DCIT, CIRCLE - 19(1), DELHI vs. RAMAYNA ISPAT PVT. LTD., DELHI

2. On facts and in law, the Ld. CIT(A) has grossly erred in upholding that the exercise of jurisdiction under section 147 read with section 148 of the Act by the Ld. AO even when inter alia the notice u/s 148 was issued: a. By the Jurisdictional Assessing Officer and not by the Faceless Assessing Officer as envisaged in the Act: b. Without implementation of mind by the Ld. AO and only Ramayna Ispat Pvt. Ltd. vs. ITO on the basis of information as received from the Investigation Wing. c. Based upon a mechanical approval from the superior authorities. d. Based upon the documents/information which was un-earth during the course of search of some other entity.

3. On facts and in law, the Ld. CIT(A) has grossly erred in confirming the additions of Rs.23,15.984/-on account of alleged "bogus purchases" even when the Appellant has discharged the duty vested upon him under the law.

4. All the above-mentioned grounds are independent and without prejudice to others, and The appellant has the right to add, alter, amend, and delete the ground(s) of appeal at any time before, during or after the hearing.” Grounds of appeal (by Revenue) in "(i) Whether in facts and circumstances of the case and in law, the Ld. CIT(A) has erred in not appreciating that the assessee has failed to prove any genuineness of the purchases amounting to Rs.5,78,99,593/- from the bogus paper entities during reassessment proceedings as well as during appellate proceedings, therefore the same was rightly disallowed by the assessing officer being unexplained expenditure u/s 690 of the Act. (ii) Whether on facts of the case and in law, the Ld. CIT(A) has erred in applying the Gross Profit rate despite the fact that the purchase was found to be bogus by the Ld. CIT(A) as well. (iii) The appellant craves to be allowed to add any fresh ground(s) of appeal and or deleted or amend any of the ground(s) of appeal.”

5. Heard both the parties at length and perused the material available on record. At the outset, it is seen that Ld. CIT(A) has upheld the action of the AO in treating the purchases of Rs.5,78,99,593/- as unverifiable since, assessee failed to substantiate the purchases made by placing on record the relevant details however, t Ld. CIT(A) by following the judgment of Hon’ble Gujrat High Court in the case of PCIT vs. Deepak Banwarilal Agarwal reported in [2024] 161 taxmann.com 601 (Gujrat) and Co-ordinate Bench of ITAT, Delhi in the case of Parnami Pump & Projects Pvt. Ltd. in had applied the G.P. rate on such alleged unverifiable of the purchases. The relevant observation as contained in para 9 to 10 of the appellate order are as under:

Ramayna Ispat Pvt. Ltd. vs. ITO “9. Ground no. 1 to 5: These grounds have been raised against the assessment framed by the assessing officer wherein addition of Rs. 5.91 crores were made. The appellant has additionally contended that Ld. AO has erred in law and on facts in framing impugned assessment order and that too without assuming jurisdiction as per law and without following the cardinal rules of natural justice. 9.1 With regards to the merits of the case, the appellant further argues that by filing below mentioned documents, his duty has been discharged: a. Confirmation of transactions (along with audited financials, ITR, etc.) b. Bank statement c. Value wise and quantity wise purchases as made from the vendors d. Stock register e. Copy of the bills along with and bilti (transport receipt) f. Cost audit report g. Statutory audit report h. Relevant extracts of the GST returns 9.2 With regard to the specific allegation of the AO that the parties still have closing balance as on the last date of the financial year, the appellant has submitted that it was not confronted with this finding during the assessment proceedings. Notwithstanding the same the appellant now submits that all the creditors were paid in the subsequent years. 9.3 I have carefully considered the assessment order and the submissions of the Appellant. The allegations of the AQ and the rebuttal of the Appellant are only focused towards one focal point as to whether the purchases as made by the Appellant were bogus or not. The Ld. AO has drawn few holes in the submissions of the Appellant and the Appellant too has replied to those allegations. As all the additions inter alia focus towards one allegation, all the grounds are being dismissed by common conclusion. From the impugned order and the appellants submissions, there is no denying the following facts: i. The Ld. AO has himself added the sales (which are said to be bogus) on net profit percentage, and ii. The Appellant too has proposed that the purchases should be added on gross profit margin, to his returned income. 9.4 In the peculiar circumstances, it is apparent that the Appellant has not made purchases from the above-bogus parties. However, at the same time, since the goods claimed to have been purchased from these bogus parties have been sold, it is clear that the assessee may have purchased goods from some other party whose details are not on record. A question arises as to why the Appellant had made actual purchases from third party but had not booked its bill? The answer could be attributed either to the fact that the third party from whom Appellant has made actual purchases was not issuing bill to the Appellant or that the Appellant had purchased the goods from the third party at a cheaper price. Hence, from the facts of the case it appears that Appellant may have made purchases from grey market. Under these circumstances, it is clear that to the extent of purchases made by the Appellant from the bogus parties and the corresponding sales made out of such purchases, Ramayna Ispat Pvt. Ltd. vs. ITO the books of accounts of the Appellant are not clear and do not depict true and correct picture of the accounts of the Appellant. 9.5 In light of the above, the two options available with this office hence are limited to: First, to disallow the entire bogus purchases and at the same time reduce the corresponding sales and thereafter re-cast the profit and loss account of the Appellant with reduced sales and reduced purchases: or second, to estimate the additional profit margin embodied while making bogus purchases. Hence, I am of the firm opinion that the additions should only be restricted to the GP rate on the bogus purchases. Reliance is also placed on the following judgements which allude towards a similar stand to be judiciously taken in such cases: 1) Principal Commissioner of Income-tax vs. Deepak Banwarilal Agarwal reported at [2024] 161 taxmann.com 601 (Gujarat) Where AO received information from Investigation Wing that assessee had obtained non-genuine purchase bills from a group which was engaged in business of issuing non-genuine purchase bills, unsecured loans and accommodation entries. disallowance was to be made at 6% of bogus purchases. ii) PCIT Vs. Jagdish H Patel [ITA No. 410/412 of 2017] High Court of Gujarat If entire purchases to be treated as bogus, then GP would be higher than the total turnover and would give completely distorted figure - When additions are made on the basis of GP rate, limited amount of estimation and gross work is always inbuilt. iii) PCIT vs. Rishabhdev Technocable Ltd (Bombay High Court) Though the assessee has not proved the genuineness of the purchases and sales, yet if the AO has accepted the sales, the entire purchases cannot be disallowed. Only the profit element embedded in purchases would be subjected to tax and not the entire amount. iv) PCIT vs. Pinaki D. Panani (Bombay High Court) Even if the purchases made by the assessee are to be treated as bogus, it does not mean that the entire amount can be disallowed. As the AO did not dispute the consumption of the raw materials and completion of work, only a percentage of net profit on total turnover can be estimated. v) Deputy Commissioner of Income-tax v. Rajeev G. Kalathil [2014] 51 taxmann.com 514/ [2015] 67 SOT 0052 (Mumbai) Sales were accepted Held that only profit element embedded as per previous history of assessee i.e. 5% to 8% in the purchases could be added and not the entire purchase amount deleted the balance addition. High Court in revenue's appeal declined to interfere in the order of the ITAT and upheld the attribution of 5% profit on such alleged bogus purchase vi) Pooja Paper Trading Co (P.) Ltd. [264 Taxman 260] High Court of Bombay Assessee failed to produce evidence of genuineness of purchase Disallowance could only be of the Income/profit attributable to the bogus purchases. vii) Geolife Organics Vs. ACIT [58 ITR(T) 297]-ITAT Mumbai Information received from sale tax department that assessee is beneficiary of bogus billing-AO added profit ratio embedded in purchases disallowance due to non- appearance of the suppliers No efforts by AO to make further investigation to Ramayna Ispat Pvt. Ltd. vs. ITO substantiate his allegation Purchases supported by sufficient documentary evidences Sales not doubted, quantitative tally available, payment through account payee cheque, GP rate reasonable and satisfactory in comparison to the previous years AD not brought on record any material Information from sale tax or non production of party could not treat the purchases as bogus. viii) Parnami Pump & Projects Pvt. Ltd. (ITAT Delhi) reported as I.T.A. No.1843/DEL/2018. In case the purchases are proven to be bogus, only GP can be added. ix) ITO VS. Deepak Khusaldas Mehta [83 taxmann.com 63]-ITAT Mumbai Opportunity of cross examination not given - Assessee was never asked to provide whereabouts of parties did not consider the quantitative reconciliation and the one to one identification of sale and purchase whereby the stock was reconciled - Books of accounts were not rejected-sales accepted - Only profit embedded can be added.

become academic and are not separately adjudicated upon.”

6. On careful consideration of the observations made by Ld. CIT(A) and considering the arguments put forth by both the parties before us, we fins that both the parties have not been able to controvert the findings given by Ld. CIT(A) which are reasonable looking to the facts of the case and, accordingly, we are not inclined to interfere with the order of Ld. CIT(A) and the same is hereby upheld. All the grounds of appeal taken by the assessee as well as by Revenue are dismissed.