PIONEER HOTEL, SILVASSA V. ITO WARD 2, VAPI

ITA 415/SRT/2024

• Counselvise Citation: [2024] 100 COUNSELVISE.COM (IT) 0940 (ITAT-SURAT)
• Duration Of Justice: 3 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-07-2024
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 08-07-2024
• Assessment Year: 2011-2012
• Appeal Filed On: 10-04-2024
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: KHUSHBU BAGRECHA
• Keywords: Bogus purchase
• Section: 148; 250

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JIDICIAL MEMBER & SHRI BIJAYANADA PRUSETH, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.415/SRT/2024 Assessment Year: (2011-12) (Hybrid Processing hearing) Pioneer Hotel Opp. Adivasi Bhavan, Silvassa, Dadra and Nagar Haveli-396230 Vs. Income Tax Officer, Ward-2, Vapi 7 th Floor, 8 th Floor & 9 th Fortune Square, II, Road, Chala, Vapi-396191 èथायीलेखासं./जीआइआरसं./PAN/GIR No.: AADFP 1960 F (अपीलाथŎ/Appellant) (ŮȑथŎ /Respondent) िनधाŊįरती की ओर से /Appellant by Ms Khushbu Bagrecha, CA िनधाŊįरती की ओर से /Respondent by Shri Vinod Kumar, Sr-DR अपील पंजीकरण/Appeal instituted on 11.04.2024 सुनवाई की तारीख /Date of Hearing 09.07.2024 घोषणा की तारीख /Date of Pronouncement 15.07.2024 आदेश / O R D E R PER BIJAYANANDA PRUSETH, AM: This appeal filed by the appellant emanates from the order passed under section 250 of the Income Tax Act, 1961 (in short, ‘the Act’) by the Learned Commissioner of Income Tax (Appeals) / National Faceless Appeal Centre, Delhi [in short, “the CIT(A)]” vide order dated 21.03.2024 for assessment year (AY) 2011-12. The ground raised by the appellant is as under: - “1. The Ld.CIT(A) Valsad has partly allowed the appeal without considering our submissions made during the appeal proceeding and treating the purchases as bogus purchases.” 2 ITA No.415/SRT/2024 / AY.11-12 Pioneer Hotel 2. The fact of the present case in brief are that assessee filed its return of income (in short, ‘ROI’) for AY 2011-12 on 27.09.2011 declaring total income of Rs.8,48,890/-. Subsequently, case was reopened by AO after taking prior approval from higher authorities and he issued notice u/s 148 on 31.03.2017. The assessee requested to treat the original return of income as the ROI in response to notice u/s 148 of the Act. The assessee is engaged in the business of running hotel and restaurant. During the assessment proceedings, the AO noticed that the assessee-firm has issued cheques to four parties of Rs.1,10,84,311/- at the end of financial year 2010-11 towards purchases. The AO issued show cause notice and asked the assessee to produce bills and vouchers of said purchases and explain why the purchases should not be treated as bogus purchase. In response, assesse submitted that purchases from the aforesaid four parties were through unregistered dealer. Accordingly, AO verified the assessment order, in case of Shri Prajesh Parmar, group concern of the assessee and found that he had opened current accounts in the bank using his own PAN in the name of purchased parties mentioned above. The AO has further observed that it was established that Shri Prajesh Parmer had fabricated these entries for tax evasion purpose. It was further observed the current account in the name of above entities was opened only to give colour to the bogus transactions and to evade tax. Hence, the transactions of Rs.1,10,84,311/- with these four parties were treated as bogus and the 3 ITA No.415/SRT/2024 / AY.11-12 Pioneer Hotel same was added to the total income of the assessee. Aggrieved, assessee filed appeal before Ld.CIT(A) who has sustained addition to the extent of 25% amounting to Rs.27,71,080/-. Before Ld.CIT(A), it was stated that the assessee-firm’s partner, Shri Prajesh Parmer had purchased items from unregistered dealer and supplied it to the assessee (Pioneer Hotel). It was also submitted that the case of Shri Prajeshsinh Parmer was reopened and all payments made to those parties have been added to the total income of Shri Prajeshsinh Parmer. Therefore, addition in the hands of the assessee would be double addition of the same amount. The Ld.CIT(A) considered the submission of assessee and has decided the issue at para-5 of the appellate order (pages 5 to 9). In para-5.3, Ld.CIT(A) stated that the appellant itself admitted the fact that in order to regularized purchase made from the unregistered dealer, the bills from and payments made through cheques have been made to above entities, which existed on paper only. The Ld.CIT(A) has gone through the appellate order in case of Ms. Dayantiben I. Parmar, where addition on account of similar facts were deleted by the Ld.CIT(A). Considering such fact, he opined that addition in case of Shri Prajesh Parmar for issuance of bogus bills is not justified since the actual impact of the bogus purchases is in the account of the appellant-firm, in order to suppress its profit. Therefore, Ld.CIT(A) directed the AO to ascertain if the addition made in the hands of Shri Prajesh Parmar has been deleted by the Ld.CIT(A). If it has been deleted, addition 4 ITA No.415/SRT/2024 / AY.11-12 Pioneer Hotel in the hands of the appellant-firm is liable to be sustained. He observed that addition can be made only in one hand i.e., either in the hands of Shri Prajesh Parmar or in the hands of the appellant-firm. Since the purchases have been debited in the books of the assessee-firm, the addition has rightly been made in the hand of the appellant-firm. He, accordingly, directed the AO to ascertain if addition made has been deleted by the Ld.CIT(A) in case of Shri Prajesh Parmar. Regarding the contention of the assessee-firm that the appellant-firm has declared sales against the purchases and therefore, the purchases are not totally bogus for suppressing the profit, the Ld.CIT(A) observed that entire purchases cannot be disallowed. Since the family-members have created these paper entities to regularize the purchases affected from unregistered dealers. It would reasonable to restrict disallowance @25% of such purchases. Further, he observed that if the corresponding sales have not been recorded, the disallowance of entire alleged purchase of Rs.1,10,84,311/- will have to be sustained. Aggrieved by the order of Ld.CIT(A), the appellant has filed present appeal before the Tribunal. 3. Before us, Ld.AR for the assessee stated that AO has only stressed on payments made to the above parties in March, 2011 whereas the food items received from the above parties were on regular basis. The food items were received on monthly basis as per the actual requirement to run 5 ITA No.415/SRT/2024 / AY.11-12 Pioneer Hotel the restaurant. It is also submitted that materials have been actually received by the hotel because without these materials hotel business cannot run. The Ld.AR of the assessee further stated that there is gross profit of Rs.1,15,71,292/- (28.46%) on restaurant income of Rs.1,40,07,231/- and lodging rent of Rs.2,66,55,502/-. Since there is sufficient gross profit, the bills cannot be treated as bogus purchase. Only because the food items have been purchased from the partner of the assessee-firm, the said purchases cannot be held as bogus purchase. The Ld.AR of the assessee further submitted that on similar ground, case of Shri Prajesh Parmar has been reopened and AO has added the payment made to the above parties to his total income. Hence, it would be double addition of the same amount, which is not permissible. The Ld.AR of the assessee stated that addition on similar facts, in case of Ms. Damyantiben Parmar, has been partly allowed by ITAT and net profit (NP) ratio was estimated @ 6% of turnover in place of 3.98% declared by assessee. In view of these facts, Ld.AR requested to delete the addition made by AO or partly confirm to the extent of 2% as done in case of Smt. Damyantiben Parmer in ITA No.109/SRT/2021 (AY 2011-12) dated 29.08.2022. 4. On the other hand, Ld.Sr-DR for the Revenue supported the order of lower authorities. He stated that all the payments were made towards the end of the financial year only to reduce the profit margin of the assessee- 6 ITA No.415/SRT/2024 / AY.11-12 Pioneer Hotel firm. He stated that the assessee-firm is having income from hotel lodging and income from restaurant. Though gross profit is Rs.1,15,71,292/- net profit was only Rs.8,48,8888/-. He stated that the purchases for restaurant business is very high which has resulted suppression of profit by the assessee-firm. 5. We have heard the rival submissions and perused the materials available on record. We have also gone through the paper book filed by the Ld.AR of the assessee including tax audit report and the appellate order in case of Ms. Damyantiben I Parmar. The Ld.CIT(A) has stated that if the addition in case of Prajesh Parmat has been deleted then the addition is liable to be sustained in the hands of the assessee-firm because in such a situation, the issue of double addition of the same amount would not arise. Having held as above, he further discussed that having not disputed the sales, the entire purchase cannot be disallowed. Therefore, he has sustained addition to the extent of 25%. Therefore, the findings of the lower authorities cannot be rejected. We find that AO has recorded a finding of fact that Shri Prajesh Parmar opened current accounts by using his own PAN in case of purchases parties and issued cheques to give the colour of genuineness purchase. These parties have no physical existence and were used to suppress but profit. The Ld.CIT(A) has sustained such finding with the observation that if addition in case of Shri Prajesh Parmar 7 ITA No.415/SRT/2024 / AY.11-12 Pioneer Hotel has been deleted, the entire addition is liable to be sustained. Having held as above, he has been very reasonable in estimating the profit element at 25% of the purported purchases because sales have not been doubted by the AO. We do not find any infirmity in the findings of Ld.CIT(A); in fact, in assessee’s own case for AY 2010-11, we have sustained the order of Ld.CIT(A) in ITA No.390/SRT/2024 dated 28.06.2024 by holding as under: “5. We have heard the rival submissions and perused the materials available on record. We have also gone through the paper book filed by the Ld.AR of the assessee including tax audit report and the appellate order in case of Ms. Damyantiben I Parmar. The Ld.CIT(A) has stated that if the addition in case of Prajeshsinh Parmat has been deleted then the addition is liable to be sustained in the hands of the assessee-firm because in such a situation, the issue of double addition of the same amount would not arise. Having held as above, he further discussed that having not disputed the sales, the entire purchase cannot be disallowed. Therefore, he has sustained addition to the extent of 25%. We have seen the tax audit report of assessee-frim and found that assessee-firm has shown income from lodging of Rs.2,24,12,167/- and income from restaurant of Rs.1,28,74,772/-. Against restaurant income of Rs.1,28,74,772/-, the assessee- firm had debited expense of Rs.2,37,30,981/- as food items of restaurant purchase. It is, therefore, clear that the assessee has debited restaurant purchases at 184.32% of the income from restaurant. It is common knowledge that the gross profit margin in case of business from restaurant is very high. Normally, it is in the range to 30 to 50%. However, in assessee’s case gross profit is negative at 84.32%. Therefore, the findings of the lower authorities cannot be rejected. We find that AO has recorded a finding of fact that Shri Prajeshsinh Parmar opened current accounts by using his own PAN in case of purchases parties and issued cheques to give the colour of genuineness purchase. These parties have no physical existence and were used to suppress but profit. The Ld.CIT(A) has sustained such finding with the observation that if addition in case of Shri Prajeshsinh Parmar has been deleted, the entire addition is liable to be sustained. It may be stated that the similar addition case of another group entity, namely, Ms.Damyantiben I Parmar has been deleted. Having held as above, he has been very reasonable in estimating the profit element at 25% of the purported purchases because sales have not been doubted by the AO. We do not find any infirmity in the findings of Ld.CIT(A) because we have already held that in restaurant business, gross profit margin is very high, but the assessee has shown loss from restaurant business. Considering the totality of the facts as discussed above, we sustain the order of Ld.CIT(A) and dismiss the ground raised by assessee.” 8 ITA No.415/SRT/2024 / AY.11-12 Pioneer Hotel 6. Since the facts are similar to the preceding AY 2010-11, the order of Ld.CIT(A) in restricting disallowance @25% of the impugned purchases of Rs.1,10,84,311/- i.e., Rs.27,71,080/- is upheld and ground raised by assessee is dismissed. 7. In the result, appeal filed by the assessee is dismissed. Order is pronounced in the open court on 15/07/2024 after closing of hearing. Sd/- Sd/- (PAWAN SINGH) (BIJAYANANDA PRUSETH) JUDICIAL MEMBER ACCOUNTANT MEMBER स ू रत/Surat Ǒदनांक/ Date: 15/07/2024 DKP Outsourcing Sr.P.S Copy of the Order forwarded to 1. The Assessee 2. The Respondent 3. The CIT(A) 4. CIT 5. DR/AR, ITAT, Surat 6. Guard File By Order // True Copy // Assistant Registrar/Sr. PS/PS ITAT, Surat