ACIT, CENTRAL CIRCLE- 3(2), KOLKATA, KOLKATA vs. M/S. K K GROUP OF COMPANY PVT. LTD., SIKKIM

This is an appeal preferred by the Revenue against the order of the Commissioner of Income Tax, Appeal (hereinafter referred to as the “Ld. CIT (A)”] dated 26.08.2024 for the AY 2011-12.

“5.2. Discussion and decision: 5.2.1. I have perused the assessment order as well as the submission of the assessee. On examining the same, it is noticed that during the year under consideration, the assessee-company had claimed a sum of Rs.1,64,83,461/- under the head of 'Provision of sub-contractor [Dikchu Project]' and a sum of Rs.2,47,87,010/- under the head of 'Provision for sub- contractor [Pabong Project]'. However, by observing the fact that as per the provisions of the Act, the claim of deduction on account of any provision is not admissible, the Pr. C.I.T (Central)-2, Kolkata, was of the view that assessment order passed by the Assessing Officer u/s 263/147/143(3) dated 30.09.2021 was erroneous and prejudicial to the interest of Revenue. Later, an order u/s 263 of the Act was passed by Hon'ble Pr. C.I.T (Central)-2, Kolkata on 14.03.2022 with a direction to Assessing Officer to make necessary examination on the issue and pass fresh assessment order after giving reasonable opportunity of being heard to the assessee. During the fresh assessment proceedings, the assessee was asked to submit the relevant details and documents in respect of the aforesaid sub-contractor expenses of 5.2.2. On perusal of the submission of the assessee, the AO had issued notices u/s 133(6) of the Act to the above parties to verify the authenticity of the above purchase transactions. However, the AO had claimed that in response to the same, none of the above parties had responded to the notice u/s 133(6) of the Act. Whereas, in the case of two parties (in Sl. No. 9 & 10), speed post returned unserved with postal remark 'addressee could not be located" The AO had also contended that the assessee through its AR had only able to submit the relevant bills, however, it had failed to submit transportation details of raw materials, stock details, parties from whom raw material purchased by suppliers and mode of payment etc Hence, the AO had claimed that the identity of those suppliers and genuineness of transactions could not be established and he had made the addition of total unexplained purchase of Rs.4,12,70,471/- u/s 69C of the Act. 5.2.3. Further, in the appellate proceedings also, the assessee had submitted only the copy of the same bills. No other relevant details and documents was produced by the assessee. Hence, observing the effort made by the assessee, comparing the purchases and sales statement of the assessee and observed that the department had accepted the sales, and therefore, there was no reason to reject the purchases, because without purchases there cannot be sales. Hence, I am of the view that under these circumstances AO was not correct in adding the entire amount of purchases of Rs.4,12,70,471/- as the assessee's income. Reliance may be placed on the judgement "8 in the present case, as noted above, the assessee was a trader of fabrics. The A.O. found three entities who were indulging in bogus billing activities. A.O. found that the purchases made by the assessee from these entities were bogus. This being a finding of fact, we have proceeded on such basis. Despite this, the question arises whether the Revenue is correct in contending that the entire purchase amount should be added by way of assessee's additional income or the assessee is correct in contending that such logic cannot be applied. The finding of the CIT(A) and the Tribunal would suggest that the department had not disputed the assessee's sales. There was no discrepancy between the purchases shown by the assessee and the sales declared. That being the position, the Tribunal was correct in coming to the conclusion that the purchases cannot be rejected without disturbing the sales in case of a trader. The Tribunal, therefore, correctly restricted the additions limited to the extent of bringing the G.P. rate on purchases at the same rate of other genuine purchases. The decision of the Gujarat High Court in the case of N.K. Industries Ltd. (supra) cannot be applied without reference to the facts. In fact, in paragraph 8 of the same Judgment the Court held and observed as under- "So far as the question regarding addition of Rs.3,70,78,125/- as gross profit on sales of Rs.37.08 Crores made by the Assessing Officer despite the fact that the said sales had admittedly been recorded in the regular books during Financial Year 1997-98 is concerned, we are of the view that the assessee cannot be punished since sale price is accepted by the revenue. Therefore, even if 6% gross profit is taken into account, the corresponding cost price is required to be deducted and tax cannot be levied on the same price. We have to reduce the selling price accordingly as a result of which profit comes to 5.66%. Therefore, considering 5.66% of Rs.3,70,78,125/- which comes to Rs.20,98,621.88 we think it fit to direct the revenue to add Rs.20,98,621.88 as gross profit and make necessary deductions accordingly. Accordingly, the sald question is answered partially in favour of the assessee and partially in favour of the revenue.

Order pronounced in the open court on 22.07.2025.