ITO, Patiala V. Sh.Gurinder Singh Prop., Patiala

ITA 390/CHANDI/2010

• Counselvise Citation: 39021514 RSA 2010
• Duration Of Justice: 1 year(s) 6 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-10-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 18-10-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 16-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N K SAINI
• Assessee Lawyers: K P BAJAJ
• Keywords: Bogus purchase; Assessment record
• Section: 143(3); 142(1); 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES A CHANDIGARH BEFORE SHRI H.L.KARWA, HON'BLE, VICE PRESIDENT AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER ITA NO. 390/CHD/2010 ASSESSMENT YEAR: 2006-07 THE ITO, VS. SHRI GURINDER SINGH WARD-1, PROP. M/S NEW GURINDRA HANDLOOM HOUSE, PATIALA PATIALA PAN NO. AIFPS7281L & ITA NO. 362/CHD/2010 ASSESSMENT YEAR: 2006-07 SHRI GURINDER SINGH. VS. THE ITO, WARD-1, PROP. M/S NEW GURINDRA HANDLOOM PATIALA HOUSE, PATIALA PAN NO. AIFPS72981L (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI N.K.SAINI RESPONDENT BY : SHRI K.P.BAJAJ DATE OF HEARING : 18.10.2011 DATE OF PRONOUNCEMENT : 19.10.2011 ORDER PER H.L.KARWA, VP THESE CROSS APPEALS FILED BY THE REVENUE AND ASSESS EE ARE DIRECTED AGAINST THE ORDER OF CIT(A), PATIALA DATED 15.2.201 0 RELATING TO ASSESSMENT YEAR 2006-07. 2 2. IN ITA NO. 390/CHD/2010, THE REVENUE HAS TAKEN T HE FOLLOWING GROUNDS:- 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN DELETING THE ADDITION MADE ON ACCOUNT OF BOGUS PURCHASES AND FURTHER ERRED IN DIRECTING THE ASSESSING OFFICER TO ADOPT GP @ 20% WITHOUT APPRECIATING THAT THE ASSESSEE HAD NEITHER FILED CONFIRMATION FROM THE PARTIES IN ORDER TO SUBSTANTI ATE THE PURCHASE MADE FROM THEM NOR PRODUCED THE BOOKS OF ACCOUNT DURING THE ASSESSMENT PROCEEDINGS. 2. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS FURTHER ERRED IN DELETING THE ADDITION MADE ON ACCOUNT OF BOGUS PURCHASES AND IN DIRECTING THE ASSESSING OFFICER TO ADOPT GP @ 20% WITHOUT APPRECIATING THAT THE ASSESSEE HAS FAILED TO FILE A NY DOCUMENTARY EVIDENCE IN SUPPORT OF THE ALLEGED PURCHASES AND HAVING FAILED TO DO SO, HENCE THE ASSESSING OFFICER WAS JUSTIFIED IN DRAWING AN ADVER SE INFERENCE AS PER SECTION 114 OF THE INDIAN EVIDENCE ACT. 3. IN ITA NO. 362/CHD/2010, THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS:- 1. THAT THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE N OTICES U/S 143(2) / 142 (1) WERE SERVED ON THE ASSESSEE. 2. THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN HOLDING THAT THE CASH CREDITS RECEIVED BY THE ASSESSEE COULD BE ADDE D TO THE INCOME IN EX-PARTE PROCEEDINGS. 3. THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN UPHOLDI NG THE ADDITION MADE BY THE LD. ASSESSING OFFICER ON ACCOU NT OF ALLEGED BOGUS PURCHASES, BY ESTIMATING THE GP RATE AT 20% TO THE SALES. 3 4. THAT WITHOUT PREJUDICE TO ABOVE, THE RATE OF GP APPLIED IS HIGHLY EXCESSIVE. 4. FIRSTLY, WE WILL DECIDE GROUND NOS. 1 & 2 OF REV ENUES APPEAL AND GROUND NO.3 OF ASSESSEES APPEAL. 5. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE FILED RETURN OF INCOME DECLARING NET INCOME AT RS. 2,18,940/- ON 31.10.2006. HOWEVER, THE ASSESSING OFFICER FRAMED THE ASSESSMEN T ORDER U/S 143(3) / 144 OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT ) ON 11.12.2008 DETERMINING THE TOTAL INCOME AT RS. 44,57,270/-. T HE ASSESSING OFFICER MADE THE ADDITION OF RS. 20 LACS ON ACCOUNT OF ALLE GED BOGUS PURCHASES. IN THIS REGARD, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD SHOWN NEW PURCHASES MADE AT RS. 98,24,411/-. THE ASSESSE E HAS ALSO SHOWN CLOSING STOCK AT RS. 79,12,654/-. SINCE THE ASSESS EE FAILED TO FILE CONFIRMATION FROM THE PARTIES FROM WHOM THE SAID A LLEGED PURCHASES WERE MADE, THE ASSESSING OFFICER PRESUMED THAT ONLY TO R EDUCE THE PROFITS, BOGUS PURCHASES HAVE BEEN SHOWN. THE ASSESSING OFF ICER, THEREFORE, TO THE BEST OF HIS JUDGMENT ESTIMATED THE BOGUS PURCHA SES AT RS. 20 LACS. CONSEQUENTLY, RS. 20 LACS WAS ADDED TO THE TOTAL I NCOME OF THE ASSESSEE. 6. ON APPEAL, THE CIT(A) DELETED THE ADDITION MADE ON ACCOUNT OF BOGUS PURCHASES AND FURTHER DIRECTED THE ASSESSING OFFICER TO ADOPT GP @ 20% WHICH RESULTED INTO ADDITION OF RS. 5,47,000/- APPROXIMATELY. THE RELEVANT FINDINGS GIVEN BY THE CIT(A) ON THIS ISSUE ARE AS UNDER:- 5.5 I HAVE GONE THROUGH THE FACTS OF THE CASE, THE ASSESSMENT ORDER, SUBMISSIONS AND COUNTER SUBMISSIO NS MADE BY THE RIVAL PARTIES. IT IS NOTICED THAT THE ASSES SEE FILED 4 AUDITED ACCOUNTS WITH THE RETURN OF INCOME. THERE H AS BEEN CONTROVERSY REGARDING ISSUE AND SERVICE OF INITIAL NOTICE U/S 143(2) AND 142(1) WHICH HAS BEEN SEPARATELY DEALT W ITH IN OTHER GROUND OF APPEAL. THE APPELLANT HAS CONTEND ED THAT SINCE THE BOOKS OF ACCOUNT WERE AUDITED, THE ASSESS ING OFFICER WAS SUPPOSED TO ACCEPT THE FIGURES OF PURCH ASES AND SALES AS CORRECT UNLESS AND UNTIL HE HAD SOME MATER IAL ON THE BASIS OF WHICH IT COULD BE HELD THAT THE PURCHASES REPORTED BY THE CHARTERED ACCOUNTANT ARE NOT CORRECT. HOWEV ER, THE FACT REMAINS THAT SINCE THE ASSESSEE FAILED TO PROD UCE THE BOOKS OF ACCOUNT AS A RESULT OF WHICH ASSESSING OFF ICER COULD NOT VERIFY SO MANY THINGS. BE THAT AS IT MAY BE, A N ASSESSMENT TO BE BEST OF JUDGMENT CAN ONLY BE BASED ON THE MATERIAL AVAILABLE WITH THE ASSESSING OFFICER AND P AST RECORDS AND CONSIDERING THE TOTALITY OF FACTS. THE CASE LAW REFERRED TO BY THE LD. COUNSEL TO THIS EFFECT IS AL SO RELEVANT. AS PER AUDIT REPORT THE TRADING RESULTS FOR THE YEA R AND THE EARLIER YEAR ARE AS UNDER:- ASST. YEAR SALES GROSS PROFIT RATE 2006-07 1,03,18,692 15,16,592 14.70% 2005-06 98,09,612 12,26,201 12.50% FROM THE ABOVE CHART IT IS APPARENT THAT THE RATE OF PROFIT IS PROGRESSIVE AS COMPARED TO THE EARLIER YEAR. THE A SSESSING OFFICER VIDE ORDER SHEET ENTRY DATED 15.2.2010 OF T HIS OFFICE DURING APPELLATE PROCEEDINGS ALSO ENDORSED THE VIEW OF THE ASSESSEE THAT THERE IS PROPER AUDIT REPORT IN FORM 3CD IN THE ASSESSMENT RECORD. IF THE FIGURE OF RS. 20 LACS I S TAKEN AS BOGUS PURCHASE THE GROSS PROFIT WOULD GO UPTO RS. 35,16,592/- GIVING RATE OF 34% WHICH WILL BE EXCESS IVE AND WOULD NOT MATCH IN ANY MANNER WITH THE PAST HISTORY OF THE CASE. TO BE JUDICIOUS, THEREFORE, IT WILL BE FAIR IF GP RATE OF 20% IS APPLIED TO THE SALES. THE ASSESSING OFFICER WOULD GIVEN EFFECT TO THE FINDING ACCORDINGLY. IN THE ULT IMATE ANALYSIS WHILE THE ADDITION MADE ON ACCOUNT OF ALLE GED BOGUS PURCHASES IS DELETED, THE ADDITION BY APPLYING GP R ATE OF 5 20% IS UPHELD WHICH WILL RESULTED INTO ADDITION OF RS. 5,47,000/- APPROXIMATELY. 7. NOW VIDE GROUND NOS. 1 & 2 OF THE APPEAL, THE RE VENUE HAS CHALLENGED THE ACTION OF CIT(A) IN DELETING THE ADD ITION MADE ON ACCOUNT OF BOGUS PURCHASES AND THE ASSESSEE IS IN APPEAL A GAINST THE ACTION OF THE CIT(A) IN UPHOLDING THE ADDITION ON ACCOUNT OF ALLE GED BOGUS PURCHASES, BY ESTIMATING THE GP RATE AT 20% TO THE SALES. 8. WE HAVE HEARD THE LD. REPRESENTATIVES OF BOTH PA RTIES AT LENGTH AND HAVE PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, THE ASSESSING OFFICER HAS FRAMED THE ASSESSMENT U/S 14 4 OF THE ACT. THERE IS NO DISPUTE THAT THE ASSESSEE FILED THE RETURN OF IN COME ALONG WITH AUDIT REPORT ON THE BASIS OF WHICH THE FIGURES OF PURCHAS ES AND CLOSING STOCK WAS TAKEN BY THE ASSESSING OFFICER AT RS. 98,24,411 /- AND RS. 79,12,654/- RESPECTIVELY. IN THIS CASE, THE OBSERVATIONS MADE BY THE ASSESSING OFFICER ARE AS UNDER:- AS THE ASSESSEE HAS NOT FILED CONFIRMATION FROM T HE PARTIES FROM WHOM THE SAID ALLEGED PURCHASES ARE MADE, IT APPEARS THAT ONLY TO REDUCE THE PROFITS, BOGUS PURCHASE HAVE BEEN SHOWN. 9. IN THE INSTANT CASE, THE ASSESSING OFFICER HAS N OT BROUGHT ANY MATERIAL ON RECORD TO ESTABLISH THAT THE ASSESSEE M ADE CERTAIN BOGUS PURCHASES. HOWEVER, ON THE BASIS OF SURMISES AND C ONJECTURES, THE ASSESSING OFFICER OPINED THAT IN THE ABSENCE OF CON FIRMATION FROM PARTIES FROM WHOM PURCHASES WERE MADE, IT APPEARS THAT ONLY TO REDUCE PROFITS, BOGUS PURCHASES HAVE BEEN SHOWN. IN FACT, THE ASSE SSING OFFICER HAS ESTIMATED THE BOGUS PURCHASES AT RS. 20 LACS WITHOU T ANY BASIS WHICH IS 6 NOT CORROBORATED BY ANY EVIDENCE. ON A PERUSAL OF ENTIRE FINDINGS OF THE ASSESSING OFFICER ON THIS ISSUE, WE ARE OF THE OPIN ION THAT THE FIGURE OF RS. 20 LACS HAS BEEN REACHED AT ARBITRARILY AND WIT HOUT BRINGING ANY MATERIAL ON RECORD. IT IS APPARENT FROM THE RECORD THAT GP RATE SHOWN BY THE ASSESSEE IN THIS YEAR COMES TO 14.70% AS AGAINS T GP RATE OF RS. 12.5% SHOWN IN THE ASSESSMENT YEAR 2005-06. IN OUR VIEW THE GP RATE DISCLOSED BY THE ASSESSEE DURING THIS YEAR IS PROGRESSIVE AS COMPARED TO IMMEDIATELY PRECEDING YEAR. IN OUR OPINION, THE CIT(A) HAS CORRECTLY OBSERVED THAT IF FIGURES OF RS. 20 LACS IS TAKEN AS BOGUS PURCHASES, THE GP WOULD COME TO RS. 35,16,592/- GIVING RATE OF 34% WH ICH WILL BE EXCESSIVE AND WOULD NOT MATCH IN ANY MANNER WITH THE PAST HIS TORY OF THE CASE. IN THE INSTANT CASE, THE ASSESSING OFFICER HAS FRAMED THE ASSESSMENT U/S 144 OF THE ACT AND SUCH ASSESSMENT CAN ONLY BE BASED ON THE MATERIALS AVAILABLE WITH THE ASSESSING OFFICER AND PAST RECOR D AND CONSIDERING THE TOTALITY OF FACTS. IN THE INSTANT CASE, THE ASSESS ING OFFICER HAS NOT CONSIDERED THE PAST RECORDS OF THE CASE. THE ASSESS ING OFFICER ALSO HAS NOT TAKEN INTO CONSIDERATION THE TAX AUDIT REPORT I N FORM NO. 3 CD FILED ALONGWITH RETURN OF INCOME. CONSIDERING THE ENTIRE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, WE ARE OF THE OP INION THAT THERE IS NO MATERIAL ON RECORD TO SUGGEST THAT THE ASSESSEE HAS MADE BOGUS PURCHASES TO THE EXTENT OF RS. 20,00,000/- AND THE CIT(A) HAS CORRECTLY DELETED THE ADDITION MADE ON ACCOUNT OF ALLEGED BOGUS PURCHASES . HOWEVER, WE ARE OF THE VIEW THAT RATE OF GP APPLIED BY THE CIT(A) @ 20 % ON SALES IS HIGHLY EXCESSIVE. IN THE INTEREST OF JUSTICE, WE DEEM IT PROPER TO MODIFY THE ORDER OF CIT(A) TO THIS EXTENT THAT IT WOULD BE FAI R IF GP RATE OF 18% IS APPLIED TO THE SALES PARTICULARLY WHEN BOOKS OF ACC OUNT WERE NEVER PRODUCED BY THE ASSESSEE BEFORE THE LOWER AUTHORITI ES. IN THE ABSENCE OF BOOKS OF ACCOUNT, THE ASSESSING OFFICER COULD NOT V ERIFY SO MANY THINGS. 7 ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO REC OMPUTE THE INCOME OF THE ASSESSEE. 10. IN VIEW OF THE ABOVE, WE DISMISS THE GROUND NOS . 1 & 2 OF REVENUES APPEAL WHILE GROUND NOS. 3 & 4 OF THE ASS ESSEES APPEAL ARE ALLOWED PARTLY. 11. GROUND NOS. 1 & 2 OF THE ASSESSEE APPEALS ARE D ISMISSED AS NOT PRESSED. 12. IN THE RESULT, THE REVENUES APPEAL IS DISMISSE D WHILE ASSESSEES APPEAL IS ALLOWED PARTLY. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 19 TH DAY OF OCTOBER, 2011. SD/- SD/- (MEHAR SINGH) (H.L.KARWA) ACCOUNTANT MEMBER VICE PRESIDENT DATED : 19 TH OCTOBER, 2011 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR TRUE COPY BY ORDER ASSISTANT REGISTRAR, ITAT, CHANDIGARH 8