ITO, NEW DELHI vs. M/S. BANSAL STRIPS PVT. LTD., DELHI

Brief facts of the case as could be culled out from the record are that the assessee is a company engaged in the business of manufacturing and trading of steel utensils. It filed its return of income on 30/9/2007 for the assessment year 2007-08 declaring an income of Rs. 2,60,915/- .Subsequently, learned Assessing Officer received an information that search action was carried out in the case of Sh. Navneet Kumar Jain and his son Sh. Vaibhav Jain along with the Jaguar group on 26.04.2010, such people are engaged in providing accommodation entries in the form of bogus sales bills, and the assessee was found to be dealing with the concerns of Navneet Kumar Jain and Vaibhav Jain and made the bogus purchases during the year under consideration. Basing on that the learned Assessing Officer made the list of the transactions and firms operated by Navneet Kumar Jain and Vaibhav Jain amounting to Rs. 19,40,65,002/- and called for the explanation of the assessee.

Case of the assessee was that out of the 37 entities listed by the learned Assessing Officer, the assessee had transacted only with eight entitiesand the other entities with whom the assessee had transacted were not to be found in such list. Learned Assessing Officer however drew inference that the assessee had taken bogus accommodation entries to the tune of Rs. 19,40,65,002/- in the shape of bogus purchases and therefore, by order dated 27/3/2015 passed under section 147/143(3) of the Income Tax Act, 1961 (for short “the Act”) he disallowed a sum of Rs. 19, 40, 65, 002/- and added it back to the income of the assessee.

Aggrieved by such an addition assessee preferred an appeal before the Ld. CIT(A) and contended that the total purchases declared by the assessee in its Profit & Loss Account was Rs.19,14,17,308/- against which the learned Assessing Officer made the addition of Rs. 19,40,65,002/- and therefore the addition was misconceived one and factually incorrect. Secondly, it was submitted by the assessee that the sales made by the assessee were not in doubt having been accepted them in the assessment order and also by the sales-tax Department; that the ld. assessing officer had not doubted the sales and purchases in quantitative terms as per the information furnished by the assessee before him; and that there cannot be any sales without purchases being made.

Ld. CIT(A) reappraised the material before her in the light of the submissions made by the assessee. According to her the learned Assessing Officer has not pointed any defects in the quantitative details furnished by the assessee in respect of the purchases or sales and on the other hand he had accepted the sales in its quantitative terms. Further the learned Assessing Officer could not provide the details and party wise breakup of the alleged bogus purchases to the tune of Rs.19,40,65,002/- to the assessee in spite of repeated requests and in fact the assessee provided the complete party wise details of the total purchases made from 24 parties to the tune of Rs. 19,14,17,308/- reflected in the P&L Account.

Ld. CIT(A) further found that out of the total purchases of Rs.19,14,17,308/-, the assessee made purchases to the tune of Rs.17,04,09,531/- from the concerns elicited which have been controlled by Sh. Navneet Jain and Sh. Vaibhav Jain, the facilitator of the accommodation entries in the form of bogus sales bills. For such reason Ld. CIT(A) noted that no doubt the parties from whom the assessee made the purchases do not seem to be reliable. Ld. CIT(A) therefore, estimated the turnover at Rs. 21 crores and the GP at 5% and sustained the addition to the tune of Rs. 17,55,837/- while granting relief to the tune of Rs.18,69,09,165/-.

Revenue is, therefore, felt aggrieved by such relief granted by the Ld. CIT(A) and preferred this appeal. It is submitted before us by the Ld. DR that the Ld. CIT(A), as a matter of fact, found that neither the purchases nor the transactions in the assessee’s bank account reflecting the payments for such purchases are reliable and therefore, it would be in the fitness of things to recast the trading results of the assessee. According to the Ld. DR, in such an event, the Ld. CIT(A) should have made further enquiries or should have called for the remand report from the learned Assessing Officer on such an aspect and without doing any such thing, she straightaway proceeded to estimate the turnover and the GP rate according to her own notions of the industry parameters.

It is the submission of the Ld. AR that the assessee had furnished all the details relating to the purchases and sales in quantitative terms to the learned Assessing Officer and requested for the details and breakup figures in respect of all the 37 names furnished by the learned Assessing Officer from whom the learned Assessing Officer alleged the assessee to have made the purchases but in spite of repeated requests learned Assessing Officer did not furnish any such details or breakup figures of purchases. Further it is argued by the Ld. AR that the assessing officer did not dispute the sales at Rs.20,31,40,485/- and without any purchases the sales would not have been possible and therefore it is fallacious to disallow the entire sales that too at an exaggerated figure of Rs.19,40,65,002/- as against the total purchases declared in the P&L Account to the tune of Rs. 19,14,17,308/-.

Ld. AR further submitted that when a similar question had arisen out of a similar disallowance for the assessment year 2006-07, Ld. CIT(A) had taken a view that GP rate at 5% would be proper as against the declared GP rate of 3.83% for such year and taking the same figure for this year also which is in consonance with the industry parameters, Ld. CIT(A) was right in confirming the addition to the tune of Rs. 71,55, 837/- . He further submitted that aggrieved by such application of 5% GP rate for the assessment year 2006-07, Revenue carried the matter in appeal to the Tribunal and by order dated 11/3/2019 in a coordinate Bench of this Tribunal upheld the action of the Ld. CIT(A). He produced the copy of such an order.

In reply, Ld. DR submitted that in the assessment year 2006-07 the Ld. CIT(A) called for remand report and basing on that she estimated the GP, whereas no such exercise was done in respect of this year.

We have gone through the record in the light of the submissions made on either side. It is an admitted fact that the assessee declared in their P&L Account the purchases of Rs.19,14,17,308/- and sales to the tune of Rs. 20,31,40,485/- . According to the learned Assessing Officer the assessee obtained accommodation entries of bogus purchase bills from 37 entities. Though the assessee repeatedly requested, the Assessing Officer failed to furnish the details of such entities or the breakup figures in respect of such purchases. Assessee submitted that they have purchased from 16 entities out of whom eight entities were to be found in the list furnished by the learned Assessing Officer. The purchases from such entities was to the tune of Rs. 17,04,09,531/-.

Learned Assessing Officer not only disallowed the entire purchases but he also enhanced the disallowance to Rs.19,40,65,002/-. Having accepted the sales at Rs.20,31,40,485/-, learned Assessing Officer disallowed the entire purchases. When the assessee made the sales to the tune of Rs. 20.31 crores, it is quite unconceivable that the assessee did not make any purchases at all. This is the basic fallacy involved in this addition. It is, therefore, clear that the Ld. CIT(A) was right in her observation that the assessee might have made purchases from the open market which could have been replaced by the bills provided by the entry operators and there is possibility of certain leakages in the process, and, therefore, the purchases made by the assessee are not free from doubt and cannot be held to be reliable. It does not mean that the assessee did not make any purchases at all. Purchase corresponding to the sales is inevitable and all our endeavour is to determine the quantum of purchases in terms of its value.

We do not find any substance in the argument of the Ld. DR that having reached a conclusion that neither the purchases nor the transactions in the assessee’s bank account reflecting the payments for the purchases are reliable, Ld. CIT(A) should have made any enquiries. What sort of enquiries are expected, is not clear. Further, it is also not clear what purpose would be served by calling a remand report when the Ld. CIT(A) was proceeding on the basis of material available on record without looking into any additional documents which were not before the learned Assessing Officer.

It is not in dispute that for the assessment year 2006-07, having regard to the industry’s parameters, Ld. CIT(A) estimated the turnover and the GP at 5% of such turnover. It is always open for the Revenue to plead and prove that 5% is not the GP in the industry in which the assessee is dealing with. But no figures are forthcoming the Revenue to say that 5% is low in comparison with the GP prevailing in the industry of manufacturing and trading of steel utensils.When the Revenue preferred appeal, Tribunal also upheld the estimate of GP at 5%. For this year also, following the same course, CIT(A) estimated the GP at 5% on the increase turnover of Rs. 21 crores. We do not find any illegality or irregularity in this approach adopted by the Ld. CIT(A), and in fact approved by a coordinate Bench of this Tribunal in respect of the immediately preceding assessment year. Having regard to the facts and circumstances of the case, we are of the considered opinion that there is nothing illegal or irregularity in the approach of the Ld. CIT(A) and on that score we uphold the correctness of the impugned order. Grounds of appeal are devoid of merits and are dismissed.

In the result, appeal of the Revenue is dismissed.