DY COMMISSIONER OF INCOME TAX 2(3)(1) , MUMBAI V. M/S TANNA AGRO IMPEX PVT LTD, MUMBAI

ITA 3282/MUM/2022

AI Insights

The case involves cross-appeals by the Dy. Commissioner of Income Tax and M/s. Tanna Agro Impex Pvt. Ltd. concerning the assessment years 2012-13 and 2013-14. The primary issue was the addition made by the Assessing Officer (AO) on account of alleged bogus purchases from two parties, Shubham Agro and Shree Hari Trading. The AO had reopened the assessment based on information from the investigation wing about these purchases being accommodation entries. The Tribunal examined the business model of the assessee, which involved processing, trading, and exporting Basmati rice, and found that the AO's application of a uniform gross profit percentage across all sales was inappropriate. The Tribunal agreed with the CIT(A)'s decision to reject the books of accounts' rejection and deletion of the addition made on estimated gross profit on all sales.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 302395 (ITAT-MUMBAI)
• Duration Of Justice: 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-02-2023
• Appeal Filed By: Department
• Order Result: PartlyAllowed
• Bench Allotted: E
• Next Hearing Date: 06-02-2023
• Assessment Year: 2012-2013
• Appeal Filed On: 28-12-2022
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Section: 69C; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, ‘E‘ BENCH MUMBAI BEFORE: SHRI VIKAS AWASTHY, JUDICIAL MEMBER & SHRI M.BALAGANESH, ACCOUNTANT MEMBER ITA No.3282/Mum/2022 (Assessment Year :2012-13) & ITA No.3283/Mum/2022 (Assessment Year :2013-14) Dy. Commissioner of Income Tax-2(3)(1) R. No.552, Aayakar Bhavan M.K.Road, Mumbai – 400020 Vs. M/s. Tanna Agro Impex Pvt. Ltd. 2 nd Floor, Tanna House, 11A Nathalal Parekh Marg, Colaba, Mumbai- 400 039 PAN/GIR No.AABCT0245J (Appellant) .. (Respondent) ITA No.2851/Mum/2022 (Assessment Year :2012-13) & ITA No.2852/Mum/2022 (Assessment Year :2013-14) M/s. Tanna Agro Impex Pvt. Ltd. 2 nd Floor, Tanna House, 11A Nathalal Parekh Marg, Colaba, Mumbai- 400 039 Vs. Dy. Commissioner of Income Tax-2(3)(1) R. No.552, Aayakar Bhavan M.K.Road, Mumbai – 400020 PAN/GIR No.AABCT0245J (Appellant) .. (Respondent) Assessee by Shri Madhur Agarwal / Shri Pankaj Jain Revenue by Ms. Richa Gulati Date of Hearing 07/02/2023 Date of Pronouncement 24/02/2023 ITA No. 3282/Mum/2022 and other appeals M/s. Tanna Agro Impex Pvt. Ltd. 2 आदेश / O R D E R PER M. BALAGANESH (A.M): These cross appeals in ITA Nos. 3282/Mum/2022, 3285/Mum/2022, 2851/Mum/2022 & 2852/Mum/2022 for A.Yrs.2012-13 & 2013-14 arise out of the order by the ld. Commissioner of Income Tax (Appeals) National Faceless Appeal Centre (NFAC) in appeal No.CIT(A)-6, Mumbai/10180/2019-20 & NFAC/2012-13/10061980 dated 12/09/2022 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) r.w.s. 147 of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 31/12/2019 & 29/09/2021 by the ld. Dy. Commissioner of Income Tax 2(3)(1), Mumbai (hereinafter referred to as ld. AO). Identical issues are involved in all these appeals and hence they are taken up together and disposed of by this common order for the sake of convenience. ITA No. 2851/Mum/2022 – Asst Year 2012-13 – Assessee Appeal ITA No. 3282/Mum/2022 – Asst Year 2012-13 – Revenue Appeal 2. The ground No. 1 raised by the assessee for assessment year 2012-13 challenging the validity of reopening was stated to be not pressed by the learned AR at the time of hearing. Accordingly the same is hereby dismissed as not pressed. 3. The ground Nos. 2 & 3 raised by the assessee and ground No. 1 raised by the revenue are challenging the addition made on account of bogus purchases. ITA No. 3282/Mum/2022 and other appeals M/s. Tanna Agro Impex Pvt. Ltd. 3 3.1. We have heard the rival submissions and perused the materials available on record. The assessee is a private company engaged in the business of processing, trading and export of Basmati rice. The return of income for the assessment year 2012-13 was filed by the assessee on 29.09.2012 declaring total income of ₹ 29,45,08,810/-. The assessment was completed under section 143(3) of the Act on 24.02.2015 determining total income of the assessee at ₹ 29,45,52,740/-. Later the assessment was reopened under section 147 of the Act on the basis of information received from the Deputy Director of Income Tax (Investigation), Karnal regarding certain ingenuine purchases made by the assessee. The modus operandi followed by the assessee is that the assessee procures paddy and rice from local farmers/APMC in Punjab, Haryana and Uttar Pradesh. The rice purchased is sorted and superior quality is exported outside India. The remaining rice i.e non-exportable quality is sold in domestic / local market. The assessment was reopened on the basis of information from the investigation wing that assessee has received accommodation entries from Shubham Agro and Shree Hari Trading. The details of invoices, bank statements evidencing the payments made to the suppliers by account payee cheques, stock registers, confirmations etc in respect of the transactions with these 2 parties were duly filed by the assessee before the learned AO. The learned AO called for the transport bills etc which could not be produced , as the goods purchased were on FOB basis. However, details of vehicle numbers as available on the invoices were provided to the learned AO. The assessee submitted that the entire receipts of rice from these 2 parties are duly recorded in the stock register (Delhi) with quantity and value thereon and the stock register was produced for verification before the learned AO. No discrepancies were noticed by the learned AO in the stock register produced except in the vehicle numbers mentioned on the invoice which are neither the part of financial transactions nor have any ITA No. 3282/Mum/2022 and other appeals M/s. Tanna Agro Impex Pvt. Ltd. 4 impact on the profit of the assessee. The assessee further submitted that the entire purchases from these 2 parties were duly reflected in the closing stock and therefore these purchases have no impact on the profits of the assessee. We find that the learned AO had disbelieved the purchases made from these 2 parties of Rs 4,42,74,498/- and Rs 4,57,11,920/- respectively and held that the genuineness of the same were not proved by the assessee and hence the same being reflected in the closing stock of the assessee has no relevance as it is merely a book entry. Accordingly, the learned AO proceeded to add the total purchases from these 2 parties amounting to ₹ 8,99,86,418/- as bogus and made addition under section 69C of the Act. However, the ld. AO stated that books of accounts have been rejected by him and addition has been made only on gross profit basis. Accordingly, no addition was made separately for this ingenuine purchases. The learned AO observed that assessee has been making domestic sales as well as export sales. The overall gross profit offered by the assessee was 10.75%. The ld. AO observed that the gross profit declared by assessee on export sales was 34% whereas in domestic sales, the assessee has declared loss. Accordingly, the learned AO proceeded to apply the profit of 34% on all the sales made by the assessee and made an addition of Rs 111,43,42,122/-. 3.2. The assessee further submitted that purchases from Shubham Agro and Shri Hari Trading have been made on CIF basis. This means that cost, insurance and freight were borne by the suppliers. When the goods are received in the assessee’s godown, an entry is made for the receipt of goods in stock register daily. The name of the party is mentioned in the register. As regards the entries of the vehicle numbers, they are not in the nature of any financial information and have no impact on the profit and loss account. The assessee submitted that the learned AO had given ITA No. 3282/Mum/2022 and other appeals M/s. Tanna Agro Impex Pvt. Ltd. 5 more weightage to the vehicle numbers over the quantity details submitted by it for checking the veracity of the stock register. The inflow of goods is recorded in the stock register and hence it was submitted that it evidences the receipt of materials in the assessee’s godown. Infact the learned AO confirmed the entries for the receipt of goods from these parties and found no fault with it. We find that eventhough the learned AO made adverse observations, ultimately the addition made by him was only on account of applying the same gross profit percentage of 34% as was earned for export sales and applying the same for the remaining sales also. Hence the entire observations made by the learned AO as stated supra would become irrelevant. In our considered opinion, the application of common gross profit percentage of 34% on entire sales by the learned AO is completely without any basis and only proves his complete non-application of mind and not understanding the business model of the assessee. Obviously once the rice once sorted out into various grades for export quality, it would fetch huge margins for the assessee and the non-exportable quality rice would be sold only in the local market most of the times at a loss. The main purpose of assessee’s existence is to cater to the export market which is evident from the fact that 70% of sales are made to Gulf countries. We find that the assessee had furnished the average purchase price of rice per quintal and export realization rate per quintal . These workings are reflected in pages 33 to 35 of order of learned CIT(A). 3.3. We find that the learned CIT(A) after understanding the business model of the assessee company and the pricing mechanism involved thereon, observed that the learned AO had not demonstrated as to how the books of accounts maintained by the assessee are incorrect, incomplete and inconsistent or not in accordance with the Income Computation and Disclosure Standards (ICDS) for rejecting the books of ITA No. 3282/Mum/2022 and other appeals M/s. Tanna Agro Impex Pvt. Ltd. 6 accounts. Accordingly, the learned CIT(A) dismissed the action of the learned AO in rejecting the books of accounts of assessee and deleted the addition made in the sum of Rs 111,43,42,122/- on account of estimated gross profit on entire sales. We find no infirmity in the said action of the ld. CIT(A) in this regard. 3.4. Further the learned AO also made an addition of Rs 8,99,86,418/- being the value of purchases made from the aforesaid two parties on protective basis. The assessee submitted that the purchases made from the above two parties were genuine as is evident from the stock register and other documentary evidences. The assessee however submitted before the learned CIT(A) that the corresponding sales made out of alleged disputed purchases were not doubted by the learned AO in the instant case. Hence the addition, if any, should be restricted to gross profit only. The learned CIT(A) observed that the truck numbers mentioned in respect of the purchases made from two suppliers were either non-existent or were in respect of a non-transport vehicles. Since no cogent evidences were filed by the assessee in this regard to controvert this finding of the learned AO, the learned CIT(A) upheld the action of the learned AO in treating the purchases made in the sum of Rs 8,99,86,418/- as bogus and then proceeded to add only the profit embedded in the value of such disputed purchases. The learned CIT(A) estimated the profit percentage at 15%. Aggrieved by this, both assessee as well as the revenue are in appeal before us. 3.5. It is not in dispute that the assessee had declared gross profit of 10.75% on overall sales (i.e both domestic and export) in its return. It is not in dispute that the sales made out of disputed purchases were not doubted by the revenue in the instant case. Hence it would be just and fair to bring to tax only the profit element embedded in the value of such ITA No. 3282/Mum/2022 and other appeals M/s. Tanna Agro Impex Pvt. Ltd. 7 disputed purchases. Considering the peculiar business model operated by the assessee and considering the fact that the stock registers furnished by the assessee were not disputed by the revenue, we hold that adoption of gross profit percentage of 15% less gross profit declared by the assessee at 10.75% would meet the ends of justice in the peculiar facts and circumstances of the instant case. Accordingly, the ground numbers 2 & 3 raised by the assessee and ground raised by the revenue are partly allowed. 4. In the result, both the appeals of the assessee as well as the revenue are partly allowed for Assessment Year 2012-13. ITA No. 2852/Mum/2022 – Asst Year 2013-14 – Assessee Appeal ITA No. 3283/Mum/2022 – Asst Year 2013-14 – Revenue Appeal 5. The ground No. 1 raised by the assessee for assessment year 2013-14 challenging the validity of reopening was stated to be not pressed by the learned AR at the time of hearing. Accordingly the same is hereby dismissed as not pressed. 6. The ground Nos. 2 & 3 raised by the assessee and ground No. 1 raised by the revenue are challenging the addition made on account of bogus purchases. 6.1. We have heard the rival submissions and perused the materials available on record. The facts of the case of Assessment Year 2013-14 are identical to that of Assessment Year 2012-13 and hence the decision rendered hereinabove for Assessment Year 2012-13 shall apply mutatis mutandis except with variance in figures and double addition made in Assessment Year 2013-14. Accordingly, the ground numbers 2 & 3 ITA No. 3282/Mum/2022 and other appeals M/s. Tanna Agro Impex Pvt. Ltd. 8 raised by the assessee and ground raised by the revenue are partly allowed. 7. In the result, both the appeals of the assessee as well as the revenue are partly allowed for Assessment Year 2013-14. 8. To sum up, all the appeals of the assessee as well as the revenue are partly allowed. Order pronounced on 24/02/2023 by way of proper mentioning in the notice board. Sd/- (VIKAS AWASTHY) Sd/- (M.BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated 24/02/2023 KARUNA, sr.ps Copy of the Order forwarded to : BY ORDER, (Asstt. Registrar) ITAT, Mumbai 1. The Appellant 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy//