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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: HON’BLE SHRI SAKTIJIT DEY, JM & HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM
आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member): - 1. Aforesaid appeals by assessee for Assessment Years [AY] 2010-11 and 2011-12 contest common order of Ld. Commissioner of Income-Tax (Appeals)-1, Thane, [in short referred to as ‘CIT(A)’], Appeal Nos. ITA 859- -94/Mum/2018 Eshita Rubber Private Limited Assessment Years - 2010-11 & 2011-12 860/14-15 dated 20/07/2018 on certain common grounds of appeal
. The grounds for AY 2010-11 read as under: -
1. On the facts & circumstances of the case and in law, the Ld. CIT (A) erred in sustaining the entire disallowance of Purchase of Rs. 8,20,070/- for A.Y. 2010-11 which was considered as alleged Bogus Purchase by the Ld. ITO.
2. On the facts & circumstances of the case and in law, the Ld. CIT (A) erred in adopting GP of A.Y. 2012-13 and thereafter erred in calculating GP for A.Y. 2010-11.
3. On the facts & circumstances of the case the Ld. CIT (A) erred in not considering the fact that all purchase bills, bank statements reflecting payments to the creditors were duly submitted to prove the genuineness of the purchase transactions.
4. On the facts & circumstances of the case and in law, the Ld. CIT (A) erred in not considering the fact that the appellant company had purchased materials in good faith and it is not the appellant company's control whether selling party has filed Sales Tax Returns or not and therefore one being declared a suspicious dealer, our purchase which are otherwise genuine as goods have been received and used in factory cannot be disallowed.
5. On the facts & circumstances of the case and in law, the Ld. CIT (A) erred in not considering the fact the Ld. ITO has accepted the sales corresponding to the alleged bogus purchases and therefore entire purchases could not be treated as bogus. Reliance can be placed on [2017] 83 taxmann.com 63 (Mumbai - Trib) ITO vs. Deepak Khusaldas Mehta and [2017] 84 taxmann.com 259 (Gujarat HC) Principal Commissioner of Gujarat vs. Jagdish H. Patel. The Ld. CIT (A) also ignored the fact that even though the assessee was not able to prove actual delivery of goods with transportation receipts, stock inward register etc. full amount of purchases cannot be added back when sale corresponding to the purchase was confirmed by Ld. ITO. Reliance can be placed on [2017] 88 taxmann.com 858 (Mumbai - Trib) in case of Toscano Infrastructure Pvt. Ltd. vs. Deputy Commissioner of Income Tax.”
We have heard and considered the arguments advanced by both the representatives and deliberated on judicial pronouncements as cited before us. The assessee has also filed written submissions in support of his arguments on 14/10/2019, which we have considered. 2.1 Facts from records of AY 2010-11 would reveal that the assessee being resident corporate assessee stated to be engaged in manufacturing of rubber, was assessed for impugned AY u/s. 143(3) r.w.s. 147 on 10/11/2014 wherein the income of the assessee was determined at Rs.10.38 Lacs, after sole addition of alleged bogus purchases for Rs.8.20 -94/Mum/2018 Eshita Rubber Private Limited Assessment Years - 2010-11 & 2011-12 Lacs as against returned income of Rs.2.18 Lacs filed by the assessee on 23/09/2010 which was initially processed u/s.143(1). During the year under consideration, the assessee reflected Net Profit Rate of 0.91% on turnover of Rs.83.87 Lacs. 2.2 Pursuant to receipt of certain information from Sales tax Department, Govt. of Maharashtra, it transpired that the assessee obtained bogus purchases of Rs.8.20 Lacs from 2 entities viz. M/s K.C. Enterprises & M/s Shree Enterprises. Accordingly, the case was reopened as per due process of law vide issuance of notice u/s 148 on 07/05/2013 which was followed by statutory notices u/s 143(2) & 142(1) wherein the assessee was directed to substantiate the purchase transactions. 2.3 Although the assessee, in defense, submitted Bank Statements, Copies of Return of Income along with Tax Audit Report, party-wise sales / purchase details etc., however, notice issued u/s 133(6) to M/s Shree Enterprises, to confirm the transactions, was returned back unserved while the other supplier denied having carried out any transaction with the assessee. The assessee failed to produce any of the suppliers to confirm the transactions and also could not substantiate the delivery of material. The assessee reiterated that the purchases were genuine and made in good faith and the material was used in manufacturing, some part of which was lying in closing stock. It was submitted that the payments were through banking channels against purchase invoices. However, not satisfied, the stated purchases were treated as non-genuine and added to the income of the assessee. -94/Mum/2018 Eshita Rubber Private Limited Assessment Years - 2010-11 & 2011-12 3.1 Before first appellate authority, the assessee reiterated that the purchases were genuine and the material was used for manufacturing of goods. Reliance was placed on various judicial pronouncements to support the submissions that additions were not justified. 3.2 The Ld. CIT(A), in terms of decision of Hon’ble Delhi High Court rendered in CIT V/s Jansampark Advertising & Marketing Pvt. Ltd. [2015 56 Taxmann.com 286], though it fit to afford fresh opportunity to the assessee to substantiate the purchases transactions by filing the requisite information / documentary evidences. However, the assessee again failed to furnish the required details i.e. qualitative / quantitative details, item-wise / party-wise, material purchased etc. as called for by Ld. CIT(A). 3.3 The Ld. first appellate authority after considering factual matrix in the light of various judicial pronouncements, as enumerated in the impugned order, rejected assessee’s books of accounts u/s 145(3) and noticed the Gross Profit Rates of various years, which could be tabulated in the following manner: - Year Sales (Rs.) GP Rate (%) NP Rate (%) 2009-10 Rs.8.64 Lacs 13.38% 2.79% 2010-11 Rs.83.87 Lacs 26.93% 2.24% 2011-12 Rs. 76.27 Lacs 27.52% 1.02% 2012-13 Rs.9172 Lacs 37.03% 4.76% 2013-14 Rs.92.51 Lacs 28.77% 2.05% Applying the GP rate of 2012-13 i.e. non-hawala year to the turnover of year under consideration, Ld. CIT(A) worked out suppressed Gross Profit (GP) of Rs.8.47 Lacs which was more than alleged bogus purchases under consideration and therefore, confirmed the stand of Ld. AO in making the -94/Mum/2018 Eshita Rubber Private Limited Assessment Years - 2010-11 & 2011-12 impugned additions. The same has given rise to present appeal by assessee before us.
After careful consideration of orders of lower authorities and after appreciating the arguments advanced by respective representatives, we are of the considered opinion there could be no sale without actual purchase of material keeping in view the assessee’s nature of business i.e. manufacturing. Undisputedly the assessee was in possession of primary purchase documents and the payments to the supplier was through banking channels. However, at the same time, the assessee miserably failed to substantiate the delivery of material during assessment as well as appellate proceedings. The assessee failed to produce any of the suppliers to confirm the transactions and the onus casted upon assessee, in this regard, remained undischarged. Under such circumstances, the additions which could be sustained, was to account for profit element embedded in these purchase transactions to factorize for profit earned by assessee against possible purchase of material in the grey market and undue benefit of VAT against such bogus purchases. The learned first appellate authority justified the additions in the light of Gross profit reflected by the assessee in AY 2012-13 ignoring the fact that the rate of Gross Profit in immediately succeeding AY i.e. AY 2013-14 was commensurate with gross profit rate reflected by the assessee in the year under consideration. Therefore, the said approach, in our opinion, would not be a correct approach in the facts and circumstances of the case rather the alternative estimation of 25% as computed by learned first appellate authority, in the impugned order, would -94/Mum/2018 Eshita Rubber Private Limited Assessment Years - 2010-11 & 2011-12 be quite fair & reasonable and would meet the end of justice. Therefore, we restrict the impugned additions to 25% of disputed purchases of Rs.8,20,070/- which comes to Rs.2,05,018/-. The balance addition would stand deleted. The appeal stands partly allowed.
Facts are pari-materia the same in AY 2011-12 and the impugned order is common for both the years and therefore, our observation as well as adjudication as for AY 2010-11 shall, mutatis-mutandis, apply to this year also. Consequently, the impugned additions of Rs.3,62,683/- would stand restricted to Rs.90,671/-. The balance addition stands deleted. The appeal stands partly allowed.
Both the appeals stand partly allowed.
Order pronounced in the open court on 14th October, 2019.