CAB/II- 402/09-10 IN PROCEEDINGS U/S.143(3) OF THE INCOME T AX ACT, 1961; IN SHORT THE ACT. ITA NO. 1119/AHD/2011 (SHRI KAWALJITSINGH CHHABRA V S. DCIT) A.Y. 2007-08 - 2 - 2. THE ASSESSE PLEADS FOLLOWING SUBSTANTIVE GROUNDS IN THE INSTANT APPEAL. 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) HAS ERRED IN LAW AND ON FACTS AND HAS DISMISSED THE FIRST GROUND OF APPEAL THEREBY CONFIRMING THE ADDITION OF RS.23,12,724/- BY REJECT ING THE BOOKS OF ACCOUNTS OF M/S HINDUSTAN PHARMACEUTICALS, WHICH IS THE SOLE PROPRIETARY CONCERN OF THE APPELLANT, U/S 145A OF T HE INCOME TAX ACT & ESTIMATING G.P.@ 42.73% AS AGAINST 22.57% AS SHOW N IN THE BOOKS OF ACCOUNTS. THE APPELLANT SUBMITS THAT THE BASIC REASON FOR FAL L IN G.P. IS PARADIGM SHIFT FROM MANUFACTURING ACTIVITY TO TRADI NG ACTIVITY DUE TO UNAVOIDABLE CIRCUMSTANCES WHICH WAS ALSO EXPLAINED TO THE CIT (APPEALS) BY PRODUCING REQUIRED DOCUMENTS. YOUR HONOUR IS THEREFORE, REQUESTED TO ACCEPT THE C ONTENTION AND THE APPELLANT PRAYS THAT THE ADDITION MADE OF RS.23,12, 724/- ON THE ABOVE COUNT, SHOULD BE DISPENSED WITH. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AND ON FACTS AND HAS DISMISSED THE SECOND GROUND OF APPEAL THEREBY CONFIRMING THE ADDITION OF RS.72,45,255/- BY TREATI NG TRADING PURCHASES MADE FROM ASSOCIATE CONCERN AS BOGUS PURC HASES. THE APPELLANT SUBMITS THAT THE MERE FACT THAT THE P URCHASE IS FROM THE ASSOCIATE CONCERN CANNOT BE TREATED AS THE BASIS FO R TREATING THE SAME AS BOGUS PURCHASE. ALL THE REQUIRED DOCUMENTS WERE SUBMITTED TO THE A.O. & THE CIT(A). YOUR HONOUR IS THEREFORE, REQUESTED TO ACCEPT THE C ONTENTION AND THE APPELLANT PRAYS THAT THE ADDITION MADE OF RS.72,45, 255/- ON THE ABOVE COUNT, SHOULD BE DISPENSED WITH. 3) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AND ON FACTS AND HAS DISMISSED THE EIGHTH & LAST GR OUND OF APPEAL THEREBY CONFIRMING THE ADDITION OF RS.2,94,754/- BY REJECTING THE BOOKS OF ACCOUNTS OF M/S EXCEL PHARMCHEM, WHICH IS THE SOLE PROPRIETARY CONCERN OF THE APPELLANT, U/S 145A OF T HE INCOME TAX ACT & ESTIMATING G.P.@ 42.73% AS AGAINST 24.83% AS SHOW N IN THE BOOKS OF ACCOUNTS. ON THE BASIS OF SAME SUBMISSION AS MADE FOR GROUND NO.1, YOUR HONOUR IS REQUESTED TO ACCEPT THE CONTENTION AND TH E APPELLANT PRAYS THAT THE ADDITION MADE OF RS.2,94,754/- ON THE ABOV E COUNT, SHOULD BE DISPENSED WITH. ITA NO. 1119/AHD/2011 (SHRI KAWALJITSINGH CHHABRA V S. DCIT) A.Y. 2007-08 - 3 - 3. IT IS EVIDENT THAT ASSESSEES FIRST AND THIRD SU BSTANTIVE GROUND ASSAILS BOTH THE LOWER AUTHORITIES ACTION IN REJECTING HIS BOOKS OF ACCOUNTS OF M/S. HINDUSTAN PHARMACEUTICALS AND EXCEL PHARMACHEM U/S. 145A OF THE ACT STATING RESPECTIVE GROSS PROFITS @ 22.57% AND 24.83 % THEREBY RE-ESTIMATING THE SAME @ 42.73% IN BOTH CASES RESULTING IN THE IM PUGNED ADDITIONS OF RS.23,12,724/- AND RS.2,94,754/- IN QUESTION. WE T HUS TAKE UP BOTH THESE GROUNDS TOGETHER FOR DISPOSAL. 4. WE COME TO RELEVANT FACTS. THIS ASSESSEE IS A C OMPANY MANUFACTURING / FORMULATING PHARMACEUTICALS. IT CARRIES BUSINESS THROUGH TWO PROPRIETARY CONCERNS HEREINABOVE. THE ASSESSING OFFICER NOTICE D THE ASSESSEE TO HAVE DECLARED GROSS PROFITS @22.57% AND 24.83% IN THE SA ID TWO ENTITIES AS AGAINST 37.83% IN THE PRECEDING ASSESSMENT YEAR. H E FRAMED THE IMPUGNED REGULAR ASSESSMENT ON 30.12.2009 REJECTING ASSESSEE S EXPLANATION THAT THE ABOVE DECLINE IN GROSS PROFIT WAS ON ACCOUNT OF GOV ERNMENTS POLICY CHARGING EXCISE AND MRP BASE AS WELL AS EXCISE EXEMPTION TO PHARMACEUTICAL COMPANY BASED IN HIMACHAL PRADESH AND UTTRAKHAND. THE ASSESSING OFFICER FURTHER CAME ACROSS ALLEGED DISCREPANCIES IN SCHEDU LED-M STATING PURCHASES OF RS.88,27,592/- FOLLOWED BY SALES OF RS.5,86,315/ - RESULTING CLOSING STOCK OF RS.82,41,630/- NOT SHOWN IN THE BOOKS. IT ALSO TOOK COGNIZANCE OF ALLEGED DIFFERENCE IN EXCISE DUTY REGISTER AND SALES FIGURE DISCLOSED FOR INCOME TAX PURPOSES. THIS FOLLOWED ASSESSEES ALLEGED SIMILAR INCONSISTENCIES. THE ASSESSING OFFICER ACCORDINGLY INVOKED SECTION 145A OF THE ACT TO REJECT ITS BOOK AND TO ESTIMATE GROSS PROFIT @42.73% IN BOTH C ASES RESULTING IN THE IMPUGNED ADDITIONS. THE CIT(A) CONFIRMS ASSESSING OFFICERS ACTION. 5. LEARNED AUTHORIZED REPRESENTATIVE RELIES UPON AS SESSEES EXPLANATION SUPPORTING ITS BOOK RESULTS BEFORE THE LOWER AUTHOR ITIES. HE HOWEVER FAILS TO ITA NO. 1119/AHD/2011 (SHRI KAWALJITSINGH CHHABRA V S. DCIT) A.Y. 2007-08 - 4 - DISPUTE THE ABOVE INCONSISTENCIES RESULTING IN REJE CTION OF ASSESSEES BOOKS RESULTS IN EXCISE, SALES AND PURCHASES DETAILS NARR ATED IN PRECEDING PARAS. WE THUS FIND NO REASON TO INTERFERE WITH BOTH THE LOWE R AUTHORITIES ACTION INVOKING SECTION 145A OF THE ACT. 6. WE NOW COME TO LATTER ASPECT OF THE ISSUE REGARD ING GP ESTIMATION @42.73% BY BOTH THE LOWER AUTHORITIES AS AGAINST 38 % IN THE PRECEDING ASSESSMENT YEAR. THIS CASE FILE INDICATES THAT THE ASSESSEE HAS MANUFACTURED AS WELL AS TRADED IN PHARMACEUTICALS IN THE IMPUGNE D ASSESSMENT YEAR. THE REVENUE FAILS TO REBUT THIS FACTUAL POSITION. LEAR NED COUNSEL REPRESENTING ASSESSEE FURTHER STATES THAT THE ASSESSEE HAS WOUND UP ITS BUSINESS AS WELL IN SUCCEEDING ASSESSMENT YEARS. WE INFER IN THESE FAC TS THAT POSSIBILITY OF SOME DISTRESS SALES IN THESE PECULIAR FACTS COULD ALSO N OT BE RULED OUT. WE TAKE INTO ACCOUNT ALL THESE FACTS AND CIRCUMSTANCES AND DEEM IT APPROPRIATE THAT GP ESTIMATION @35% AS AGAINST 42.73% ADOPTED BY BOTH T HE LOWER AUTHORITIES WOULD BE JUST AND PROPER. THE ASSESSEE ACCORDINGLY GETS PART RELIEF IN ITS FIRST AND THIRD SUBSTANTIVE GROUNDS. 7. WE NOT ADVERT TO ASSESSEES SECOND SUBSTANTIVE G ROUND CHALLENGING DISALLOWANCE/ADDITION OF RS.72,45,255/- MADE BY BOT H THE LOWER AUTHORITIES TREATING ITS PURCHASES AS BOGUS ONES. HONBLE JUR ISDICTIONAL HIGH COURT IN TAX APPEAL NOS. 911 & 912/2015 PCIT VS. BACKBONE CO NSTRUCTION PVT. LTD. DECIDED ON 01.02.2016 UPHOLDS TRIBUNALS ORDER DELE TING SECTION 40A(3) DISALLOWANCE FOR THE REASON THAT THE SAME IS NOT SU STAINABLE IN A CASE INVOLVING GROSS PROFITS ESTIMATION AS DONE IN THE I NSTANT CASE IN PRECEDING PARAGRAPHS. WE APPLY THE SAME ANALOGY HEREIN AS WE LL TO ACCEPT THE ASSESSEES SECOND SUBSTANTIVE GROUND BY CONCLUDING THAT BOTH THE LOWER AUTHORITIES HAVE ERRED IN DISALLOWING ASSESSEES PU RCHASES IN THE BACKDROP OF ITA NO. 1119/AHD/2011 (SHRI KAWALJITSINGH CHHABRA V S. DCIT) A.Y. 2007-08 - 5 - THE FACT THAT THEY HAD ALREADY REJECTED ITS BOOKS A ND ESTIMATED GROSS PROFITS HEREINABOVE. 8. THIS ASSESSEES APPEAL IS PARTLY ALLOWED. [PRONOUNCED IN THE OPEN COURT ON THIS THE 24 TH DAY OF JANUARY, 2017.] SD/- SD/- ( PRAMOD KUMAR ) (S. S. GODARA) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD: DATED 24/01/2017 TRUE COPY S.K.SINHA / COPY OF ORDER FORWARDED TO:- / REVENUE 2 / ASSESSEE ! / CONCERNED CIT 4 !- / CIT (A) ( )*+ ,--. . /0 / DR, ITAT, AHMEDABAD 1 +23 / GUARD FILE. BY ORDER / . // . /0