Appeal details
Counselvise Citation
[2022] 106 COUNSELVISE.COM (IT) 6805 (ITAT-JAIPUR)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
3 month(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
14-09-2022
Appeal Filed By
Department
Order Result
PartlyAllowed
Bench Allotted
B
Assessment Year
2012-2013
Appeal Filed On
14-06-2022
Judgement Text
vk;dj vihyh; vf/kdj.k] t;iqj U;k;ihB] t;iqj IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”B” JAIPUR MkWa- ,l-lhrky{eh] U;kf;d lnL; ,oa Jh jkBksM deys'k t;UrHkkbZ] ys[kk lnL; ds le{k BEFORE: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;dj vihy la-@ ITA. No. 122/JP/2022 fu/kZkj.k o"kZ@Assessment Years : 2012-13 Kandoi Metal Powders Manufacturing Company, F-381, 382, Road No. 9F, VKI Area, Jaipur. cuke Vs. DCIT, Central Circle-3, Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AABCK 0316 R vihykFkhZ@Appellant izR;FkhZ@Respondent vk;dj vihy la-@ITA. No. 244/JP/2022 fu/kZkj.k o"kZ@Assessment Years : 2012-13 DCIT, Central Circle-4, Jaipur. cuke Vs. Kandoi Metal Powders Manufacturing Company, F-381, 382, Road No. 9F, VKI Area, Jaipur.. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AABCK 0316 R vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Sh. S. L. Poddar (Adv.) jktLo dh vksj ls@ Revenue by : Sh. Sanjay Dhariwal (CIT) a lquokbZ dh rkjh[k@ Date of Hearing : 01/09/2022 mn?kks"k.kk dh rkjh[k@Date of Pronouncement : 15/09/2022 vkns'k@ ORDER PER: RATHOD KAMLESH JAYANTBHAI, AM These are the cross appeals filed by the assessee and revenue and are directed against the order of the learned ITA Nos. 122 & 244 /JP/2022 Kandoi Metal Powders Manufacturing Co. 2 Commissioner of Income Tax (Appeals)-4, Jaipur [hereinafter referred to as (ld. CIT(A)] dated 29.03.2022 for the Assessment Year 2012-13, which in turn arise out of an order passed by ACIT, Central Circle-3, Jaipur passed u/s. 147 r.w.s. 143(3) of the Income Tax Act, 1961 [ here in after referred to act “Act”] on 29.12.2019. 2. As the issues involved in the present appeals are inextricably interlinked or in fact interwoven, therefore, the same were argued together and are disposed off by this consolidated order. 3. Revenue in ITA no. 244/JPR/2022 for the year under consideration has raised following grounds of appeal: “(i) Whether on the facts and circumstances of the case and in law, the CIT(A) was justified in directing the AO to apply GP@ 6% on total turnover whereas the AO had disallowed 25% of bogus purchase. (ii) Whether on the facts and circumstances of the case and in law, the CIT(A) was justified in directing the AO to charge commission @ 6% on restricted addition only, whereas commission @6% had been charged on bogus purchase disallowed by the AO. (iii) Whether CIT(A) was justified in law in ignoring the fact that the assessee has failed to discharge its burden to establish the genuineness of the alleged purchase claimed to have made in its books of account. (iv) "Whether CIT(A) was justified in law in ignoring the enquiring conducted by the investigation wing and proving that the assessee was indulging in bogus purchase. ITA Nos. 122 & 244 /JP/2022 Kandoi Metal Powders Manufacturing Co. 3 (v) "The appellant craves its rights to add, amend or alter any of the grounds on or before the hearing.” 4. Assessee in ITA no. 122/JPR/2022 for the year under consideration has raised following grounds of appeal: “1The Learned CIT(A) has erred in sustaining the addition of Rs. 11476762/- on account of gross profit by apply GP Rate of 6% against 4.91% declared by the assessee. Because of unverifiable purchases. 2. Under the facts and circumstances the Learned CIT(A) has erred in sustaining the amount of Rs. 6,88,603/- against an addition of Rs. 31,58,913/- made on account of alleged commission payment. 3. Under the facts and circumstances the Learned (CIT(A) has erred in confirming the action of the Learned AO on account of reopening of assessment by appreciating wrong facts and without making proper enquirers only on the basis of information received. 4. The assessee craves your indulgence to add amend or alter all or any grounds of appeal before or at the time of hearing.” 5. The facts as culled out from the record are that the assessee is a private limited company and engaged in the business of manufacturing of copper wire and other copper related products. The return in this case was filed on 17.03.2013 declaring a total income of Rs. Nil. The original assessment was completed u/s 143(3)/153C of the Income Tax Act, 1961 on 26.03.2015. On the basis of information received and after analyzing the fact related to escapement of income, the case of the assessee was re-reopened under section 147 of the Act. The necessary approval of the ITA Nos. 122 & 244 /JP/2022 Kandoi Metal Powders Manufacturing Co. 4 Principal Commissioner of Income Tax, (Central), Jaipur was obtained. Thereafter, the case was reopened u/s. 148 after recording the reasons for satisfaction and obtaining due approval. Notice u/s. 148 was issued on 30.03.2019 which was duly served on the assessee. In response to the statutory notice issued during the proceedings the assessee efiled the reply. 6. In response to notice u/s 148 the assessee filed e-return declaring the income at Rs. Nil as filed originally u/s 139 of the Income Tax Act, 1961 on 17.03.2013. Thereafter, the assessee requested for providing copy of reasons recorded for reopening of the case u/s. 148. The copy of the reasons recorded for issuing notice u/s. 148 were provided and assessee was required to file information in response to the notice issued. 7. An inquiry was conducted by the investigation wing authorities. During the course of investigation, it was found that various entities were indulged in giving and taking non-genuine accommodation entries in which assessee is one of those beneficiaries which has taken such entry. Thus, as per the ITA Nos. 122 & 244 /JP/2022 Kandoi Metal Powders Manufacturing Co. 5 information received in possession of the department, it was found that the assessee indulged in bogus purchases for the year under consideration from some bogus entities. As per the information, an inquiry was conducted by the ADIT (Investigation)(Hq-2), New Delhi wherein, it was observed that the assessee has shown purchases found from M/s. Unnati Alloys Private Limited and obtained bogus entry in the form of bogus purchases amounting to Rs. 21,05,94,215/- during the year under consideration. Based on these facts, information u/s. 133(6) of the Act was called from M/s. Unnati Alloys Private Limited to check the veracity of claim of purchase of the assessee. The AO has called for following information; (i) Copy of confirmations of account with M/s. Kandoi Metal Powders Manufacturing Company Private Limited duly certified in their books for FY 2011-12. (ii) Copy of detailed descriptions of the source from where the funds have been received including the Name, PAN and postal address of the source and proof of creditworthiness of the source for AY 2012-13. (iii) Copy of Bank account statement showing receipts of payment against sale of goods to the above party for F. Y. 2011-12. (iv) Copy of sales vouchers. 8. The above entity has not provided any information except the ledger account of the assessee in its books of account. The remaining details was not provided and thus AO considered that ITA Nos. 122 & 244 /JP/2022 Kandoi Metal Powders Manufacturing Co. 6 the assessee has taken an entry of bogus purchase in order to reduce its own tax liability. During the assessment proceedings a show cause notice dated 13.12.2019 was issued requiring the assessee to explain as to why the amounts as mentioned in reasons recorded u/s. 148 should not be added back to the total income of the assessee on account of unverifiable purchases. The assessee submitted its reply on 13.12.2019 stating that the allegation is only on the basis of third-party information gathered by the investigation wing of the department without any further verification on the part of the assessing officer. Therefore, no addition can be made by on the basis of such information. In a recent judgment of Honourable Supreme Court in the case of Odeon Builder Private Limited where in it has been held that the third-party information without further verification cannot be used for making any addition on account of bogus purchase allegation. 9. The ld. AO based on the finding and information received alleged that the assessee indulged in bill shopping from bogus concern M/s. Unnati Alloys Private Limited. During enquiries it was found that Moral Alloys Private Limited in an effective period 4 ITA Nos. 122 & 244 /JP/2022 Kandoi Metal Powders Manufacturing Co. 7 years (FY 2011-12 to 2014-15) has made turnover of Rs. 856 crores in its bank account. As per the information said account was opened on 23.08.2011 in Axis Bank. The aforesaid company was incorporated in September, 2010 and declared its activity as trading in metals. The outflows in the said account were exact equivalent to inflows and on same day. Account exhibited unusual transaction pattern of high value rounded amount transfer/RTGS credits from different entities such as listed in the order of the ld. AO. The ld. AO further observed that in all these entities the out flow in the account were to the similar entities. A large number of debit to companies was noticed in the account. After every withdrawal, the account was left with minimal balance. Though account had witnessed transactions with entities into the same line of activity, trend of transactions raised suspicion. The ld. AO further observed that the account had been seen exceptionally high turnover in a short span of time and that too, by recording to and from transactions with the same group of entities in similar trend. Movement of funds among the group accounts pointed to the suspicion that the proceeds might not actually pertain to the business activities. All these entities have offered very low income ITA Nos. 122 & 244 /JP/2022 Kandoi Metal Powders Manufacturing Co. 8 as compared to very high turnover and even the director of these companies have offered very low income. It is also observed that the summons were issued and the letter were sent but no satisfactory replies were received. The ld. AO further observed that two biggest intermediary entities which transferred funds to Mroal Alloys Private Limited during the FY 2011-12 were Unnati Alloys Private Limited and Misawa Impex Private Limited, their bank account statements were analysed and it was seen that almost all fund credited in the bank account was transferred further to other entities on the same day and accounts are left with minimal balance which strengthens the fact that this is layering of funds through various accounts. 10. Based on the above back ground ld. AO held that Major entities which transferred to Unnati Alloys Private Limited (i.e. Purchases claimed by them from Unnati Alloys Private Limited or credits extended by them to Unnati Alloys Private Limited ) were identified and assessee was found to be one of the beneficiaries of such accommodation entries in the grab of purchase to the extent of Rs. 21,05,94,215/-. The director of these companies from where ITA Nos. 122 & 244 /JP/2022 Kandoi Metal Powders Manufacturing Co. 9 these purchases made has elaborately described the modus operandi of their business accepting the fact that they are indulged in issuing bogus bills only against certain commission. This admission is considered by the AO and concluded that the purchases recorded by the assessee company is bogus purchases arranged by the assessee. The ld. AO further concluded that the assessee not been able to provide the satisfactory explanation for the show cause notice issued to them. The ld. AO has also relied upon the various judicial decisions on the issue and based on the discussion and judicial decision he hold that a) The primary onus is on the assessee to establish the genuineness of the alleged accommodations entries claimed by it. b) If the investigation done by the department leads to doubt regarding the genuineness of alleged accommodation entries in lieu of bogus purchases, it is incumbent on the assessee to produce the parties along with necessary documents to establish the genuineness of the transaction. c) The purchases have been made from alleged bogus concerns and therefore, it was the duty of the assessee to establish the existence of the concerns which allegedly entered into the said transactions. Therefore, it is the duty of the assessee to satisfy the Assessing Officer regarding the existence of the payee and to establish the genuineness of the payment for business needs. ITA Nos. 122 & 244 /JP/2022 Kandoi Metal Powders Manufacturing Co. 10 11. Based on these observations by the AO the assessment was completed by making addition of Rs. 5,26,48,554/- by disallowing 25% out of alleged bogus purchases and Rs. 31,58,913/- on account of commission paid determining total income at Rs. 5,58,07,470/-. 12. Aggrieved from the order of the ld. AO, assessee has preferred an appeal before the ld. CIT(A) who has after considering the arguments and submission held that the appellant has declared a GP rate of 2.51% in the F Yr. 2010-11, 4.91% in the year under consideration, GP rate of 6.10% in the FY 2012-13 and has declared a GP rate of 6.84% in the FY 2013-14. Thus he find that though there is an increase in GP rate in the year under consideration as compared to previous year but there is substantial decline in the turnover in the year under consideration than the previous years. It is observed that in the subsequent years the appellant has declared consistently higher GP. Thus, in such a case, once the provisions of section 145 were invoked, the best course of action would be to apply GP ratio and confirm certain percentage of sales to cover any leakage of revenue. Therefore, ITA Nos. 122 & 244 /JP/2022 Kandoi Metal Powders Manufacturing Co. 11 the AO is directed to apply a GP rate of 6% on the total turnover of Rs. 1,05,29,10,586/ to cover any possible leakage of revenue on account of bogus purchases which works out to Rs. 6,31,74,635/-. Since the appellant has already declared Rs. 5,16,97,909/- as the GP for the year under consideration, therefore addition to the extent of Rs. 1,14,76,726/- is sustained and the appellant gets a relief of Rs. 4,11,71,827/-. As regards the second addition he has based on the reduction in GP rate relief also granted relief on account of alleged commission from Rs. 31,58,913/- to 6,88,603/-. 13. As the assessee and revenue both not finding favour in full from the order of the ld. CIT(A), both have preferred separate appeals before us for the same assessment year and against the very same order of the ld. CIT(A). 14. The ld. AO is aggrieved that the ld. CIT(A) was not justified in applying GP @ 6 % on total turnover as against the total disallowance of 25 % of bogus purchases in the assessment proceedings. He was also aggrieved on account of direction to ITA Nos. 122 & 244 /JP/2022 Kandoi Metal Powders Manufacturing Co. 12 restriction the disallowance of 6 % commission on restricted addition only. 15. The departmental representative supported the findings of the assessing officer and vehemently argued that the assessee is engaged in the bogus purchases and thereby inflating their purchase and thereby reducing the profit. The ld. DR further draw our attention to the findings of the AO recorded at para 7 of his order, wherein he has discussed various aspect and investigation done what is the bogus circulating transaction done by the parties from where the assessee has also done the purchase transactions. The ld. DR drawn our attention that during the assessment proceeding the ld. AO pointed certain questions to the party from whom the purchases were made, same were not replied and only confirmation was filed. Thus, the assessee failed to substantiate the figures of their purchases alleged to have been paid from the bogus suppliers and submitted that the assessee is engaged in the bill shopping only. In support of estimation of profit @ 25 % ld. DR relied upon the decision of M/s. Vijay Protein wherein also the issue of bogus purchase was involved and in that case profit ITA Nos. 122 & 244 /JP/2022 Kandoi Metal Powders Manufacturing Co. 13 estimated @ 25 %. Thus, he supported the addition made by the AO @ 25 % of purchase. The ld. DR also draw our attention to the findings recorded by the AO that how the exact credit and debit transactions recorded in the parties from where these purchases are accounted. He has also drawn our attention to the findings that all these companies have high volume of turnover and very low income for taxation. The ld. DR also supported various legal decision cited by the ld. AO while making the assessment and he has submitted that the AO has instead of adding 100 % purchases as non-genuine only added a justified percentage of 25 %. In last the ld. DR has relied on the recent judgment of the M/s. Clarity Gold in ITA No. 125/2014 delivered by the jurisdictional high court to support his arguments. The ld. DR also relied upon the findings of the following cases laws • [2015] 58 taxmann.com 44 (Gujarat) (09-12-2014) Vijay Proteins Ltd. Vs. Commissioner of Income-tax • [2002] 125 TAXMAN 763 (RAJ.) Indian Woollen Carpet Factory Vs. Income-tax Appellate Tribunal. • [2018] 99 taxmann.com 47 (SC) (09-12-2014) Commissioner of Income-tax Vs. Clarity Gold (P.) Ltd. • [1997] 92 TAXMAN 356 (RAJ.) Commissioner of Income-tax Vs. Golcha Properties (P.) LTD. ITA Nos. 122 & 244 /JP/2022 Kandoi Metal Powders Manufacturing Co. 14 16. The assessee has also challenged the order of the ld CIT(A) in confirming an addition of Rs.1,14,76,726/- and sustaining commission @ 6 % on this sustained addition of Rs. 1,14,76,726/- for an amount of Rs. 6,88,603/-. The ld. AR of the assessee has submitted following written submission against the grounds raised by the assessee: “The case of the assessee was reopened on the basis of information received from ADIT (Investigation) Head Quarter-2, New Delhi on 28/03/2019 regarding purchases of raw material of Rs. 21,05,94,215/- from M/s Unnati Alloys Pvt Ltd which is not a genuine supplier. During the assessment proceedings the assessee submitted all the possible evidences regarding genuiness of the purchases which are placed from paper book page no. 39 to 213. But the learned AO did not accept the evidences filed by the assessee and made the addition on account of bogus purchases @ 25% of total alleged bogus purchases of Rs. 21,05,94,215/-. Therefore the assessee filed appeal and before learned CIT(A) the assessee submits as under: - “1. Facts of the case: - That during the year the assessee has purchased raw material which are copper wires from M/s Unnati Alloys Pvt Ltd for Rs. 21,05,94,215/-. Copy of purchase bills ledger account and confirmations was made are placed on paper book page no. 64 to 213. Copies of the supporting documents establishing the purchases as genuine were also produced before the learned AO. The goods manufactured were sold and sales were accepted as it is. To prove the purchase and sales as genuine excise records, sale tax records/VAT records are there. The learned AO did not consider the other facts which proves that the purchases are genuine. 2. Purchases are genuine: - The above chart discloses that the assesse furnished all the documents proving the purchases as genuine. It is submitted that all those ingredients are present which make any purchase genuine. The Learned Assessing Officer has simply treated them bogus on the basis of suspicion, doubt and conjecture. It is established position of law that Suspicion however strong cannot take the place of evidence. Uma Charan Shaw & Brothers 37 ITR 271, CIT vs. Anupam Kapoor 299 ITR 179 (P&H); CIT vs. Dhiraj Lal Girdhari Lal 26 OTR 736. The assesssee has furnished PAN, address and bills of purchases during the course of ITA Nos. 122 & 244 /JP/2022 Kandoi Metal Powders Manufacturing Co. 15 assessment vide his reply dated 14.08.2019/13.12.2019. Copy of letter dated 13.12.2019 is available on paper book page no. 39 to 40. The same fact is mentioned in assessment order page no. 3 in para 7.1 by the Learned Assessing Officer. The purchases are genuine. The assessee has made payment of above purchases by crossed account payee cheques. All the purchases are fully genuine and the same has been sold by the assessee by paying excise duty and same amount is also reflected in the regular books of accounts. There cannot be a sale without any purchases. The assessee is also maintaining purchase and sale details. In view of the aforesaid facts the assesse places reliance on the following cases wherein it has been held that purchases cannot be held as bogus merely on suspicion and conjecture. 3. Favourable case laws: - (i) NIKUNJ EXIMP ENTERPRISES PVT LTD. vs. COMMISSIONER OF INCOME TAX, MUMBAI – BOMBAY HIGH COURT – (2012) - where it was held that – Respondent Assessee having been filed letters of confirmation of suppliers, copies of bank statement showing entries of payment through Account Payee cheques to the suppliers, copies of invoices for purchases and stock statement i.e. stock reconciliation Statement giving complete details with regard to opening stock, purchases, sales and closing stock and no fault with regard to it being found & the books of accounts not being rejected & the sales not being doubted – the purchases cannot be treated as bogus & be disallowed merely because the suppliers have not appeared before the Assessing Officer or the CIT(A) on the basis of suspicion & merely on the basis of 1 of the parties categorically being denying in having business dealings with the assessee company, one cannot conclude that the purchases were not made by the respondent assessee, when there are material on record to prove otherwise. (ii) CIT v. Adinath Industries (2001) 252 ITR 476(Guj.) (SLP dismissed) (2001) 247 ITR (St)35 AO issued notice on ground that purchase made by assessee were bogus. Duty of authorities to make necessary inquiry before arriving at conclusion. Court held that the AO could have unearthed the fact that seller was a bogus party by recording the statement of the bank manager, accountant or cashier or the party who introduced the seller to the bank but without any evidence and merely on the basis of withdrawal of amounts from the account of the seller the AO had drawn a presumption that the amount had come back in the assessee’s hands. The asessee had produced the gate pass, receipt note, weight note, ITA Nos. 122 & 244 /JP/2022 Kandoi Metal Powders Manufacturing Co. 16 laboratory report and sample report. The matter was decided on appreciation of evidence. Deletion was held to be valid. (iii) Motipur Sugar Factory (P) Ltd v. CIT (1974)95 ITR 401 (Pat.)(HC)(409)/ Seetarama Mining Co. v. CIT (1968) 68 ITR 1 (AP)(HC)/ Shanker Rice Co. v. ITO (2000) 72 ITD 139 (Asr.)(SB)(Trib.)(158) In above cases, the courts have taken the view that, records maintained by Central Excise Authorities/ Various State Govt authorities are important piece of evidence. Applying the same principle if sales tax authorities have taken the view that the purchases are bogus and if assessee has accepted the same. The order of Sales Tax authorities can be relied on by the AO to doubt the genuineness of the purchase transactions. In such a situation the burden is on the assessee to prove that though the sales tax authorities have taken the view that purchases are genuine. (iv) Babulal C. Borana v. ITO (2006) 282 ITR 251 (Bom)(HC) The assessee has recorded the transaction relating to 50 M.Ts. of HDPE in the regularly maintained books of account and the assessee has offered explanation regarding the nature and source of investment but the same was not accepted. However, books of account were not rejected. Identity of vendor was disclosed, source of investment was explained. Held, amounts could not be added as unexplained investment only because the vendor denied the transaction. The Court held that though the assessee’s contention that he had no bank account was found to be false, the disallowance was not justified. And the fact that Sales Tax was not paid by the party who sold the goods does not affect the genuineness of transaction. (v) ACITv.Kishan Lal Jewels (P.) Ltd.(2012) 147 TTJ 308 (Del.) (Trib.) The assessee while furnishing necessary information regarding the transactions and the aforesaid parties like purchase bills issued against goods purchased, sales- tax registration numbers of the parties, PANs, their confirmations and Bank statements showing the debit of the amount paid through Account payee Cheques to them in the account of assessee and credited in the Bank Account of sellers, had discharged its primary onus, thereafter the onus shifted on the department to rebut the same. 4. Copy of documents which have been relied upon were not provided to the assessee – In the assessment order the learned AO has mentioned that she relied upon certain documents to reach on the conclusion that the transaction with M/s Unnati Alloys are not genuine which are as under: - ITA Nos. 122 & 244 /JP/2022 Kandoi Metal Powders Manufacturing Co. 17 (i) Copy of bank account of M/s Moral Alloys Pvt Ltd for the financial year 2011-12 to 2014-15. (ii) Transaction between Moral Alloys Pvt Ltd and Unnati Alloys. (iii) M/s Moral Alloys and Unnati Alloys has shown low income in comparison to turnover. (iv) There are inflow and outflow of equivalent amount in the bank account of M/s Moral Alloys and Unnati Alloys and after every withdrawal the account was left with Minimum Balance. (v) Notice was issued to Unnati Alloys u/s 133(6) of the Income Tax Act, 1961 and no reply was received by the department. (a) That Learned Assessing Officer has mentioned the above reasons for treating the purchase as non genuine or bogus but copy of all such documents and information was not provided to the assessee for rebuttal of the same which has been used against the assessee. This has resulted in miscarriage of justice. (b) The Learned Assessing Officer has also mentioned that it was found in enquiries that modus operandi of the entry providers was that they issued bills of sales without any actual sale. Payment was received by cheque but the same was returned in cash. This fact was also established from the bank statements. - --- No such information was provided to the assesse for rebuttal. No any cash trail was found nor anything was bring on record which establish that cash was changed in hands to accommodate the above purchases. This has resulted in miscarriage of justice. (c) It has been mentioned by the Learned Assessing Officer that the assessee was a beneficiary, who had accommodation entries in the nature of bogus purchases which are not genuine as the sellers were not carrying on any genuine business activity and was only providing accommodation entries in lieu of cash obtained from the beneficiaries No such information was provided to the assesse for rebuttal. This has resulted in miscarriage of justice. However despite the specific request made the Learned Assessing Officer did not furnish copies of documents on which reliance was place and also did not allow cross examination of any witness. The Learned Assessing Officer has erred in using material, statements without furnishing the copies to the assesse and without allowing cross examination witnesses. This has resulted in vitiating the assessment proceedings. The same deserves to be quashed. The following case laws are quoted in support:- (i) The Apex Court has observed that not allowing cross examination is a serious flaw and makes the order nullity. Andman Timber Ind. Vs. Commission of Central Excise (2015) 281 CTR 211 (SC). “not allowing the assessee to cross examine the witness by the adjudicating authority though the statements ITA Nos. 122 & 244 /JP/2022 Kandoi Metal Powders Manufacturing Co. 18 of those witnesses were made the basis of the impugned order, is a serious flaw which makes the order nullity in as much as it amounted to violation of principle of natural justice because of which the assessee was adversely affected. (ii) Kerla Glue Factory Vs. Sales Tax Tribunal 65 CTR 233 (SC) Statement which was not tested by cross examination is not good evidence. (iii) Vasantlal & Co. (C) Vs. CIT (1962) 45 ITR 206 (SC) Where the Assessing Officer relies on the statement of a witness, or evidence allegedly given or a copy of accounts allegedly produced before some other authority by the assessee, the assessee be given, if he requires it and the circumstances warrant it, an opportunity to cross-examine the witness or official. (iv) In the following it was held that the Assessing Officer can make enquiries to gather material privately and confidentially. He can also summon witnesses and record their statement in the presence of the assessee or even behind his back. However the substance of any information sought to be used against the assessee, should be put to him and he should have fare opportunity. It is upto the assessee to avail of it, consistent with the principal of natural justice, to rebut the same. (a) Chiranji Lal Steel Rolling Mills Vs. CIT 84 ITR 222 (P&H) (b) Namasivayam Chettiar (S.N.) Vs. CIT (1960) 38 ITR 579 (SC) (c) Abdul Razak Vs. CIT (1935) 3 ITR 361 (Pat) (d) Balasubramanian (P.N.) Vs. ITO (1978) 112 ITR 512 (AP) (e) Bagsu Devi Bafna Vs. CIT (1966) 62 ITR 506 (Cal) (f) Cashmir Vastralaya Vs. CIT (1978) 112 ITR 630 (Pat) (v) Munna Lal Murlidhar Vs CIT (1971) 79 ITR 540 (All) The principle of natural justice involve a right in the assessee to inspect the reports and obtain the substance of the all relevant documents such as statements, orders, reports etc. so as to be able to lead evidence in rebuttal or to cross examine witness who have given evidence against him. It also means that the assessee should be given a reasonable time and opportunity to produce such evidence as he may consider necessary. 5. Maintenance of books of accounts/ rejection of books of accounts - The assessee has maintained cash book, ledger, journal, purchase and sales vouchers, bank book, stock register etc. The assesse has maintained quantitative details of opening stock, purchases, sales and closing stock. The books of accounts have been maintained during the course of business. Books of accounts have been audited and a copy of audit report u/s 44AB has been furnished along with return of income. A copy of the audit report were submitted during the course of assessment proceedings/ The auditors have not been made any ITA Nos. 122 & 244 /JP/2022 Kandoi Metal Powders Manufacturing Co. 19 adverse remarks regarding the maintenance of the books of accounts. During the course of assessment proceedings all these books of accounts were produced before the Learned Assessing Officer and no defect was pointed out. The Learned Assessing Officer has rejected the books of accounts on the basis of alleged bogus purchases. Although in the assessment order the Learned Assessing Officer has discussed at various places that during the course of enquiries on Moral Group of companies and material was found establishing the fact of bogus sales by him. But no such papers and material has been provided to the assesse for rebuttal. Therefore the assertion made by the Learned Assessing Officer in the assessment order are not having any basis. In view of this the Learned Assessing Officer was not justified in rejecting the books of accounts. The following case laws are quoted in support: - (i) Shankar Exporters vs. Addl. CIT (2010) 42 DTR 441 (Jaipur ITAT) In our considered view only on account of non-verifying of few purchases the rejection of books of account was not justified as there was no other defect found by the AO in maintaining books of account. It is also not the case of the Department that there is any material outside the books which indicates that these purchases are bogus. Payments were made through proper banking channel. There is a possibility that sometimes after a gap of 1/2 years the party may not be available at the address given or that they did not bother to reply the summons issued by the Department. Otherwise, all other details along with purchases and sales vouchers, day-to-day stock register etc., were maintained by the assessee and they were not found incorrect. It is also a matter of fact that sales made against those purchases have been accepted by the AO himself. Therefore, in our considered view rejection of books of account were not justified. Accordingly, we allow this ground of the assessee. (ii) COMMISSIONER OF INCOME TAX vs. JACKSONS HOUSE (2010) 39 DTR (Del) 212 : (2011) 198 TAXMAN 385 As noted by the CIT(A) as well as by the Tribunal, the AO has not pointed out any specific defect or discrepancy in the accounts books maintained by the assessee. The accounts books, admittedly, were produced before the AO for his consideration. This is also not the finding of the AO that the accounts of the assessee were not complete. As regards the assessee not maintaining stock register in the form expected by the AO, the assessee has given an explanation which has been accepted not only by the CIT(A) but also by the Tribunal and both of them have given a concurrent finding of fact that maintaining stock register of that nature was not feasible, considering the nature of the business being run by the ITA Nos. 122 & 244 /JP/2022 Kandoi Metal Powders Manufacturing Co. 20 assessee which was engaged in the business of manufacturing readymade garments by purchasing fabric which was then subjected to embroidery, dyeing and finishing and was then converted into readymade garments by stitching. As found by the Tribunal, the income of the assessee was clearly discernible from the accounting method followed by it. Hence, the accounts of the assessee cannot be said to be defective or incomplete, merely because the stock register was not maintained in a particular form. Sec. 145(3), therefore, could not have been invoked by the AO to the present case. (ii) DCIT Vs. Associated Stone Ind. Ltd. 22 TW 155 (JP) Without pointing out any specific defect in the account books or bringing on record instances of unrecorded sales books of account cannot be rejected by applying provisions of section 145(3). (iii) HARIDAS PARIKH vs. INCOME TAX OFFICER (2008) 113 TTJ (Jd) 274 : (2008) 1 DTR 390 Unless the AO is able to point out certain transactions which have been left to be entered in the books of account or that the assessee has sold some of the items at a price higher than what is disclosed in the books of account or if proper particulars, bills, vouchers, are not forthcoming etc., the books of account cannot be rejected without assigning specific reasons. 6. Trading results: - The trading results of the proceedings years of the assessee are as under:- During the year under consideration the assessee has disclosed gross profit of Rs. 5,17,14,130/- on turnover of Rs. 1,05,28,58,563/- which gives a GP rate of 4.91%. The GP rate is all time better and also better than a disclosed in the line of trade. Therefore, considering the G.P. rate of the current year as reasonable the addition made by the learned assessing officer deserves to be deleted. It is further submitted that once the trading results are accepted there remains no case for disturbing the purchases or stock etc. In view of this it is submitted that once the trading results stood accepted the Learned Assessing Officer was precluded from making any addition in Fin. Year 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 Turnover 1966466609 1052910586 709061300 829795056 1205046686 1180457391 1224619368 1350149424 Gross profit 49358311.9 51697909.8 43252739 56757982 54640923 52311550 59050842 67179120 Net Profit 2753053.25 2316403.29 1559934.9 3651098.2 4209201 2154203 4772765 4638197 GP Rate 2.51% 4.91% 6.10% 6.84% 4.53% 4.43% 4.82% 4.98% NP Rate 0.14% 0.22% 0.22% 0.44% 0.24% 0.18% 0.39% 0.34% ITA Nos. 122 & 244 /JP/2022 Kandoi Metal Powders Manufacturing Co. 21 the trading account i.e. by doubting the purchases. The following case law is quoted in support: - (i) Ravi Kumar Rawat Vs. ITO (2010) 47 DTR 470 (Jaipur ITAT) In our considered view, there was no cogent reason to attract provisions of s. 145(3) and hold that the purchases shown by assessee are bogus. Undisputedly, the trading results shown by assessee are better as in immediately preceding year the GP rate shown by assessee was 12.3 per cent whereas in the year under consideration the GP rate shown is 13.03 per cent. Therefore, there is no basis to make any addition. Accepted past history is the best guide to consider the GP rate of the year under consideration. Past history reveals gross profit accepted by the Department at 12.08 per cent and in the year under consideration the same is 13.03 per cent. Therefore, there was no reason to make any addition or sustaining the addition in part. (ii) Babulal C Borana V/s ITO 282 ITR 251 (Bom) Where the identity of the persons from whom goods are purchases has been explained, payment are made by account payee cheques, transactions are recorded in books, no addition can be made. (iii) ITA N o . 2 8 2 6 / Mu m / 2 0 1 3 b. ITO V/s Surana Trading 92 ITD 212 (Mum)(para 98) Where a quantitative tally of sales is furnished, even if purchasers are not available, no addition could be made merely on assumptions or presumptions or surmises or conjectures. 7. Favorable decision of Hon'ble ITAT Jaipur and Hon'ble High Court of Rajasthan - In continuation of our submission, we would like to further submit that the issues regarding unverifiable purchase has been decided by the Hon'ble ITAT as well as by the Hon'ble Rajasthan High Court wherein it has been held that after the rejection of books of accounts only course of action was to estimate the income of the assessee by applying the G.P. rate. It was held by ITAT in the case of M/s. Gem Paradise in ITA No.747/JP/2012 dated 26.12.2017 and Hon'ble Rajasthan High Court in the case of M/s. Clarity Gold Pvt. Ltd. in D.B. IT No.126/2014 wherein average G.P. of last several years were applied. Therefore, considering the latest legal position the whole addition deserves to be deleted. 8. Favorable decision of Hon'ble Supreme Court - In the recent decision of the Hon’ble Apex Court in the case of CIT vs. Odeon Builders Pvt. Ltd (Supreme Court) (2019) 418 ITR 0315 (SC) it has been held that disallowance cannot be made solely on third party information without subjecting it to further scrutiny. The assessee has prima facie discharged the initial burden of substantiating the ITA Nos. 122 & 244 /JP/2022 Kandoi Metal Powders Manufacturing Co. 22 purchases through various documentation including purchase bills, transportation bills, confirmed copy of accounts and the fact of payment through cheques, & VAT Registration of the sellers & their Income Tax Return. The AO has also not provided a copy of the statements to the assessee, thus denying it opportunity of cross examination, hence no addition is warranted.” 9. Addition of Rs. 1,14,76,726/- sustained by the learned CIT(A) is on estimate basis – After considering the aforesaid submission, the learned CIT(A) has sustained the addition by estimating the GP rate @ 6% as against 4.91% declared by the assessee. The learned CIT(A) has also rejected the books of accounts of the assessee u/s 145(3) of the IT Act 1961. It is submitted that even if books of accounts are rejected on one or the other ground, this in itself does not give a license to the Appellate Authority for applying higher GP rate unless something specific is pointed out. The learned CIT(A) himself has mentioned in the appellate order on page 19 in para (iii) that “However the alleged party did not provide any information except ledger account of the appellant in its books of accounts”. It means M/s Unnati Alloys Pvt Ltd has respond the notice issued by the learned AO u/s 133(6) of the IT Act, 1961. Therefore, it is clear that the party was in existence and in the token of acceptance the party has send the copy of ledger account and accepted all the sales transaction to the assessee. Therefore, there is no reason to reject the books of accounts of the assessee alone on this ground and applied the higher GP rate. The Hon’ble Rajasthan High Court has decided this issue that where books of accounts are rejected on account of alleged bogus purchases then average GP rate of last 5 years should be applied. This direction was issued by Hon’ble Rajasthan High Court in the case of Clarity Gold Pvt. Ltd. in D.B. IT No.126/2014. Therefore the decision of the learned CIT(A) on this issue deserves to be quashed as the assessee has declared highest ever GP rate in the year under consideration and also more than average GP rate of last 5 years. Therefore the addition sustained deserves to be deleted. Ground No. 2:- Under the facts and Circumstances of the case and in law, the learned CIT(A) has erred sustaining the amount of Rs. 6,88,603/- against an addition of Rs. 31,58,913/- made on account of alleged payment. The AO contended that in the enquires conducted by the department on Moral Group described the modus operandi of their business accepting the fact that they are included in issuing of bogus bills only against certain commission. They have made only general statements and it is further not known that they stood committed to their statements or retracted later on. It is common knowledge that the Investigation Wing exerts pressure while recording statement at the time of search and the ITA Nos. 122 & 244 /JP/2022 Kandoi Metal Powders Manufacturing Co. 23 deponents later on retract from it. It is also not in the knowledge of the assessee as what is the position of assessments of these beneficiaries in view of their statements. All these facts tend to indicate that the statement of these beneficiaries was of no use so far as the assessee is concerned. Further the assessee should have also given an opportunity to cross examine from these beneficiaries. It is also settled principle of law that statements which have not stood test of cross examination, cannot be used against the assessee. The assessee seeks support from the following decisions including Latest Decision of the Apex Court – (i) The Apex Court has observed that not allowing cross examination is a serious flaw and makes the order nullity. Andman Timber Ind. Vs. Commission of Central Excise (2015) 281 CTR 211 (SC). (ii) COMMISSIONER OF INCOME TAX vs. BIJU PATNAIK HIGH COURT OF ORISSA 190 ITR 0396 (iii) PRAKASH CHAND NAHTA vs. COMMISSIONER OF INCOME TAX (HIGH COURT OF MADHYA PRADESH) (2008) 301 ITR 0134 : (iv) HEIRS AND LRS OF LATE LAXMANBHAI S. PATEL vs. COMMISSIONER OF INCOME TAX (HIGH COURT OF GUJARAT ) (2010) 327 ITR 0290 It is further submitted that the Learned Assessing Officer has no documents in his possession or any categorical statement of any person to support his finding that in lieu of purchase and sale of shares the assessee has paid any commission. The action of the Learned Assessing Officer is based merely on assumption and presumption. The Learned Assessing Officer has no cogent evidence, which may establish that the assessee has paid any commission. The AO simply making assumptions and presumptions from the statement of beneficiaries and taking slip shot extracts of the statement has made additions on frivolous grounds. The same deserve to be deleted. It is submitted that no such presumption could be drawn by the AO merely on surmises and conjectures. In the absence of any cogent material in this regard, having been placed on record, the AO could not make the additions. The learned CIT(A) has reduced this addition from Rs. 31,58,913/- to Rs. 6,88,603/- by saying that it is paid only on addition sustained of Rs. 1,14,76,726/-. The appellant submission is that there is no evidence that the assessee has paid commission. When the purchases are genuine, there is no possibility of payment of commission. The learned AO did not bring any evidence on record to substantiate the claim that the assessee has paid commission. Therefore, the addition of Rs. 6,88,603/- deserves to be deleted. Ground No. 3:- ITA Nos. 122 & 244 /JP/2022 Kandoi Metal Powders Manufacturing Co. 24 Under the facts and circumstances the Learned CIT(A) has erred in confirming the action of the learned AO on account of reopening of assessment by appreciating wrong facts and without making proper enquiries only on the basis of information received. The learned AO did not make any enquiry after receiving the information. He just acted upon the information received from investigation wing. Therefore relying on the following case laws the whole order passed by the learned AO deserves to be quashed. Ground no. 4 The assessee craves your indulgence to add amend or alter all or any grounds of appeal before or at the time of hearing. Not pressed.” 7. In first appeal the CIT(A) has confirmed the action of the AO by observing as under:- “XIX In view of the these facts, after the rejection of books of account u/s 145, the income of the appellant is required to be estimated on best judgment basis. It is also a settled proposition that while estimating the income of the assessee, the GP declared by the assessee is considered as a proper and reasonable basis for estimation of income. During the appellate proceedings, Ld. A/R of the appellant has furnished the G.P. chart of the appellant as under:- FY Turnover (in Rs.) GP GP ratio 2010-11 1,96,64,66,609/- 49358311.9 2.51% 2011-12 1,05,29,10,586/- 51697909.8 4.91% 2012-13 70,90,61,300/- 43252739 6.10% 2013-14 82,97,95,056/- 56757982 6.84% On perusal of the above chart it is observed that the appellant has declared a GP rate of 2.51% in the F Yr. 2010-11, 4.91% in the year under consideration, GP rate of 6.10% in the FY 2012-13 and has declared a GP rate of 6.84% in the FY 2013-14 Thus I find that though there is an increase in GP rate in the year under consideration as compared to previous year but there is substantial decline in the turnover in the year under consideration than the previous years. It is observed that in the subsequent years the appellant has declared consistently higher GP. Thus in such a case, once the provisions of section 145 were invoked, the best course of action would be to apply GP ratio and confirm certain percentage of sales to cover any leakage of revenue. Therefore, the AO is directed to apply a OP rate of 6% on the total turnover of Rs. 1,05,29,10,586/- to cover any possible leakage of revenue on account of bogus purchases which works out to Rs. 6,31,74,635/-. Since the appellant ITA Nos. 122 & 244 /JP/2022 Kandoi Metal Powders Manufacturing Co. 25 has already declared Rs. 5,16,97,909/- as the GP for the year under consideration, therefore addition to the extent of Rs. 1,14,76,726/- is sustained and the appellant gets a relief of Rs, 4,11,71,827/-. As regards the Ground of Appeal No. 2, it is observed that the AO has made an addition of Rs. 31,58,913/- on account of commission paid 6% on the total alleged purchases disallowed by the AO at Rs. 5,26,48,554/-. Since the purchases made from M/s Unnati Alloys Pvt. Ltd. has been held to be an accommodation entry, therefore there is no denying the fact that in the order to obtained the bogus bills for the alleged purchases, commission would definitely have been paid by the appellant. As the addition has been sustained at Rs. 1,14,76,726/- on account of alleged purchases, accordingly, commission is also confirmed on the above addition @ 6% which is worked out at Rs. 6,88,603/- and is accordingly sustained. In view of the aforesaid discussion, the Grounds of Appeal No. 1 and 2 raised by the appellant are partly allowed.” 17. In addition to the returned submission the Learned authorised representative supported the order of the learned CIT – A for deletion of addition and further submitted that even the additions confirmed by the learned CIT – A cannot be sustained in view of the fact that the purchase are genuine and the ld. AO treated genuine purchases as non-genuine simply on suspicion doubts and conjectures. The assessee has furnished PAN, address, bills were filed before the assessing officer. The assessee is subjected to excise duty and all are records mentioning all the inwards and outwards with the quantitate records. Thus, the allegation made by the department are far from the truth. The ld. AR of the assessee submitted that even the addition sustained by ITA Nos. 122 & 244 /JP/2022 Kandoi Metal Powders Manufacturing Co. 26 the ld. CIT(A) is required to be deleted as copy of the relied upon documents were not supplied to the assessee. He has relied upon various judgments to drive home to the various aspects of arguments raised by him. The learned authorised representative took us to the finding paragraph of the order of the ld. CIT(A). Relying on that finding he submitted that the assessee has declared a GP rate of 2.51 % in the F. Y. 2010-11, 4.91 % in the year under consideration the GP rate is 6.10 % in the FY 2012-13 a GP rate of 6.84 %. Thus, the ld. CIT(A) find that there is an improvement of GP in the results declared by assessee supported by audited accounts. Based on the GP being in the range of 6 % the ld. CIT(A) has arbitrarily adopted GP @ 6 % which also not correct and the AO should be directed to accept the book results. He further referred to the finding of ld. CIT(A) where in he stated that when the books are rejected and provision of section 145 is invoked, the best course of action is to apply the GP ratio and confirm certain percentage of sales to cover up any leakage of revenue. The profit declared in the year under consideration is higher than the previous year and the same should be accepted as the assessee has shown better results. He therefore submitted ITA Nos. 122 & 244 /JP/2022 Kandoi Metal Powders Manufacturing Co. 27 that to that extent i.e. in deleting addition of CIT(A) is proper but while estimating the GP the ld. CIT(A) has made mere guess work and confirmed the addition at an another estimate only ignoring the book results. 18. We have considered the rival contentions, perused the material available on record and also gone through the findings of the lower authorities recorded in their respective orders. We have also gone through the various judicial ruling placed before us by both the parties to drive home to their contentions. The bench noted that against the allegation made by the revenue the assessee has not demonstrated that the contentions of the department can be put a side. He has even in the reassessment proceeding remained silent and has not made any effort to revert the contentions raised by the revenue. The fact of the case shows that during the course of reopened assessment for reasons that assessee has purchases of Rs 21,05,94,215/– as part of bogus purchases the parties are in appeal before us. Therefore, now the question arises that what is the amount of income earned by the assessee out of the bogus purchases arising out of the ITA Nos. 122 & 244 /JP/2022 Kandoi Metal Powders Manufacturing Co. 28 circular trading. We do not have any hesitation in confirming the action of the learned CIT – A in stating that the 25 % of the purchases cannot be added in the hands of the assessee. But now, the question arises is that how much income is to be imputed and in what manner. 19. For this both the parties have relied upon the decision of the honourable jurisdictional High Court in the case of Clarity Gold (P) Ltd in ITA No. 125/2014 where in the court has held that: 6. Taking into account the evidence on record, the tribunal while considering the matter has totally deleted the amount of addition. In our considered opinion taking into account the industry which is running the business, the addition which has been made on the basis of GP which has been shown of the identical industry whose is also heard together. The GP rate of previous years reads as under: ITA Nos. 122 & 244 /JP/2022 Kandoi Metal Powders Manufacturing Co. 29 Taking into account the average GP rate which will be applied in the present case will be 12 per cent. It is made clear that where ever the profit is more than 12 per cent, the same will not be refunded to the assessee but where it is less than 12 per cent, the income will be assessed on the basis of 12 per cent GP. 20. Recently in [ 2022] 136 taxmann.com 345 (Mumbai - Trib.) Deputy Commissioner of Income-tax v DBM Geotechnics and Construction (P.) Ltd. has upheld the income embedded at the rate of 12.5% in such purchases as income of the purchaser. 21. As we have the guidance available of the honourable Jurisdictional High Court directly on the issue which has been relied upon by the revenue as well as ld. AR of the assessee so as to know how much profit should be imputed to bogus purchases transactions, we deem it fit and proper that profit is required to be estimated only on the amount of bogus purchases. The quantum of the profit as generally estimated in the cases of bogus purchases should be at the rate of 12% of such purchases as held by the Honourable Jurisdictional High Court and we have not been guided by both the party as to why and how the said view of the Honourable Jurisdictional High Court is not acceptable in the present case. Accordingly, we reverse the order of the learned CIT ITA Nos. 122 & 244 /JP/2022 Kandoi Metal Powders Manufacturing Co. 30 – A and direct the learned assessing officer to compute the unaccounted profit earned by the assessee at the rate of 12% on bogus purchases. As we have followed the jurisdictional high court decision where in the court has not guided as to make separate addition on the commission on the bogus purchases and therefore, respectfully following that judgement we do not find any merits in the appeal of the revenue to confirm the addition of commission and thus this ground of the revenue is dismissed and that of the assessee is allowed. 22. Accordingly, in ITA no. 122/JPR/2022 the ground no. 1 raised by the assessee is dismissed, Ground no. 2 raised by the assessee is allowed, Ground no. 3 of the assessee is partly allowed and ground no. 4 is the ground to add or alter the grounds which the assessee did not take it up and the same is not required to be adjudicated. Whereas the Ground no. 1 to 5 raised by the revenue in ITA No. 244/JPR/2022 are partly allowed. In the result, both the appeals are partly allowed. ITA Nos. 122 & 244 /JP/2022 Kandoi Metal Powders Manufacturing Co. 31 Order pronounced in the open Court on 15/09/2022. Sd/- Sd/- ¼ Mk0 ,l- lhrky{eh ½ ¼ jkBksM deys'k t;UrHkkbZ ½ (Dr. S. Seethalakshmi) (Rathod Kamlesh Jayantbhai) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 15/09/2022. *Ganesh Kumar vkns'k dh izfrfyfi vxzsf’kr@Copy of the order forwarded to: 1. vihykFkhZ@The Appellant- Kandoi Metal Powders Manufacturing Company, Jaipur. & DCIT, Central Circle-04, Jaipur 2. izR;FkhZ@ The Respondent- DCIT, Central Circle-3, Jaipur. 3. vk;dj vk;qDr@ CIT 4. vk;dj vk;qDr@ CIT(A) 5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur. 6. xkMZ QkbZy@ Guard File { ITA Nos. 122 & 244/JP/2022} vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar
