Bhatia Industries, Durg V. Income Tax Officer, Ward-2(1), Bhilai

ITA 50/RPR/2021

AI Insights

Bhatia Industries appealed against the order of the Commissioner of Income-Tax (Appeals), which upheld the A.O's addition of Rs.7,15,594 as bogus purchases under Section 69 of the Income-tax Act, 1961. The A.O had initially made this addition based on information from the Commercial Tax Department that the assessee had obtained bogus purchase bills from a tainted party. The Tribunal found that while the assessee failed to substantiate the authenticity of the purchases, the A.O's method of addition was flawed. Instead of the full amount, the Tribunal decided that only the profit from these purported purchases should be added to the assessee's income, referencing a similar case by the Bombay High Court.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 128078 (ITAT-RAIPUR)
• Duration Of Justice: 1 year(s) 5 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-11-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: SMC
• Next Hearing Date: 25-08-2022
• Assessment Year: 2010-2011
• Appeal Filed On: 26-05-2021
• Other Referred Cases: Pr. Commissioner of Income Tax-17 Vs. M/s. Mohhomad Haji Adam & Company
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bogus purchase
• Section: 143(3); 133(6)

Judgement Text

आयकर अपीलȣय अͬधकरण Ûयायपीठ “एक-सदèय” मामला रायप ु र मɅ IN THE INCOME TAX APPELLATE TRIBUNAL RAIPUR BENCH “SMC”, RAIPUR Įी रवीश स ू द, ÛयाǓयक सदèय के सम¢ BEFORESHRI RAVISH SOOD, JUDICIAL MEMBER आयकर अपील सं./ ITA No. 50/RPR/2021 Ǔनधा[रण वष[ / Assessment Year : 2010-11 Bhatia Industries 1, G.E. Road, Near Rajendra Park Square, Durg-491 001 PAN : AAFFB2917E .......अपीलाथȸ / Appellant बनाम / V/s. The Income Tax Officer, Ward-2(1), Bhilai (C.G.) ......Ĥ×यथȸ / Respondent Assessee by : Shri Bikram Jain, CA Revenue by : Shri G.N Singh, Sr. DR स ु नवाई कȧ तारȣख / Date of Hearing : 26.08.2022 घोषणा कȧ तारȣख / Date of Pronouncement : 23.11.2022 2 Bhatia Industries Vs. ITO, Ward-2(1), Bhilai ITA No.50/RPR/2021 आदेश / ORDER PER RAVISH SOOD, JM The present appeal filed by the assessee is directed against the order passed by the Commissioner of Income-Tax (Appeals), National Faceless Appeal Center (NFAC), Delhi, dated 01.04.2021, which in turn arises from the order passed by the A.O under Sec. 143(3) r.w.s. 148 of the Income-tax Act, 1961 (in short ‘the Act’) dated 11.12.2017 for the assessment year 2010-11. The assessee has assailed the impugned order on the following grounds of appeal: “1. On facts and circumstances of the case, the Ld. CIT(A) has erred in sustaining the order of the A.O wherein the A.O has erred in making addition of Rs.7,15,594/- on account of bogus purchases thereby treating it as unexplained investment u/s.69. Thus, the addition made by the A.O and sustained by the CIT-A is unjustified, unwarranted and uncalled for. 2. The assessee reserves the right to add, amend or alter any grounds of appeal at any time of hearing.” 2. Succinctly stated, the assessee firm which is engaged in the business of manufacturing and trading of steel and wooden furniture & coolers etc. had filed its return of income for the assessment year 2010-11 on 14.10.2010, declaring an income of Rs.2,21,650/-. The return of income filed by the assessee was initially processed as such u/s.143(1) of the Act. 3 Bhatia Industries Vs. ITO, Ward-2(1), Bhilai ITA No.50/RPR/2021 3. On the basis of information received from the Commercial Tax Department, Chhattisgarh that the assessee as a beneficiary had obtained bogus purchases bills of Rs.7,15,594/- from a tainted party i.e. M/s. Tirupati Traders, Raipur, the A.O initiated proceedings u/s.147 of the Act. In compliance to the notice u/s.148 of the Act, dated 31.03.2017 issued by the A.O, the assessee requested that its original return of income may be treated as a return filed in response thereto, which was acted upon by the A.O who proceeded with the assessment and issued notice u/s.143(2) of the Act. 4. During the course of the assessment proceedings, the A.O in order to verify the authenticity of the purchases of Rs.7,15,594/- that were claimed by the assessee to have been made from M/s. Tirupati Traders, Raipur, called upon it to place on record supporting documentary evidences. In compliance, the assessee filed with the A.O photocopies of purchase bills a/w. copy of ledger account of M/s. Tirupati Traders, Raipur. Notice u/s. 133(6) of the Act that was issued by the A.O to the M/s. Tirupati Traders, Raipur, therein, calling upon it to furnish copies of sale bills, delivery challans, copy of ledger account of the assessee in his books of account, copies of transportation bilties and copy of its bank statement, was however returned by the postal authorities as unserved. 4 Bhatia Industries Vs. ITO, Ward-2(1), Bhilai ITA No.50/RPR/2021 5. Considering the aforesaid facts, the A.O called upon the assessee to substantiate the authenticity of the purchase transaction in question, which the assessee failed to do by placing on record the requisite documentary evidence. It was observed by the A.O that the assessee’s claim of having made payments towards purchase consideration to the aforementioned party, viz. M/s. Tirupati Traders, Raipur was not borne from the records, as the same revealed only a payment of Rs. 40,000/- during the year under consideration. As the assessee had failed to substantiate the authenticity of the purchase transactions in question, therefore, the A.O holding the books of account of the assessee as not reliable held the purchases in question as bogus. The A.O holding a conviction that the assessee had made the impugned purchases of Rs.7,15,594/- outside his regular books of accounts, thus, made an addition of the said amount to his returned income. Also, the A.O being of the view that the sales corresponding to the aforesaid unaccounted purchases would also have remain unrecorded, thus, by applying GP rate of 15% made a further addition of Rs. 1,07,339/- towards the unaccounted profit which the assessee would have made on such unrecorded sales. Accordingly, the A.O vide his order passed u/s. 5 Bhatia Industries Vs. ITO, Ward-2(1), Bhilai ITA No.50/RPR/2021 143(3) r.w.s. 148, dated 11.12.2017 determined the income of the assessee at Rs.10,44,583/-. 6. Aggrieved, the assessee carried the matter in appeal before the CIT(Appeals), who though upheld the addition of Rs.7,15,594/- that was made by the A.O on account of bogus purchases but vacated the addition of Rs.1,07,339/- that was made on account of profit element involved qua the unrecorded sales. 7. The assessee being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before me. 8. I have heard the ld. Authorized Representatives of both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by the Ld. AR to drive home his contentions. 9. Admittedly, it is a matter of fact borne from record that the assessee had failed to substantiate the authenticity of his claim of having made purchases of Rs.7,15,594/- from the aforementioned tainted party, viz. M/s. Tirupati Traders, Raipur. As the assessee had failed to discharge the onus that was cast upon it as regards proving the authenticity of the purchase transactions in question, therefore, I 6 Bhatia Industries Vs. ITO, Ward-2(1), Bhilai ITA No.50/RPR/2021 have no hesitation in concluding that no genuine purchases were made by the assessee from the aforesaid party. However, the observation of the A.O that the assessee as against the purchases of Rs.7,15,594/- had during the year under consideration made a payment of only Rs.40,000/- is found to be perverse. I, say so, for the reason that a perusal of the bank account of the assessee to which my attention was drawn by the Ld. AR during hearing of the appeal, revealed that the assessee had made during the year under consideration made a payment of Rs.3,10,000/-, as under (Page 19 to 21 of APB): Also, the ld. A.R had taken us through Page 23-24 of APB, which revealed that the balance amount of purchase consideration of Rs.4,05,594/- was paid by the assessee in the immediately Date of clearing Cheque No. Amount Paid 8.12.2009 015508 (SBI) 70,000/- 22.12.2009 015513 (SBI) 50,000/- 09.01.2010 126130 (C.G. Rajya Bank) 40,000/- 5.03.2010 126149 C.G. Rajya Bank) 50,000/- (D.D) 2.04.2010 015519(SBI) 1,00,000/- Total : 3,10,000/- 7 Bhatia Industries Vs. ITO, Ward-2(1), Bhilai ITA No.50/RPR/2021 succeeding year i.e. F.Y.2010-11. On the basis of the aforesaid facts, the observation of the A.O that the assessee had only made a payment of Rs. 40,000/- against its purchases in question of Rs.7,15,594/- is found to be factually incorrect. 10. Admittedly, it is a matter of fact borne from record that the assessee had failed to substantiate the authenticity of the purchases which were claimed to have been made from the aforementioned party, viz. M/s. Tirupati Traders, Raipur. Although, I am of the conscious of the fact that now when the transaction with M/s. Tirupati Traders, Raipur, a black listed party, had come under cloud of doubt, therefore, a very heavy onus was cast upon the assessee to substantiate the authenticity of the purchases which were claimed to have been made from the said party by placing on record supporting documentary evidence, which I find it had failed to do so. Although, the notice issued by the A.O u/s.133(6) of the Act to the aforesaid supplier, viz. M/s. Tirupati Traders, Raipur was returned unserved by the postal authorities, but the same in my considered view cannot be conclusive for dubbing the purchase transactions in question as bogus. 11. Considering the facts involved in the present case, I am of a strong conviction that though the assessee had failed to substantiate 8 Bhatia Industries Vs. ITO, Ward-2(1), Bhilai ITA No.50/RPR/2021 the authenticity of the purchase transaction in question by placing on record supporting documentary evidence to the satisfaction of the A.O, but considering the fact that the A.O had not dislodged the sales of the assessee, therefore, it can safely be concluded that the assessee had made purchases of the goods in question not from the aforesaid party, viz. M/s. Tirupati Traders, Raipur, but at a discounted value from the open/grey market. My aforesaid conviction is fortified by the fact that the A.O while framing assessment had not drawn any adverse inferences as regards the GP rate of 15.30 % that was disclosed by the assessee during the year under consideration. I, say so, for the reason that in case if the assessee would have only booked bogus expenses in the garb of the impugned purchases, then its GP rate for the year under consideration would have witnessed a steep decline, which is neither the case of the revenue nor a fact discernible from the records before me. On the basis of the aforesaid facts, I am of the considered view that addition in the case of the assessee is liable to be restricted only to the extent of profit which it would have made by procuring the goods at a discounted value from the open /grey market. 12. In so far quantification of the profit which the assessee would have made by procuring the goods at a discounted value from 9 Bhatia Industries Vs. ITO, Ward-2(1), Bhilai ITA No.50/RPR/2021 open/grey market, I find that on the said aspect the Hon’ble High Court of Bombay in the case of Pr. Commissioner of Income Tax-17 Vs. M/s. Mohhomad Haji Adam & Company, ITA No1004 of 2016, dated 11.02.2019, while upholding the order of the Tribunal, had observed, that the addition in the hands of the assessee as regards the bogus/unproved purchases is to be made to the extent of bringing the G.P rate of such bogus purchases at the same rate of other genuine purchases. The Hon’ble High Court while concluding as hereinabove had observed as under: “8. In the present case, as noted above, the assessee was a trader of brics. The A.O found three entities who were indulging in bogus billing activities. A.O. found that the purchases made by the assessee from these entities were bogus. This being a finding of fact, we have proceeded on such basis. Despite this, the question arises whether the Revenue is correct in contending that the entire purchase amount should be added by way of assessee's additional income or the assessee is correct incontending that such logic cannot be applied. The finding of the CIT(A) and the Tribunal would suggest that the department had not disputed the assessee's sales. There was no discrepancy between the purchases shown by the assessee and the sale declared. That being the position, the Tribunal was correct in coming to the conclusion that the purchases cannot be rejected without disturbing the sales in case of a trade. The Tribunal, therefore, correctly restricted the additions limited to the extent of bringing the G.P. rate on purchases at the same rate of other genuine purchases. The decision of the Gujarat High Court in the case of N.K. Industries Ltd. (supra) cannot be applied without reference to the facts. In fact in paragraph 8 of the same Judgment the Court held and observed as under- "So far as the question regarding addition of Rs.3,70,78,125/- as gross profit on sales of Rs.37.08 Crores made by the Assessing Officer despite the fact that the said sales had admittedly been recorded in the regular books during Financial Year 1997-98 is 10 Bhatia Industries Vs. ITO, Ward-2(1), Bhilai ITA No.50/RPR/2021 concerned, we are of the view that the assessee cannot be punished since sale price is accepted by the revenue. Therefore, even if 6 % gross profit is taken into account, the corresponding cost price is required to be deducted and tax cannot be levied on the same price. We have to reduce the selling price accordingly as a result of which profit comes to 5.66% Therefore, considering 5.66 % of Rs.3,70,78,125/- which comes to Rs.20,98,62 1.88 we think it fit to direct the revenue to add Rs.20,98,621.88 as gross profit and make necessary deductions accordingly. Accordingly, the said question is answered partially in favour of the assessee and partially in favour of the revenue." 9. In these circumstances, no question of law, therefore, arises. All Income Tax Appeals are dismissed, accordingly. No order at costs." It was observed by the Hon’ble High Court that the addition in respect of purchases which were found to be bogus/unproved in the case of the assessee before them, who was a trader, was to be worked out by bringing the G.P. rate of such bogus purchases at the same rate as that of other genuine purchases. I, thus, on the basis of the aforesaid observation of the Hon’ble High Court is of the considered view, that on the same lines, the profit which the assesee before me would have made by procuring the goods at a discounted value from the open/grey market can safely be determined by bringing the G.P rate of such bogus purchases at the same rate as that of the other genuine purchases. Accordingly, the A.O is directed to restrict the addition in terms of the aforesaid observation. 11 Bhatia Industries Vs. ITO, Ward-2(1), Bhilai ITA No.50/RPR/2021 13. Before parting, it may be observed that though the addition made by the A.O had been modified by me as herein above, but even otherwise the very basis adopted by the A.O for supporting the impugned addition in my considered view is absolutely fallacious. I, say so, for the reason that though the assessee had duly recorded the purchases in his regular books of account, and had made payment of the purchase consideration from his bank account, however, the A.O had wrongly made the impugned addition for the reason that the purchases in question were made by the assessee outside his regular books of account. 14. Be that as it may, I am of the considered view that in the backdrop of my aforesaid deliberations the addition in the case of the assessee is liable to be restricted only to the extent of the profit which he would have made at a discounted value from the open/grey market as against the value at which the same had been booked by the assessee in its books of accounts, and the quantification of the same shall be done by the A.O in terms of the aforesaid observations. 12 Bhatia Industries Vs. ITO, Ward-2(1), Bhilai ITA No.50/RPR/2021 15. In the result, appeal of the assessee is partly allowed in terms of the aforesaid observations. Order pronounced in open court on day of 23 rd November, 2022. Sd/- (रवीश स ू द/RAVISH SOOD) ÛयाǓयक सदèय/JUDICIAL MEMBER Raipur; Ǒदनांक /Dated : 23 rd November, 2022 ***SB आदेश कȧ ĤǓतͧलͪप अĒेͪषत / Copy of the Order forwarded to : 1. अपीलाथȸ / The Appellant. 2. Ĥ×यथȸ / The Respondent. 3. The CIT(Appeals), Raipur (C.G.) 4. The Pr. CIT, Raipur (C.G.) 5. ͪवभागीय ĤǓतǓनͬध, आयकर अपीलȣय अͬधकरण, “एक-सदèय” बɅच, रायप ु र / DR, ITAT, “SMC” Bench, Raipur. 6. गाड[ फ़ाइल / Guard File. आदेशान ु सार / BY ORDER, // True Copy // Ǔनजी सͬचव /Private Secretary आयकर अपीलȣय अͬधकरण, रायप ु र /ITAT, Raipur