Shri Ramesh Verma, Prop.M/s.Kush International, Surat V. The Income tax Officer,Ward-6(3), Surat

ITA 541/AHD/2007

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1820 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 10 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 17-12-2009
• Assessment Year: 2003-2004
• Appeal Filed On: 05-02-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SHELEY JINDAL
• Assessee Lawyers: J P SHAH
• Keywords: Bogus purchase; Business income; Set aside
• Section: 133(6); 145; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH AHMEDABAD (BEFORE SHRI BHAVNESH SAINI, JM AND N. S. SAINI, AM ) ITA NO.541/AHD/2007 A. Y.: 2003-04 RAMESH VERMA, PROP. KUSH INTERNATIONAL, 15, SHAKTI CHAMBERS, RAGHUNATHPURA, MAIN ROAD, SURAT 395 003 PA NO.ABCPV 7139 G VS THE INCOME TAX OFFICER, WARD 4(4), ROOM NO.320, AAYAKAR BHAVAN, SURAT (APPELLANT) (RESPONDENT) APPELLANT BY SHRI J.P. SHAH, AR RESPONDENT BY SHRI SHELEY JINDAL, DR DATE OF ORDER RESERVED: O R D E R PER BHAVNESH SAINI: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-III, SURAT DATED 10 -11-2006 FOR THE ASSESSMENT YEAR 2003-04 CHALLENGING THE ORDER OF TH E LEARNED CIT(A) IN UPHOLDING THE ENTIRE PURCHASE OF RS.3,97,63,022/- A S BOGUS AND NON- GENUINE. 2. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOT H THE PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND T HE MATERIAL ON RECORD. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FI LED RETURN OF INCOME DECLARING TOTAL INCOME OF RS.44,698/-. COPY OF AUDI TED BALANCE SHEET AND PROFIT & LOSS ACCOUNT WAS FILED ALONG WITH THE RETU RN OF INCOME. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING OF R OUGH AND POLISHED DI0AMONDS. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS SHOWN TOTAL SALES AT RS.3,19,67,923/- WITH GROSS PR OFIT OF 0.49% AS ITA NO. 541/AHD/2007 RAMESH VERMA PROP. KUSH INTERNATIONAL 2 AGAINST TOTAL SALES AND GROSS PROFIT OF RS.5,01,80, 990/- AND 0.79% RESPECTIVELY SHOWN IN THE EARLIER YEAR OF THE ASSES SMENT. AS REGARDS SMALL SUPPRESSED SALES AND PROFIT, THE ASSESSEE SUB MITTED THAT IN THE PRECEDING ASSESSMENT YEAR 2002-03, THE GROSS PROFIT RATE OF 1.50% WAS APPLIED WHICH IS CONFIRMED BY THE TRIBUNAL. THE AO ISSUED NOTICES TO 7 PARTIES U/S 133(6) OF THE INCOME TAX ACT FROM WHOM THE ASSESSEE HAD MADE THE ENTIRE PURCHASES OF RS.3,97,63,022/-, BUT THE NOTICES WERE RETURNED BACK WITH THE REMARKS LEFT THE PREMISES S INCE LONG. THE ASSESSEE SUBMITTED PURCHASE BILLS FROM THE PARTIES AND ALSO FURNISHED INCOME TAX PERMANENT ACCOUNT NUMBER. THE AO NOTICED THAT THE PURCHASES COULD NOT BE VERIFIED. THE AO, THEREFORE, NOTED THAT SINCE THE ASSESSEE CLAIMED EXPENDITURE U/S 37 OF THE INCOME T AX ACT, THEREFORE, BURDEN IS UPON THE ASSESSEE TO PROVE THE SAME. SINC E IN THE CASE OF THE ASSESSEE, THE ASSESSEE HAS FAILED TO PROVE THE GENU INE EXPENSES INCURRED ON THE PURCHASES, THEREFORE, THE BOOKS OF ACCOUNTS OF THE ASSESSEE WAS REJECTED U/S 145 OF THE INCOME TAX ACT AND THE ADD ITION OF THE ENTIRE PURCHASES WAS MADE TREATING THEM TO BE UNEXPLAINED, NON-GENUINE AND BOGUS PURCHASES. THE AO HAS ALSO APPLIED GROSS PROF IT RATE OF 1.50% AS IS APPLIED IN THE EARLIER YEAR AGAINST SALES AND WO RKED OUT PROFIT OF RS.4,79,518/-. SINCE THIS AMOUNT WAS LESSER THAN TH E BOGUS PURCHASES, THEREFORE, NO SEPARATE ADDITION WAS MADE. THE ASSES SEE CHALLENGED THE ADDITION OF RS.3,97,63,022/- ON ACCOUNT OF BOGUS P URCHASES BEFORE THE LEARNED CIT(A). HOWEVER, THE APPEAL OF THE ASSESSEE WAS DISMISSED IN DEFAULT. 4. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AO AND SUBMITTED THAT THE ENTIRE PU RCHASES COULD NOT BE INCOME OF THE ASSESSEE AS THE SALES OF THE ASSES SEE HAVE BEEN ACCEPTED. HE HAS SUBMITTED THAT ONCE BOOKS OF ACCOU NTS OF THE ASSESSEE ARE NOT RELIABLE AND REJECTED U/S 145 OF THE INCOME TAX ACT, THE PROPER COURSE OF ACTION WOULD HAVE BEEN APPLIED FOR GROSS/ NET PROFIT RATE TO ITA NO. 541/AHD/2007 RAMESH VERMA PROP. KUSH INTERNATIONAL 3 DETERMINE THE INCOME OF THE ASSESSEE INSTEAD OF MAK ING HUGE ADDITION ON ACCOUNT OF UNEXPLAINED PURCHASES. HE HAS SUBMITTED THAT WITHOUT PURCHASE, THERE COULD NOT BE ANY SALE MADE BY THE A SSESSEE. THE LEARNED COUNSEL FOR THE ASSESSEE CONCEDED THAT IN THE PRECE DING ASSESSMENT YEAR 2002-03, THE TRIBUNAL CONFIRMED THE APPLICATION OF GROSS PROFIT RATE OF 1.50% IN THE CASE OF THE ASSESSEE ON REJECTION OF T HE BOOK RESULTS AND SUBMITTED THAT SAME GROSS PROFIT RATE COULD BE APPL IED IN THE ASSESSMENT YEAR UNDER CONSIDERATION. 5. ON THE OTHER HAND, THE LEARNED DR INITIALLY RELI ED UPON THE ORDER OF THE AO BUT SUBMITTED THAT IN THE ASSESSMENT YEAR 20 00-01, THE TRIBUNAL IN THE CASE OF THE ASSESSEE VIDE ORDER DATED 16-01- 2009 DECIDED THE CROSS APPEALS IN WHICH 40% OF THE PURCHASES WERE CO NSIDERED FOR THE PURPOSE OF ADDITION. HOWEVER, ON GOING THROUGH THE ORDER OF THE TRIBUNAL THE LEARNED DR SUBMITTED THAT SUCH DISALLOWANCES WE RE MADE WITH THE AID OF SECTION 40A (3) OF THE INCOME TAX ACT. THE L EARNED DR, THEREFORE, SUBMITTED THAT SUCH ORDER MAY NOT BE APPLICABLE IN THE CASE OF THE ASSESSEE. HOWEVER, THE LEARNED DR SUBMITTED THAT SI NCE THE ENTIRE PURCHASES WERE FOUND TO BE BOGUS AND NOT EXPLAINED, THEREFORE, HIGHER GROSS PROFIT RATE SHOULD HAVE BEEN APPLIED TO MAKE THE ADDITION. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND THE MATERIAL AVAILABLE ON RECORD. THE AO MADE THE ADDITION ON AC COUNT OF THE ENTIRE PURCHASES FOUND TO BE NOT EXPLAINED. THE ENTIRE PUR CHASE WAS TREATED AS INCOME OF THE ASSESSEE. THE COURSE ADOPTED BY AO IS AGAINST PRINCIPLE OF LAW BECAUSE UNDER THE INCOME TAX ACT ONLY INCOME CA N BE SUBJECTED TO TAX. THE SALE OF THE ASSESSEE HAS NOT BEEN DISPUTED BY THE AO. WITHOUT MAKING ANY PURCHASE, THE ASSESSEE COULD NOT HAVE BE EN MADE ANY SALE. THUS, THE ENTIRE PURCHASES CANNOT BE TREATED AS INC OME OF THE ASSESSEE AND CANNOT BE SUBJECTED TO TAX AS INCOME. IT MIGHT BE POSSIBLE THAT THE ASSESSEE MIGHT HAVE MADE THE PURCHASES FROM OTHER P ARTIES OTHER THAN ITA NO. 541/AHD/2007 RAMESH VERMA PROP. KUSH INTERNATIONAL 4 THE 7 PARTIES FROM WHOM THE ASSESSEE OBTAINED THE P URCHASE BILLS. BUT IT IS HIGHLY UNBELIEVABLE THAT WITHOUT MAKING ANY PURC HASE, THE ASSESSEE HAS MADE SALE IN ORDINARY COURSE. IN SUCH CIRCUMSTA NCES, THE AO HAS RIGHTLY REJECTED THE BOOK RESULTS OF THE ASSESSEE U /S 145 OF THE INCOME TAX ACT AND WHEN BOOK RESULTS ARE REJECTED, PROPER COURSE OF ACTION SHOULD HAVE BEEN TAKEN TO DETERMINE THE INCOME OF T HE ASSESSEE BY CONSIDERING NATURE OF BUSINESS OF THE ASSESSEE AND THE ATTENDING CIRCUMSTANCES AND PREVIOUS HISTORY OF THE ASSESSEE. THE ASSESSEE IN THE ASSESSMENT YEAR UNDER APPEAL HAS SHOWN GROSS PROFIT RATE OF 0.49% AND IN THE PRECEDING ASSESSMENT YEAR HE HAS SHOWN GROSS PROFIT RATE OF 0.79%. IT IS ALSO ADMITTED THAT IN THE PRECEDING AS SESSMENT YEAR THE GROSS PROFIT RATE WAS ENHANCED TO 1.50% AS AGAINST 0.79% AND SUCH FINDINGS OF THE AUTHORITIES BELOW HAVE BEEN CONFIRM ED BY THE TRIBUNAL. THE AO HAS, THEREFORE, APPLIED THE GROSS PROFIT RAT E OF 1.50% AGAINST SALES OF THE ASSESSEE FOR THE ASSESSMENT YEAR UNDER APPEAL AND WORKED OUT THE PROFIT AT RS.4,79,518/-. CONSIDERING THE AB OVE FACTS, IT WOULD HAVE BEEN REASONABLE AND PROPER TO HAVE APPLIED THE SAME GROSS PROFIT RATE OF 1.50% AGAINST THE ASSESSEE INSTEAD OF 0.49% SHOWN BY THE ASSESSEE IN THE ASSESSMENT YEAR UNDER CONSIDERATION . THE ADDITION ON ACCOUNT OF UNEXPLAINED PURCHASED SHOULD HAVE BEEN D ELETED BY THE AUTHORITIES BELOW. WE, ACCORDINGLY SET ASIDE THE O RDERS OF THE AUTHORITIES BELOW AND DELETE THE ADDITION OF RS.3,97,63,022/- O N ACCOUNT OF BOGUS PURCHASES AND DIRECT THE AO TO MAKE ADDITION OF RS. 4,79,518/- ON ACCOUNT OF PROFIT EARNED BY THE ASSESSEE ON REJECTI ON OF BOOK RESULTS. THE ABOVE INCOME WOULD MEET THE ENDS OF JUSTICE BECAUSE WHEN IN THE PRECEDING ASSESSMENT YEAR 1.50% GROSS PROFIT RATE I S APPLIED AS AGAINST 0.79%, THE SAME RATE WOULD BE PROPER AND REASONABLE AS AGAINST 0.49% SHOWN BY THE ASSESSEE IN THE ASSESSMENT YEAR UNDER APPEAL. IT WOULD ALSO MEET THE ARGUMENTS OF THE LEARNED DR THAT HIGH ER GROSS PROFIT RATE MAY BE APPLIED IN SUCH CIRCUMSTANCES. ITA NO. 541/AHD/2007 RAMESH VERMA PROP. KUSH INTERNATIONAL 5 7. IN VIEW OF THE ABOVE DISCUSSIONS, WE SET ASIDE T HE ORDERS OF THE AUTHORITIES BELOW AND DIRECT THE AO TO RESTRICT THE ADDITION TO RS.4,79,518/- IN ALL. 8. AS A RESULT, THE APPEAL OF THE ASSESSEE IS PARTL Y ALLOWED. ORDER PRONOUNCED ON 18 TH DEC, 2009 SD/- SD/- (N. S. SAINI) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 18-12-2009 LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER D Y. REGISTRAR, ITAT, AHMEDABAD