Matharlal mungalal Agrawal, Khandwa V. The ITO, Khandwa

ITA 20/Ind/2019

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The case involves M/s. Matharlal Mungalal Agrawal, a firm engaged in trading of grains, which was accused of making bogus purchases amounting to Rs. 31,49,684 during the Assessment Year 2014-15. The Income Tax Officer (ITO) conducted a scrutiny under section 143(3) of the Income-tax Act, 1961, following information from a news article about the assessee's use of fake licenses for purchases. The ITO's investigation revealed that the purchases were recorded through fake licenses and involved suspicious bank transactions. The Commissioner of Income-Tax (Appeals) upheld the ITO's decision, leading the assessee to appeal before the Tribunal. The Tribunal, while agreeing with the lower authorities on the bogus nature of the purchases, modified the addition to reflect only the profit element, citing precedents that disallow full addition of purchase amounts when corresponding sales are declared.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 135711 (ITAT-INDORE)
• Duration Of Justice: 4 year(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-01-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: DB
• Next Hearing Date: 30-11-2022
• Assessment Year: 2014-2015
• Appeal Filed On: 15-01-2019
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: INVOKING SECTION; MADE ADDITION
• Keywords: Bogus purchase
• Section: 143(3); 133(6); 145(3)

Judgement Text

आयकरअपील यअ धकरण,इंदौर यायपीठ,इंदौर IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE MS. MADHUMITA ROY, JUDICIAL MEMBER AND SHRI B.M. BIYANI, ACCOUNTANT MEMBER (Conducted through Virtual Court) ITA No.20/Ind/2019 Assessment Year: 2014-15 M/s. Matharlal Mungalal Agrawal, Khandwa बनाम/ Vs. ITO-1, Khandwa (Appellant / Assessee) (Respondent / Revenue) PAN:AAJFM1808P Assessee by None Revenue by Shri Ashish Porwal, Sr. DR Date of Hearing 01.12.2022 Date of Pronouncement 25.01.2023 आदेश/ O R D E R Per B.M. BIYANI, AM: Feeling aggrieved by appeal-order dated 15.10.2018 passed by learned Commissioner of Income-Tax (Appeals)-II, Indore [“Ld. CIT(A)”], which in turn arises out of assessment-order dated 16.12.2016 passed by learned ITO-1, Khandwa[“Ld. AO”] u/s 143(3) of Income-tax Act, 1961 [“the Act”] for Assessment-Year[“AY”] 2014-15, the assessee has filed this appeal on following grounds: “1. The learned CIT(A) has erred in sustaining that the addition made by Assessing Officer at Rs 31,49,684 u/s 69(c) is correct. MatharlalMungalal Agrawal ITANo.20/Ind/2019 – AY 2014-15 Page 2 of 6 2. The learned CIT(A) has erred in concluding that the purchase of Rs. 31,49,684 is bogus. 3. The learned CIT(A) erred in concluding that the amount withdrawn by M/s Shekh Brothers has been obtained by the appellant. 4. That the learned CIT(A) has erred in confirming the addition by Assessing Officer for bogus purchase without considering the corresponding quantity of sales. 5. That without prejudice to above the learned CIT(A) ought to have considered the addition of Gross Profit instead of entire purchase of Rs. 31,49,684. 6. That the appellant crave leave to add, alter or amend any grounds of appeal before the appeal is heard and finally disposed off.” 2. When the case was called, none appeared on behalf of assessee. However,the Ld. DR representing the revenue was ready to argue the case and submitted that it can be decided on the basis of material held on record and after hearing him. Accordingly, the hearing was proceeded. 3. Briefly stated the facts are such that the assessee-firm is engaged in trading of grains. The assessee submitted return of income of the relevant AY 2014-15 on 09.11.2014 declaring a total income of Rs. 69,490/- which was subjected to scrutiny proceeding u/s 143(3) of the Act and the Ld. AO completed assessment after making an addition of Rs.31,49,684/- on account of bogus purchases. Aggrieved, the assessee went in first-appeal but could not succeed. Now, the assessee has come in this appeal before us assailing the orders of lower authorities. 4. Drawing our attention to the orders of lower authorities, Ld. DR submitted that the department received an information from a news item published in different news-papers that the assessee had made bogus purchases on the basis of fake licences of Krishi Upaj Mandi, Bhander. Based MatharlalMungalal Agrawal ITANo.20/Ind/2019 – AY 2014-15 Page 3 of 6 thereon, when the authorities made enquiry, it came to the knowledge that the assessee made/declared bogus-purchases of Rs.31,49,684/- of Soyabeen through fake licenseNo.72,73,74 of Krishi Upaj Mandi from M/s Shekh Brothers, Bhander. To verify further, when the Ld. AO called for details directly from Krishi Upaj Mandi u/s 133(6), the authorities of Krishi Upaj Mandi informed that their license book No.5168 had been stolen by someone and the impugned licenseNo.72,73,74 were part of that book. The Ld.AO further called for information from M/s Shekh Brothers u/s 133(6) but, however, they could not/did not submit documentary evidencesof the alleged transactions such as bilty, receipt of toll tax, receipt of mandi tax, etc. Then, the Ld. AO also communicated directly to Buldhana Urban Cooperative Bank, Buldhana Branch to enquire about the transaction done in bank account held by M/s Sekh Brothers (proprietor Shri Manoj Gupta), whereupon it further got unearthed that the cheques of Rs. 14,00,000/- dated 12.08.2013; Rs. 7,68,000/- dated 13.08.2013; and Rs. 8,31,700/- issued by assesseetowards paymentsagainst the alleged purchase-transactions were deposited in that bank account and immediately on the very same dates,the sum of Rs. 14,00,000/-; Rs. 7,68,000/-; and Rs. 8,31,500/- were cash-withdrawn through self-cheques. Ld. AO has reported abstract of bank account Page No.4 of the assessment-order. These all evidencesand circumstances led theLd. AO to observe that the purchases declared by assessee were fake-purchase and not real. The Ld. AO also recorded statements of Shri Akash Agrawal (partner of assessee)as well as Shri Harish Sharma(accountant of assessee) and found contradictions, which again strengthened that the impugned purchases were actually bogus-purchases. With such evidences collected by Ld. AO, he finally arrived at a strong conclusion that the assessee made/declared bogus- purchase just to claim deduction of expenditure. Finally, the Ld. AO rejected the books of account of assessee by invoking section 145(3) and made addition. MatharlalMungalal Agrawal ITANo.20/Ind/2019 – AY 2014-15 Page 4 of 6 5. During first-appeal before Ld. CIT(A), theassessee made a detailed submission which is incorporated by Ld. CIT(A) in para 3 of appeal-order and ultimately the assessee made two alternative prayers, viz. (i) to delete the addition of Rs.31,49,684/- fully or (ii) to adopt concept of real income and restrict the addition to suppressed income of Rs.1,84,571/- @ 5.86% on sales corresponding to the alleged bogus purchases.However, the Ld. CIT(A) considered the findings and observations of the Ld. AO and finally rejected both prayers of assessee and sustained the addition fully. 6. Before us, Ld. DR placed a heavy reliance on the orders of lower authorities. Ld. DR contested that there are so many evidences, documentary as well as statements, as noted by Ld. AO in assessment-order which clearly demonstrate that the assessee has recorded bogus purchases in the books of account and thereby claimed a false business-deduction. Then, he argued that any kind of bogus-deduction is not allowed under the scheme of Income Tax Act, 1961 and therefore the lower authorities have rightly made/confirmed the said addition of Rs. 31,49,684/-. Ld. DR, accordingly, prayed to uphold the same. 7. We have considered rival submission of both sides and perused the material held on record. We find that the Ld. AO has made detailed enquiries from differentsourceswith regard to the impugned purchases and thereafter arrived at a reasoned conclusion that the purchases shown by assessee were bogus. During first-appellate proceeding, the Ld. CIT(A) has also considered the entire material and agreed with the action of Ld. AO. On a careful consideration, we do not find any reason to upset the findings of lower- authorities. However, we are conscious of several decisions where it has been categorically held that if the purchases are found lacking bona fides but the assessee has declared corresponding sales, the addition/disallowance has to be of the profit-elementwhich can be expected to be earned by assessee and not of the entire purchase. Therefore, holding the same view, we are of the MatharlalMungalal Agrawal ITANo.20/Ind/2019 – AY 2014-15 Page 5 of 6 considered opinion that it is not justifiable to make full addition of Rs.31,49,684/- as done by lower authorities. We agree to the second alternative raised by assesseebefore Ld. CIT(A) as well as in Ground No.5 before us, whereby the assessee agrees to restrict the addition to the extent of the profit element. We further observe that the assessee has requested for profit element of 5.86% before Ld. CIT(A) but taking guidance from section 44AD of Income- Tax Act, 1961 which prescribes 8% profit on sales-turnover, we are also persuaded to accept 8% profit in the present case. Since the sum of Rs. 31,49,684/- is ofpurchase and not sales, we extrapolate it mathematically to the level of sales and thereby arrive at the net profit of Rs. 2,73,884/- (Rs.31,49,684*8/92). Accordingly, we restrict addition to Rs. 2,73,884/- and direct the Ld. AO to delete the rest of the addition of Rs. 28,75,800/- [Rs. 31,49,684/- minus Rs. 2,73,884/-]. Thus, the assessee succeeds partly in this appeal. 8. Resultantly, this appeal of assessee is partly allowed. Order pronounced as per Rule 34 of ITAT Rules, 1963 on 25/01/2023. Sd/- Sd/- (MADHUMITA ROY) (B.M. BIYANI) JUDICIALMEMBER ACCOUNTANTMEMBER Indore दनांक /Dated : 25.01.2023 Patel/Sr. PS MatharlalMungalal Agrawal ITANo.20/Ind/2019 – AY 2014-15 Page 6 of 6 Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order UE COPY Sr. Private Secretary Income Tax Appellate Tribunal Indore Bench, Indore 1. Date of taking dictation 20.1.23 2. Date of typing & draft order placed before the Dictating Member 20.1.23 3. Date on which the approved draft comes to the Sr. P.S./P.S. 20.1.23 4. Date on which the fair order is placed before the Dictating Member for pronouncement 5. Date on which the file goes to the Bench Clerk 6. Date on which the file goes to the Head Clerk 7. Date on which the file goes to the Assistant Registrar for signature on the order 8. Date of dispatch of the Order