Nayanaben Jayvadan Rughnathwala, Surat V. Income Tax Officer, Ward 1(2)(1), Surat

ITA 896/SRT/2023

• Counselvise Citation: [2024] 130 COUNSELVISE.COM (IT) 3331 (ITAT-SURAT)
• Duration Of Justice: 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2024
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: SMC
• Next Hearing Date: 27-02-2024
• Assessment Year: 2018-2019
• Appeal Filed On: 21-12-2023
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VINOD KUMAR
• Assessee Lawyers: CHAITALI SHAH
• Keywords: Bogus purchase; TDS; Assessment record; Opportunity of cross examination; Bogus
• Section: 147; 148; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND DR. ARJUN LAL SAINI, ACCOUNTANT MEMBER ITA No. 896/Srt/2023 (Assessment Year 2018-19) (Physical hearing) Nayanaben Jayvadan Rughnathwala, 131-132, Gandhi Kutir Society, B/h Meghna Complex, U.M. Road, Surat (Gujarat)-395007. PAN No. AAQPR 4350 L Vs. I.T.O., Ward 1(2)(1), Surat. Appellant/ Assessee Respondent/ Revenue Assessee represented by Ms. Chaitali Shah, CA. Department represented by Shri Vinod Kumar, Sr.DR Appeal instituted on 26/12/2023 Date of hearing 28/02/2024 Date of pronouncement 28/02/2024 Order under Section 254(1) of Income Tax Act PER: PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by the assessee is directed against the order of the National Faceless Appeal Centre, Delhi (NFAC)/learned Commissioner of Income Tax (Appeals) [in short, the ld. CIT(A)] dated 10/11/2023 for the Assessment Year (AY) 2018-19. The assessee has raised following grounds of appeal: “1. On the facts and circumstances of the case as well as law on the subject, the ld. CIT(A) has erred in confirming the action of Assessing Officer in reopening assessment u/s 147 by issuing notice u/s 148 of the I.T. Act, 1961. 2. On the facts and circumstances of the case as well as law on the subject, the ld. CIT(A) has erred in confirming the action of Assessing Officer in partly confirming the addition of Rs. 1,65,741/- (12.5% of Rs. 13,25,926/-) u/s 37 on account of alleged bogus purchases. ITA No. 896/Srt/2023 Nayanaben Jayvadan Rughnathwala Vs ITO 2 3. It is therefore prayed that assessment framed u/s 147 r.w.s. 144B of the Act may kindly be quashed and/or addition made by Assessing Officer and confirmed by CIT(A) may please be deleted. 4. Appellant craves leave to add, alter or delete any ground(s) either before or in the course of hearing of the appeal.” 2. Brief facts of the case are that the assessee is an individual and engaged in the business of yarn in the name of proprietory concern Shree Ram Fabrics. The assessee filed her return of income for A.Y. 2018-19 on 30/09/2018 declaring income at Rs. 22,09,330/-. The Assessing Officer was having information that the assessee has shown purchases of Rs. 13,25,926/- from Sharukh Khan Pathan who was not carrying out any actual business except providing bogus invoices/bills to the buyers, through his business entity ‘S.K. Enterprises’. S.K. Enterprises was existed only on papers and it was found that the assessee is one of the beneficiary of S.K. Enterprises who was shown purchases of Rs. 13,25,926/-. The case of assessee was reopened under Section 147 of the Income Tax Act, 1961 (in short, the Act). Notice under Section 148 of the Act was issued. The Assessing Officer recorded that no compliance in response to notice under Section 148 of the Act was made. The Assessing Officer recorded that the assessee was given various opportunities to make her submission, however, the assessee made only part compliance. All such infirmities is recorded in para 2 of assessment order. The Assessing Officer noted that the assessee filed certain written submission alongwith some enclosures vide reply dated 17/11/2022 and submitted that she is engaged in the ITA No. 896/Srt/2023 Nayanaben Jayvadan Rughnathwala Vs ITO 3 business of manufacturing of Yarn under the trade name Shree Ram Fabrics. The assessee also furnished return in response of notice under Section 148 of the Act, copy of bank book, details of sundry creditor, bank statement, computation of income, date wise purchases, bills of S.K. Enterprises, ledger account, GST return and TDS ledger. 3. The Assessing Officer in para 4 of assessment record, recorded that in the show cause notice dated 06/03/2023, the assessee was intimated of various proposed additions on the basis of statement of Sharukh Khan Pathan and his accountant that he was merely provided accommodation entry and his business is only on paper. The Assessing Officer recorded that the assessee filed reply on 09/03/2023, alongwith reply, the assessee furnished copy of bills obtained from S.K. Enterprises. The Assessing Officer recorded the summary of reply furnished by assessee. In summary of reply of assessee, the Assessing officer recorded that proposed addition is based only on the information received from the Investigation Wing that Sharukh Khan Pathan was engaged in generating fake invoices and passing of GST credit to the buyers and that he is not traceable. The assessee replied that the addition is proposed only on the basis of report of Investigation Wing. The assessee cannot be faulted if seller is not traceable, if the supplier has not filed return of income, the addition cannot be made in case of assessee where purchases are supported by document and quantitative details are valid. The entire proposed disallowance is ITA No. 896/Srt/2023 Nayanaben Jayvadan Rughnathwala Vs ITO 4 based on third party information. No such copy of statement is provided. The assessee has discharged her onus by furnishing various documentary evidences in the form of purchase bill, transportation bill, confirmation of account and payment through cheques and VAT registration of seller. The assessee also relied on certain case laws. The reply of assessee was not accepted by Assessing Officer. The Assessing Officer by referring the report of Investigation Wing, statement of Sharukh Khan Pathan and his accountant about their modus operandi, disallowed entire purchases shown from S.K. Enterprises of Rs. 13,25,926/- while passing assessment order on 25/03/2023. 4. Aggrieved by the additions in the assessment order, the assessee filed appeal before the ld. CIT(A). Before the ld. CIT(A), the assessee filed detailed written submissions challenging the validity of reopening as well as additions on merit. Submissions of assessee are recorded in para 4 at page No. 3 to 9 of order of ld. CIT(A). The assessee in her submission, in sum and substance, submitted that the assessee while filing return of income declared income of Rs. 22,09,330/-. During the year, the assessee was engaged in the business of yarn. Purchases and sales of assessee are supported by voucher in the form of bills and delivery challans. The assessee maintained complete books of account with quantitative tally. The books of assessee are duly audited. In notice under Section 148A(b) of the Act served upon the assessee disclosing that S.K. Enterprises was ITA No. 896/Srt/2023 Nayanaben Jayvadan Rughnathwala Vs ITO 5 generating and passing on GST credit without any physical movement of goods. On the basis of such information, the case of assessee was selected on the ground that the income of purchases to the extent of 13,25,926/- has escaped from assessment. The assessee filed objection vide objection dated 23/03/2022 and complied various notices. The assessee actually purchased goods and because of bogus billing, the ITC was reversed and ultimately the assessee paid GST with interest and penalty. So far as purchases are concerned, the assessee is eligible for deduction on such purchases as such purchases are accounted in the books which are supported with complete evidence. The assessee again furnished complete details including GST return, purchase bill, ledger account of S.K. Enterprises, ledger account of wage and salary, commission and brokerage details. The assessee objected that the Assessing Officer neither supplied the statement of Sharukhkhan Pathan recorded in Income Tax Department or GST department nor provided opportunity of cross examination, thus the addition is not valid. To support such contention, the assessee relied upon the decision of Hon'ble Apex Court in Andaman Timber Industries Vs CCE in Civil Appeal No. 4228/2006 (Supreme Court), Kishanchand Chellaram Vs CIT 125 ITR 0713 (SC) and various other decisions. 5. The ld. CIT(A) on considering the submissions of assessee held that the Assessing Officer made addition / disallowance of entire purchases of 13,25,926/- form SK Enterprises holding the same as bogus. The stand of ITA No. 896/Srt/2023 Nayanaben Jayvadan Rughnathwala Vs ITO 6 assessee is that they have purchased the goods but the broker has given false bill. Their ITC was reversed on which they have paid GST with interest and penalty, so their purchases is eligible for deduction. The ld. CIT(A) further recorded that their sales are not doubted and no sales is possible without corresponding purchases. The ld. CIT(A) held that logical explanation is that the assessee may have purchases from undisclosed parties in grey market at lower rates and purchases are shown to have made from S.K. Enterprises to suppress its profit. The ld. CIT(A) by referring the decision of Hon'ble Gujarat High Court in CIT Vs Simit P Sheth 356 ITR 451 held that the entire purchases cannot be disallowed but only profit element embedded in such purchases was to be disallowed. The ld. CIT(A) accordingly restricted the disallowance to the extent of profit margin of 12.5% of the bogus purchases taking it as reasonable and allowed substantial/partly relief to the assessee. Further aggrieved, the assessee has filed present appeal before the Tribunal. 6. We have heard the submissions of the learned Authorised Representative (ld. AR) of the assessee and the learned Senior Departmental Representative (ld. Sr. DR) for the revenue. We find that the assessee has raised grounds No. 1 and 3 of the appeal challenging the validity of reopening, however, no specific submission was made on such grounds of appeal, therefore, such grounds of appeal are treated as not pressed and dismissed as such. ITA No. 896/Srt/2023 Nayanaben Jayvadan Rughnathwala Vs ITO 7 7. Ground No. 2 of the appeal relates to restricting the addition of purchases to the extent of 12.5% of impugned purchases. The ld. AR of the assessee submits that during the assessment, the assessee furnished complete details of purchases. Books of assessee are duly audited. No defects in the books of account was pointed out. The book result of assessee was not rejected. The Assessing Officer merely relied upon the third party information without providing copy of such information. The Assessing Officer neither supplied the statement of Sharukhkhan Pathan or his accountant nor allowed cross examination thereof despite specific request by assessee. Thus, the entire addition is liable to be deleted. To support such submission, the ld. AR of the assessee relied upon the decision of Hon'ble Supreme Court in Andaman Timber Industries Vs CCE and Kishanchand Chellaram Vs CIT (supra). In other alternative submission, the ld. AR of the assessee submits that the assessee has shown very good gross profit (GP) of 10.02% and net profit (NP) of more than 5%. The sale of assessee was not disputed so no sale is possible in absence of purchases. The case laws relied by the ld. CIT(A) in CIT Vs Simit P Sheth (supra) is based on different fact. In the said case, the assessee was in the trading of steel on wholesale basis. However, the assessee is in the business of yarn wherein the margin is very low. Still the assessee is shown gross profit of more than 10%. The ld. AR of the assessee submits that the Ahmedabad Tribunal in DCIT Vs M/s Abhishek Exim Pvt. Ltd. in ITA No. 2704/Ahd/2008 ITA No. 896/Srt/2023 Nayanaben Jayvadan Rughnathwala Vs ITO 8 and in other group cases order dated 29/09/2015 considered similar disallowance @ 2%. Considering the fact that the assessee is in similar business, therefore, disallowance if any to be restricted may not be more than 2% of the disputed purchases that too by giving benefit of net profit already declared by assessee in her books. 8. On the other hand, the ld. Sr. DR for the revenue submits that assessee is beneficiary of bogus purchases shown from S.K. Enterprises, who was proved to be a bogus supplier. The proprietor of S.K. Enterprises was issuing only fake bill without actual delivery of goods. Though, the Assessing Officer rightly added the entire purchases shown from S.K. Enterprises while making assessment order. However, the ld. CIT(A) on considering the plea of assessee, granted more than reasonable relief. The assessee is not eligible for further relief. The assessee has shown purchases only to inflate the expenses and reduce the profit. 9. We have considered the submissions of both the parties and have gone through the orders of the lower authorities carefully. We have also perused material on record. We have also deliberated on various case laws. We find that the Assessing officer made 100% disallowance of purchases shown from S.K. Enterprises. The assessee has shown evidences of purchases which includes purchase invoices, delivery challan and payment through banking channel. No comments were made on such evidence by Assessing Officer. The assessing Officer made addition solely on the basis of report ITA No. 896/Srt/2023 Nayanaben Jayvadan Rughnathwala Vs ITO 9 of Investigation Wing. Report of Investigation Wing and statement of Sharukhkhan Pathan was not provided to the assessee despite specific request by assessee. The sale of assessee was not disputed by Assessing Officer. Books result were also not disturbed by Assessing Officer. We find that the ld. CIT(A) restricted the addition to the extent of 12.5% of disputed purchases on the basis of decision of Hon’ble Jurisdictional High in CIT Vs Simit P Sheth (Supra). We find that the assessee has shown more than 10% of gross profit and net profit of more than 5% of turnover. Thus, keeping in view the peculiar facts of the case, when the assessee has shown sufficiently reasonable profit in its business, further disallowance of 12.5% of impugned purchases will be on higher side. Therefore, in our view, the disallowance of 5% of purchases from S.K. Enterprises would be sufficient to avoid the possibility of revenue leakage, therefore, the Assessing officer is directed to restrict the addition of 5% of Rs. 13,25,926/- shown from S.K. Enterprises. In the result, ground No. 2 of the appeal is partly allowed. 10. In the result, this appeal of assessee is partly allowed. Order announced in open court on 28 th February, 2024. Sd/- Sd/- (Dr. ARJUN LAL SAINI) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Surat, Dated: 28/02/2024 *Ranjan ITA No. 896/Srt/2023 Nayanaben Jayvadan Rughnathwala Vs ITO 10 Copy to: 1. Assessee 2. Revenue 3. CIT 4. DR By order 5. Guard File Sr. Private Secretary, ITAT, Surat