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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: SHRI B.M. BIYANI & SHRI PARESH M. JOSHI
आदेश/ O R D E R
Per B.M. Biyani, A.M.:
Feeling aggrieved by order of first appeal dated 25.09.2024 passed by Commissioner of Income-tax (Appeal)-NFAC, Delhi [“CIT(A)”] which in turn
Page 1 of 12 arises out of assessment-order dated 20.12.2022 passed by Assessment Unit of Income-tax Department [“AO”] u/s 143(3) r.w.s. 144B of the Income- tax Act, 1961 [“the Act”] for assessment-year [“AY”] 2021-22, the revenue and assessee both sides have filed the captioned cross-appeals.
The background facts leading to these cross-appeals are as under:
(i) The assessee-individual is engaged in the business of iron scarp. For AY 2021-22, the assessee filed return declaring a total income of Rs.
9,13,720/-. The case of assessee was selected for scrutiny for verification of transactions. The AO issued statutory notices u/s 143(2), 142(1) and show-causes notices but most of the notices remained uncompiled by assessee except that in response to two notices, the assessee filed part-replies. The details of such notices are mentioned by AO in Para 2 of assessment-order. Ultimately, the AO passed following order making a disallowance of Rs. 9,10,39,185/- equivalent to entire 100% purchases made by assessee from 6 suppliers treating the same as bogus purchases. The relevant portion of order passed by AO is re-produced below for an immediate reference:
“3. Variation proposed:- As per information available on record the assessee has shown purchases from certain parties who have not filed their income tax return for period under consideration. In this regard, physical verification was made through Verification Unit of the following parties:- S.No. Party name PAN Amount
Page 2 of 12 1 Creative corporation and distributors AAHCC7110P 5,35,04,820 private Ltd. 2 Suryapun Thapa Prop. M/s Surya AYYPT3214B 1,48,62,970 Enterprises 3 Mohan Singh Prop. M/s Mohan GBWPS5946E 1,02,45,960 Enterprises 4 Mukesh Kumar Prop. M/s Khushi DYNPK7461M 18,09,280 Enterprises 5 Charan Jeet Singh Prop. M/s Angel IRYPS2001C 5,90,520 Enterprises 6 Pankaj Kapoor Prop. M/s Inder IXNPK9508R 1,00,25,635 Enterprises TOTAL 9,10,39,185 3.1 The Verification Unit after making physical verification reported that the above mentioned entities do not exists at the given addresses or have left the premises. Out of the above six person, only notice u/s 133(6) could be served upon one person i.e. the wife of Sh. Pankaj Kapoor prop. M/s Inder Enterprises on 01.12.2022 and he was asked to furnish his reply through online portal but till date no information has been supplied. The assessee was confronted in this regard by issue of show cause notice dated 09.12.2022 for 12.12.2022 & 14.12.2022 & 18.12.2022 respectively.
4. In response to the show cause notice, the assessee could not furnish any explanation. From the field enquires it is gathered that the assessee has shown purchases from those parties who have not filed their income tax return for A.Y. 2021-22 and are not existing at their addresses, which prove that the assessee has shown bogus purchases to decrease his actual profit. As the assessee has failed to furnish any explanation w.r.t. the show cause notice dated 14.12.2022, an amount of Rs. 9,10,39,185/- shown as bogus purchases is hereby added to the income of the assessee and penalty proceedings under section 270A of the I.T. Act are also being initiated separately for under reporting of the income. (Addition of Rs. 9,10,39,185/-)” (ii) Aggrieved, the assessee carried matter in first-appeal before CIT(A).
The assessee made detailed submission which is re-produced by CIT(A) in Para No. 4 / Pages 3 to 6 of impugned order. The assessee also submitted additional evidences to CIT(A) invoking Rule 46A of Income- tax Rules, 1962 which the CIT(A) forwarded to AO on 14.03.2024 for remand report. The CIT(A) also sent reminder letters dated 20.05.2024 and 23.08.2024 to AO. But the AO did not submit any remand report
[Para 4.2 of impugned order]. Ultimately, the CIT(A) quoted Rule 46A and rejected additional evidences filed by assessee. The relevant Para
4.3 of impugned order passed by CIT(A) in this regard, reads as under:
“4.3 Therefore, it is seen that Rule 46A empowers CIT(A) to admit the additional evidence only under certain circumstances. Just because the AO has not considered the evidence submitted i.e. that all the transactions were taken place through proper banking channels which can be verified from the Bank Statements does not mean that the same fulfils the conditions for admittance of Rule 46A. No case has been brought out by the appellant that the appellant was prevented by the sufficient cause from producing the evidence called upon by the assessing officer or that the AO passed the assessment-order without giving proper opportunity of being heard to the appellant. It is also not a case that the AO refused to admit any evidence. The AO during the assessment proceedings issued 7 notices to the appellant and the appellant only made part replies to 2 of them. The AO even issue 2 show cause notices. The appellant was well aware that its case was under scrutiny as apparent from the fact that it made part reply to notice u/s 143(2) dated 28.06.2022. Therefore, I find that there was inaction and negligence on the part of the appellant. I am of the considered view that appellant has failed to establish that he fulfills the conditions laid down in Rule 46A and thus the additional evidences submitted are not admitted under the provisions of Rule 46A of the I.T Rules, 1962.” Finally, the CIT(A) concluded that the genuineness of the purchase- parties (i.e. suppliers) was doubtful but, however, the CIT(A) restricted disallowance to 12.50% of purchases relying upon various decisions of courts and tribunals. The concluding Para of impugned order passed by CIT(A) is re-produced below for an immediate reference:
“6.14 I find that in the case of the appellant, genuineness of the purchase parties are doubtful but genuineness of purchase on a whole cannot be doubted. It is settled law that when sales are not doubted, 100% disallowance for bogus purchase cannot be done. The appellant's GP Ratio during the A.Y 21-22 was 3.74% i.e. amounting to Rs. 64,60,355 calculated on the Total Turnover of Rs. 17,26,36,499. The disallowances of purchases of Rs. 9,10,39,185 amounts to more than 50% of even the turnover resulting in GP Ratio hike to 56.47% which is not as per the industry ratios of scrap dealers GP Ratio and also results in huge mismatch with GP ratio of the earlier years of the appellant. Therefore, it is apparent that appellant might have purchased
Page 4 of 12 goods from some other supplier may be without bills and he has been benefited by providing margin of grey market. Various Courts and Tribunals have taken a view that only profit margin embedded in such transaction could be taxed. In view of the above discussion, the AO is directed to restrict the disallowance to 12.5% of purchases of Rs. 9,10,39,185 which amounts to Rs 1,13,79,898. Thus, the appeal on Ground no 2 to 4 are treated as partly allowed.” Thus, the CIT(A) restricted/reduced the quantum of disallowance from Rs. 9,10,39,185/- (i.e. 100% of purchases) to Rs. 1,13,79,898/- (i.e.
12.50% of purchases) and granted part relief to assessee.
(iii) Now, the revenue and assessee, both are aggrieved by order of CIT(A) and have come in these cross-appeals.
Since these are the cross-appeals by parties against the same order of lower-authorities, they were heard together at the request of parties and are being disposed of by this consolidated order for the sake of convenience, brevity and clarity.
The grounds raised by parties are as under:
Revenue’s grounds:
“1. On the Facts and Circumstances of the case, the Ld. CIT(A), NFAC has erred in not considering the enquires carried out by the Verification Unit regarding the physical verification on their addresses provided by the assessee that no such entity exists on these addresses and the enquiries carried out by the assessing Officer during the assessment proceedings.
2. On the facts and circumstances of the case, Ld. CIT(A), NFAC has erred in not considering the view of the Assessing Officer that the assessee has shown purchases from those parties who have not filed their Income Tax Return for the A.Y. 2021-22 despite of having huge transaction with the assessee and are not existing at their addresses, which clearly prove that the assessee has shown bogus purchases to decrease the actual profit.
3. On the facts and circumstances of the case, Ld. CIT(A), NFAC has erred in reducing the said additions of Rs. 9,10,39,185/- on account of bogus sundry creditors to Rs. Rs. 1,13,79,898/- i.e. @ 12.5% of total addition made by the Assessing Officer.
4. On the facts and circumstances of the case, Ld. CIT(A), NFAC has erred in accepting additional under rule 46A of Income Tax Rules, 1962 without asking comments on the same from the Assessing Officer on these additional evidences.
On the Facts and circumstances of the case, Ld. CIT(A), NFAC has erred in accepting the sanctity of the bills and other documents submitted by the assessee without asking report from the Assessing Officer during the appellate proceedings.” Assessee’s grounds:
“1. On the facts and in the circumstances of the case of the assessee, the learned CIT(A) was not justified in confirming the purchase of Rs. 9,10,39,185.00 as bogus purchase / not genuine purchase. 2. On the facts and in the circumstances of the case of the assessee, the learned CIT(A) was not justified in confirming the addition @ 12.50 percent of the purchase of Rs 9,10,39,185.00. 3. The assessee craves leave to add, amend, alter or withdraw any ground of appeal on or before the hearing.”
5. By means of various grounds raised, the Revenue is against the relief given by CIT(A) and claiming that the CIT(A) ought to have upheld the entire 100% disallowance of Rs. 9,10,39,185/- made by AO. On the other hand, the assessee is not satisfied with the part-relief granted by CIT(A) and claims that the CIT(A) ought to have granted full relief and deleted the disallowance fully.
We have heard the learned Representatives of both sides and carefully perused the case-record including the orders of lower-authorities and the documents filed in Paper-Book to which our attention has been drawn.
We find that the AO has made 100% disallowance of purchases made by assessee from 6 parties assigning four reasons as mentioned in in Para 3 & 4 of assessment-order (re-produced above) and the Ld. AR for assessee has given his submission qua those reasons one by one as under:
(i) The first reason assigned is that the parties have not filed their income-tax returns. However, Ld. AR submitted that the assessee has supplied PAN data of all parties which are also noted by AO himself in the Table in Para 3 of assessment-order. Further, at least one of those parties named as “Creative Corporation and Distributors Private
Limited’ is a company which is compulsorily required to file return under the provisions of section 139(1) of Income-tax Act, 1961.
Further, all parties have collected ‘TCS’ u/s 206C of Income-tax Act,
1961 on scrap purchased by assessee from them. The ‘TCS’ so collected is mentioned in their invoices and deposited to Income-tax
Department for which the assessee claimed credit against tax liability also. Hence, all parties are in the mainstream of Income-tax
Department and it is highly doubtful that those parties had not filed their income-tax returns.
(ii) The second reason assigned is that the Verification Unit has reported that the parties either do not exist at the given addresses or have left premises. Ld. AR submitted that the AO has not provided copy of any Page 7 of 12 such report to assessee which is against the principle of ‘audit alterm partem’. Further, if the parties have left premises, how it is a point raising eyebrow against assessee?
(iii) The third reason assigned is that the notices sent u/s 133(6) were not served upon parties except one party. Ld. AR submitted that the non- service of notices upon parties could not be a basis for drawing adverse inference against assessee as per decided rulings. Further, the AO could very well apply other stricter legal provisions to call those parties.
(iv) The fourth and last reason assigned is that the assessee did not furnish any reply to show-cause notice. Ld. AR could not rebut this, rather he instantly agreed that it is a fact.
The Ld. AR also submitted following facts of assessee’s case and corroborated the same with reference to the documents filed in Paper-Book:
(i) All parties were registered under GST laws. The details of purchases as also the documentary evidences of purchases in the shape of Invoices issued under GST laws, Lorry Receipts and E-Way Bills are available and copies filed in Paper-Book [These evidences are filed at Pages 29-171 of Paper-Book].
(ii) The parties collected TCS u/s 206C of Income-tax Act, 1961 from assessee.
Page 8 of 12 (iii) All payments to parties were made through banking channel which are manifest from bank statements.
(iv) All transactions are properly recorded in books of account of assessee and the books are audited.
Ld. AR thereafter submitted that although the assessee could not file evidences to AO yet the assessee filed same to CIT(A) during first appellate proceedings under Rule 46A of Income-tax Rules, 1962 and the CIT(A) forwarded the same to AO seeking remand report also. The CIT(A) also sent reminder letters to AO. However, the AO did not respond to CIT(A)’s letters.
Although the CIT(A) ultimately rejected, on his own, the assessee’s evidences and did not give benefit of Rule 46A to assessee but the evidences filed by assessee are substantial and the CIT(A) ought to have given benefit of Rule 46A particularly when the sought remand report from AO and the AO failed to submit any remand report. In any case, Ld. AR submitted, the CIT(A)’s powers are coterminous to the powers of AO and the CIT(A) ought to have considered assessee’s evidences judiciously and come to a proper conclusion in accordance with law. He submitted that had the CIT(A) considered assessee’s evidences and passed a judicious order of first-appeal, there was no reason to uphold disallowance of 12.50% even; the CIT(A) would have certainly deleted the disallowance fully.
Per contra, Ld. DR for revenue emphasised the reasons assigned by AO in assessment-order, namely (i) There was information with AO against
Page 9 of 12 the parties from whom the assessee made purchases, (ii) The Verification Unit of department conducted physical verification in which the parties were not available or left the premise, (iii) The notices issued u/s 133(6) were not served upon 5 parties. The notice issued to 1 party was served but that party did not file any information to AO and (iv) The AO issued show-causes notices to assessee and provided opportunity but the assessee did not file any document. Thus, there was non-compliance on the part of assessee. Ld.
DR submitted that it was a scrutiny case and the assessee must comply with notices of AO, at least to the show-cause notices, but the assessee has not done so. He submitted that the CIT(A) has rightly rejected additional evidences when the conditions of Rule 46A were not satisfied. He submitted that if the purchase is bogus, entire purchase had to be disallowed and that is what the AO has precisely done. He contended that there is no infirmity in the order of AO which is based on facts. Further, the order of CIT(A) is also correct to the extent it holds that the purchases were not genuine.
After a careful consideration of various facts as argued by learned Representatives of both sides which we have narrated in foregoing paras, we are of the considered view that the assessee is having substantial evidences of purchases made from various parties and those evidences are required to be examined by AO for arriving at a correct conclusion. It is also a point that the AO has not supplied any report of physical verification upon those parties to assessee. Furthermore, the AO has made 100% disallowance of purchase and the CIT(A) has restricted/reduced disallowance to 12.50% but Page 10 of 12 the adjudication made by the lower-authorities is not apt and the same is without consideration of any evidence. Therefore, in the interest of justice, one more opportunity must be given to assessee to explain the case to AO.
We, however, find that the assessee is highly responsible for leading to the present situation of ex-parte assessment by AO due to non-compliances of notices. Therefore, to offset the revenue’s effort, we impose a cost of Rs. 20,000/- to be paid by assessee to “Income-tax Department” through appropriate challan which shall be paid by assessee and proof shall be submitted to AO. We, accordingly, remand this matter back to the file of AO for adjudication afresh. The AO shall give necessary opportunity of hearing to assessee and pass an appropriate order uninfluenced by his earlier order. The assessee is also directed to remain vigilant and ensure participation in the hearings as may be fixed by AO and do not seek unnecessary adjournments failing which the AO shall be at liberty to pass appropriate order in accordance with law. Ordered accordingly
Resultantly, these appeals are allowed for statistical purposes.
Order pronounced in open court on 30/10/2025