Smt. Megha S.Shah, Baroda V. The Dy.CIT.,Circle-2(1), Baroda

ITA 1591/AHD/2010

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 68097 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 7 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 18-12-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 13-05-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: J P JHANGID
• Keywords: Bogus purchase; Income from undisclosed sources; Reasonable cause; Revised return
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD (BEFORE SHRI MUKUL KR. SHRAWAT, J.M. & SHRI ANIL CH ATURVEDI, A.M.) I.T. A. NO. 1591 & 1667/AHD/2010 (ASSESSMENT Y EAR: 2006-07) SMT. MEGHA S. SHAH BARODA V/S DCIT CIRCLE-2(1), BARODA (APPELLANT) (RESPONDENT) DCIT CIRCLE-2(1), BARODA V/S SMT. MEGHA S. SHAH BARODA (APPELLANT) (RESPONDENT) PAN: AFVPS4303H APPELLANT BY : NONE RESPONDENT BY : SHRI J.P. JHANGID, SR. D.R. ( )/ ORDER DATE OF HEARING : 18.12.201 3 DATE OF PRONOUNCEMENT : 31 -12-2013 PER SHRI ANIL CHATURVEDI,A.M. 1. THESE TWO APPEALS, ONE FILED BY THE REVENUE AND THE OTHER FILED BY THE ASSESSEE ARE AGAINST THE ORDER OF CIT(A)-II, BARODA DATED 25.02.2010 FOR A.Y. 2006-07. 2. ON THE DATE OF HEARING NONE APPEARED ON BEHALF OF T HE ASSESSEE BUT HOWEVER AN ADJOURNMENT APPLICATION WAS MOVED BY THE ASSESSEE. FROM ITA NOS. 1591 & 16 67/AHD/2010 . A.Y. 2006- 07 2 THE RECORDS, IT IS SEEN THAT IN THE PAST ALSO THE C ASE WAS ADJOURNED ON VARIOUS OCCASIONS. ON THE LAST DATE OF HEARING I.E . 24.10.2013, ON AN APPLICATION OF ADJOURNMENT BY THE ASSESSEE, THE MAT TER WAS ADJOURNED TO 18.12.2013 AND THE ASSESSEE WAS ALSO INFORMED THAT IT WAS A LAST OPPORTUNITY AND NO FURTHER ADJOURNMENTS WOULD BE AL LOWED. IN THE ADJOURNMENT APPLICATION, THE ASSESSEE HAS NOT SHOWN A REASONABLE CAUSE DESPITE THE LAST OPPORTUNITY GRANTED ON THE DATE OF LAST HEARING. WE THEREFORE REJECT THE ADJOURNMENT APPLICATION AND PR OCEED TO DECIDE THE MATTER ON MERITS EX-PARTE QUA THE ASSESSEE. 3. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDER: 4. ASSESSEE IS AN INDIVIDUAL AND PROPRIETOR OF THE TE CHNICAL CELL WHICH IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF ENGINEE RING AND PROCESS EQUIPMENTS. ASSESSEE FILED HER ORIGINAL RETURN OF I NCOME FOR A.Y. 06-07 ON 29.12.2006 DECLARING TOTAL INCOME OF RS. 7,63,00 0/-. ON 17.01.2008 REVISED RETURN WAS FILED BY ASSESSEE DECLARING INCO ME OF RS. 3,98,580/-. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER T HE ASSESSMENT WAS FRAMED UNDER SECTION 143(3) VIDE ORDER DATED 30.12. 2008 AND THE TOTAL INCOME WAS DETERMINED AT RS. 84,60,740/-. AGGRIEVE D BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CI T(A) PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. AGGRIEVED BY THE AFORES AID ORDER OF CIT(A), THE ASSESSEE AND REVENUE BOTH ARE NOW IN APPEAL BEF ORE US. 5. THE GROUNDS RAISED BY THE ASSESSEE READS AS UNDER:- 1. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE AP PELLANTS CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN REJECTING GROUND NO. 1 OF THE APPELLANTS APPEAL BEFORE HIM VIDE WHICH THE APPELLANT HAD ITA NOS. 1591 & 16 67/AHD/2010 . A.Y. 2006- 07 3 CHALLENGED THE VERY VALIDITY OF THE ASSESSMENT ORDE R IMPUGNED BEFORE HIM. HE OUGHT TO HAVE APPRECIATED, INTERALIA THAT THE VERY NATURE OF ADDI TIONS MADE IN THE ASSESSMENT ORDER IMPUGNED BEFORE HIM AND THE MANNER IN WHICH THEY HAD BEEN MA DE CLEARLY SHOWED THAT THE ASSESSMENT SUFFERED FROM AN UTTERLY ARBITRARY AND/OR BIASED AP PROACH WHICH WAS IMPERMISSIBLE IN LAW. 2. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE AP PELLANTS CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN RESTRICTING ADDITION OF ALLEGED BOGUS PURC HASE TO THE EXTENT OF RS. 8,56,820/- OUT OF TOTAL ADDITION OF RS. 42,84,102/-. THE LD. CIT(A) OUGHT TO HAVE DELETED ENTIRE ADDITION MADE BY ASSESSING OFFICER. 3. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE AP PELLANTS CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN HOLDING THAT PROFIT ELEMENT EMBEDDED IN TH E SALES CORRESPONDING TO THE ALLEGED BOGUS PURCHASE IS REQUIRED TO BE TAXED IN HANDS OF APPELL ANT WHEN THERE IS NO BOGUS PURCHASE AS ASSUMED BY ASSESSING OFFICER. THE LD. CIT(A) OUGHT TO HAVE DIRECTED A.O. TO DELETE ENTIRE ADDITION MADE BY HIM WITHOUT APPRECIATING FACTS OF APPELLANT. 4. WITHOUT PREJUDICE TO ABOVE, LD. CIT(A) OUGHT TO HAV E GIVEN CREDIT FOR NET PROFIT SHOWN N ANNUAL ACCOUNTS WHILE CONFIRMING ADDITION TO THE EXTENT OF 20% OF PURCHASE PRICE. 5. IN THE LAW AND IN THE FACTS AND CIRCUMSTANCES OF TH E CASE, THE APPELLANT DENIES HIS LIABILITY OF PAY INTEREST. 6. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND AND /OR WITHDRAW ANY GROUND OR GROUNDS OF APPEAL EITHER BEFORE OR DURING THE COURSE OF HEARING OF TH E APPEAL. 6. ON THE OTHER HAND THE GROUND RAISED BY THE REVENUE READS AS UNDER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) HAS ERRED IN RESTRICTING THE ADDITION OF RS. 42,84,102/- MADE ON ACCOUNT OF BOGUS PURCHASES TO RS. 8,56,820/-. THE LD. CIT(A) ERRED IN NOT APPRECIATING THE FACT T HAT THE ADDITION WAS MADE ON THE BASIS OF REPORT OF THE DDIT(INVESTIGATION). 7. SINCE BOTH THE GROUNDS RAISED BY ASSESSEE AND REVEN UE ARE INTERCONNECTED BOTH THE APPEALS ARE CONSIDERED TOGE THER FOR CONVENIENCE. 8. A.O. WAS IN RECEIPT OF REPORT FROM DDIT (INVESTIGAT ION), BARODA WHEREIN ON THE INQUIRIES REGARDING BANKING CASH TRANSACTION TAX, IT WAS FOUND BY DDIT, THAT ASSESSEE HAD SHOWN PURCHASES FROM 4 PART IES NAMELY BHAGYODAY ENTERPRISE (RS. 11,75,520/-), BHAVAN TRAD ING CO. (RS. ITA NOS. 1591 & 16 67/AHD/2010 . A.Y. 2006- 07 4 6,02,540/-), MINAXI ENTERPRISE (RS. 12,45,780/-) AN D ARUN INDUSTRIAL CORPORATION (RS. 12,60,262/-), AGGREGATE PURCHASES BEING RS. 42,84,102/- DDIT HAD FURTHER INFORMED THE A.O. OF THE PRESENT A SSESSEE THAT ALL THE AFORESAID PARTIES WERE EXAMINED ON OATH AND THEY HA D ADMITTED TO HAVE ISSUED BILLS WHICH WERE NOT GENUINE AND NO GOODS WE RE SOLD BY THEM. THE ASSESSEE WAS THEREFORE ASKED TO FURNISH THE DETAILS OF THE PURCHASES MADE FROM THE AFORESAID PARTIES AND ALSO FURNISH THE NEC ESSARY EVIDENCE IN ITS SUPPORT. IN RESPONSE TO THE QUERY, ASSESSEE INTERA LIA SUBMITTED THAT ASSESSEE HAD PURCHASED THE GOODS FROM THE AFORESAID PARTIES AND THE GOODS HAVE BEEN CONSUMED. IT WAS FURTHER SUBMITTED THE PAYMENTS TO THE PARTIES WERE MADE THROUGH ACCOUNT PAYEE CHEQUES AND THAT THE MAJORITY OF THE SALES REPRESENTED EXPORTS AND FURTHER THERE CANNOT BE ANY SALES WITHOUT CORRESPONDING PROCUREMENTS. THE SUBMISSIONS OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE TO THE A.O, AS ACCORDING T O HIM THE ONUS WAS ON THE ASSESSEE TO PROVE THE PURCHASES AS GENUINE. A.O. HAS FURTHER NOTED THAT ASSESSEE HAS NOT PROVIDED ANY EVIDENCE TO SUPP ORT THE PURCHASES WERE GENUINE NOR ANY DETAILS OF THE TRANSPORTATION OF THE PURCHASES WERE ALSO FURNISHED BY THE ASSESSEE. A.O. ALSO NOTED THA T ASSESSEE DOES NOT MAINTAIN DAY TO DAY STOCK REGISTER, NOR HAS THE ASS ESSEE GIVEN ANY DETAILS OF GODOWNS/WAREHOUSES FROM WHERE THE PARTIES HAD SE NT THE MATERIALS TO THE ASSESSEE. A.O. ALSO NOTED THAT ASSESSEE HAD MAD E NO PURCHASES FROM THE AFORESAID PARTIES IN EARLIER YEARS NOR IN SUBSE QUENT YEARS. A.O. THEREFORE CONSIDERED THE PURCHASES AGGREGATING TO R S. 42,84,102/- FROM THE AFORESAID PARTIES AS NOT GENUINE PURCHASES AND ACCORDINGLY ADDED THE AMOUNT OF RS. 42,84,102/- TO THE INCOME OF THE ASSE SSEE. AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER BEFO RE CIT(A). CIT(A) ITA NOS. 1591 & 16 67/AHD/2010 . A.Y. 2006- 07 5 AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE G RANTED PARTIAL RELIEF TO THE ASSESSEE BY HOLDING AS UNDER:- 3.3 I HAVE CONSIDERED THE SUBMISSIONS OF THE LEARNE D AUTHORIZED REPRESENTATIVE AND THE FACTS OF THE CASE. FROM THE ABOVE NARRATION REGARDING THE CIRCUM STANCES 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 PURC HASES WERE FOUND TO BE BOGUS, THE CORRESPONDING SALES COULD BE ACCEPTED AS GENUINE, AND IF SO WHETH ER THE ADDITION OF THE ENTIRE QUANTUM OF PURCHASES WAS JUSTIFIED. REGARDING THE PURCHASES, THE ONLY D OUBT CAST ON THE GENUINENESS IS ON ACCOUNT OF THE STATEMENT OF KANTILAL SHARMA, BOTH IN RESPECT OF ME ENAKSHI 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 SA LES CORRESPONDING TO THE ALLEGED BOGUS PURCHASES HAVE BEEN ACCEPTED AS GENUINE BY THE A.O. AND NO AC TION HAS BEEN TAKEN TO IGNORE SUCH SALES WHILE COMPUTING THE CHARGEABLE PROFITS OF THE ASSESSEE. I T IS AXIOMATIC THAT THERE COULD BE NO SALES WITHOUT PURCHASES. IF THE PURCHASES ARE CONSIDERED AS BOGU S, THE CORRESPONDING SALES MUST 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 S OURCES. IN THE INSTANT CASE NO MATERIAL HAS BEEN BROUGHT ON RECORD TO SHOW THAT THE SALES RELATED TO PURCHASES WERE MADE FROM UNACCOUNTED INCOME. MERE DENIAL BY THE SUPPLIER OF THE GOODS PURCHASES WOULD NOT AMOUNT TO CONCRETE EVIDENCE REGARDING THE FICTITIOUS NATURE OF THE TRANSACTION. SELLER M AY HAVE COLLATERAL REASONS OF HIS OWN FOR DENYING T HE FACT OF SALE. WHAT IS THEREFORE TO BE SEEN IS WHET HER THE GOODS HAVE BEEN RECORDED IN THE ASSESSEES BOOKS AND FIND PLACE EITHER IN THE CLOSING STOCK OR HAVE PASSED THROUGH BY WAY OF SALES. THE PAYMENTS FOR THE PURCHASES HAVE BEEN MADE BY THE ASSESSEE BY CHEQUES. SIMILARLY THE PAYMENTS FOR THE SALES MADE HAVE BEEN RECEIVED THROUGH ACCOUNT PAYEE CHEQU ES. THE JURISDICTIONAL HIGH COURT OF GUJARAT HAS, IN TH E CASE OF CIT V PRESIDENT INDUSTRIES, 258 ITR 654, HELD (ALBEIT IN THE CONTEXT OF UNDISCLOSED SALES) THAT THE AMOUNT OF UNDISCLOSED S ALES COULD NOT BE TREATED AS INCOME OF THE ASSESSEE BUT ADDITION COUL D 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 O F UNDISCLOSED SALES. ELABORATING THIS POINT THE COURT OBSERVED THAT IT CANNOT BE A MATTER OF ARGUM ENT THAT THE AMOUNT OF SALES BY ITSELF CANNOT REPRESENT THE INCOME OF THE ASSESSES WHO HAS NOT DI SCLOSED THE SALES. THE SALES ONLY REPRESENT THE PRI CE RECEIVED BY THE SELLER OF THE GOODS FOR THE ACQUISI TION OF WHICH IT HAS ALREADY INCURRED THE COST. IT IS THE REALIZATION OF EXCESS OVER THE COST INCURRED THAT O NLY 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 S OLD HAVE BEEN MADE BY THE ASSESSEE AND THAT HAS ALSO NOT BEEN DISCLOSED. IN THE ABSENCE OF SUCH FIN DING 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 ITA NOS. 1591 & 16 67/AHD/2010 . A.Y. 2006- 07 6 V CIT, 304 ITR 52. THE COURT OBSERVED THAT 'THE TOT AL SALES CANNOT BE REGARDED AS THE PROFIT OF THE ASSESSEE. THE NET PROFIT RATE HAS TO BE ADOPTED .. IN THE INSTANT CASE THE SALES HAVE BEEN ACCEPTED TO TALLY BY THE ASSESSING OFFICER. IT IS THEREFORE TO BE PRESUMED THAT PURCHASES WOULD HAVE ALSO TAKEN PLACE . IT CAN ONLY BE CONCLUDED THAT THE APPELLANT HAS MADE PURCHASES FROM THE GREY MARKET. HENCE NET PRO FIT CAN ONLY BE ESTIMATED. TAKING INTO ACCOUNT THE RELEVANT FACTS OF THE CASE I HOLD THAT 20% OF THE P URCHASE COST WOULD BE REASONABLE TO BE CONFIRMED. ADDITION OF RS. 8,56,820/- IS CONFIRMED. THE BALAN CE OF RS. 34,27,282/- IS DELETED. 9. AGGRIEVED BY THE AFORESAID ORDER OF CIT(A), THE REV ENUE AND ASSESSEE BOTH ARE NOW IN APPEAL BEFORE US. 10. BEFORE US, THE LD. D.R. POINTED TO THE VARIOUS OBSE RVATIONS AND FINDINGS OF A.O. AND SUBMITTED THAT IN VIEW OF THE STATEMENT GI VEN ON OATH BY THE SUPPLIER OF THE GOODS TO DDIT AND IN THE ABSENCE OF TANGIBLE EVIDENCE FURNISHED BY THE ASSESSEE, THE A.O. WAS FULLY JUSTI FIED IN MAKING THE ADDITIONS. HE THEREFORE SUBMITTED THAT THE ORDER O F THE A.O. BE UPHELD. 11. WE HAVE HEARD THE LD. D.R. AND PERUSED THE MATERIA L ON RECORD. CIT(A) WHILE DELETING THE ADDITION HAS NOTED THAT MR. K.M. SHARMA, WHOSE STATEMENT WAS RECORDED, WAS NOT CONFRONTED OR ALLOW ED TO BE CROSS- EXAMINED BY THE ASSESSEE. CIT(A) HAS FURTHER NOTED THAT IF THE PURCHASES WERE CONSIDERED TO BE BOGUS, THE CORRESPONDING SALE S SHOULD ALSO HAVE BEEN EXCLUDED IN ARRIVING AT THE PROFIT OF THE CONC ERN OR IT MUST BE SHOWN THAT THE SALES WERE MADE OUT OF THE STOCK ACQUIRED FROM UNACCOUNTED SOURCES. SHE HAS FURTHER NOTED THAT NO MATERIAL HAS BEEN BROUGHT ON RECORD TO SHOW THAT THE SALES RELATED TO THE PURCHA SES WERE MADE FROM UNACCOUNTED INCOME. SHE HAS FURTHER NOTED THAT THE PAYMENTS FOR PURCHASES HAVE BEEN MADE BY THE ASSESSEE BY CHEQUES AND THE PAYMENTS FOR SALES HAVE ALSO RECEIVED THROUGH ACCOUNT PAYEE CHEQUES. FURTHER, ITA NOS. 1591 & 16 67/AHD/2010 . A.Y. 2006- 07 7 SINCE THE SALES HAVE BEEN ACCEPTED TOTALLY BY THE A .O. CIT(A) WAS OF THE VIEW THAT ONLY THE NET PROFIT COULD BE ESTIMATED. CIT(A) HAS ALSO RELIED ON THE DECISION OF GUJARAT HIGH COURT IN THE CASE O F CIT VS. PRESIDENT INDUSTRIES 258 ITR 654 AND THE DECISION OF MADHYA P RADESH HIGH COURT IN THE CASE OF MANMOHAN SADANI VS. CIT 304 ITR 152. 12. BEFORE US, REVENUE COULD NOT CONTROVERT THE FINDING S OF CIT(A), NOR COULD BRING ANY CONTRARY MATERIAL ON RECORD IN ITS SUPPORT. IN VIEW OF THE AFORESAID FACTS, WE FIND NO REASON TO INTERFERE WIT H THE ORDER OF CIT(A) AND THUS THE GROUNDS RAISED BY THE ASSESSEE AS WELL AS REVENUE ARE DISMISSED. 13. IN THE RESULT, THE APPEALS OF ASSESSEE AND REVENUE ARE DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 31 - 12 - 2013. 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,A HMEDABAD