M/s. SM Feeds & Farms India Pvt. Ltd., CHENNAI V. DCIT, CHENNAI

ITA 2797/CHNY/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8030 (ITAT-CHENNAI)
• Duration Of Justice: 1 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-11-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 17-10-2016
• Assessment Year: 2012-2013
• Appeal Filed On: 27-09-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUPRIYO PAL
• Assessee Lawyers: K RAVI
• Keywords: Bogus purchase

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI . . . , !.. # $%, ' () BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER ./ ITA NOS.2796, 2797 & 2798/MDS/2016 + ,+ / ASSESSMENT YEARS : 2011-12, 2012-13 & 2013-14 M/S SM FEEDS & FARMS INDIA PVT. LTD., LUCKY BUILDING, NO.938, 12 TH CROSS STREET, MKB NAGAR, VYASARPADI, CHENNAI - 600 039. PAN : AANCS 2321 N V. THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY RANGE 6(2), CHENNAI - 600 039. (.// APPELLANT) (01.// RESPONDENT) ./ 2 3 / APPELLANT BY : SHRI K. RAVI, ADVOCATE 01./ 2 3 / RESPONDENT BY : SHRI SUPRIYO PAL, JCIT # 2 4' / DATE OF HEARING : 18.10.2016 56, 2 4' / DATE OF PRONOUNCEMENT : 25.11.2016 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: ALL THE APPEALS OF THE ASSESSEE ARE DIRECTED AGA INST THE COMMON ORDER PASSED BY THE COMMISSIONER OF INCOME T AX (APPEALS)-15, CHENNAI, DATED 22.09.2016 AND PERTAIN TO ASSESSMENT YEARS 2011-12, 2012-13 AND 2013-14. 2 I.T.A. NOS.1796 TO 1798/MDS/16 2. THE ONLY ISSUE ARISES FOR CONSIDERATION IS ESTIM ATION OF PROFIT. 3. SHRI K. RAVI, THE LD.COUNSEL FOR THE ASSESSEE, S UBMITTED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACT URING AND SALE OF POULTRY FEED AND REARING AND MARKETING OF CHICKS . DURING THE COURSE OF SURVEY OPERATION ON 23.12.2013, IT WAS FO UND THAT THE ASSESSEE CLAIMED PURCHASES FROM NON-EXISTENT ENTITI ES AND SUBSEQUENTLY, WHILE RECORDING STATEMENT, THE ASSESS EE ADMITTED THAT THE PURCHASES WERE BOOKED IN THE NAME OF NON-E XISTENT ENTITIES FOR THE PURPOSE OF DISCLOSING MORE TURNOVER TO BANK S AND FINANCIAL INSTITUTIONS. ACCORDINGLY, THE ASSESSING OFFICER R EJECTED THE BOOKS AND ESTIMATED THE INCOME AT 10% OF THE FICTITIOUS S ALES. REFERRING TO THE ORDER OF THE CIT(APPEALS), THE LD.COUNSEL SUBMI TTED THAT THE AVERAGE PROFIT RATIO OF THE ASSESSEE IS 4 TO 6%. F OR THE ASSESSMENT YEAR 2012-13, THE NET PROFIT SHOWN WAS 4%. FOR ASS ESSMENT YEAR THE NET PROFIT WAS 6%. HOWEVER, FOR THE ASSESSMENT YEAR 2010-11, IT WAS 4%. AFTER CONSIDERING ALL THESE, ACCORDING TO THE LD. COUNSEL, THE CIT(APPEALS) ESTIMATED THE PROFIT AT 7.68% FOR THE ASSESSMENT YEARS 2012-13 AND 2013-14. HOWEVER, FOR THE ASSESS MENT YEAR 2011-12, HE ACCEPTED THE PROFIT RETURNED BY THE ASS ESSEE. 3 I.T.A. NOS.1796 TO 1798/MDS/16 4. THE LD.COUNSEL FOR THE ASSESSEE FURTHER SUBMITTE D THAT THE PROFIT WAS ESTIMATED ONLY ON THE FICTITIOUS SALES B Y BOTH THE AUTHORITIES BELOW. IF THE PURCHASE WAS ADMITTEDLY BOGUS, THEN THE THE SALES WOULD ALSO BE BOGUS. THEREFORE, THE ESTI MATION CANNOT BE MADE ON THE FICTITIOUS SALES. THEREFORE, ACCORDING TO THE LD. COUNSEL, THE ASSESSING OFFICER IS NOT JUSTIFIED IN ESTIMATING THE GROSS PROFIT ON FICTITIOUS SALES. ON A QUERY FROM THE BE NCH, WHEN THE ASSESSEE ITSELF ADMITTED THAT THERE ARE BOGUS PURCH ASES, AND THE BOOK RESULT WAS INFLATED FOR DISCLOSING HIGHER TURN OVER, WHAT IS WRONG IN REJECTING THE BOOKS AND ESTIMATING THE GRO SS PROFIT? THE LD.COUNSEL SUBMITTED THAT HE WOULD NOT HAVE ANY OBJ ECTION TO ESTIMATE THE REASONABLE GROSS PROFIT AND THE TURNOV ER. THE TURNOVER, ACCORDING TO THE LD. COUNSEL, HAS TO BE T AKEN EXCLUDING THE BOGUS PURCHASE AND FICTITIOUS SALES. 5. ON THE CONTRARY, SHRI SUPRIYO PAL, THE LD. DEPAR TMENTAL REPRESENTATIVE, SUBMITTED THAT THE ASSESSEE ADMITTE DLY INFLATED THE PURCHASES BY CLAIMING THAT PURCHASES WERE MADE FROM NON-EXISTENT ENTITIES. THEREFORE, THE ASSESSING OFFICER ESTIMAT ED THE PROFIT AT 10% FOR ASSESSMENT YEAR 2012-13 AND FOR ASSESSMENT YEAR 2013- 14, HE ESTIMATED THE PROFIT AT 9.4%. THE CIT(APPEA LS), HOWEVER, 4 I.T.A. NOS.1796 TO 1798/MDS/16 DETERMINED THE GROSS PROFIT AT 7.68% FOR ALL THE TH REE YEARS. EVEN THOUGH THERE WAS INCREASE OF PROFIT FOR THE ASSESSM ENT YEARS 2012- 13 AND 2013-14, THE PROFIT DECLARED BY THE ASSESSEE FOR ASSESSMENT YEAR 2011-12 WAS ACCEPTED. ACCORDING TO THE LD. D. R., THE INCOME WAS RIGHTLY ESTIMATED BY THE LOWER AUTHORITIES, THE REFORE, NO INTERFERENCE IS CALLED FOR. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE ASSESSING OFFICER FOUND THAT THE ASSESSEE INFLATED THE PURCHA SES BY CLAIMING THAT THE PURCHASES WERE MADE BY NON-EXISTENT ENTITI ES. THIS FACT OF INFLATING THE PURCHASES IS NOT IN DISPUTE. THEREFO RE, THE BOOKS MAINTAINED BY THE ASSESSEE WOULD NOT REFLECT THE CO RRECT BUSINESS TRANSACTION AND THE CORRECT PROFIT MAY NOT BE DEDUC ED FROM THE BOOK MAINTAINED BY THE ASSESSEE. THEREFORE, THE ASSESSI NG OFFICER HAS RIGHTLY REJECTED THE BOOKS AND ESTIMATED THE GROSS PROFIT. 7. NOW THE ONLY DISPUTE IS REASONABLENESS OF THE GR OSS PROFIT ESTIMATED BY THE ASSESSING OFFICER AND THE CIT(APPE ALS). THOUGH THE CIT(APPEALS) ESTIMATED THE GROSS PROFIT AT 7.68 %, THE ASSESSEE CLAIMS THAT 7.68% IS HIGHLY EXCESSIVE, THEREFORE, I T HAS TO BE REASONABLY ESTIMATED. THE AVERAGE GROSS PROFIT DIS CLOSED BY THE 5 I.T.A. NOS.1796 TO 1798/MDS/16 ASSESSEE FOR THE EARLIER ASSESSMENT YEAR IS 4 TO 6% . FROM THE ORDER OF THE CIT(APPEALS) IT APPEARS THAT THE CIT(A PPEALS) HAS CONSIDERED THE GROSS PROFIT RATIO FOR THE ASSESSMEN T YEARS 2008-09, 2009-10 AND 2010-11 AND ARRIVED AT THE AVERAGE GROS S PROFIT FOR THREE YEARS AT 7.68%. THE PROFIT WAS ESTIMATED ONL Y ON THE FICTITIOUS SALES SHOWN BY THE ASSESSEE. THIS TRIBUNAL IS OF T HE CONSIDERED OPINION THAT FOR FICTITIOUS SALES, THE ASSESSEE HAS ALSO BOOKED FICTITIOUS PURCHASE IN THE BOOKS. THE FICTITIOUS P URCHASE EFFECTED IN THE BOOKS WOULD DEFINITELY DECREASE THE PROFIT OR T HE TURNOVER OF THE ASSESSEE CONSIDERABLY. THEREFORE, FOR THE PURPOSE OF ESTIMATING THE REASONABLE PROFIT, THE ENTIRE TURNOVER INCLUDING TH E FICTITIOUS PURCHASES AND FICTITIOUS SALES HAS TO BE TAKEN INTO CONSIDERATION. IN OTHER WORDS, THE BOGUS PURCHASES AND SALES NEED NOT BE EXCLUDED FOR THE PURPOSE OF DETERMINING THE TOTAL TURNOVER. BY TAKING INTO CONSIDERATION OF THE EARLIER YEAR PROFIT WHICH IS 4 TO 6%, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT ESTIMATION OF GRO SS PROFIT AT 5.5% WOULD MEET THE ENDS OF JUSTICE. 8. IN VIEW OF THE ADMITTED FACT THAT THERE ARE BOGU S PURCHASES AND BOGUS SALES AND THE BOOKS DOES NOT REFLECT THE CORRECT INCOME OF THE ASSESSEE, THE BOGUS PURCHASES AND FICTITIOUS SALES COULD NOT 6 I.T.A. NOS.1796 TO 1798/MDS/16 BE DETERMINED, THEREFORE, ESTIMATION OF 5.5% ON THE ENTIRE TURNOVER INCLUDING THE BOGUS PURCHASES AND FICTITIOUS SALES WOULD MEET THE ENDS OF JUSTICE. ACCORDINGLY, THE ORDERS OF THE LO WER AUTHORITIES ARE MODIFIED AND THE ASSESSING OFFICER IS DIRECTED TO E STIMATE THE GROSS PROFIT AT 5.5% ON THE TURNOVER WITHOUT EXCLUDING TH E BOGUS PURCHASES AND FICTITIOUS SALES ACCEPTED BY THE ASSE SSEE. 9. IN THE RESULT, THE APPEALS FILED BY THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED ON 25 TH NOVEMBER, 2016 AT CHENNAI. SD/- SD/- ( ! . . # $% ) ( . . . ) (D.S. SUNDER SINGH) (N.R.S. GANESAN) ' / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 8 /DATED, THE 25 TH NOVEMBER, 2016. KRI. 2 04$9 :9,4 /COPY TO: 1. ./ /APPELLANT 2. 01./ /RESPONDENT 3. # ;4 () /CIT(A)-15, CHENNAI 4. PRINCIPAL CIT-6, CHENNAI 5. 9< 04 /DR 6. !+ = /GF.