Assistant Commissioner of Income Tax, Central Circle-1, , Visakhapatnam V. Jagadish Timber Mart, Visakhapatnam

ITA 364/VIZ/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 7774 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 6 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-01-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: misc
• Appeal Filed On: 05-07-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D K SONAWAL
• Assessee Lawyers: C KAMESWARA RAO
• Keywords: Bogus purchase; Peak credit
• Section: 143(3); 133A; 132

Judgement Text

THE INCOME TAX APPELLATE TRIBUNA L VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE SHRI V. DURGA RAO , HONBLE JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH , HONBLE ACCOUNTANT MEMBER ITA NO. 364 / VIZ /201 8 (ASST. YEAR: 20 13 - 14 ) ACIT, CENTRAL CIRCLE - 1, VISAKHAPATNAM V S . M/S. JAGADISH TIMBER MART, D.NO. 11 - 101/F, MAIN ROAD, RRV PURAM, GOPALAPATNAM, VISAKHAPATNAM. PAN NO. AAEFS 4439 B (APPELLANT) (RESPONDENT) C.O.NO. 108/VIZ/2018 (ARISING OUT OF ITA NO. 364 / VIZ /201 8) (ASST. YEAR: 20 13 - 14 ) M/S. JAGADISH TIMBER MART, D.NO. 11 - 101/F, MAIN ROAD, RRV PURAM, GOPALAPATNAM, VISAKHAPATNAM. VS. ACIT, CENTRAL CIRCLE - 1, VISAKHAPATNAM PAN NO. AAEFS 4439 B (APPELL ICANT ) (RESPONDENT) ASSESSEE BY : SHRI C. KAMESWARA RAO C A. DEPARTMENT BY : SHRI D.K. SONAWAL SR. DR DATE OF HEARING : 11 / 0 1 /201 9 . DATE OF PRONOUNCEMENT : 18 / 0 1 /201 9 . O R D E R PER D.S. SUNDER SINGH, A M : TH IS APPEAL BY THE REVENUE AND THE CROSS OBJECTION BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) - 12 , HYDERABAD , DATED 12 /0 4 /201 8 FOR THE ASSESSMENT YEAR 20 13 - 14 . 2 I TA NO. 3 64 / NAG /201 8 C.O.NO. 108/VIZ/2018 ( M/S. JAGADISH TIMBER MART ) 2. FACTS OF THE CASE IN BRIEF ARE THAT A SEARCH UNDER SECTION 132 OF THE INCOME TAX ACT, 1961 (FOR SHORT, 'THE ACT'') WAS CARRIED OUT IN THE CASE OF M/S. LAKSHMI CONSTRUCTIONS AND IN THE C OURSE OF SEARCH, CERTAIN INCRIMI NA TING MATERIAL PERTAINING TO THE ASSESSEE - FIRM WAS FOUND AND SEIZED. CONSEQUENTL Y, A SURVEY UNDER SECTION 133 A WAS CONDUCTED IN THE ASSESSEES BUSINESS PREMISES ALSO . THE ASSESSEE FILED ITS RETURN OF INCOME IN THIS CASE UNDER SECTION 153C ADMITTING TOTAL INCOME OF RS. 37,37,350/ - AND THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) R.W.S. 153C BY DETERMINING TOTAL INCOME OF RS. 1,18,95,310/ - . DURING THE COURSE OF A SSESSMENT PROCEEDINGS, THE ASSESSING OFFICER HAS MADE THE ADDITION OF RS.81,57,963/ - . IN THE COURSE OF SEARCH UNDER SECTION 132 IN THE BUSINESS PREMISES OF M/S. LAKSHMI CONSTRUCTIONS, THE DEPARTMENT HAS OBSERVED THAT M/S. LAKSHMI CONSTRUCTIONS HAD PURCHA SED TIMBER FROM THE ASSESSEE FOR AN AMOUNT OF RS. 61,08,107/ - IN CASH OUTSIDE THE BOOKS OF ACCOUNT S . DURING THE COURSE OF SURVEY INCRIM IN ATING MATERIAL EVIDENCING THE UNACCOUNTED SALES WERE FOUN D AND SEIZED AS ANNEXURE - A/JTM/01, 02 & 03. SIMILAR EVIDENCE WAS ALSO F O UND IN THE CASE OF SEARCHED PERSON M/S. LAKSHMI CONSTRUCTIONS . A STATEMENT UNDER SECTION 133A WAS RECORDED FROM THE MANAGING PARTNER OF THE ASSESSEE - 3 I TA NO. 3 64 / NAG /201 8 C.O.NO. 108/VIZ/2018 ( M/S. JAGADISH TIMBER MART ) FIRM, SHRI SHANTILAL RAVJI PATEL, WHO HAS ADMITTED THE UNACCOUNTED SALES MADE TO THE SEARCH ED P ERSON. AS EVIDENCED FROM THE SEIZED MATERIAL AND THE MATERIAL IMPOUNDED FROM THE ASSESSEE S PREMISES, THERE WAS DIFFERENCE IN THE QUANTUM OF RECEIPT ACTUALLY RECEIVED AND ACCOUNTED IN THE BOOKS OF ACCOUNTS. AS PER HIS STATEMENT RECORDED , THE ASSESSEE - FIRM IS OFFERING ONLY THE AMOUNT REFLECTED IN THE INVOICES AND NOT THE TOTAL AMOUNT RECEIVED AS PER THE LOOSE SHEETS ATTACHED TO THE INVOICE . THE ASSESSEE - FIRM ALSO ADMITTED THE GROSS PROFIT AS A DDITIONAL INCOME CONSEQUENT TO SURVEY CONDUCTED UNDER SECTION 133A FOR THE ASSESSMENT YEAR 2008 - 09 TO 2014 - 15 AS FOLLOWS : - S.NO. ASST. YEAR AMOUNT (RS.) 1 2008 - 09 570000 2 2009 - 10 200000 3 2010 - 11 560000 4 2011 - 12 230000 5 2012 - 13 742000 6 2013 - 14 814000 7 2014 - 15 857637 TOTAL 3973637 2.1 THE ASSESSEE - FIRM PREPARED THE TRADING ACCOUNT FOR THE ASSESSMENT YEARS 2008 - 09 TO 2014 - 15 RELATING TO THE UNACCOUNTED PURCHASES AND SALES AND WORK ED OUT THE GROSS PROFIT WHICH WAS ADMITTED IN THE RETURNS OF INCOME FOR THE RESPECTIVE ASSESSMENT YEARS , A S PER TABULATION PROVIDED HEREUNDER: - 4 I TA NO. 3 64 / NAG /201 8 C.O.NO. 108/VIZ/2018 ( M/S. JAGADISH TIMBER MART ) 3 . FOR THE IMPUGNED ASSESSMENT YEAR 2013 - 14, THE ASSESSEE FIRM HAD ADMITTED THAT THE TOTAL UNACCOUNTED PURCHASES WERE RS. 81,57,963/ - AND ADMITTED 10% OF THE GROSS PROFITS ON UNACCOUNTED SALES AS AN ADDITIONAL INCOME AND FILED ITS RETURN OF INCOME. T HE ASSESSING OFFICER OB SERVED THAT THOUGH THE ASSESSEE - FIRM STATED TO HAV E MADE THE UNACCOUNTED PURCHASES FROM LOCAL PARTIES, THERE W AS NO EVIDENCE AND THE DETAILS FOR UNACCOUNTED PURCHASES . S INCE , ASSESSEE FAILED TO FURNISH ANY EVIDENCE AND THE DETAILS TO SUPPORT IT S CLAIM F OR LOCAL PURCHASES, THE ASSESSING OFFICER HAS TREATED THE ENTIRE UNACCOUNTED PURCHASES OF RS. 81,57,963/ - AS INCOME OF THE ASSESSEE AND BROUGHT TO TAX. 4 . AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE WENT ON APPEAL TO THE LD. CIT(A). THE LD. CIT(A) OBSERVED THAT THE ASSESSING OFFICER DID NOT BRING ANY SPECIFIC DISCREPANCIES / A.Y. 2008 - 09 2009 - 10 2010 - 11 2011 - 12 2012 - 13 2013 - 14 2014 - 15 SALES 57,00,700 19,00,000 5600000 2292727 4418478 8135577 4670283 CLOSING STOCK 15,07,974 38,90704 424911 3637192 1610785 2446728 0 TOTAL 72,08,674 5790704 6024911 5929919 6029263 10582305 4670283 OPENING STOCK 0 1507974 3890704 424911 3637192 1610785 2446728 PURCHASES 66,38,604 4092730 1574207 5275735 1950223 8157963 1756526 GROSS PROFIT 5,70,070 190000 560000 229273 441848 813557 1756526 72,08,674 5790704 6024911 5929919 6029263 10582305 467029 5 I TA NO. 3 64 / NAG /201 8 C.O.NO. 108/VIZ/2018 ( M/S. JAGADISH TIMBER MART ) OMISSIONS / DEFICIEN C IES IN THE ASSESSEE S WORKING OF UNACC O UNTED PU RCHASES , WHICH RESULTED IN ADMISSION OF ADDITIONAL INCOME AND ACCORDINGLY HELD THAT ESTIMATION OF GROSS PROFIT ON UNACCOUNTED SALE S IS REASONABLE AND RELI ED ON THE DECISION OF THE COORDINATE BENCH OF ITAT IN THE CASE OF M/S. STEEL LINE (INDIA) IN ITA NO. 1 321 - 1323/MUM/2016, DATED 29/08/2017 DEL E TED THE ADDITION MADE BY THE ASSESSING OFFICER. FOR THE SAKE OF CLARITY AND CONVENIENCE , WE EXTRACT THE RELEVANT PART OF THE ORDER OF THE LD. CIT(A) WHICH READS AS UNDER: - 7. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND THE ORDER OF THE ASSESSING OFFICER. AS DISCUSSED IN PARA 5 OF THIS ORDER, EVIDENCES OF UNACCOUNTED SALES WERE FOUND DURING THE COURSE OF SEARCH & SURVEY PROCEEDINGS IN THE CASE OF THE ASSESSEE, ON WHICH, THE ASSESSEE ADMITT ED A PROFIT @ 10% WHICH WAS ACCEPTED BY THE AO WHILE MAKING THE SCRUTINY ASSESSMENT. HOWEVER, THE AO OBSERVED THAT THERE WERE UNACCOUNTED PURCHASES ALSO, AND DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE DID NOT HAVE ANY EVIDENCE TO SUPPORT ITS CLAIM O F UNACCOUNTED LOCAL PURCHASES. THE ASSESSEE EXPLAINED THAT IT HAD ALREADY OFFERED RS. 12,00,000/ - ON THIS ACCOUNT DURING THE A.Y.2008 - 09, AND RS.20,00,000/ - DURING THE A.Y.2009 - 10, BY WORKING OUT THE PEAK CREDIT OF INVESTMENT MADE IN PURCHASES. BUT THE AO TREATED THE ENTIRE PURCHASES OF RS.81,57,963/ - AS UNEXPLAINED, AND ADDED THE SAID AMOUNT AS UNDISCLOSED INCOME FOR A.Y.2013 - 14. IN THE COURSE OF APPELLATE PROCEEDINGS, VIDE HIS SUBMISSIONS REPRODUCED IN PARA 6 ABOVE, THE APPELLANT'S AR HAS VEHEMENTLY CONTE STED THIS ADDITION, ARGUING THAT PEAK INVESTMENT IN PURCHASES OF RS. 12,00,000/ - HAS ALREADY BEEN OFFERED TO TAX DURING A.Y.2008 09, AND RS.20,00,000/ - TOWARDS PEAK INVESTMENT IN PURCHASES HAS BEEN OFFERED IN A.Y.2009 - 10 ALSO. THE AO, IN THE ASSESSMENT ORD ER, HAS NOT CONTROVERTED THESE FACTS, AND IN FACT, IN A.Y.2009 - 10, HAS ACCEPTED THE INCOME RETURNED. IN THE YEAR UNDER CONSIDERATION, HOWEVER, THE AO HAS GONE ON TO TREAT THE ENTIRE PURCHASES AS UNEXPLAINED, BY SIMPLY STATING THAT THE CASH BOOK 6 I TA NO. 3 64 / NAG /201 8 C.O.NO. 108/VIZ/2018 ( M/S. JAGADISH TIMBER MART ) PREPARED BY THE APPELLANT FOR UNACCOUNTED PURCHASES AND UNACCOUNTED SALES IS NOT RELIABLE, AND THAT THE ASSESSEE HAS NOT BEEN ABLE TO FURNISH EVIDENCE REGARDING THE LOCAL PURCH ASES. NO SPECIFIC DISCREPANCIES /OMISSIONS/DEFICIENCIES HAVE BEEN POINTED OUT BY THE AO IN THE ASSESSEE'S WORKING, AND WHEN THE SAID WORKING WAS ACCEPTABLE FOR A.Y.2009 - 10, 2010 - 11, 2011 - 12 AND 2012 - 13, THERE IS NO REASON WHY THE SAME SHOULD NOT BE ACCEPTED IN A.Y.2013 14. FURTHER, WHILE THE AO HAS TREATED THE ENTIRE UNACCOUNTED PURCHASES AS THE UNDISCLOSED INCOME OF THE APPELLANT, THE APPELLANT'S PLEA IS THAT ONLY PROFIT ELEMENT ON THE ALLEGED UNACCOUNTED PURCHASES CAN BE BROUGHT TO TAX. IN SUPPORT OF THIS PROPOSITION, THE APPELLANT'S AR HAS PLACED RELIANCE ON A NUMBER OF CASE LAWS. THE SAID DECISIONS HAVE BEEN PERUSED. FROM THE SAID JUDGMENTS, IT CAN BE SEEN THAT ALL THE COURTS HAVE UNANIMOUSLY HELD THAT ONLY PROFIT ELEMENT OUT OF UNACCOUNTED PURCHASES SHOU LD BE TAXED. IN ITS RECENT JUDG MENT DATED 29.08.2017 IN THE CASE OF M/S. STEEL LINE (INDIA) (ITA NO. 1321 - 1323/ MUM/ 2016), THE MUMBAI ITAT , AFTER CONSIDERING AND DISCUSSING VARIOUS EARLIER DECISIONS OF THE SUBJECT, HELD AS UNDER: '14. AGAINST THE ABOVE ORDER OF CIT(A), BOTH ASSESSEE AN D REVENUE ARE IN FURTHER APPEAL BEFORE US. WE HAVE CONSIDERED RIVAL CONTENTIONS AND CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND ALSO DELIBERATED ON THE JUDICIAL PRONOUNCEMENTS REFERRED BY LOWER AUTHORITIES IN THEIR RESPECTIVE ORDERS AS W ELL AS CITED BY LEARNED AR AND DR DURING THE COURSE OF HEARING BEFORE US IN THE CONTEXT OF FACTUAL MATRIX OF THE CASE. FROM THE RECORD, WE FOUND THAT AO HAS MADE ADDITION IN RESPECT OF PURCHASES FOUND TO BE BOGUS AS PER THE INFORMATION FROMSALES TAX DEPART MENT. IN THE APPELLATE PROCEEDINGS, THE CJT(A) RECORDED A FINDING TO THE FACT THAT AO HAS NOT DISPUTED THE QUANTITATIVE DETAILS AND ALSO DAY TO DAY STOCK REGISTER MAINTAINED BY THE ASSESSEE. ASSESSEE COMPANY BEING A TRADER OF GOODS, AO NOT HAVING DOUBTED T HE GENUINENESS OF SALES, COULD NOT HAVE GONE AHEAD AND MADE ADDITION IN RESPECT OF PEAK BALANCE ON SUCH PURCHASES. THE CORRECT COURSE IS TO FIND OUT THE ELEMENT OF PROFIT EMBEDDED IN BOGUS PURCHASES WHICH THE ASSESSEE WOULD HAVE MADE. WHEN THE CORRESPONDIN G SALES HAVE NOT BEEN DOUBTED AND THE QUANTITATIVE DETAILS OF PURCHASES AND SALES VIS - - VIS STOCK WAS AVAILABLE, WE DEEM IT APPROPRIATE CONSIDERING THE ENTIRETY OF FACTS AND CIRCUMSTANCES OF THE CASE TO RESTRICT THE ADDITION TO THE EXTENT OF 2% OF SUCH BOG US PURCHASES. ACCORDINGLY, THE ORDER OF BOTH THE LOWER AUTHORITIES ARE MODIFIED AND AO IS DIRECTED TO RESTRICT THE ADDITION TO THE EXTENT OF 2% ON SUCH PURCHASES.' THE FACTS OF THE CASE AT HAND BEING SIMILAR, IT IS CONCLUDED THAT ONLY THE PROFIT ELEMENT EM BEDDED IN THE BOGUS PURCHASES COULD BE DISALLOWED AND SUBJECT TO TAX, AND NOT THE ENTIRE PURCHASES. IN 7 I TA NO. 3 64 / NAG /201 8 C.O.NO. 108/VIZ/2018 ( M/S. JAGADISH TIMBER MART ) THE PRESENT CASE, EVEN IF A PROFIT MARGIN OF 10% ON THE SAID PURCHASES IS ESTIMATED, IT WOULD WORK OUT TO RS.8,15,000/ - APPROXIMATELY, WHICH IS ALMOST EQ UAL TO THE RS.8,14,000/ ALREADY DISCLOSED AND OFFERED TO TAX BY THE APPELLANT. THE ADDITION OF RS.81,57,963/ - MADE BY THE AO IS, THEREFORE, FOUND TO BE ENTIRELY UNJUSTIFIED AND UNWARRANTED, AND IS ORDERED TO BE DELETED. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED ON RECORD. 6. IN THE INSTANT CASE, THERE IS NO DISPUTE THAT THE ASSESSEE HAS MADE SALES OUTSIDE THE BOOKS OF ACCOUNT AND ALSO AGREED THAT HE MADE UNACCOUNTED PURCHASES OF RS. 81,57,963/ - . THE ASSESSING OFFICER DISBELIEVED T HE LOCAL PURCHASES IN THE ABSENCE OF EVIDENCE TO SUPPORT THE UNACCOUNTED PURCHASES. IT IS UNDISPUTED FACT THAT WITHOUT MAKING PURCHASES OUTSIDE THE BOOKS OF ACCOUNT , T HERE CANNOT BE UNACCOUNTED SALES. THE ASSESSING OFFICER DID NOT SPECIFICALLY POINT OUT THE DEFICIENCIES IN THE QUANTI TY OF UNACCOUNTED SALES . W ITHOUT SPECIFIC DEFICIENCIES IN QUANTITATIVE TERMS OF UNACCOUNTED SALES , IT IS UNJUST IF IED TO TAX ENTIRE PURCHASE S AND GROSS PROFIT. IN THE NORMAL PRACTICE OF ACCOUNTING , FOR COMPUTING THE INCOME ON UNACCOUNTED SALES, THE GROSS PROFIT AND INITIAL INVESTMENT /PEAK INVESTMENT WHICH EVER IS HIGHER REQUIRED TO BE BROUGHT TO TAX. IN THIS CASE, THE PEAK UNACCOUNTED PURCHASES WAS WORKED OUT TO RS. 15,42,000 / - AS PER THE INFORMATION FURNISHED BY THE ASSESSEE. IT IS EVIDENT FROM THE 8 I TA NO. 3 64 / NAG /201 8 C.O.NO. 108/VIZ/2018 ( M/S. JAGADISH TIMBER MART ) ASSESSMENT ORDER AS WELL AS THE APPELLATE ORDER THAT THE ASSESSEE HAD ALREADY ADMITTED ADDITIONAL INCOME OF RS. 12,00,000/ - AND RS. 20,00,000/ - FOR THE ASSESSMENT YEAR S 2008 - 09 AND 2009 - 10 TOWARDS PEAK CREDITS RESPECTIVELY. APART FROM THE ABOVE, THE ASSESSEE ALSO ADMITTED THE GROSS PROFIT TO THE EXTENT OF RS.17,42,000/ - TILL THE END OF ASSESSMENT YEAR 2012 - 13 AS ADDITIONAL INCOME. T HEREFORE THE INITIAL INVESTMENT OR PEAK CREDIT WHICH REQUIRE TO BE BROUGHT TO T AX , HAS ALREADY TAKEN CARE BY THE ADDITIONAL INCOME ADMITTED BY THE ASSESSEE IN THE EARLIER YEARS , HENCE, NO SEPARATE ADDITION IS REQUIRED ON ACCOUNT OF PEAK CREDIT S. T HEREFORE WE HOLD THAT IT IS JUSTIFIED IN THIS CASE TO ESTIMAT E THE GR OSS PROFIT ON UNACCOUNTED SALES. T HIS VIEW IS UPHELD BY THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. SIMIT P. SHETH 356 ITR 451 (GUJ.). THEREFORE, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LD. CIT(A) AND THE SAME IS UPHELD. 7 . THE CROSS OBJECTION FILED BY THE ASSESSEE IS IN SUPPORT OF THE ORDER OF THE LD. CIT(A) . AS THE ASSESSEE HAS NO GRIEVANCE AGAINST THE ORDER OF LD. CIT(A) , THE CROSS OBJECTION FILED BY THE ASSESSEE HAS BECOME INFRUCTUOUS AND IS DISMISSED ACCORDINGLY . 8 . IN T HE RESULT, APPEAL FILED BY THE REVENUE AS WELL AS CROSS OBJECTION FILED BY THE ASSESSEE ARE DISMISSED. 9 I TA NO. 3 64 / NAG /201 8 C.O.NO. 108/VIZ/2018 ( M/S. JAGADISH TIMBER MART ) ORDER PRONOUNCED IN OPEN COURT ON TH IS 18 TH DAY OF JAN. , 201 9 . SD/ - SD/ - ( V. DURGA RAO ) ( D.S. SUNDER SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 18 TH JAN. , 201 9 . VR/ - COPY TO: 1. THE ASSESSEE M/S. JAGADISH TIMBER MART, D.NO. 11 - 101/F, MAIN ROAD, RRV PURAM, GOPALAPATNAM, VISAKHAPATNAM. 2. THE REVENUE ACIT, CENTRAL CIRCLE - 1, VISAKHAPATNAM 3. THE PR. CIT (CENTRAL), VISAKHAPATNAM. 4. THE CIT(A) - 12, HYDERABAD. 5. THE D.R . , VISAKHAPATNAM. 6. GUARD FILE. BY ORDER (VUKKEM RAMBABU) SR. PRIVATE SECRETARY, ITAT, VISAKHAPATNAM.