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Income Tax Appellate Tribunal, ‘E‘ BENCH
आदेश / O R D E R PER AMIT SHUKLA (J.M): The aforesaid appeal has been filed by the assessee against the order dated 04/02/2023 passed by NFAC, Delhi by the quantum of assessment passed u/s. 143(3) for the A.Y.2018-19. 2. Despite sending various notices to the assessee as well as notice through e-mail on following dates, none appeared nor has any communication been received. Accordingly, the case of the M/s. Esszee Manufacturing Pvt. Ltd. assessee is being decided exparte on the basis of material placed on record. Srl Subject Recipients Communication 1 Notice of esszeemanufacturingpvtl 30/05/2023 Hearing in ITA td@gmail.com, 1073/MUM/2 mumbai.saritat6.2@inco 023 (Date of metax.gov.in, Hearing: '2023-Jun-21') 2 Notice of esszeemanufacturingpvtl 22/06/2023 Hearing in ITA td@gmail.com, 09:38:16 1073/MUM/2 mumbai.sar.itat6.2@inco 023 (Date of metax.gov.in, Hearing: '2023-Jul-10')
In the grounds of appeal
assessee has challenged disallowance of purchases amounting to Rs.255,61,41,337/- alleging it to be unverified purchases.
4. The brief facts are that the assessee is engaged in the business of trading in multi commodities such as metals, steel, cotton and fabrics. In metals dealt with HR plates, SS plates and TMT bar, etc. The return of income was filed on 31/03/2019 declaring income of Rs.18,78,650/-. As noted by the ld. AO, during the year under consideration, assessee has claimed purchases of Rs. 423,07,94,337/-. The ld. AO required the assessee to file the details of purchases and in response to the same, assessee has filed partywise purchase details and also provides quantitative details of sales. Thereafter, the AO asked to M/s. Esszee Manufacturing Pvt. Ltd. file further details and bank statements and narration of all debit and credit entries which according to the ld. AO assessee failed to respond. According to the AO, assessee had only filed summary in respect of purchases made during the year. Out of total purchases of Rs. 423,07,94,337/-, the ld. AO has treated Rs.255,61,41,337/- as unverified purchases and has added the entire purchases as ‘business income’ of the assessee. One of the reasons given by the ld. AO is that purchases made from five parties and the return of income was not filed in respect of 3 parties. The parties who had filed the return of income, the same were accepted and the parties who have not filed the return of income had been added back. The summary of the purchases disallowed by the ld. AO and the reasons for disallowance is summarised as under:- Name of Party PAN Amount of goods Reason Purchased for disallowance GREENLEAF - AAJCM1922D Rs.2,15,49,45,231/- The party has COMMERCE not filed its ROI PRIVATE after A. Y. 2015-16 LIMITED MARQUISE AAECM6036H Rs.30,66,76,356/- The party has INTERNATIONAL not filed its ROI PRIVATE after A Y. 2014-15 LIMITED PYRAMID AATFP8404E RS. 9, 45, 19, 750/- The party has ENTERPRISES not filed Its ROI after A, Y. 2016-17 Total Rs.2,55,61,41,3377- M/s. Esszee Manufacturing Pvt. Ltd.
5. Before the ld. CIT (A), assessee filed additional evidences which are summarized in the following manner:- Name of party Additional documents Greenleaf Commerce 1. Annual Account duly audited and filed with ROC Private Limited 2. MCA Data showing filing of financials for 2017-18 3. GST Return Copies filed showing the turnover declared in the year 4. Copies of Tax Invoices 5. Copy of Tax Audit in Form No. 3CD for the FY 2017-18 including acknowledgement for filing the same.
We have been informed that the Return of income was not filed by their chartered accountant since self-assessment tax challan was not paid by them. 7. We have informed that ITR for AY .2016-17 and 2017-18 has been filed by them which can be verified on Income tax site by your good selves whereas it has alleged by the AO that no return after AY 2015-16 has been filed.
Pyramid Enterprises 1. Copies of Tax Invoices 2. We have been informed that the Return of Income was not filed due to M/s. Esszee Manufacturing Pvt. Ltd. huge losses incurred by the firm during the year Marquise International 1. Copies of Tax Invoices 2. We have been informed that Private Limited the Return of Income was not filed due to huge losses incurred by the company during the year
6. However, the ld. CIT(A) after calling the remand report from the ld. AO wherein the ld. AO has stated as under:- Name of party Remarks of Learned AO in Conclusion summary Greenleaf Unverified None of goods delivery purchases and challan is supported by Commerce earlier stand transport bill. Private Limited taken is maintained On invoice vehicle number is mentioned but genuinely the vehicle was involved in movement of goods cannot be said. Details of transported is not submitted Greenleaf has not filed return till date. Thus existence of party is not established. The assessee did not M/s. Esszee Manufacturing Pvt. Ltd. provide details of goods sold after purchasing from this party. Thus actual involvement of goods is questionable. Basis above, non existence of goods and supplier is proved and thus the purchases cannot be treated as genuine.
Pyramid None of goods delivery Unverified purchases and challan is supported by Enterprises earlier stand transport bill. taken is maintained None of delivery challan has vehicle number transporting goods.
In absence of transporter details, genuineness of delivery of goods cannot be established. The party Pyramid has not filed return of income till date and thus existence of party is also not established The assessee did not provide details of good sold after purchasing from this party Thus actual involvement of goods is questionable. Basis above, non M/s. Esszee Manufacturing Pvt. Ltd. existence of goods and supplier is proved and thus the purchases cannot be treated as genuine Marquise None of goods delivery Unverified purchases and challan is supported by International earlier stand transport bill. Private Limited taken is On invoice vehicle maintained number is mentioned but genuinely the vehicle was involved in movement of goods, cannot be said. Details of transported is not submitted. Marquise has not filed return till date. Thus existence of party is not established The assessee did not provide details of good sold after purchasing from this party Thus actual involvement of goods is questionable. Basis above, non existence of goods and supplier is proved and thus the purchases cannot be treated genuine.
The ld. CIT (A) has confirmed the entire addition holding that primary onus to establish the genuineness of the transaction has not been discharged by the assessee and assessee did not submit M/s. Esszee Manufacturing Pvt. Ltd. any goods receipt notes to support the actual receipt of the goods.
After considering the various submissions as incorporated in the impugned order and argument placed by the ld. DR, we find that the only reason given by the ld. AO for disallowing the entire purchases is that, firstly, the aforementioned three parties have not filed the return of income, and secondly assessee could not give supporting documents for delivery of such purchases. However, it is a very strange note that nowhere the ld. AO has disputed the corresponding sales or the gross profit shown by the assessee in the trading account. Nowhere the ld. AO has conducted any enquiry from the sellers when assessee has given the entire details of the parties’ alongwith PAN and the copies of the tax invoices, GST returns, and their tax audit reports and also has given the reasons as to why these parties have not filed the return of income. Merely because the parties from whom assessee made purchases have not filed their return of income, that itself cannot be the ground for disallowing the entire purchases. At least AO should have conducted the some enquiry from these parties and it is also not the case that these parties were found to be bogus or non-genuine by some agency. If the entire purchases to the tune of Rs.255.61 Crores are disallowed and corresponding sales have been accepted, then how come the assessee had made so much sale of the same quantity? Nowhere the ld. AO has disputed the quantity wise details of the sales and is such an addition on debit side of the trading account is made, then the GP of the assessee would go upto 61% as against 1% of M/s. Esszee Manufacturing Pvt. Ltd. GP rate shown by the assessee, especially when assessee is a wholesale trader of steel and metals where GP margins are low. Even in the worst case scenario, if the assessee cannot prove the purchases, then without disturbing the quantitative details of sales from same corresponding purchase quantity, entire purchases cannot be disallowed. At the most, some GP rate should have been applied which is in line with the principle laid down by the Hon’ble Bombay High Court in the case of PCIT vs. Mohammad Haji Adam And Co and other appeals in of 2000 dated 11/02/2019, wherein the Hon’ble High Court has held that the purchases cannot be disallowed without disturbing sales in the case of the trader and therefore, it would be appropriate that addition should be limited to the extent of estimating GP rate on purchases at the same rate of other genuine purchases. Accordingly, on the facts and circumstances of the case, we hold that 6% of GP rate on such purchases of Rs. 2,55,61,41,3377 would be sufficient to make the addition of trading account.
In the result, appeal of the assessee is partly allowed. Order pronounced on 10th July, 2023.