ITO, Ward-7, , Vapi V. M/s. Parasmani Tubes Pvt. Ltd, Valsad

ITA 230/SRT/2020

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 1747 (ITAT-SURAT)
• Duration Of Justice: 1 year(s) 8 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-08-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 31-05-2022
• Assessment Year: 2014-2015
• Appeal Filed On: 01-12-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bogus purchase; Third party statement
• Section: 143(3); 133(6); 143(1); 143(2); 145(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JM & DR. A. L. SAINI, AM आयकर अपील सं./ITA No. 230/SRT/2020 Assessment Year: (2014-15) (Virtual Court Hearing) The ITO, Ward-7, Vapi. Vs. M/s. Parasmani Tubes Pvt. Ltd., Shed No.J-1803/4, GIDC, Umbergaon, Valsad. èथायीलेखासं./जीआइआरसं./PAN/GIR No.: AABCP 7664 D (Appellant) (Respondent) Assessee by Shri Kamlesh Bhatt, AR Respondent by Shri H. P. Meena, CIT-DR Date of Hearing 01/06/2022 Date of Pronouncement 22/08/2022 आदेश / O R D E R PER DR. A. L. SAINI, AM: Captioned appeal filed by the Revenue, pertaining to Assessment Year (AY) 2014-15, is directed against the order passed by the Learned Commissioner of Income Tax (Appeals), Valsad [in short “the ld. CIT(A)”] in Appeal No. ITBA/APL/S/250/2020-21/1027894908(1) dated 04.09.2020 which in turn arises out of an assessment order passed by the Assessing Officer under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”). 2. The grounds of appeal raised by the Revenue are as follows: “1. On the facts and circumstances of the case and in Law, the Ld. CIT(A), Valsad has erred in deleting the addition of Rs.3,45,92,150/- made on account of unexplained purchases pertaining to three parties which did not confirm outstanding balance as on 31.03.2014. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) Valsad has erred in restricting the gross profit 5% as against 12.5% estimated by the Assessing Officer on the unverifiable purchases of Rs.9,85,16,635/-. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A), Valsad has wrongly clubbed the unverifiable purchase of Rs.3,45,92,120/- and Rs.9,85,16,635/- totaling to Rs.13,31,08,755/- and directed to estimate the G.P. at 5% on this amount after allowing benefit of the G.P @ 2.17% already disclosed by the assesse. Page | 2 230/SRT/2020/AY.2014-15 Parasmani Tubes Pvt. Ltd. 4. On the facts and in the circumstances of the case, the Ld. CIT(A) has wrongly sustained the addition of only Rs.37,66,978/- out of the total addition made of Rs.4,46,01,410/- (i.e. Rs.3,45,92,120/- + Rs.1,00,09,290/-). 5. The appellant craves to add, modify or alter any grounds during the course of appeal proceedings.” 3. The above grounds Nos.1 to 4 raised by the Revenue are interconnected and mixed, therefore we adjudicate them together. 4. Brief facts of the issue in dispute are stated as under. The assessee before us is a private limited company and filed its return of income for the assessment year 2014-15 on 30.09.2014, declaring total income of Rs.6,98,800/-. The return was processed u/s 143(1) of the Income Tax Act. Later on, the assessee`s case was selected for scrutiny assessment. A notice u/s 143(2) of the Income Tax Act was issued on 18.09.2015 and duly served upon the assessee through speed post. The assessee is engaged in the trading of Copper Tubes during year under consideration. The assessee has shown Gross Profit @ 2.34% on total turnover of Rs.28,09,43,680/- relatively to the last year turnover of Rs.24,07,85,076/-. During the assessment proceedings, the assessee was asked to submit details i.e. name and address, confirmation amount, PAN, ledger and bills in respect of creditors and purchases shown in its balance sheet. In response, the assessee has submitted incomplete details of sundry creditors. For contra confirmation, letters u/s 133(6) of the Income Tax Act has been issued by the assessing officer to these parties of sundry creditors. In response to the letters u/s 133(6) of the Income Tax Act, replies in some cases have received in which closing balance as on 31.03.2014 are differed from the balances shown by the assessee. In consequences to the difference in closing balances, the assessing officer issued show cause notice to the assessee with request to explain the discrepancies. In response to the show cause dated 19/12/2016, the assessee replied and stated that copies of VAT/CST returns, details of movement of stock items during the year and confirmations of the creditors have already been submitted through which purchases of the materials are to be verified and genuine. Page | 3 230/SRT/2020/AY.2014-15 Parasmani Tubes Pvt. Ltd. However, assessing officer rejected the contention of the assessee and held that copies of VAT/CST returns, details of movement of stock items during the year and confirmations of the creditors could not prove that purchases are genuine. Again the assessee was asked to give its clarification in respect of differences of closing balance of these sundry purchases in which closing balance as on 31.03.2014 are different from the details submitted by assessee. The assessee did not clarify the difference in closing balances, therefore, purchases amount of Rs.3,45,92,120/- was disallowed by assessing officer as an unexplained income and added back to its total income for the year under consideration. 5. Again assessing officer asked the assessee to give its clarification in respect of not confirmed creditors purchase u/s 133(6) of the Income Tax Act. For sake of clarity, list of creditors, purchases not confirmed is as under: List of creditors, purchases not confirmed by Parties u/s 133(6) of the I.T. Act Sr. No. Sundry Creditors PAN No. Total Purchase During the Year (Rs.) 1 ACCURATE MULTI TRADE ETNPS9638L 5184944 2 AIR COOL INDIA AAAFA6179N 318150 3 Arnbika Metal Enterprises AAJPC8405A 7995401 4 Armacel India Pvt. Ltd. AAFCA1528D 978125 5 B.B. METAL BAKPS5298H 8292336 6 CENTURY MECHANICAL SYSTEMS (INDIA) PVT. LTD. AAACC4385M 213179 7 DIAMOND METAL INDUSTRY. AAAPB8881E 583046 8 KUNDAN TRADING COMPANY - 12486977 9 MASCOT INTERNATIONAL AUTPR1997C 5553925 10 R.S. FERROUS AND NON FERROUS PVT LTD AAFCR5605L 13734987 11 Rushabh Metal AARPJ7377G 4851000 12 SHREE SHANKESHWAR METAL CORPORATION AAWFS1423K 12352468 13 S.K.METAL AAGPM7908K 3104505 14 SULTAN DISPOSAL STORER ACHPS9278D 4630500 15 SURAJ AIR FLOW ENGINEERS AACFS4159E 403103 16 SURAJ TRADING COMPANY - 17833989 TOTAL AS PER ABOVE LIST 9,85,16,635 The assessee was asked to submit clarification in respect of not confirmed creditors for purchases and also asked why should not be disallowed and added back to its income and treated as these entries only for inflated liabilities to suppressed income. Page | 4 230/SRT/2020/AY.2014-15 Parasmani Tubes Pvt. Ltd. Since the assessee could not furnish any purchase details, therefore the books of accounts were rejected by the assessing officer as per the provisions of section 145(3) of the Income Tax Act, 1961. Then after assessing officer estimated gross profit percentage at 12.5% of purchases. The assessee already declared the Gross Profit @ 2.34%, which was adopted by assessee in its return of income, therefore assessing officer made addition of Rs. 1,00,09,290/- ( Rs.1,23,14,579- Rs.23,05,289). The working of disallowance is given below: Sr. No. Total unverified Creditor purchases G.P. adopted as per SC's order @12.5% Gross profit calculated @2.34% Difference in Rs. 1. Rs.9, 85, 16,635 Rs. 1,23, 14,579 Rs.23,05,289 Rs. 1,00,09,290 This way, an estimated net profit amounting to Rs.1,00,09,290/- was added back to the income of the assessee for the year under consideration. 6. Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A), who has deleted the addition made by the Assessing Officer observing as follows: “Ground of appeal no.2 Vide this ground, the appellant has objected to the rejection of books of account u/s 145(3) of the Act by the AO. From the assessment order, it is apparent that the appellant had not proved the genuineness of purchases claimed in the books of accounts. The AO had issued notices u/s. 133(6) of the Act to the bogus billers was made by them to notice u/s. 133(6) issued by the AO, such purchases of Rs.9,85,16,635/- was held as unverifiable and profits @12.5% was estimated after rejecting books of accounts. Considering these discrepancies in purchase parties details in so far as confirmation not received from these parties are concerned, the whole outstanding balance of parties cannot be sustained as unexplained purchase. Only profit on such unverifiable purchases can be taken up for addition to the total income. The appellant has furnished gross profit chart of AY 2007-08 to current A.Y. wherein GP varies from 1.23% in AY 2007-08 to 2.37% in the current AY. There are numerous decisions of the jurisdictional ITAT and Hon'ble Gujarat High court pertaining to the issue of bogus purchases wherein GP of 5% to 12% and even higher amounts were sustained as against the full disallowance of purchases. Yet again, there is another judgment of Hon'ble Supreme Court in the case of N. K. Proteins Ltd wherein 100% disallowance of purchases by the Hon'ble Gujarat High court was affirmed as the SLP against the order of Hon'ble Gujarat High court was dismissed by the apex court in the order dated 18 th January, 2017. Thus, the additions on the issue of bogus purchases vary from case to case arid depend on the facts associated with the particular case. In the current case, the facts are not similar to the facts of the case of N. K. Proteins Ltd. so as to consider for 100% disallowance. Even survey proceedings, in F.Y. Page | 5 230/SRT/2020/AY.2014-15 Parasmani Tubes Pvt. Ltd. 2012-13 in the appellant's case did not bring out material adverse evidence to support 100% disallowance of bogus/unverifiable purchases. Considering these facts and court decisions, it will be reasonable if 5% of, the unverifiable purchases of Rs.13,31,08,755/- (Rs.3,45.92,120 + Rs.9,85,16,635/-) i.e. Rs.66,55,438/- can be considered as suppressed profits on unverifiable purchases. This will take care of suppression in GP due to purchases made from different parties and bills of purchases taken from bogus billers. As the appellant has already disclosed GP @ 2.17% on this purchase portion of Rs.13,31,08,755/- meaning thereby Rs.28,88,460/- gross profit is already shown in the P & L account for the current A.Y. Hence, the net addition of Rs.37,66,978/- (Rs.66,55,438 - Rs.28,88,468) is confirmed out of total addition of Rs.3,45,92,120/- and Rs.1,00,09,290/-. Grounds of appeal no. 3 to 7 are thus partially allowed. 7.Aggrieved by the order of the ld. CIT(A), the Revenue is in appeal before the us. 8. We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. Learned DR for the Revenue pleads that decision of the Ld.CIT (A) is not acceptable on facts of the case. The ld DR pointed out that during the course of assessment proceedings, the assessee was asked to give its clarification in respect of not confirmed creditors for purchase u/s 133(6) of the I.T. Act as mentioned on page nos.4 and 5 of the assessment order. Since the assessee failed to bring on record the relevant and corroborative evidences, the Assessing Officer has correctly invoked the provisions of section 145(3) of the I.T. Act and estimated the gross profit at 12.5% on the total unverified creditor of Rs.9,85,16,635/- and made an addition of Rs.1,00,09,290/- to the total income of the assessee. In view of the above facts and circumstances, the decision of the Ld. CIT(A) in estimating the G.P. rate at 5% as against 12.5% estimated by the Assessing Officer on account of unverified purchases is not in accordance with law, therefore, addition made by the assessing officer should be sustained. 9. On the other hand, the Ld. Counsel for the assessee has primarily reiterated the stand taken by the ld CIT(A), which we have already noted in our earlier para and the same is not being repeated for the sake of brevity. Page | 6 230/SRT/2020/AY.2014-15 Parasmani Tubes Pvt. Ltd. 10. We have considered the submissions of learned DR for the Revenue and ld Counsel for the assessee. The Ld. Counsel submitted before us the reply given to the Assessing Officer during the assessment proceedings which is placed at paper book at page no. 1 and 2. The Ld. Counsel also submitted the confirmation of various parties which is placed at paper book page nos. 5 to 15. By submitting this reconciliation and confirmation of the parities, the Ld. Counsel claimed that assessee has discharged his owns to furnish the reconciliation of the impugned purchases. However, from the assessment order, it is apparent that the assessee had not proved the genuineness of purchases claimed in the books of accounts. The Assessing Officer had issued notices u/s 133(6) of the Act to the bogus billers and they did not reply to the assessing officer therefore such purchases of Rs.9,85,16,635/- was held as unverifiable and profits @12.5% was estimated after rejecting books of accounts. We note that assessing officer rightly rejected the books of accounts. On appeal, ld CIT(A) reduced the estimation from 12.5% to 5% on unverifiable and unexplained purchases. The ld CIT(A) also included in the said estimation the addition of Rs.3,45,92,150/- made by assessing officer on account of unexplained purchases pertaining to three parties which did not confirm outstanding balance as on 31.03.2014. We do not find any infirmity in the conclusion reached by ld CIT(A). That being so, we decline to interfere with the order of Id. CIT(A) in deleting the aforesaid additions. His order on this addition is, therefore, upheld and the grounds of appeal of the Revenue are dismissed. 11. In the result, the appeal filed by the Revenue is dismissed. Order is pronounced in the open court on 22/08/2022 by placing the result on the Notice Board as per Rule 34(5) of the Income Tax (Appellate Tribunal) Rule 1963. Sd/- Sd/- (PAWAN SINGH) (Dr. A.L. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER lwjr /Surat Ǒदनांक/ Date: 22/08/2022 SAMANTA Page | 7 230/SRT/2020/AY.2014-15 Parasmani Tubes Pvt. Ltd. Copy of the Order forwarded to 1. The Assessee 2. The Respondent 3. The CIT(A) 4. CIT 5. DR/AR, ITAT, Surat 6. Guard File By Order // TRUE COPY // Assistant Registrar/Sr. PS/PS ITAT, Surat