M/s Kanani Trading Co., RAJKOT-GUJARAT V. The Income Tax Officer, Ward-2(1)(2), RAJKOT-GUJARAT

ITA 120/RJT/2017

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 8646 (ITAT-RAJKOT)
• Duration Of Justice: 2 year(s) 8 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-01-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Appeal Filed On: 17-04-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Bogus purchase; Set aside
• Section: 143(3); 274; 144

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT [ CONDUCTED THROUGH E-COURT AT AHMEDABAD ] BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER I.T.A. NO.120/RJT/2017 (ASSESSMENT YEAR : 2012-13) M/S.KANANI TRADING CO. D-29, MARKETING YARD RAJKOT VS. THE ITO WARD-2(1)(2) RAJKOT [PAN NO.AACFK 2037 K] ( APPELLANT ) .. ( RESPONDENT ) APPELLANT BY : WRITTEN SUBMISSION RESPONDENT BY : SHRI ANILKUMAR DAS, SR.DR DATE OF HEARING 03/12/2019 DATE OF PRONOUNCEMENT 07/01/2020 O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEAL S)2, RAJKOT [CIT(A) IN SHORT] VIDE APPEAL NO. CIT(A)-2/0078/2015-16 DATED 01/02/2017 ARISING IN THE ASSESSMENT ORDER PASSED UNDER S. 143(3) OF THE INCO ME TAX ACT, 1961(HEREINAFTER REFERRED TO AS 'THE ACT') DATED 23/03/2015 RELEVANT TO ASSESSMENT YEAR (AY) 2012-13. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1.1. THE LD. CIT(A) HAS ERRED IN LAW AND FACTS IN C ONFIRMING ADDITION / DISALLOWANCE OF RS10,51,349/-. THE ADDITION / DISALLOWANCE NEEDS DE LETION. ITA NO.120/RJT/2017 M/S.KANANI TRADING CO. VS. ITO ASST.YEAR 2012-13 - 2 - 1.2. THE LD. CIT(A) HAS ERRED IN LAW AND FACTS IN C ONFIRMING ADDITION. / DISALLOWANCE OF RS. 3,38,602/- IN RESPECT OF TRUCK RENT EXPENSES ON LUM P SUM AND ESTIMATED BASIS. THE ADDITION 7 DISALLOWANCE NEEDS DELETION. 1.3. THE LD. CIT(A) HAS ERRED IN LAW AND FACTS IN C ONFIRMING ADDITION 7 DISALLOWANCE OF RS.7,12,747/- IN RESPECT OF URD PURCHASES ON LUMP S UM AND ESTIMATED BASIS. THE ADDITION 7 DISALLOWANCE NEEDS DELETION. 2. THE LD. CIT(A) HAS ERRED IN LAW AND FACTS IN CON FIRMING ADDITION 7 DISALLOWANCE OF RS.10,51,371/- BASED ON POSITION WHICH HE DESCRIBE D ERRONEOUSLY. THE ADDITION 7 DISALLOWANCE NEEDS DELETION. 3. THE LD. CIT(A) HAS ERRED IN LAW AND FACTS IN CON FIRMING ADDITION 7 DISALLOWANCE OF RS.10,51,349/- IGNORING THE DETAILS FURNISHED. THE ADDITION 7 DISALLOWANCE NEEDS DELETION. 4. THE LD. CIT(A) HAS ERRED IN LAW AND FACTS IN CON FIRMING ADDITION 7 DISALLOWANCE OF RS.10,51,349/- BASED ON PRESUMPTION AND SURMISES . THE ADDITION 7 DISALLOWANCE NEEDS DELETION. 5. TAKING INTO CONSIDERATION THE LEGAL, STATUTORY, FACTUAL AND ADMINISTRATIVE ASPECTS, NO ADDITION 7 DISALLOWANCE OF AN AMOUNT OF RS.10,51,349/- OUGHT T O HAVE BEEN CONFIRMED. THE ADDITION 7 DISALLOWANCES NEED DELETION. 6. WITHOUT PREJUDICE, THE ASSESSMENT MADE IS BAD IN LAW AND DESERVES ANNULMENT. 7. WITHOUT PREJUDICE, THE LD. CIT(A) HAS ERRED IN N OT CONSIDERING THAT NO REASONABLE OPPORTUNITY HAS BEEN GIVEN BY THE LD. A.O. WHILE COMPLETING ASS ESSMENT WHILE PASSING ASSESSMENT ORDER. THE SAME NEEDS ANNULMENT. 8. WITHOUT PREJUDICE, NO ADEQUATE, SUFFICIENT AND R EASONABLE OPPORTUNITY HAS BEEN PROVIDED WHILE PASSING APPEAL ORDER. THE ASSESSMENT NEEDS ANNULMEN T. 9. WITHOUT PREJUDICE, NOTICE DATED 18-3-2015 FIXING HEARING ON 23-3-2015 STATED TO BE SERVED ON ASSESSEE AS PER PARA 3 OF THE ASSESSMENT ORDER HAS NOT BEEN RECEIVED BY THE ASSESSEE AND AS SUCH THE ADDITION HAVING BEEN MADE WITHOUT GIVING OPPORT UNITY NEEDS DELETION AND ALSO THE ASSESSMENT BEING BAD IN LAW NEEDS ANNULMENT. MORE EVER ALSO IN REJOINDER SUBMITTED TO THE LD. CIT(A), THE ASSESSEE REQUESTED TO SUPPLY COPY OF EVIDENCES RELI ED ON BY THE LD. A.O. IS ALSO NOT FURNISHED TO HIM AND THUS IN SPITE OF REQUESTING TO PROVIDE EVID ENCES THE SAME ARE NOT FURNISHED WITH INDICATES THAT THERE IS NO SOUND EVIDENCE WITHOUT WITH THE AS SESSMENTS NEEDS ANNULMENT. 10. THE APPELLANT CRAVES LEAVE TO ADD/ALTER/AMEND AND/OR SUBSTITUTE ANY OR ALL GROUND OF APPEAL BEFORE THE ACTUAL HEARING TAKES PLACE. 2. THE ONLY INTERCONNECTED ISSUE RAISED BY THE AS SESSEE IN ALL THE GROUNDS OF APPEAL IS THAT THE LEARNED CIT(A) ERRED IN CONFIRMI NG THE ORDER OF THE ASSESSING ITA NO.120/RJT/2017 M/S.KANANI TRADING CO. VS. ITO ASST.YEAR 2012-13 - 3 - OFFICER BY DISALLOWING THE EXPENSES AMOUNTING TO 10,51,349/- ON LUMP SUM AND ESTIMATED BASIS. 3. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IN THE PRESENT CASE IS A PARTNERSHIP FORM AND ENGAGED IN THE BUSINESS OF GENERAL MERCHAN T AND COMMISSION AGENT. THE ASSESSEE IN THE YEAR UNDER CONSIDERATION INTER-ALIA HAS INCURRED THE FOLLOWING EXPENSES: I. TRUCK RENT EXPENSES 16,93,011.00 II. PURCHASE FROM UNREGISTERED PARTIES 28,50,989.00 3.1. THE ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDINGS REQUIRED THE ASSESSEE TO FURNISH THE NAME AND ADDRESS OF THE PAR TIES TO WHOM THE TRUCK RENT CHARGES HAS BEEN PAID AND PRODUCE ANY FOUR PERSONS. 3.2. SIMILARLY, THE AO ALSO REQUIRED THE ASSESS EE TO FURNISH THE CONFIRMATION FROM THE PARTIES FROM WHOM THE ASSESSEE HAS MADE PU RCHASES OF 28,50,989.00 ONLY. 3.3. HOWEVER, THE ASSESSEE FAILED TO FURNISH THE REQUISITE DETAILS AS DESIRED BY THE AO. THEREFORE THE AO IN THE ABSENCE OF DOCUMENTARY EVIDENCE MADE THE DISALLOWANCE FOR 3,38,602 AND 7,12,747 BEING 20% AND 25% OF TRUCK RENT CHARGES AND PURCHASES FROM UNREGISTERED PARTIES RES PECTIVELY. AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO THE LEARN ED CIT (A). ITA NO.120/RJT/2017 M/S.KANANI TRADING CO. VS. ITO ASST.YEAR 2012-13 - 4 - 4. THE ASSESSEE BEFORE THE LEARNED CIT(A) SUBMITT ED THAT IT WAS NOT POSSIBLE FOR IT TO PRODUCE THE TRUCK DRIVERS AFTER THE GAP OF 4 YEA RS. IT IS BECAUSE SUCH TRUCK DRIVERS KEEP MOVING ALL OVER INDIA. THE ASSESSEE ALSO CLAIM ED THAT THERE IS NO PROVISION UNDER THE ACT TO MAKE THE DISALLOWANCE ON AD HOC/ES TIMATED BASIS. 4.1. THE ASSESSEE ALSO CLAIMED THAT THE DISALLOWAN CE MADE BY THE AO IS UNREASONABLE AND EXCESSIVE. AS SUCH THE DISALLOWANC E SHOULD BE MADE BASED ON HONEST AND SCIENTIFIC BASIS WITHOUT INVOLVING THE E LEMENT OF THE GUESSWORK. 4.2. HOWEVER, THE LEARNED CIT(A) DISREGARDED THE CONTENTION OF THE ASSESSEE BY OBSERVING AS UNDER: THUS, THE ASSESSEE HAS FAILED TO PROVE GENUINENESS OF TRUCK RENT EXPENSES AND THEREFORE THE ACTION OF THE AO IN MAKING A DISALLOWANCE OUT OF T HE SAME IS JUSTIFIED. AS REGARDS THE QUANTUM OF ESTIMATION, IN THE GIVEN FACTS AND CIRCUMSTANCES , DISALLOWANCE AT 20%, IN MY CONSIDERED VIEW IS NEITHER UNREASONABLE NOT EXORBITANT. THE RELIAN CE PLACED BY ASSESSEE ON MY DECISION IN CASE OF PREETIBEN K. LOTIA, IN APPEAL NO.CIT(A)-2/0073/2014 -15 DATED 07.11.2016 IS MISPLACED AS THE FACTS OF THIS CASE ARE DISTINGUISHABLE. THE DISALL OWANCE AND ADDITION THEREOF TO INCOME IS THEREFORE CONFIRMED. GROUND OF APPEAL 1.2 IS REJEC TED. . HAVING CONSIDERED FACTS AND CIRCUMSTANCES OF THE CA SE, I FIND IT AN UNCONTROVERTED FACT THAT DETAILS OF PURCHASES CLAIMED TO HAVE BEEN MADE WERE NOT FURNISHED. THE CONTRA CONFIRMED ACCOUNTS WERE ALSO NOT FURNISHED. THUS, THE GENUIN ENESS OF SUCH PURCHASES HAS NOT BEEN ESTABLISHED. THE ONUS WAS ON THE ASSESSEE TO PROVE HIS CLAIM TO BE GENUINE. THE CONTENTION THAT PURCHASE COULD NOT BE DISALLOWED WHEN SALES HAVE BE EN ACCEPTED IS NOT TENABLE BECAUSE IT IS NOT A CASE WHERE QUANTITATIVE DETAILS OF SALES/PURCHASES HAVE BEEN MATCHED. THEREFORE, BOGUS PURCHASES TO SUPPRESS PROFITS CANNOT BE RULED OUT. THE ASSESSEE HAS FAILED TO DISCHARGE THE ONUS OF PROVING THE PURCHASES AS GENUINE. BUT NOT GIVIN G DETAILS OF PARTIES, HE EVEN PRECLUDED AO FROM MAKING INVESTIGATION. THE DISALLOWANCE THEREF ORE IS JUSTIFIED. AS REGARDS THE QUANTUM, I FIND THAT IN VARIOUS CASES DISALLOWANCE AT 25% OF B OGUS/UNVERIFIABLE PURCHASES HAS BEEN UPHELD BY COURTS. SOME OF THESE DECISIONS ARE AS UNDER: 1. SANJAY OIL CAKE INDUSTRIES VS. CIT (2008) 316 ITR 274 (GUJ) 2. VIJAY PROTEINS LTD. VS. ACIT 58 ITD 428 (ABAD) ITA NO.120/RJT/2017 M/S.KANANI TRADING CO. VS. ITO ASST.YEAR 2012-13 - 5 - 3. M/S NAND KISHORE MEGHRAJ JEWELLERS, JAINPUR CO NO.1 05/JP/2009 ARISING OUT OF ITA NO.433/JP/2009 OF ITAT JAIPUR. ITA 187/JP/2012 SHRI ANUJ KR.VARSHNEY VS. ITO & ORS . REVENUE AUDTHORITIES. 4. M/S.TRIDENT JEWELLERS ITAT JAIPUR ITA NO.552/JP/203 . THEREFORE, THE DISALLOWANCE AT 25% BY THE ASSESSING OFFICER IS UPHELD AS REASONABLE. THE GROUND OF APPEAL 1.3 IS REJECTED. BEING AGGRIEVED BY THE ORDER OF THE LEARNED CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US. 5. THE LEARNED AR BEFORE IN THE WRITTEN US SUBMI TTED THAT THE BOOKS OF ACCOUNTS OF THE ASSESSEE WERE DULY AUDITED AND NO DEFECT WAS POINTED OUT THEREIN. SIMILARLY, THE GROSS PROFIT FOR THE YEAR UNDER CONSIDERATION W AS HIGHER THAN THE EARLIER YEARS. THE LD. AR FURTHER SUBMITTED THAT THE AMOUNT OF PUR CHASES FROM THE UNREGISTERED PARTY IS MINISCULE AGAINST THE TOTAL PURCHASES SHOW N BY THE ASSESSEE. 6. ON THE OTHER HAND, THE LEARNED DR BEFORE US VE HEMENTLY SUPPORTED THE ORDER OF THE AUTHORITIES BELOW. 7. WE HAVE HEARD THE LD. DR AND PERUSED THE MATE RIALS AVAILABLE ON RECORD. FROM THE PRECEDING DISCUSSION WE NOTE THAT, THE AO HAS M ADE THE DISALLOWANCE OF TRUCK RENT EXPENSES AND THE PURCHASES MADE BY THE ASSESSE E FROM THE UNREGISTERED PARTIES. THE DISALLOWANCE WAS MADE ON AD HOC/ESTIMA TED BASIS. THE REASON FOR THE DISALLOWANCE WAS THAT THE ASSESSEE FAILED TO FURNIS H THE BASIC DETAILS IN SUPPORT OF THE TRANSACTION. ITA NO.120/RJT/2017 M/S.KANANI TRADING CO. VS. ITO ASST.YEAR 2012-13 - 6 - 7.1. ADMITTEDLY, THE PRIMARY ONUS LIES ON THE ASS ESSEE TO JUSTIFY THE EXPENSES CLAIMED BY IT BASED ON DOCUMENTARY EVIDENCE. BUT TH E ASSESSEE IN THE CASE ON HAND HAS FAILED TO DISCHARGE HIS PRIMARY ONUS. THUS IN T HE ABSENCE OF THE DOCUMENTARY EVIDENCE, THE AO HAD NO ALTERNATIVE EXCEPT TO MAKE THE DISALLOWANCE TO THE BEST OF HIS JUDGMENT AS PROVIDED UNDER SECTION 144 OF THE A CT. INDEED, SUCH DISALLOWANCE MADE BY THE AO IN THE ABSENCE OF DOCUMENTARY EVIDEN CE MUST BE BASED ON SOME SCIENTIFIC BASIS. IN THE CASE ON HAND THE REASONABL ENESS OF THE EXPENSES HAS NOT BEEN DOUBTED BY THE AUTHORITIES BELOW. 7.2. IN OUR CONSIDERED VIEW, THE AO WAS TO COMPAR E THE EXPENSES WITH THE EARLIER YEAR EXPENSES INCURRED BY THE ASSESSEE TO FIND OUT WHETHER THE EXPENSES CLAIMED BY THE ASSESSEE ARE UNREASONABLE /EXCESSIVE BUT THE AO HAS NOT DONE SO. SIMILARLY, THE AO HAS ALSO NOT BROUGHT ANY COMPARABLE CASES TO JUS TIFY THE DISALLOWANCE MADE BY HIM. THUS IT IS TRANSPIRED THAT THE ENTIRE DISALLOW ANCE MADE BY THE AO IN THE ABSENCE OF DOCUMENTARY EVIDENCE WAS BASED ON HIS SU RMISE AND CONJECTURE. 7.3. THE PROVISIONS OF THE ACT REQUIRE TO TAX ON THE LEGITIMATE INCOME OF THE ASSESSEE AND THEREFORE THE AO CANNOT MAKE THE DISAL LOWANCE OF THE EXPENSES BASED ON HIS GUESSWORK UNTIL AND UNLESS IT IS SUPPORTED O N SOME COGENT REASONS. HOWEVER, THE FACT THAT THE ASSESSEE FAILED TO DISCH ARGE HIS PRIMARY ONUS CANNOT BE IGNORED. THEREFORE WE ARE OF THE VIEW THAT JUSTICE WILL BE SERVED TO BOTH THE ASSESSEE AND THE REVENUE IF DISALLOWANCE IS RESTRIC TED TO THE EXTENT OF 10% OF THE TRUCK RENT CHARGES AND THE PURCHASES MADE BY THE AS SESSEE FROM THE UNREGISTERED PARTIES. ACCORDINGLY, WE SET ASIDE THE FINDING OF T HE LEARNED CIT-A AND DIRECT THE AO TO MAKE THE DISALLOWANCE AT THE RATE OF 10% OF T HE EXPENSES I.E. TRUCK RENT ITA NO.120/RJT/2017 M/S.KANANI TRADING CO. VS. ITO ASST.YEAR 2012-13 - 7 - CHARGES AND PURCHASES FROM UNREGISTERED PARTIES. HE NCE THE GROUND OF APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS P ARTLY ALLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 07/ 01 /2020 SD/- SD/- ( RAJPAL YADAV ) ( WASEEM AHMED ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 07/ 01 /2020 .., .../ T.C. NAIR, SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ! ' #! / CONCERNED CIT 4. ' #! ( ) / THE CIT(A)-2, RAJKOT 5. '() ! , , /DR,ITAT, RAJKOT 6. )45 67 / GUARD FILE. / BY ORDER, '! ! //TRUE COPY// / ( DY./ASSTT.REGISTRAR) !', / ITAT, RAJKOT