Sharad Gulabchand Sarda, Beed V. Assistant Commissioner of Income-tax,

ITA 1621/PUN/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9277 (ITAT-PUNE)
• Duration Of Justice: 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-07-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 25-07-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MUKESH JHA
• Assessee Lawyers: B P JAJU
• Keywords: Bogus purchase; Question of law; Corroborative evidences; Reassessment proceedings
• Section: 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE . . . . , , BEFORE SHRI D.KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM . / ITA NOS. 1621 & 1622/PUN/2016 / ASSESSMENT YEARS : 2009-10 & 2010-11 SHARAD GULABCHAND SARDA, PROP. ADITYA CONSTRUCTION, KALA HANUMAN THANA, BEED 431 122 PAN : AVJPS3254Q . / APPELLANT V/S AC IT, CIRCLE - 3, AURANGABAD . / RESPONDENT ASSESSEE BY : SHRI B.P. JAJU REVENUE BY : SHRI MUKESH JHA, JCIT / ORDER PER D. KARUNAKARA RAO, AM : THERE ARE TWO APPEALS UNDER CONSIDERATION AGAINST T HE TWO DIFFERENT ORDERS DATED 24-05-2016 OF THE CIT(A)-2, AURANGABAD FOR THE ASSESSMENT YEARS 2009-10 & 2010-11 RESPECTIVELY. 2. ASSESSEE RAISED 6 GROUNDS IN EACH OF THE APPEALS . GROUNDS IN BOTH THESE APPEALS ARE IDENTICAL AND THEY RELATE TO THE CORRECTNESS OF ADDITION OF ENTIRE BOGUS PURCHASES ON ONE SIDE AND IN ADDITION, THE ADDITION OF GROSS PROFIT @18% OF THE SAID PURCHASES ON ESTIMATION BAS IS IN BOTH THE ASSESSMENT YEARS. ASSESSEES GROSS PROFIT RATES AS DECLARED B Y THE ASSESSEE IN THE BOOKS OF ACCOUNT ARE 13.81% FOR A.Y. 2009-10 AND 13.60% F OR A.Y. 2010-11. OTHER GROUNDS ARE ARGUMENTATIVE IN NATURE. THEREFORE, WE PROCEED TO ADJUDICATE / DATE OF HEARING :10.07.2017 / DATE OF PRONOUNCEMENT: 10 .07.2017 2 ITA NOS.1621 & 1622/PUN/2016 THE ISSUES, I.E. (1) ADDITION OF ENTIRE BOGUS PURCH ASES AND (2) ANOTHER ADDITION OF GROSS PROFIT RATE @18% ON THE SAID BOGUS PURCHAS ES. 3. BRIEFLY STATED RELEVANT FACTS IN BOTH THE APPEAL S INCLUDE THAT THE ASSESSEE IS A CIVIL CONTRACTOR ENGAGED IN THE BUSIN ESS UNDER THE NAME AND STYLE M/S. ADITYA CONSTRUCTIONS AND ALSO MANUFACTU RING OF COTTON OIL CAKE & OIL UNDER THE NAME AND STYLE KISHORI INDUSTRIES, N ALWANDI ROAD, BEED. THE ASSESSEE FILED THE RETURN OF INCOME FOR A.Y. 2009-1 0 ON 30-09-2009 DECLARING TOTAL INCOME AT RS.42,94,390/- AND FOR A.Y. 2010-11 ON 08-10-2010 DECLARING TOTAL INCOME AT RS.93,79,450/-. BASED ON THE INFORMATION RECEIVED FROM THE MAHARASHTRA SALES TAX DEPARTMENT (THROUGH CD), AO C AME TO KNOW THAT ASSESSEE MADE PURCHASES FROM VARIOUS PARTIES AMOUNT ING TO RS.45,60,328/- FOR A.Y. 2009-10 AND RS.85,93,802/- FOR A.Y.2010-11 . IN THE REASSESSMENT PROCEEDINGS, U/S.148 R.W.S. 143(3) OF THE ACT, REJE CTING THE VARIOUS EXPLANATIONS OF THE ASSESSEE THE AO COMPLETED THE R E-ASSESSMENTS IN BOTH THE YEARS AT THE ASSESSED INCOME OF 78,91,005/- FOR A.Y . 2009-10 AND RS.2,10,32,150/-. CIT(A) CONFIRMED THE SAME. 4. AGGRIEVED WITH THE SAME THE ASSESSEE IS IN APPEA L BEFORE US WITH THE ISSUES REFERRED ABOVE. 5. DEVIATING FROM THE ARGUMENTATIVE GROUNDS RAISED IN THE APPEALS AND ARGUMENTS MENTIONED THEREIN, LD. COUNSEL FOR THE AS SESSEE FAIRLY SUBMITTED THAT THE ASSESSEE WITHOUT ANY GRIEVANCES, IF THE PR OPER GROSS PROFIT RATE IS CALCULATED ON THESE SUSPECTED PURCHASE AND THE ADDI TION OF SUSPECTED PURCHASES ARE DELETED. REFERRING TO GROSS PROFIT A DDITION, LD. AUTHORISED REPRESENTATIVE FOR THE ASSESSEE MENTIONED THAT APPL YING THE FLAT RATE OF 18% IS ON THE HIGHER SIDE. ACCORDING TO HIM, SUCH GP R ATE WAS NEVER REPORTED BY THE ASSESSEE FOR THE PAST DECADE AS HE IS IN THIS L INE OF BUSINESS FOR THE PAST 10 YEARS. FURTHER, REFERRING TO THE ADDITION OF EN TIRE BOGUS PURCHASES, I.E. 3 ITA NOS.1621 & 1622/PUN/2016 RS.19,95,717/- FOR A.Y. 2009-10 AND RS.85,93,802/- FOR A.Y. 2010-11, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT SUCH ADDITI ONS ARE UNSUSTAINABLE AS THE OFFICER NEVER DOUBTED AND THUS, ACCEPTED THE SA LES ACCOUNT AS PER THE BOOKS OF ACCOUNTS. IN THIS REGARD, HE RELIED ON TH E JURISDICTIONAL HIGH COURTS JUDGMENT IN THE CASE OF NICKUNJ EXIMP ENTERPRISES PVT. LTD. VS. CIT 216 TAXMANN 171 (BOM,) (MAG.). FURTHER, REFERRING TO T HE GROSS PROFIT RATE OF 18% APPLIED BY THE AO HE SUBMITTED THAT THE GROSS P ROFIT RATE AS PER THE BOOKS OF ACCOUNT IS 13.81% FOR A.Y. 2009-10 AND 13. 60% FOR A.Y. 2010-11, AS THE CASE MAY BE. THEREFORE, APPLYING FLAT 18% GROS S PROFIT RATE CONSTITUTES PIGMENT OF IMAGINATION OF THE AO AND UNSUPPORTED BY ANY DATA FROM ANY SOURCE. AO HAS ALSO NOT BROUGHT INTO THE RECORDS A NY COMPARATIVE CASES TO SUPPORT THE SAID RATE OF 18%. 6. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE RELIED HEAVILY ON THE ORDERS OF THE AO AND THE CIT(A). 7. WE HEARD BOTH THE SIDES ON THIS ISSUE RELATING T O MAKING ADDITION OF ENTIRE SUSPECTED BOGUS PURCHASES ALTHOUGH RELATED D OCUMENTATION IS PERFECT IN ALL RESPECTS AND PAYMENTS ARE MADE THROUGH BANKING CHANNELS AND FIND THE ISSUE IS NOW SETTLED AT THE LEVEL OF JURISDICTIONAL HIGH COURT CASE OF NICKUNJ EXIMP ENTERPRISES PVT. LTD. VS. CIT (SUPRA) THAT SU CH ADDITION IS UNSUSTAINABLE IN LAW AS THE SALES ACCOUNTS OF THE ASSESSEE STANDS UNDISTURBED. THE SAME HAS THE STRENGTH OF THE JUDGMENT IN THE CASE OF 8. FOR THE SAKE OF COMPLETENESS, RELEVANT LEGAL PRO POSITION IS EXTRACTED AS UNDER : HELD : DISMISSING THE APPEAL, THAT THE TRIBUNAL HA D DELETED THE ADDITIONS MADE ON ACCOUNT OF BOGUS PURCHASES NOT ONLY ON THE BASIS OF STOCK STATEMENT, I.E., RECONCILIATION STATEMENT BUT ALSO IN VIEW OF THE OTHER FACTS. THE TRIBUNAL RECORDED THAT THE BOOKS OF ACCOUNT OF THE ASSESSEE HAD NOT BEEN REJECTED. SIMILARLY, THE SALES HAD NOT BEEN DOUBTED AND IT WAS AN ADMITTED POSITION THAT A SUBSTANTIAL AMOUNT OF SALE S HAD BEEN MADE TO THE GOVERNMENT DEPARTMENT. FURTHER, THERE WERE CONFIRM ATION LETTERS FILED BY THE 4 ITA NOS.1621 & 1622/PUN/2016 SUPPLIERS, COPIES OF INVOICES FOR PURCHASES AS WELL AS COPIES OF BANK STATEMENTS ALL OF WHICH WOULD INDICATE THAT THE PUR CHASES WERE IN FACT MADE. MERELY BECAUSE THE SUPPLIERS HAD NOT APPEARED BEFOR E THE ASSESSING OFFICER OR THE COMMISSIONER (APPEALS), ONE COULD NOT CONCLU DE THAT THE PURCHASES WERE NOT MADE BY THE ASSESSEE. THE ASSESSING OFFIC ER AS WELL AS THE COMMISSIONER (APPEALS) HAD DISALLOWED THE DEDUCTION OF RS.1.33 CRORES ON ACCOUNT OF PURCHASES MERELY ON THE BASIS OF SUSPICI ON BECAUSE THE SELLERS AND THE CANVASSING AGENTS HAD NOT BEEN PRODUCED BEFORE THEM. THE ORDER OF THE TRIBUNAL WAS WELL A REASONED ORDER TAKING INTO ACCO UNT ALL THE FACTS BEFORE CONCLUDING THAT THE PURCHASES OF RS.1.33 CRORES WER E NOT BOGUS. NO FAULT COULD BE FOUND WITH THE ORDER OF THE TRIBUNAL. 9. IT IS UNDISPUTED THE AO NEVER DOUBTED THE SALES ACCOUNT AND BOOKS ARE NOT REJECTED VALIDLY. THEREFORE, WE ARE OF THE OPI NION THAT MAKING OF ENTIRE PURCHASES IN BOTH THE YEARS IS UNSUSTAINABLE AND TH EREFORE, THESE ADDITIONS DELETED FULLY. ACCORDINGLY, THE ASSESSEE GETS FULL RELIEF ON THIS ISSUE. HENCE RELEVANT GROUNDS OF BOTH THE APPEALS ARE ALLOWED RE LYING ON THE SAID JURISDICTIONAL HIGH COURT JUDGMENT (SUPRA). 10. COMING TO THE SECOND ISSUE RELATING THE GROSS P ROFIT ADDITION, WE FIND THIS ISSUE IS ALSO COVERED IN FAVOUR OF THE ASSESSE E BY VIRTUE OF THE JUDGMENT OF THE HONBLE GUJARAT HIGH COURT JUDGMENT IN THE C ASE OF CIT VS. SIMIT P. SETH 356 ITR 451. THIS CASE ALSO HAPPENED TO BE RE LATING TO STEEL TRADING BUSINESS AND THE SAID JUDGMENT FORTIFIES THE APPLIC ATION OF GROSS PROFIT RATE OF 12.5% ON SUCH BOGUS PURCHASES AS REASONABLE ONE. H ONBLE HIGH COURT ORDERED FOR DISMISSING THE APPEAL FILED BY THE REVE NUE. FOR THE SAKE OF COMPLETENESS, WE PERUSED THE SAID JUDGMENT. RELEVA NT LINES ARE EXTRACTED AS UNDER : 5. WE ARE BROADLY IN AGREEMENT WITH THE REASONING ADOPTED BY THE COMMISSIONER (APPEALS) WITH RESPECT TO THE NATURE O F DISPUTED PURCHASES OF STEEL. IT MAY BE THAT THE THREE SUPPLIERS FROM WHOM THE ASSESSEE CLAIMED TO HAVE PURCHASED THE STEEL DID NOT OWN UP TO SUCH SAL ES. HOWEVER, VITAL QUESTION WHILE CONSIDERING WHETHER THE ENTIRE AMOUN T OF PURCHASES SHOULD BE ADDED BACK TO THE INCOME OF THE ASSESSEE OR ONLY TH E PROFIT ELEMENT EMBEDDED THEREIN WAS TO ASCERTAIN WHETHER THE PURCH ASES THEMSELVES WERE COMPLETELY BOGUS AND NON EXISTENT OR THAT THE PURCH ASES WERE ACTUALLY MADE BUT NOT FROM THE PARTIES FROM WHOM IT WAS CLAIMED T O HAVE BEEN MADE AND INSTEAD MAY HAVE BEEN PURCHASED FROM GREY MARKET WI THOUT PROPER BILLING OR DOCUMENTATION. 5 ITA NOS.1621 & 1622/PUN/2016 6. IN THE PRESENT CASE, CIT BELIEVED THAT WHEN AS A TRADER IN STEEL THE ASSESSEE SOLD CERTAIN QUANTITY OF STEEL, HE WOULD H AVE PURCHASED THE SAME QUANTITY FROM SOME SOURCE. WHEN THE TOTAL SALE IS A CCEPTED BY THE ASSESSING OFFICER, HE COULD NOT HAVE QUESTIONED THE VERY BASI S OF THE PURCHASES. IN ESSENCE THEREFORE, THE COMMISSIONER (APPEALS) BELIE VED ASSESSEE S THEORY THAT THE PURCHASES WERE NOT BOGUS BUT WERE MADE FRO M THE PARTIES OTHER THAN THOSE MENTIONED IN THE BOOKS OF ACCOUNTS. 7. THAT BEING THE POSITION, NOT THE ENTIRE PURCHASE PRICE BUT ONLY PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES CAN BE AD DED TO THE INCOME OF THE ASSESSEE. SO MUCH IS CLEAR BY DECISION OF THIS COURT. IN PARTICULAR, COURT HAS ALSO TAKEN A SIMILAR VIEW IN CASE OF COMMISSIONER OF INCOME TAX-IV VS. VIJAY M MISTRY CONSTRUCTION LTD. VIDE ORDER DATED 10.01.2011 PASSED IN TAX APPEAL NO. 1090 OF 2009 AN D IN CASE OF COMMISSIONER OF INCOME TAX-I VS. BHOLANATH POLY FAB PVT. LTD. VIDE ORDER DATED 23.10.2012 PASSED IN TAX APPEAL NO. 63 OF 201 2. THE VIEW TAKEN BY THE TRIBUNAL IN CASE OF VIJAY PROTEINS PVT. LTD. VS . CIT REPORTED IN 58 ITD 428 CAME TO BE APPROVED. 8. IF THE ENTIRE PURCHASES WERE WHOLLY BOGUS AND TH ERE WAS FINDING OF FACT ON RECORD THAT NO PURCHASE WERE MADE AT ALL, C OUNSEL FOR THE REVENUE WOULD BE JUSTIFIED IN ARGUING THAT THE ENTIRE AMOUN T OF SUCH BOGUS PURCHASES SHOULD BE ADDED BACK TO THE INCOME OF THE ASSESSEE. SUCH WERE THE FACTS IN CASE OF ACIT (OSC) WARD 5(3) NADIAD VS. PAWANRAJ B BOKADIA (SUPRA). 9. THIS BEING THE POSITION, THE ONLY QUESTION THAT SURVIVES IS WHAT SHOULD BE THE FAIR PROFIT RATE OUT OF THE BOGUS PURCHASES WHICH SHOULD BE ADDED BACK TO THE INCOME OF THE ASSESSEE. THE COMMISSIONER ADOPTED RATIO OF 30% OF SUCH TOTAL SALES. THE TRIBUNAL, HOWEVER, SCALED DOWN TO 12.5%. WE MAY NOTICE THAT IN THE IMMEDIATELY PRECEDING YEA R TO THE ASSESSMENT YEAR UNDER CONSIDERATION THE ASSESSEE HAD DECLARED GROSS PROFIT @ 3.56% OF THE TOTAL TURNOVER. IF THE YARDSTICK OF 30%, AS ADOPTED BY THE COMMISSIONER, IS ACCEPTED GP RATE WILL BE MUCH HIGHER. IN ESSENCE, T HE TRIBUNAL ONLY ESTIMATED THE POSSIBLE PROFIT OUT OF PURCHASES MADE THROUGH N ON-GENUINE PARTIES. NO QUESTION OF LAW IN SUCH ESTIMATION WOULD ARISE. THE ESTIMATION OF RATE OF PROFIT RETURN MUST NECESSARILY VARY WITH THE NATURE OF BUS INESS AND NO UNIFORM YARDSTICK CAN BE ADOPTED. 10. IN THE RESULT, TAX APPEAL IS DISMISSED. (EMPHASIS SUPPLIED) 11. FROM THE ABOVE, IT IS EVIDENT CIT(A) IN THAT CA SE RESTRICTED THE GP RATE TO 30% AND THE ITAT SCALED IT DOWN TO 12.5%. IN TH IS LINE OF BUSINESS OF CIVIL CONTRACTS TOO, ESTIMATING PROFITS ON ADHOC BASIS @ 18% IS ON HIGH SIDE. MORE SO, AO DID NOT BRING ANY SUPPORTING EVIDENCES IN SU PPORT OF REJECTING THE BOOK RESULTS AND FOR ADOPTING 18%. AO ADOPTED THE GP RAT E OF 18% WITHOUT ANY JUSTIFICATION OR ANY SUPPORTING DOCUMENTATION OR EV IDENCES OR ANY JUDICIAL PRONOUNCEMENTS TO SUPPORT THE CASE OF THE AO/CIT(A) . WE DISCOURAGE SUCH ESTIMATION OF GROSS PROFIT AT 18% IN ABSENCE OF ANY INCRIMINATING 6 ITA NOS.1621 & 1622/PUN/2016 MATERIAL/DATA. THEREFORE, IN PRINCIPLE, WE DELETE S UCH APPROACH OF THE AOS RELIANCE ON 18% GROSS PROFIT. AT THE SAME TIME, WE FIND THAT RESTRICTING THE DISALLOWANCE TO 12.5% AS DONE IN THE CASE OF CIT VS . SIMIT P. SETH (SUPRA) IS ALSO NOT CORRECT AS THE ASSESSEE HIMSELF OFFERED TH E GROSS PROFIT RATE OF 13.81% FOR A.Y. 2009-10 AND 13.60% FOR A.Y. 2010-11 . THEREFORE, WE DIRECT THE AO TO RESTRICT THE DISALLOWANCE OF THE GROSS PR OFIT AS PER THE BOOKS OF ACCOUNTS OF THE ASSESSEE, I.E. 13.81% FOR A.Y. 2009 -10 AND 13.60% FOR A.Y. 2010-11 AND ALSO RESTRICT THE SAME TO THE SAID BOGU S PURCHASES IN BOTH THE ASSESSMENT YEARS. ACCORDINGLY, RELEVANT GROUNDS AR E PARTLY ALLOWED. 12. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 10 TH DAY OF JULY, 2017. SD/- SD/- (VIKAS AWASTHY) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE; DATED : 10 TH JULY, 2017. / COPY OF THE ORDER FORWARDED TO : / BY ORDER , // TRUE COPY // SENIOR PRIVATE SECRETARY , / ITAT, PUNE 1. / THE APPELLANT 2. / THE RESPONDENT 3. THE CIT(A) - 2, AURANGABAD 4. THE CIT - 2, AURANGABAD 5 . DR, ITAT, A BENCH PUNE; 6 . / GUARD FILE.