The DCIT, Circle-1(1), Baroda V. M/s. Gujarat Technical Cell Pvt.Ltd., Baroda

ITA 1450/AHD/2010

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 85573 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 9 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-02-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 22-01-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 05-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SONIA KUMAR
• Assessee Lawyers: VIJAY RANJAN
• Keywords: Bogus purchase; Business income; Income from undisclosed sources; Cost of acquisition; Bad and doubtful debts
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD (BEFO RE SHRI MUKUL KR. SHRAWAT, J.M. & SHRI ANIL CHATURVEDI , A.M.) I. T. A. NO. 1450 & 1653 / AHD/ 20 1 0& C.O. NO. 193/AHD/2010 (A SSESSMENT YEAR: 2006 - 07) THE D.C.I.T., CIRCLE 1(1), BARODA V/S M/S. GUJARAT TECHNICAL CELL PVT. LTD. 147, GIDC, MAKAPURA, BARODA (APPELLANT) (RESPONDENT) M/S. GUJARAT TECHNICAL CELL PVT. LTD. 147, GIDC, MAKAPURA, BARODA V/S THE D.C.I.T., CIRCLE 1(1), BARODA (APPELLANT) (RESPONDENT) PAN: AAACG8555B APPELLANT BY : SMT. SONIA KUMAR SR. D.R. RESPONDENT BY : SHRI VIJAY R ANJAN, A.R. ( )/ ORDER DATE OF HEARING : 22 - 01 - 2015 DATE OF PRONOUNCEMENT : 06 - 02 - 2015 PER BENCH 1. THIS APPEAL OF REVENUE AND C.O OF ASSESSEE ARE AGAINST THE ORDER OF CIT(A) - I, BARODA DATED 29.01.2010 F OR A.Y. 2007 - 08. 2. THE REL EVANT FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDER: - ITA NO 1450, 1653 & C.O NO. 193/A/10 . A.Y. 2006 - 07 2 3. ASSESSEE IS A COMPANY STATED TO BE ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF ENGINEERING GOODS. ASSESSEE ELECTRONICALLY FILED ITS RETURN OF INCOME FOR A.Y. 2006 - 07 ON 29.1 2.2006 DECLARING TOTAL INCOME OF RS. 10,25,815/ - . THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED UNDER SECTION 143(3) VIDE ORDER DATED 19.12.2008 AND THE TOTAL INCOME WAS DETERMINED AT RS. 2,39,29,110/ - . AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER BEFORE LD. CIT(A) WHO VIDE ORDER DATED 29.01.2010 GRANTED SUBSTANTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE AFORESAID ORDER OF LD. CIT(A), REVENUE IS NOW IN APPEAL BEFORE US AND ASSESSEE HAS ALSO FILED A C.O. THE GROUNDS RAISED BY THE REVENUE READS AS UNDER: - 1. 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(APPEALS) ERRED IN RESTRICTING THE ADDITION OF RS.2,27,69,568/ - MADE ON ACCOUNT OF BOGUS PURCHASE TO RS.33,90,105/ - BY APPLYING PERCEN TAGE ON BASIS OF THE RATE PROFIT DISCLOSED BY THE ASSESSEE FOR THE IMMEDIATELY PRECEDING YEARS. THE LD.CIT(APPEALS) ERRED IN NOT APPRECIATING THE FACT THAT THE ADDITION WAS MADE NOT ON ESTIMATION, BUT ON THE BASIS OF THE STATEMENT RECORDED BY THE DY.DIT, I NV.I, BARODA OF THE PROPRIETOR OF PURPORTED SUPPLYING PARTIES, IN WHICH IT WAS PROVED THAT THE ENTIRE CLAIM OF PURCHASE WAS BOGUS. 4. ON THE OTHER HAND THE GROUNDS RAISED BY THE ASSESSEE IN C.O READS AS UNDER: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE CIT(A) ERRED IN NOT ACCEPTING THE ASSESSEE'S CONTENTION THAT THE IMPUGNED ASSESSMENT ORDER WAS BAD IN LAW AND DESERVES TO BE CANCELLED IN THE LIGHT OF LAW LAID DOWN BY THE SUPREME COURT IN THE CASE OF SONA BUILDERS VS. UNION OF INDIA (2002) 251 ITR 197 (SC). 2. WITHOUT PREJUDICE, ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ASSESSEE'S CLAIM FOR DEDUCTION OF BAD DEBTS IS FULLY VALID IN VIEW OF A RECENT DECISION OF THE SUPREME COURT IN TRF LTD. VS. CIT (2010) 323 ITR 397 (SC). 3. ON THE FACTS AND IN TH E CIRCUMSTANCES OF THE CASE, THE CIT(A) ERRED IN CONSIDERING IT AS A CASE FIT FOR APPLYING A FLAT RATE OF PROFIT AND FURTHER ERRED IN QUANTIFYING THE CONSEQUENTIAL ADDITION IN A SUM OF RS. 33.90 LACS (RS. 33,90,105 T BE PRECISE). 5. SINCE THE GROUNDS BY REVENUE AND ASSESSEE IN ITS C.O A RE INTER CONNECTED ALL THE GROUNDS ARE CONSIDERED TOGETHER. 6. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O NOTICED THAT ASSESSEE HAD MADE PURCHASES AGGREGATING TO RS. 2,27,69,568/ - FROM MEENAXI ENTERPRISES ITA NO 1450, 1653 & C.O NO. 193/A/10 . A.Y. 2006 - 07 3 AND ARUN IND USTRIAL CORPORATION. HE ALSO NOTED THAT STATEMENT ON OATH OF SHRI KANTILAL SHARMA, PROPRIETOR OF MEENAXI ENTERPRISE WAS RECORDE D BY DDIT, BARODA ON 12.09.2006. AS SHRI JAYANTILAL SHARMA, PROPRIETOR OF ARUN INDUSTRIAL CORPORATI ON WAS OUT OF TOWN THE STATEME NT OF HIS BROTHER SHRI KANTILAL SHARMA WAS RECORDED WHEREIN HE HAD ADMITTED TO HAVE GIVEN FAKE SALES BILL TO THE ASSESSEE . IT WAS ALSO SUBMITTED BY SHRI KANTILAL SHARMA THAT ON RECEIPT OF PAYMENT OF SALE BILLS CASH WAS RETURNED BACK TO THE ASSESSEE AFTER DEDUCTION OF COMMISSION @ RS. 150 PER BOGUS SALE AMOUNT OF RS. 1,00,000/ - . THE ASSESSEE WAS THEREFORE ASKED TO SUBMIT ITS EXPLANATION ON THE SO CALLED PURCHASES MADE BY IT FROM MEENAXI ENTERPRISES AND ARUN INDUSTRIAL CORPORATION . A.O NOTED THAT ASSESSEE DI D NOT OFFER ANY EXPLANATION AND THEREFORE THE AGGREGATE PURCHASES OF RS. 2,27,69,568/ - MADE BY ASSESSEE FROM THE AFORESAID 2 PARTIES WAS CONSIDERED AS BOGUS PURCHASES AND THE SAME WAS ADDED TO THE TOTAL INCOME. AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CAR RIED THE MATTER BEFORE LD. CIT(A) WHO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE , GRANTED PARTIAL RELIEF TO ASSESSEE BY HOLDING AS UNDER: - 5.8 I HAVE CONSIDERED THE SUBMISSIONS OF THE ID. AR AND THE FACTS OF THE CASE. FROM THE ABOVE NARRATION REGARD ING THE CIRCUMSTANCES LEADING TO THE ADDITION, TWO ISSUES EMERGE FOR CONSIDERATION. THE FIRST IS WHETHER THE PURCHASES IN QUESTION WERE GENUINE PURCHASES OR NOT. THE SECOND ISSUE IS WHETHER, EVEN IF THE PURCHASES WERE FOUND TO BE BOGUS, THE CORRESPONDING S ALES COULD BE ACCEPTED AS GENUINE, AND IF SO WHETHER THE ADDITION OF THE ENTIRE QUANTUM OF PURCHASES WAS JUSTIFIED. REGARDING THE PURCHASES, THE ONLY DOUBT CAST ON THE GENUINENESS IS ON ACCOUNT OF THE STATEMENT OF KANTILAL SHARMA, BOTH IN RESPECT OF MEENAK SHI ENTERPRISES AND ARUN INDUSTRIAL CORPORATION. HOWEVER, IT IS PERTINENT TO NOTE THAT K.M. SHARMA WAS NOT CONFRONTED OR ALLOWED TO BE CROSS EXAMINED BY THE ASSESSEE. IN ANY CASE, THE SALES CORRESPONDING TO THE ALLEGED BOGUS PURCHASES HAVE BEEN ACCEPTED AS GENUINE BY THE AO AND NO ACTION HAS BEEN TAKEN TO IGNORE SUCH SALES WHILE COMPUTING THE CHARGEABLE PROFITS OF THE ASSESSEE. IT IS AXIOMATIC THAT THERE COULD BE NO SALES WITHOUT PURCHASES. IF THE PURCHASES ARE CONSIDERED AS BOGUS, THE CORRESPONDING SALES M UST ALSO BE EXCLUDED FROM CONSIDERATION IN ARRIVING AT THE PROFIT OF THE CONCERN, OR IT MUST BE SHOWN THAT SUCH SALES WERE MADE OUT OF STOCK ACQUIRED FROM OTHER UNACCOUNTED SOURCES. IN THE INSTANT CASE NO MATERIAL HAS BEEN BROUGHT ON RECORD TO SHOW THAT TH E SALES RELATED TO PURCHASES MADE FROM UNACCOUNTED INCOME. MERE DENIAL BY THE SUPPLIER OF THE GOODS PURCHASED WOULD NOT AMOUNT TO CONCRETE EVIDENCE REGARDING THE FICTITIOUS NATURE OF THE TRANSACTION. SELLER MAY HAVE COLLATERAL REASONS OF HIS OWN FOR DENYIN G THE FACT OF SALE. WHAT IS THEREFORE TO BE SEEN IS WHETHER THE GOODS HAVE BEEN RECORDED IN THE ASSESSEE'S BOOKS AND FIND PLACE EITHER IN THE CLOSING STOCK OR HAVE PASSED THROUGH BY WAY OF SALES. HERE THE ASSESSEE HAS SHOWN CLOSING STOCK OF RS. 20,28,000/ - AND SALES OF RS. 184.92 LACS. THE PAYMENTS FOR THE PURCHASES HAVE BEEN MADE BY THE ITA NO 1450, 1653 & C.O NO. 193/A/10 . A.Y. 2006 - 07 4 ASSESSEE BY CHEQUES. SIMILARLY THE PAYMENTS FOR THE SALES MADE HAVE BEEN RECEIVED THROUGH ACCOUNT PAYEE CHEQUES. 5.9 THE JURISDICTIONAL HIGH COURT OF GUJARAT HAS, IN THE CA SE OF CIT V PRESIDENT INDUSTRIES, 258 ITR 654, HELD (ALBEIT IN THE CONTEXT OF UNDISCLOSED SALES) THAT THE AMOUNT OF UNDISCLOSED SALES COULD NOT BE TREATED AS INCOME OF THE ASSESSEE BUT ADDITION COULD BE MADE ONLY TO THE EXTENT OF ESTIMATED PROFITS INCLUDED IN THE SALES, IN THE ABSENCE OF FINDING OR MATERIAL INDICATING SUPPRESSION OF INVESTMENTS IN ACQUIRING THE GOODS WHICH WERE THE SUBJECT MATTER OF UNDISCLOSED SALES. ELABORATING THIS PO INT, THE COURT OBSERVED THAT 'IT CANNOT BE A MATTER OF ARGUMENT THAT TH E AMOUNT OF SALES BY ITSELF CANNOT REPRESENT THE INCOME OF THE ASSESSEE WHO HAS NOT DISCLOSED THE SALES. THE SALES ONLY REPRESENT THE PRICE RECEIVED BY THE SELLER OF THE GOODS FOR THE ACQUISITION OF WHICH IT HAS ALREADY INCURRED THE COST. IT IS THE REALIZA TION OF EXCESS OVER THE COST INCURRED THAT ONLY FORMS PART OF THE PROFIT INCLUDED IN THE CONSIDERATION OF SALES. THEREFORE, UNLESS THERE IS A FINDING TO THE EFFECT THAT INVESTMENT BY WAY OF INCURRING COST IN ACQUIRING GOODS WHICH HAVE BEEN SOLD HAVE BEEN M ADE BY THE ASSESSEE AND THAT HAS ALSO NOT BEEN DISCLOSED. IN THE ABSENCE OF SUCH FINDING OF FACT THE QUESTION WHETHER ENTIRE SUM OF UNDISCLOSED SALE PROCEEDS CAN BE TREATED AS INCOME OF THE RELEVANT ASSESSMENT YEAR ANSWERS ITSELF IN THE NEGATIVE. ' SIMILAR VIEW HAS BEEN TAKEN BY THE MADHYA PRADESH HIGH COURT IN MAN MOHAN SADANI V CIT, 304 ITR 52. 5.10 HERE ALSO, IN THE ABSENCE OF ANY MATERIAL OR EVIDENCE TO SHOW THE SUPPRESSED INVESTMENT IN THE GOODS PURCHASED, IT IS HELD THAT THE SALES AROSE OUT OF PURCHAS ES MADE FROM MEENAKSHI ENTERPRISES AND ARUN INDUSTRIAL CORPORATION. 5.11 COMING TO THE SECOND ASPECT, I.E. WHAT WOULD BE THE ELEMENT OF PROFIT EMBEDDED IN THE SAID SALES, IT IS SEEN THAT THE APPELLANT HAD FURNISHED COPIES OF LEDGER ACCOUNT OF BOTH THE PART IES. IT IS SEEN THEREFROM THAT THREE CHEQUES AGGREGATING TO RS. 12,60,262/ - WERE RETURNED IN THE CASE OF MEENAKSHI ENTERPRISES AND SIMILARLY THREE CHEQUES AGGREGATING TO RS. 12,45,780/ - WERE ALSO RETURNED IN THE CASE OF AIC. THE TOTAL AMOUNT OF CHEQUES RET URNED WAS RS. 25,06,042/ - . THE AO HAS TAKEN THE TOTAL PURCHASES AS PER LEDGER OF THESE TWO PARTIES AT RS. 93,65,720/ - AND RS. 1,34,03,848/ - RESPECTIVELY. THUS, TOTAL PURCHASES CONSIDERED TO BE BOGUS COMES TO RS. 2,27,69,568/ - . OUT OF THIS, AS SEEN ABOVE, E NTRIES RELATING TO RS. 25,06,042/ - DID NOT RELATE TO PURCHASES BUT TO ENTRIES WHICH WERE REVERSED. HENCE THE QUANTUM OF PURCHASES REQUIRES TO BE REDUCED BY THIS AMOUNT OF RS. 25,06,042/ - . 5.12 SIMILARLY, THE ASSESSEE HAS SHOWN CLOSING STOCK OF RS. 20,28,00 0/ - . OBVIOUSLY THE GOODS PURCHASED WHICH REMAINED IN STOCK COULD NOT GENERATE ANY PROFIT, AND HENCE THIS AMOUNT OF RS. 20,28,000/ - MUST ALSO BE EXCLUDED FROM THE SALES. 5.13 FURTHER, THE ASSESSEE HAS ALREADY DISCLOSED PROFIT OF RS. 2,57,000/ - . SINCE THIS A MOUNT HAS BEEN DISCLOSED SUO MOTO, THE SAME MUST BE REDUCED FROM THE QUANTUM OF PROFIT COMPUTED WITH REFERENCE TO THE SALES. 5.14 FINALLY THE QUESTION REMAINS AS TO THE RATE OF PROFIT TO BE APPLIED TO THE SAID SALES. THIS ISSUE WAS CONSIDERED BY THE MADYA PRADESH HIGH COURT IN MAN MOHAN SADANI (SUPRA). THE COURT OBSERVED THAT 'THE TOTAL SALES CANNOT BE REGARDED AS THE PROFIT OF THE ASSESSEE. THE NET PROFIT RATE HAS TO BE ADOPTED, AND THE NET PROFIT RATE IS ADOPTED, IT CANNOT BE SAID THAT THERE IS PERVERSITY OF APPROACH. WHETHER THE RATE IS LOW OR HIGH WOULD DEPEND UPON THE FACTS OF EACH CASE.' IN THE INSTANT CASE, IT IS SEEN THAT THE GROSS PROFIT RATE DISCLOSED BY THE ASSESSEE DURING THIS YEAR COMES TO 19.89%. IN THE IMMEDIATELY PRECEDING YEAR IT WAS 18.58%. THEREFORE, HAVING REGARD TO THE PAST HISTORY AND THE FACTS OF THE CASE, I AM OF THE OPINION THAT IT WOULD BE FAIR AND REASONABLE TO ESTIMATE THE NET PROFIT RATE OF 20% ON THE SALES. 5.15 IN THE LIGHT OF THE ABOVE, THE PROFIT ELEMENT EMBEDDED IN THE SAL ES CORRESPONDING TO THE ALLEGED BOGUS PURCHASES IS WORKED OUT AS UNDER: IMPUGNED PURCHASES RS. 2,27,69,568/ - LESS: I) CONTRA ENTRIES (CHEQUES RETURNED), I.E. NOT ACTUAL PURCHASES RS. 25,06,042/ - II) CLOSING STOCK (NOT SOLD OUT HENCE NO PROFIT) ALREADY INC LUDED IN CLOSING STOCK BY THE APPELLANT RS. 20,28,000/ - RS. 45,34,04/ - ACTUAL PURCHASES RS. 1,82,35,526/ - NET PROFIT THEREON @ 20% RS. 36,47,105/ - LESS: PROFIT ALREADY DISCLOSED IN THE BOOKS AGAINST SALE OF SUCH GOODS PURCHASED RS. 2,57,000/ - PROFIT NOT DISCLOSED RS. 33,90,105/ - ITA NO 1450, 1653 & C.O NO. 193/A/10 . A.Y. 2006 - 07 5 ACCORDINGLY, THE ADDITION MADE BY THE A.O IS SUSTAINED TO THE EXTENT OF RS. 33,90,105/ - AND THE BALANCE OF RS. 1,93,79,463/ - IS DIRECTED TO BE DELETED. 7. AGGRIEVED BY THE ORDER OF CIT(A), REVENU E IS NOW IN APPEAL BEFORE US AND ASSESSEE HAS ALSO FILED C.O. 8. BEFORE US, LD. D.R. TOOK US THROUGH THE OBSERVATIONS OF A.O AND SUPPORTED THE ORDER OF A.O. THE LD. A.R. ON THE OTHER HAND SUBMITTED THAT ON IDENTICAL FACTS IN THE CASE OF SMT. MEGHA SHAH WHO IS A DIRECTOR OF THE ASSESSEE COMPANY , LD CIT (A) WHILE DECIDING THE APPEAL FOR A.Y. 2006 - 07 HAD RESTRICTED THE ADDITIO N TO 20% OF THE PURCHASE COST. HE FURTHER SUBMITTED THAT THE AFORESAID DECISION OF LD. CIT(A) WAS CONFIRMED BY HON BLE ITAT IN ITA NO. 15 91 & 1667/AHD/2010 ORDER DATED 31.12.2013. HE ALSO PLACED ON RECORD THE AFORESAID ORDER OF TRIBUNAL. HE THEREFORE SUBMITTED THAT SINCE THE FACTS OF THE CASE IN THE YEAR UNDER APPEAL ARE IDENTICAL TO THAT OF SMT. MEGHA SHAH, THE PRESENT APPEAL MAY ALSO BE DECIDED SIMILARLY . 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT LD. CIT(A) WHILE UPHOLDING THE ADDITION TO THE EXTENT OF 20% OF THE PURCHASES HAD AFTER CONSIDERING THE FACT THAT THERE IS NO EVIDENCE ON RECORD TO S HOW THAT SUPPRESSED INVESTMENT IN THE GOODS PURCHASED IS OUT OF UNDISCLOSED INCOME, THE SALES MADE NOT BEING DOUBTED AND RELYING UPON THE DECISION OF MADHYA PRADESH IN THE CASE OF MANMOHAN SADANI VS. CIT 304 ITR 52 AND THE DECISION OF HON BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. PRESIDENT INDUSTRIES 258 ITR 654 GRANTED RELIEF TO THE ASSESSEE . BEFORE US, LD. A.R. HAS SUBMITTED THAT THE FACTS OF THE CASE ARE IDENTICAL TO THAT OF MEGHA SHAH (SUPRA). BEFORE US, REVENUE HAS NOT BEEN BROUGHT ANY MATERIAL ITA NO 1450, 1653 & C.O NO. 193/A/10 . A.Y. 2006 - 07 6 ON RECORD TO POINT OUT ANY DISTINGUISHING FEATURE IN THE PRESENT CASE AS COMPARED TO THE CASE OF SMT. MEGHA SHAH NOR HAS BEEN ABLE TO CONTROVERT THE FINDINGS OF LD. CIT(A). WE THEREFORE FIND NO REASON TO INTERFERE WITH THE OR DER OF LD. CIT(A) AND THUS THE GRO UNDS OF REVENUE ARE DISMISSED. 10. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISSED. C.O. NO. 193/AHD/2010 11. BEFORE US, LD. A.R. SUBMITTED THAT THE GROUND RAISED IN THE CROSS OBJECTION ARE REDUNDANT. 12. WE HAVE HEARD BOTH THE PA RTIES. IN VIEW OF THE SUBMISSION OF LD. A.R. THE C.O OF ASSESSEE IS DISMISSED. 13. IN THE RESULT, THE APPEAL OF REVENUE AND C.O OF ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 06 - 02 - 201 5 . SD/ - SD/ - (MUKUL KR. SHRAWAT ) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHMEDABAD