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Income Tax Appellate Tribunal, RAJKOT BENCH, RAJKOT
Before: SHRI MAHAVIR PRASAD & SHRI WASEEM AHMED
आयकर अपीलीय अिधकरण, अहमदाबाद �यायपीठ IN THE INCOME TAX APPELLATE TRIBUNAL, RAJKOT BENCH, RAJKOT (CONDUCTED THROUGH E-COURT AT AHMEDABAD) BEFORE SHRI MAHAVIR PRASAD, JUDICIAL MEMBER And SHRI WASEEM AHMED, ACCOUNTANT MEMBER आयकर अपील सं./ITA No. 974/Rjt/2010 िनधा�रण वष�/Asstt. Year: 2005-2006
M/s MGM Tradelink Pvt. Ltd., A.C.I.T, Plot No.-46, Sector – 1A, Vs. Gandhidham Range, Gandhidham. Gandhidham.
PAN: AADCM6466A
(Applicant) (Respondent)
Assessee by : Shri Vimal Desai, A.R Revenue by : Shri Praveen Verma, Sr. DR सुनवाई क� तारीख/Date of Hearing : 27/02/2019 घोषणा क� तारीख /Date of Pronouncement: 12/03/2019 आदेश/O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned appeal has been filed at the instance of the Assessee against the order of the Commissioner of Income Tax (Appeals) – II, Rajkot [Ld.CIT(A) in short] vide appeal no.CIT(A)-II/0257/07-08 dated 24/02/2010 arising in the matter of assessment order passed under s.143(3) of the Income Tax Act, 1961 (here-in-after referred to as "the Act") dated 27/12/2007 relevant to the Assessment Year (AY) 2005-2006.
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The assessee has raised the following grounds of appeal: 1. The assessment and assessment order u/s.143(3) is bad in law. 2. The Ld.Assessing Officer has erred in law as well on facts in making disallowance of Rs.16,60142/- under section 14A(3) of the Act. The 'Ld.CIT(A) has erred in confirming the same. 3. The ''Ld.AO has erred in law as well as on facts in making disallowance of Rs.12,67,684/- on account of inflation in purchase price. The ''Ld.CIT(A) has erred in disallowed entire purchasing of Rs1,26,76,848/- thus enhancing the disallowance the disallowance by Rs.1,14,09,164/- The appellant craves leave to add, alter, amend, delete or withdraw one or more grounds of appeal. 3. Ground No. 1 raised by the assessee was not pressed by the Ld. Counsel for the assessee. Therefore we dismiss the same as not pressed.
The 1st issue raised by the assessee is that Ld. CIT (A) erred in 4. confirming the disallowance made by the AO for Rs. 16,60,142/- on account of cash payment exceeding Rs. 20,000 under section 40A(3) of the Act.
Briefly stated facts are that the assessee in the present case is a private Ltd company and engaged in the business of exports of animal feed, rice and pulses. The assessee during the year has made purchases of Rs. 83,00,710/- against the cash payment exceeding Rs. 20,000 on various dates. The assessee claimed that it used to make the payment to the agent of the supplier, i.e. M/s Indira Extraction. As such the agent used to ensure the delivery of the agriculture products at the port warehouse of the assessee. Accordingly, the assessee used to make the payment to the agent truck-wise.
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However, the AO during the proceedings observed certain facts as detailed under: i. The assessee has made total purchases from the supplier namely Indira Extraction amounting to Rs. 1,33,60,225/- which is quite a significant amount. ii. Such bulk purchases cannot be made from the supplier without having a banking facility. iii. The case of the assessee does not fall under the category of business exigency as provided under section 40A(3) r.w.r. 6DD of Income Tax Rules. iv. The purchases from the supplier cannot be treated at par with local farmers who do not have a banking facility normally. In view of the above, the AO held that the assessee has made the payment exceeding Rs. 20,000 in contravention to the provisions of section 40A(3) read with Rule 6DD of Rule. Accordingly, the AO disallowed the sum of Rs. 16,60,142/- being 20% of the payment of Rs. 83,00,710/-. Thus the amount disallowed by the AO was added to the total income of the assessee.
Aggrieved assessee preferred an appeal to Ld. CIT (A). The assessee before the Ld. CIT (A) agreed through written submission that it had made purchases in cash. However the Ld. AR for the assessee Mr. Samir Mehta claimed to have made payment to the supplier through DD.
However the Ld. CIT (A) found that the supplier itself has accepted to have received the payment in cash in the confirmation letter. Therefore the Ld. CIT (A) found that there was a contradictory statement of the assessee and the AR for the assessee.
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8.1 The Ld. CIT (A) also opined that the case of the assessee does not fall in any of the exception provided under section 40A(3) read with rule 6DD. Accordingly the Ld. CIT (A) confirmed the order of the AO.
Being aggrieved by the order of Ld. CIT (A) the assessee is in appeal before us. The Ld. AR before us filed a paper book running from pages 1 to 85 and reiterated the submissions as made before the Ld. CIT (A). The ld. AR also submitted that the matter could be restored to the file of the AO for fresh adjudication.
On the other hand the Ld. DR vehemently supported the order of authorities below.
We have heard the rival contentions and perused the materials available on record. The issue in the instant case relates to the fact that whether the assessee has made payment exceeding Rs. 20,000 in cash in contravention to the provisions of section 40A(3) of the Act read with rule 6DD of Income Tax Rules.
11.1 From the preceding discussion we note that there are contradictory statements furnished by the assessee and his Ld. counsel viz a viz confirmation filed by the supplier. It is an undisputed fact that the assessee was given enough opportunities before the authorities below to raise his points of contention. But the assessee keeps on changing its stand before the authorities below. Therefore considering the facts of the case, we are reluctant to provide further opportunity to the assessee in support of its contention that the payment was made through DD. Accordingly, we do not find any
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infirmity in the order of Ld. CIT (A), and thus we decline to interfere in the impugned order. Hence the ground of appeal of the assessee is dismissed.
The 2nd issue raised by the assessee is that Ld. CIT (A) erred in 12. confirming the order of the AO by sustaining the disallowance of Rs. 1,26,76,848/- on account of inflation of purchases.
The AO during the assessment proceedings found that the assessee has made purchases in cash from various parties which were located in different states. Accordingly, the AO did not believe in all the purchases claimed by the assessee. Thus the AO made the disallowance of Rs. 12,67.684/- being 10% of the purchases of Rs. 1,26,76,848/- treating the same as inflated purchases. Thus the amount of Rs. 12,67,684/- was disallowed and added to the total income of the assessee.
Aggrieved assessee preferred an appeal to Ld. CIT (A) who has enhanced the disallowance of cash purchases by the full amount of Rs. 1,26,76,848/- by observing that the assessee failed to produce the evidence in support of its claim.
Being aggrieved by the order of Ld. CIT (A), the assessee is in appeal before us.
The Ld. AR before us submitted that the entire amount of cash purchases could not be disallowed as the AO has accepted the corresponding sales. As such the sales cannot be made without the purchases.
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16.1 The Ld. AR also submitted that the Ld. CIT (A) has not issued any notice before enhancing the disallowance as required under section 251(2) of the Act.
16.2 The Ld. AR further submitted that the disallowance if at all needs to be made then it can be done after considering the GP ratio of the assessee. The Ld. AR in support of his claim filed the chart of GP ratio of various years as detailed under: A.Ys Gross Profit 2004-05 5.49% 2005-06 5.45% 2006-07 4.60% 2007-08 3.20% 2008-09 6.03% 2009-10 4.20% 2010-11 3.80% 2011-12 5.94%
On the other hand the Ld. DR vehemently supported the order of authorities below.
We have heard the rival contentions and perused the materials available on record. There is no dispute to the fact that the assessee cannot make the sales of the goods without making the purchases. Indeed the onus lies on the assessee to justify the purchases claimed in the income tax return by documentary evidence. However in the event, the assessee fails to produce the documentary evidence in support of its claim for the purchases, the entire purchases cannot be disallowed believing them as bogus. Once the sale has
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been accepted, then the assessee deserves for the deduction of the corresponding purchases. Thus we are of the view in the absence of supporting evidence; the purchases can be estimated on some reasonable basis after considering the comparable cases and historical data of the assessee. Considering the gross profit ratio declared by the assessee over the several years as discussed above, it will be reasonable to estimate the gross profit at the rate of 6% of the turnover to put an end to the dispute. Regarding this we find support and guidance from the judgment of Hon’ble Gujarat High Court in the case of president industries v/s CIT reported in 258 ITR 654 wherein it was held as under: “Having perused the assessment order made by the Assessing Officer, the order made by the Commissioner (Appeals) and the Tribunal, we are satisfied that the Tribunal was justified in rejecting the application under section 256(1). It cannot be a matter of an argument that the amount of sales by itself cannot represent the income of the assessee who has not disclosed the sales. The sales only represent the price received by the seller of the goods for the acquisition of which it has already incurred the cost. It is the realisation of excess over the cost incurred that only forms part of the profit included in the consideration of sales. Therefore, unless there is a finding to the effect that investment by way of incurring cost in acquiring goods which have been sold has been made by the assessee and that has also not been disclosed, the question, whether entire sum of undisclosed sale proceeds can be treated as income of the relevant assessment year answers by itself in the negative. The record goes to show that there is no finding nor any material has been referred to about the suppression of investment in acquiring the goods which have been found subject of undisclosed sales. We are, therefore, of the opinion that no question of law which requires to be referred to this Court arise out of the Tribunal’s appellate order. The order of the Tribunal under section 256(1) is not erroneous in reaching such conclusion. Application is rejected.”
In view of the above, we direct the AO not to make the disallowance of the total cash purchases but to estimate the gross profit at the rate of 6% of the
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turnover. Hence the ground of appeal of the assessee is partly allowed.
In the result, the appeal of the assessee is partly allowed
Order pronounced in the Court on 12/03/2019 at Ahmedabad.
-Sd- -Sd- (MAHAVIR PRASAD) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 12/03/2019 manish आदेश क� ��त�ल�प �े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण / DR, ITAT, 6. गाड� फाईल / Guard file. आदेशानुसार/BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad