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Income Tax Appellate Tribunal, AHMEDABAD “D” BENCH
Before: Shri Rajpal Yadav & Shri Amarjit Singh
आदेश/ORDER PER : AMARJIT SINGH, ACCOUNTANT MEMBER:-
This Revenue’s appeal for A.Y. 2012-13, arises from order of the CIT(A)- 4, Ahmedabad dated 22-04-2016, in proceedings under section 143(3) of the Income Tax Act, 1961; in short “the Act”.
The revenue has raised following grounds of appeal:- “1. The Ld. ClT(A) has erred on facts and in law in deleting the addition of R/1,08,94,360/-out of the total addition made of Rs.1,24,50,697/- on account of bogus purchases:
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On the facts and in the circumstances of the case, the Ld. CIT(A) ought to have upheld the order of the Assessing Officer. 3. The appellant craves leave to amend or alter any ground or add a new ground, which may be necessary. 4. It is, therefore, prayed that the order of the Ld. CIT(A) may be set aside and that of the Assessing Officer may be restored to the above fact.”
The brief fact of the case is that return of income declaring loss of Rs. - 8,85,078/- was filed on 24th August, 2012. Subsequently, the case was selected under scrutiny by issuing of notice u/s. 143(2) of the act on 8th August, 2013. The assessee firm is engaged in the business of civil contractor for construction of industry. During the course of assessment proceedings, the assessing officer noticed that assessee had made total purchases of Rs. 1,66,11,929/- out of which purchases made from seven parties were of Rs. 1,24,50,697/- as given below:- No Name of the party Purchase Amount outstanding
1 Komal Traders 640200 640200 2 Nilkanth Enterprise 5523772 5367522 3 S. P. Enterprise 298890 298890 4 Shree Hari 1529200 1529200 Enterprise 5 Umiya Enterprise 505261 505261 6 Varshil Traders 458760 458760 ' 7 Yash Traders 3494614 3494614 TOTAL 12450697 12294447
The assessing officer has observed that the payment for the aforesaid purchase were shown as outstanding, therefore, to verify the genuineness of such purchases , he has issued notice u/s. 133(6) to the above purchase parties and the responses received from all these 7 parties are reproduced as under:-
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NO Name of the party Mode of service Remarks notice u/s. 133(6) i Komal Traders By Speed post The assessee furnished reply stating that he has not made any sales to the assessee 2 Nilkanth Enterprise By Speed Post The party voluntarily given a statement that he has not made any sales to the assessee. He has also furnished a copy of his bill which is found to be different from the copy of bill produced by the assessee. 3 S. P. Enterprise By Speed Post No reply received. 4 Shree Hari Enterprise By Speed Post Returned back unserved with postal remarks "not known". No return of income filed 5 Umiya Enterprise By Speed Post No reply received 6 Varshil Traders By Speed Post Returned back unserved with postal remarks "not known" 7 Yash Traders By Speed Post The party voluntarily given a statement stating that the assessee has made an enquiry for purchase of cement bags and issued a quotation bill only. He has not made any sales to the assessee. TOTAL
Thereafter the assessing officer has issued show cause notice to the assessee to prove the genuineness of the aforesaid purchases. The assessee failed to respond to the show cause notice, therefore, the assessing officer has concluded that the purchases of Rs. 1,22,94,447/- was shown in books of accounts to inflate the expenditure and to reduce the profit actually earned by the assessee. Consequently, the assessing officer has disallowed the entire purchases of Rs. 1,22,94,447/- from the above parties and added to the total income of the assessee.
Aggrieved assessee filed appeal before the ld. CIT(A). The ld. CIT(A) has partly allowed the appeal of the assessee by estimating the gross profit @ 12.5%
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on such purchases. Relevant part of the decision of the ld. CIT(A) is reproduced as under:- “6. I have carefully considered the assessment order and submission filed by the appellant. The only effective ground of appeal is against the additions of Rs. 1,24,94,447/- made by the AO by disallowing purchases from 7 persons considering these purchase as non-genuine. The appellant is a civil contractor and during the year under consideration, shown total purchases of Rs. 1,66,11,929/-. The appellant had opening WIP of Rs. 1,90,72,719/- at the beginning of the year and closing WIP is of Rs.3,82,53,121/- at the end of the financial year. Whatever expenditure incurred during the year for construction, it has been taken to WIP. No sales or income has been shown by the appellant for the year from the construction activity. The appellant shown purchases from the following seven parties as mentioned below: No Name of the party Purchase Amount outstanding 1 Komal Traders 640200 640200 2 Nilkanth Enterprise 5523772 5367522 3 S. P. Enterprise 298890 298890 4 Shree Hari Enterprise 1529200 1529200 5 Umiya Enterprise 505261 505261 6 Varshil Traders 458760 458760 7 Yash Traders 3494614 3494614 TOTAL 12450697 12294447
6.1 The AO found that these vendors were not paid any amount during the year and most of the amount is shown as outstanding at the year end. The AO issued notices u/s 133(6) of the Act to these seven vendors and results of the enquiries have been summarized by the AO in para 3.1 of the assessment order, which are reproduced below : No Name of the Mode of service notice Remarks party u/s. 133(6) 1 Komal Traders By Speed post The assessee furnished reply stating that he has not made any sales to the assessee 2 Nilkanth By Speed Post The party voluntarily given a Enterprise statement that he has not made any sales to the assessee. He has also furnished a" copy of his bill which is found to be different from the copy of bill produced by the assessee. 3 S. P. Enterprise By Speed Post No reply received.
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4 Shree Hari By Speed Post Returned back unserved with Enterprise posial remarks "not known". No return of income filed 5 Umiya By Speed Post No reply received Enterprise 6 Varshil Traders By Speed Post Returned back unserved with postal remarks "not known" 7 Yash Traders By Speed Post The party voluntarily given a statement stating that the assessee has made an enquiry for purchase of cement bags and issued a quotation bill only. .He has not made any sales to the assessee. TOTAL
6.2 The AO made further enquiries from the ITD and found that although the appellant has shown these persons as creditors but they did not show the appellant as debtors in the return filed. Statement of the persons responsible for carrying out business of four concerns (out of 7) were recorded and they denied having any transaction with the appellant. M/s Shree Hari Enterprise and M/s S. Enterprise did not file IT. return, so there was no data available in the ITD. On confronting these facts to the appellant, nothing was submitted before the AO to prove the genuineness of these purchases, therefore, the AO is correct in holding these as bogus purchases. However, the additions made to the extent of total purchases of Rs.1,24,50,697/- cannot be justified for the reason that the appellant had taken these purchases to the WIP. The books of accounts of the appellant have been found in order by the AO. It is not reasonable to believe that out of total purchases of Rs.1.66 crores, purchases worth Rs.1.24 crores would be booked as bogus, particularly when there is no tax liability arises upon the appellant. There is no element of tax evasion / reduction during the year, as there is no income. Therefore, this is the case, where the vendors, who supplied goods to the appellant did not issue bills and who issued the bills, did not supply the goods. The purchases shown has been taken to the WIP and WIP has not been doubted by the AO. Thus, the appellant's case is covered by so many cases decided by the Hon'ble jurisdictional High Court of Gujarat, Ahmedabad and the Hon'ble ITAT, Ahmedabad in several cases having the identical facts. In these cases, it has been adjudicated that addition of total purchases is not justified but percentage of gross profit & net profit should be considered as income. The following case laws are relevant in this respect: i) Commissioner Of Income Tax Vs. Simit P. Sheth (2013) 356 ITR 0451 (Guj) Addition—Bogus Purchases—Purchase price or profit element—Assessee engaged in business of trading in steel—In reassessment proceedings bogus purchases from three parties were identified by AO—AO added entire amount of such purchases to gross profit—CIT(A) retained 30 percent of purchase cost as probable profit of .assessee believing some purchases being made by assessee in open market—ITAT opined 12.5 percent of disputed purchases be retained in hands of assessee as business profit—Held, total sale is accepted by AO, he could not have questioned very 'basis of purchases—Not entire purchase price but only profit element embedded in ^gimrtsJ/ such purchases can be added to income of assessee—Tribunal estimated possible profit out of purchases—No question of law in such estimation would
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arise—Estimation vary with nature of business—No uniform yardstick can be adopted— Revenue's appeal Dismissed ii) Commissioner Of Income Tax Vs. Bholanath Poly Fab PvtLtd. (2013) 355 ITR 0290 (Guj) Income from undisclosed source—Bogus purchase—Assessee was engaged in business of trading in finished fabrics—AO held that certain purchases were unexplained and disallowed expenditure claimed—CIT(A) rejected assessee's appeal—Tribunal held that purchases were made from bogus parties since notice issued by AO to parties from whom such purchases were allegedly made were returned unserved and assessee was unable to produce any confirmation from any of parties—Tribunal held that though purchases were from bogus parties, nevertheless purchases themselves were not bogus—Tribunal held that entire quantity of opening stock, purchases and quantity manufactured were sold by the assessee thus finished goods were purchased by assessee, may be not from the parties shown in accounts, but from other sources— Thus not entire amount, but profit margin embedded in such amount would be subjected to tax—Held, Whether purchases themselves were bogus or whether parties from whom such purchases were allegedly made were bogus is essentially a question of fact— Tribunal examined evidence on record and concluded that assessee did purchase cloth and sell finished goods—Thus not entire amount covered under such purchase, but profit element embedded would be subject to tax—Revenues' appeal dismissed 6.3 Keeping in view the above two judgements from the Hon'ble jurisdictional High Court of Gujarat, Ahmedabad, as the facts of this case are identical to these case laws, it is reasonable to estimate gross profit @ 12.5% of such purchases. Thus additions of Rs.15,56,337/- is confirmed and remaining additions of Rs.1,08,94,360/- are deleted. This ground of appeal is partly allowed.”
During the course of appellate proceedings before us, ld. departmental representative has stated that ld. CIT(A) has erred in deleting the addition on account of bogus purchases made by the assessing officer. On the other hand, nobody has attended from the side of the assessee.
We have heard the ld. departmental representative and perused the material on record. It is undisputed fact that neither any sale has been made nor any income has been earned during the year. We have considered that the ld. CIT(A) has placed reliance on a number of judicial pronouncements as stated supra in this order displaying decision on identical facts wherein it is held that assessee might have not made purchases from the parties reflected in the accounts but from other sources, therefore it is inappropriate to disallow the entire amount as bogus purchases. Under such circumstances it is not justified to tax the entire amount but profit margin embedded in such amount would be subjected to tax. The assessee is a civil contractor and has shown total
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purchases of Rs. 1,66,11,929/- made during the year under consideration. It is noticed that in the case of the assessee the opening work in progress was of Rs. 1,90,72,719/- and closing work in progress was of Rs. 3,82,53,121/-.It is further noticed that the expenses incurred during the year has been taken to work in progress and no sales have been shown during the year under consideration. After considering the above facts, we observe that the finding of ld. CIT(A) is justified as it is inapposite to consider that purchases to the amount of Rs. 1.25 crores are bogus out of total purchase of 1.66 crores. In such cases, it is not justified to disallow the entire purchases but appropriate to estimate reasonable gross profit and net profit in such cases after considering the above facts and detailed findings of ld. CIT(A), we are of the view of the that ld. CIT(A) has made reasonable estimate of the income, therefore, the appeal of the revenue is dismissed.
In the result, the appeal of the revenue is dismissed.
Order pronounced in the open court on 17-09-2018
Sd/- Sd/- (RAJPAL YADAV) (AMARJIT SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad : Dated 17/09/2018 आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद