Shri Ravi Satyanarayan Drolia, Mumbai V. The Income tax Officer,Cent.Circle-3, Surat

ITA 356/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5628 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 5 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-07-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 01-07-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 19-01-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Bogus purchase; Gross profit estimation; Rejection of books of accounts; Business income
• Section: 143(3); 133(6); 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD A BENCH (BEFORE S/SHRI G.D. AGARWAL, VICE-PRESIDENT AND MUKUL SHRAWAT, JUDICIAL MEMBER) ITA.NO.356/AHD/2007 ASSTT.YEAR : 2003-2004 RAVI SATYANARAYAN DROLIA 302, BEACH HEAVAN-2 JUHU TARA ROAD, MUMBAI. VS. ITO, CENT.CIR.3 SURAT. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI KAILASH AGARWAL REVENUE BY : SHRI SAMIR TEKRIWAL O R D E R PER G.D. AGARWAL, VICE-PRESIDENT: THIS IS ASSESSEES APPEAL AGAINST THE ORDER OF THE CIT(A)-II, AHMEDABAD DATED 17.11.2006 FOR A.Y.2003- 2004 ARISING OUT OF THE ORDER OF THE ASSESSING OFFI CER PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961. THE FOLLOWING GROUNDS ARE RAISED IN THE APPEAL: 1. FOR THAT UPON FACTS AND CIRCUMSTANCES OF THE CA SE, THE LD.CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF ACIT IN REJEC TING THE BOOKS OF ACCOUNTS AND ESTIMATING GROSS PROFITS @ 13.5% WITHO UT ANY BASIS. 2. FOR THAT UPON FACTS AND CIRCUMSTANCES OF THE CAS E, THE LD.CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS.83,000/- ON ACCOUNT OF UNVERIFIABLE PURCHASES MADE BY THE LEARNED ACIT. 3. FOR THAT UPON FACTS AND CIRCUMSTANCES OF THE CAS E, THE LD.CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF ACIT IN MAKIN G ADDITION OF RS.12,91,500/- ON ACCOUNT OF UNVERIFIABLE PURCHASES . 2. AT THE TIME OF HEARING BEFORE US, IT IS SUBMITTE D BY THE LEARNED COUNSEL THAT THE ASSESSEE DERIVES INCOME FROM MANUFACTURING AND SELLING OF BALL PEN PARTS. DURING THE ACCOUNTING YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION, THERE WAS FALL IN THE GP AND THE AO ALSO POINTED OUT CERTAIN DEFECTS IN THE BOOKS OF ACCOUNTS. HE THEREFORE REJ ECTED THE BOOKS OF ACCOUNTS ITA.NO.356/AHD/2007 -2- AND WORKED OUT THE GP ADDITION OF RS.3,81,405/-. T HE AO ALSO WORKED OUT THE ADDITION FOR UNVERIFIABLE PURCHASES OF RS.13,74,950 /-. SINCE THE ADDITION FOR UNVERIFIABLE PURCHASES WAS MORE, NO ADDITION ON ACC OUNT OF LOW GP WAS MADE. ON APPEAL, THE CIT(A) WAS OF THE OPINION THAT THE R EJECTION OF BOOKS OF ACCOUNTS BY THE AO WAS JUSTIFIED. HOWEVER, HE DIRE CTED THE AO TO WORK OUT THE GP AT THE RATE OF 13.5% AS AGAINST 14.96% TAKEN BY THE AO. HOWEVER, HE SUSTAINED THE ADDITION FOR UNACCOUNTED PURCHASES. IT IS STATED BY THE LEARNED COUNSEL THAT THE MAJOR ADDITION FOR UNACCOUNTED PUR CHASES MADE BY THE AO IS RS.12,91,950/- I.E. IN RESPECT OF PURCHASES FROM BA SF STYRENIK P. LTD. (BASF FOR SHORT). HOWEVER, NO PURCHASE FROM THE ABOVE PARTY WAS MADE BY THE ASSESSEE DURING THE ACCOUNTING YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. IN FACT THE CLOSING BALANCE IN THE ACCOUNT OF THE ABOVE PARTY WAS BECAUSE OF THE OPENING BALANCE. IN RESPECT OF THIS CONTENTION, THE ASSESSEE PRODUCED BEFORE US THE LEDGER ACCOUNT OF THE ABOVE PARTY IN THE ASSESSEES BOOKS OF ACCOUNTS. 3. WITH REGARD TO ANOTHER PURCHASE OF RS.83,000/-, TREATED AS UNEXPLAINED PURCHASE FROM ROYALITIES INDUSTRIES, IT IS SUBMITTE D BY THE LEARNED COUNSEL THAT THE DETAILS WAS COLLECTED BY THE AO BEHIND THE BACK OF THE ASSESSEE AND HE WAS NOT GIVEN ANY OPPORTUNITY TO CROSS-EXAMINE THE ABOV E PARTY AND HIS BOOKS OF ACCOUNTS. WITH REGARD TO THE GP ADDITION, THE LEAR NED COUNSEL FOR THE ASSESSEE STATED THAT THE ASSESSEE HAS MAINTAINED REGULAR BOO KS OF ACCOUNTS AND THE GP HAS FALLEN DOWN ONLY BECAUSE OF THE RECESSION IN TH E MARKET. HE THEREFORE SUBMITTED THAT THE INCOME DISCLOSED BY THE ASSESSEE SHOULD BE ACCEPTED AND THE VARIOUS ADDITIONS MADE BY THE AO SHOULD BE DELETED. 4. THE LEARNED DR ON THE OTHER HAND STATED THAT ON SCRUTINY OF THE BOOKS OF ACCOUNTS, THE AO FOUND SEVERAL DEFECTS IN THE BOOKS OF ACCOUNTS COUPLED WITH SUBSTANTIAL FALL IN THE GP. HE THEREFORE REJECTED THE BOOKS OF ACCOUNTS AND HELD THAT THE GP RATE OF 14.96% SHOULD BE APPLIED. THE CIT(A) HAS ALREADY REDUCED THE SAME TO 13.5% THEREFORE NO FURTHER REDUCTION IN RESPECT OF GP SHOULD BE ITA.NO.356/AHD/2007 -3- ALLOWED. WITH REGARD TO UNVERIFIABLE PURCHASE, IT IS STATED BY THE LEARNED COUNSEL THAT ON THE BASIS OF INFORMATION COLLECTED UNDER SECTION 133(6) OF THE ACT, CERTAIN PURCHASES COULD NOT BE VERIFIED AND TH EREFORE THE AO TREATED THE SAME AS BOGUS PURCHASES. SINCE THE ADDITION FOR BO GUS PURCHASE WAS MORE THAN THE GP ADDITIONS, THEREFORE, THE AO HAS NOT MADE AN Y SEPARATE ADDITION FOR LOW GP. HOWEVER, IF THE ADDITION FOR BOGUS PURCHASE IS DELETED THEN THE GP SHOULD BE SUSTAINED. 5. WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF BO TH THE SIDES AND ALSO PERUSED THE MATERIAL PLACED BEFORE US. WE FIND THA T THE AO FOUND SEVERAL DEFECTS IN THE BOOKS OF ACCOUNTS AND THEREFORE HE R EJECTED THE ACCOUNTS AND APPLIED THE GP RATE OF 14.96%. THE GP ADDITION WAS WORKED OUT AT RS.3,81,405/-. BUT NO ADDITION WAS MADE WHILE COM PUTING THE FINAL INCOME BECAUSE THE ADDITION FOR UNVERIFIABLE PURCHASES WAS MORE THAN RS.3,81,405/-. THE FINDING OF THE AO IN THIS REGARD READS AS UNDER : FURTHER THE BOOKS OF ACCOUNTS ARE ALSO DEFECTIVE. ON VERIFICATION IT WAS FOUND THAT THE PURCHASE AND VALUE OF CLOSING ST OCK SHOWN IN ANNEXURE ENCLOSED WITH AUDIT REPORT IN FORM NO.3CD IN COL.28(6) DO NOT TALLY WITH THE TRADING ACCOUNT. THE VALUE OF PURCH ASE AND CLOSING STOCK SHOWN I THE ANNEXURE IS RS.1,19,88,320/- AND RS.1,0 8,76,125/- RESPECTIVELY, WHEREAS IN THE SCHEDULE H, PURCHASE I S SHOWN AT RS.89,52,354/- AND CLOSING STOCK IS SHOWN AT RS.43, 66,041/- RESPECTIVELY. THE ASSESSEE WAS ASKED TO FURNISH TH E EXPLANATION FOR THE DISCREPANCIES. THE ASSESSEE FILED A LETTER DTD. 01 .12.2003 FROM THE MEHTA & PARMAR, C.A. STATING THAT THERE ARE CERTAIN MISTAKE IN THE ABOVE ANNEXURE AND FILED THE CORRECTED ANNEXURE. T HIS ASPECT ALSO SHOWS THAT THE BOOKS OF ACCOUNT OF THE ASSESSEE ARE NOT RELIABLE. IN VIEW OF THE ABOVE DISCUSSION, THE BOOK RESULT SHOWN BY T HE ASSESSEE IS NOT REJECTED U/S 145 OF THE ACT, AND THE GP IS ESTIMATE D AS UNDER: TOTAL SALES SHOWN BY THE ASSESSEE IN THE YEAR AT RS.12780959/- GP SHOWN 11.98% GP ESTIMATED AT 14.96% RS.19,12,031/- LESS: GP SHOWN BY ASSESSEE @ 11.98% RS.15,30,626/- ITA.NO.356/AHD/2007 -4- G.P. ADDITION RS.3,81,405/- HOWEVER, THE GP ADDITION OF RS.3,81,405/- IS NOT MA DE TO THE TOTAL INCOME AS THE SAME IS COVERED IN THE ADDITION OF UN VERIFIABLE PURCHASE OF RS.13,74,950/- MADE AS DISCUSSED IN THE SUBSEQUE NT PARAS OF THIS ORDER. 6. UNVERIFIABLE PURCHASE OF RS.13,74,950/- WAS FROM TWO PARTIES AS UNDER: BASF STYRENIK PVT. LTD. : 12,91,950/- ROYALITIES INDUSTRIES : 83,000/- 13,74,950/- THE FINDING OF THE AO WITH REGARD TO BASF IS AS U NDER: THE ASSESSEE WAS REQUESTED BY LETTER DTD.16.03.200 6 TO FILE THE DETAILS OF PURCHASES OF RS.12,91,950/- FROM THIS PARTY AND TO PROVE THE PURCHASES AS GENUINE. THE ASSESSEE FILED LETTER DTD.20.03.2006 AND STATED THAT THEY REQUIRE ONE WEEKS TIME TO COMPILE & RECONCILE THE ACCOUNT O F THIS PARTY. THE ASSESSEE HAS NOT FILED ANY EVIDENCE TO PROVE THE PURCHASES A S GENUINE. THE PARTY BASF STYRENIK P. LT., HAS ALSO NOT REPLIED TO THIS OFFIC E LETTER SERVED BY RPAD. IN VIEW OF THIS FACT, IT IS HOLD THAT THE PURCHASES OF RS.12,91,950/- IS NOT A GENUINE & VERIFIABLE PURCHASE. THEREFORE THE SAME ARE ADDED TO THE TOTAL INCOME OF THE ASSESSEE AS PURCHASES NOT PROVED GENU INE AND NOT VERIFIABLE. FROM THE ABOVE FINDING, IT IS EVIDENT THAT THE AO T REATED THE SUM OF RS.12,91,950/- AS BOGUS PURCHASE BECAUSE THE BASF DID NOT REPLY TO THE LETTER ISSUED BY THE ASSESSEE AND MOREOVER THE ASSE SSEE ALSO DID NOT PRODUCE ANY EVIDENCE IN SUPPORT OF THE GENUINENESS OF THE P URCHASE. HOWEVER, BEFORE US, THE ASSESSEE HAS PRODUCED THE COPY OF THE LEDGE R ACCOUNT FROM WHICH IT IS EVIDENT THAT DURING THE YEAR UNDER CONSIDERATION, T HERE WAS NO PURCHASE FROM THE ABOVE PARTY. THE CREDIT BALANCE IN THE ACCOUNT OF BASF AT RS.12,91,950/- WAS THE OPENING BALANCE AT THE BEGIN NING OF THE YEAR. THUS, DURING THE YEAR UNDER CONSIDERATION THERE WAS NEITH ER ANY PURCHASE NOR ANY PAYMENT BY THE ASSESSEE. IN VIEW OF THE ABOVE, IN OUR OPINION, THE FINDING OF THE AO WITH REGARD TO THE BOGUS PURCHASES FROM BAS F WAS WITHOUT ANY BASIS OR JUSTIFICATION. IF THIS IS EXCLUDED, THEN THE ONLY UNVERIFIABLE PURCHASE REMAIN RS.83,000/- FROM ROYALITIES INDUSTRIES. SO FAR AS THE REJECTION OF THE BOOKS OF ACCOUNTS IS CONCERNED, WE FIND THAT THE AO HAS POINTED OUT SEVERAL ITA.NO.356/AHD/2007 -5- DEFECTS IN THE BOOKS OF ACCOUNTS FOR WHICH NO SATIS FACTORY EXPLANATION WAS GIVEN BY THE ASSESSEE. THEREFORE, IN OUR OPINION, THE REJECTION OF THE BOOKS OF ACCOUNTS IS JUSTIFIED. COMING TO THE APPLICABILITY OF GP RATE OF 13.5% IS CONCERNED, WE FIND THAT IN THE LAST YEAR, THE GP DI SCLOSED BY THE ASSESSEE WAS AT 14.96% WHICH WAS REDUCED TO 11.98% IN THE YEAR UNDE R CONSIDERATION. THE AO HAS APPLIED THE GP RATE AS DISCLOSED BY THE ASSE SSEE IN THE IMMEDIATELY PRECEDING YEAR. HOWEVER, THE CIT(A) HAS ALREADY RE DUCED THE SAME CONSIDERING THE ASSESSEES SUBMISSION THAT THERE WA S RECESSION IN THE MARKET. THEREFORE, IN OUR OPINION, THERE IS NO JUSTIFICATIO N FOR FURTHER REDUCTION IN GP RATE OF 13.5% UPHELD BY THE CIT(A). WE THEREFORE U PHOLD THE FINDING OF THE CIT(A) WITH REGARD TO THE REJECTION OF THE BOOKS OF ACCOUNTS AS WELL AS APPLICATION OF GP RATE OF 13.5%. ONCE THE GP IS WO RKED OUT BY APPLYING THE GP RATE OF 13.5%, IT WOULD BE MORE THAN RS.83000/- BEING THE ADDITION FOR UNEXPLAINED PURCHASES FROM ROYALTIES INDUSTRIES. W E THEREFORE DIRECT THE AO TO MAKE ONLY GP ADDITION BY APPLYING GP RATE OF 13. 5%. REMAINING ADDITIONS FOR UNVERIFIABLE PURCHASE OF RS.12,91,950/- PLUS RS .83,000/- ARE DELETED. 7. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY A LLOWED. ORDER PRONOUNCED IN OPEN COURT ON 9 TH JULY, 2010. SD/- SD/- (MUKUL SHRAWAT) JUDICIAL MEMBER (G.D. AGARWAL) VICE-PRESIDENT PLACE : AHMEDABAD DATE : 09-07-2010 VK* COPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER AR, ITAT, AHMEDABAD