Crust Agronics Pvt. Ltd., Ahmedabad V. Income Tax Officer,Ward-1(1)(3), Ahmedabad

ITA 239/AHD/2022

AI Insights

Crust Agronics Pvt. Ltd., engaged in the wholesale trading of agricultural produce, primarily rice, appealed against the order of the CIT(A) which confirmed the addition of Rs.40,77,862 to their income on account of alleged bogus purchases. The Assessing Officer had initially estimated the gross profit rate at 4%, significantly higher than the 0.21% reported by the assessee, based on the Profit & Loss Account. The Tribunal noted that the assessee was not given a fair opportunity to cross-examine a third-party statement during the assessment proceedings and that the purchases were made from genuine parties through regular banking channels. The Tribunal concluded that the gross profit margin applied by the Assessing Officer was not appropriate for the nature of the business and the products involved.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 129316 (ITAT-AHMEDABAD)
• Duration Of Justice: 11 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-05-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 09-05-2023
• Assessment Year: 2015-2016
• Appeal Filed On: 15-06-2022
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PALAK PAVAGADHI
• Keywords: Bogus purchase; Business income; Principle of natural justice; Opportunity of cross examination; Initiation of penalty proceedings; Third party statement; Bogus
• Section: 143(1); 250; 143(2)

Judgement Text

ITA No.239/Ahd/2022 Assessment Year: 2015-16 Page 1 of 4 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “SMC” BENCH, AHMEDABAD BEFORE Ms. SUCHITRA KAMBLE, JUDICIAL MEMBER ITA No.239/Ahd/2022 Assessment Year: 2015-16 Crust Agronics Pvt. Ltd., vs. Income Tax Officer, 305, Shree Nidhi Complex, Ward – 1(1)(3), Ahmedabad. B/h. Nagar Seth Vando, Vaghanpole, Ratanpole, [PAN – AAFCC 8738 B] (Appellant) (Respondent) Assessee by : Shri Palak Pavagadhi, AR Revenue by : Shri V.K. Mangla, Sr. DR Date of hearing : 10.05.2023 Date of pronouncement : 26.05.2023 O R D E R This appeal is filed by the Assessee against order dated 24.12.2021 passed by the CIT(A), National Faceless Appeal Centre (NFAC), Delhi for the Assessment Year 2015-16. 2. The Assessee has raised the following grounds of appeal :- “1. The Ld. CIT(A) is grossly erred in passing the order u/s 250 of the Income Tax Act, dismissing the appeal filed by the appellant and confirming the addition of Rs.40,77,862/- on account of wrong estimation of gross profit by considering it bogus purchase. The Ld. CIT(A) ought to have considered the facts that the purchases are genuine and made in furtherance of business. The order is passed without considering the principal of natural justice. The appellant has not been given a chance to cross examine the third-party statement. The Ld. CIT(A) merely based on suspicion, erred in rejecting the books of account of the appellant and made an addition of Rs.40,54,732- being 4% of total sales. The appellant is engaged in the business of wholesale trading of agricultural produce, mainly rice. During the year under consideration, he purchased huge quantities of rice in a single order, as the appellant is a wholesale trader it is the modus operand! of the business to make major purchases from certain trusted suppliers. We further reiterate that the purchases were made from genuine parties and the payments were also made through regular banking channels which duly corroborated and confirmed by the account's confirmations. ITA No.239/Ahd/2022 Assessment Year: 2015-16 Page 2 of 4 Moreover, CIT(A) should have considered that facts that the appellant was new in the market and to grab the market he has used penetration pricing strategy wherein he has sold goods at lower prices. The gross profit margin of 4% taken by your honour is not justifiable as the products sold by the appellate is non branded and there is a huge difference between branded and non-branded products, the GP ration of two units in the same line of business are not comparable as there are different factors governing the gross profit margin of the products, viz. quality, location of the suppliers, market and customer base etc. and hence this comparison is not viable. Further the Ld. CIT(A) shall also take into consideration that the sales were made to genuine parties and the transactions are undertaken through regular banking channels and hence there is no doubt regarding the genuineness of the sales. If the sales are genuine then it is impossible that all the purchases are ingenuine and bogus. 2. Levy of interest u/s 234A, 234B, 234C of the Act is not justified. 3. Initiation of penalty proceedings u/s.271(1)(c) of the Act is not justified.” 3. The assessee carried out the business of wholesaling of agricultural products, mainly rice, during the year under consideration. The assessee filed return of income on 24.10.2015 declaring total income of Rs.23,130/-. The return was duly processed under Section 143(1) of the Income Tax Act, 1961 and notice under Section 143(2) was issued on 28.07.2016. The assessee filed details and submissions before the Assessing Officer. The Assessing Officer observed that as per Profit & Loss Account, total turnover for the year under consideration stands at Rs.10,19,46,552/-. Against the turnover/sales, the assessee company booked a Gross Profit of Rs.2,14,456/- which is 0.21% of the turnover and booked Net Profit of Rs.23,130/- which is 0.02% of the turnover. The Assessing Officer further observed that the assessee company shown purchase of Rs.10,17,32,096/- against the sale of Rs.10,19,46,552/- which seems abnormal in this line of business because the assessee has shown Gross Profit of 0.21% only. The Assessing Officer made estimated GP ratio of the assessee at 4% on total sales of Rs.10,19,46,552/- on the basis of sales register which comes to Rs.40,77,862/- and treated the same as business income of the assessee after considering all the allowable and disallowable expenses against the returned income shown at Rs.23,130/-. 4. Being aggrieved by the Assessment Order, the assessee filed appeal before the CIT(A). The CIT(A) dismissed the appeal of the assessee. ITA No.239/Ahd/2022 Assessment Year: 2015-16 Page 3 of 4 5. The Ld. AR submitted that the CIT(A) was not right in dismissing the appeal of the assessee. The purchases are genuine and made in furtherance of business. The assessee has not been given a chance to cross-examine the third party statement that of Shri Ravikumar S. Shah, Director of M/s. Preksha Agro Industries Pvt. Ltd. from whom the assessee has made purchases. The Ld. AR further submitted that the assessee is engaged in the business of wholesaling of agricultural produce, mainly of rice. The assessee was new in the market and to grab the Market he has used penetration pricing strategy wherein he sold goods at lower prices. The gross profit margin of 4% taken by the Assessing Officer is not justifiable as the products sold by the assessee is non-branded and there is a huge difference between branded and non- branded products, the GP rate of two units in the same line of business are not comparable as there are difference factors governing the gross profit margin of the products viz. quality, location of the suppliers market and customer base etc. and hence this comparison is not viable. The Ld. AR submitted that the sales were made to genuine parties and the transactions are undertaken through regular banking channels. Hence, there is no doubt regarding genuineness of the transactions. If the sales are genuine then it is impossible that all the purchases are in-genuine and bogus. 6. The Ld. DR relied upon the Assessment Order and the order of the CIT(A). The Ld. DR submitted that the Assessing Officer has rightly estimated the GP at 4% on total sale. 7. Heard both the parties and perused all the relevant material available on record. It is pertinent to note that the statement of Director of M/s Preksha Agro Industries was not confronted to the assessee during the assessment proceedings. The contention of the assessee that the assessee is a wholesale trader of agricultural produce mainly rice is evident as the Assessing Officer himself pointed out in the Assessment Order that Shri Ravikumar S. Shah was not able to tell from whom he has purchased the product for making sales to the assessee. The purchase was confirmed by Shri Ravikumar S. Shah indirectly with the assessee which is evident in paragraph no.4.5 of the Assessment Order. Thus, the Assessing Officer was not right in observing that there was grey purchase and assessee manipulated the business carried out by the assessee. The assessee has sold goods at lower price which was not doubted by the Assessing Officer and when the sales has been accepted by the ITA No.239/Ahd/2022 Assessment Year: 2015-16 Page 4 of 4 Assessing Officer without any verification, the purchases which was genuinely made by the assessee cannot be doubted. Therefore, the GP rate at 4% on total sale estimated by the Assessing Officer was not genuine. Hence, appeal of the assessee is allowed. 8. In the result, appeal filed by the assessee is allowed. Order pronounced in the open Court on this 26 th day of May, 2023. Sd/- (SUCHITRA KAMBLE) Judicial Member Ahmedabad, the 26 th day of May, 2023 PBN/* Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order UE COPY Assistant Registrar Income Tax Appellate Tribunal Ahmedabad benches, Ahmedabad