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Income Tax Appellate Tribunal, DELHI BENCH ‘B’,
Before: SHRI N. K. BILLAIYA, & MS. SUCHITRA KAMBLE
PER N. K. BILLAIYA, ACCOUNTANT MEMBER:
This appeal by the Revenue is preferred against the order of the ld. CIT(A) – 2, New Delhi dated 27.02.2015 pertaining to A.Y 2006-07.
The substantive grievances of the Revenue read as under :
i) On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in restricting the addition to Rs. 6,43,466/- out of the total addition of Rs. 71,95,000/- on account of bogus purchases. ii) On the facts and in the circumstances of the case, the Ld .CIT(A) erred in ignoring the factum of bogus purchases of Rs. 1,45,23,400/- from M/s Rajasthan Metals which was specified in the remand report submitted by the Assessing Officer before the ld. CIT(A).
Briefly stated, the facts of the case are that as per information, a search action was carried out in the case of Shri Navneet Kumar Jain and his son, Shri Vaibhav Jain alongwith Jaguar Group on 26.04.2010 from which it came to the notice of the department that these persons were engaged in providing accommodation entries in the form of bogus sales bills. These entries were provided directed or through agents.
It came to the notice of the Assessing Officer that M/s Bansal Strips Pvt. Ltd was found to be dealing with concerns of Shri Navneet Kumar Jain and his son Vaibhav Jain. The Assessing Officer found that the following entries amounting to Rs. 71.95 lakhs were provided by the under mentioned firms from whom the assessee has made purchases:
Name of the Beneficiary A/c no. of the Cheque No. Amount operator operator and date Company involved through which issued by the transaction beneficiary has been operated. 13290 374759 Bansal Strips Rajasthan Metal 1000000 Pvt Ltd 03.10.2005 14821 461887 Ess Mart 1000000 Enterprises 11.01.2006 Ramji Traders Pvt 752468 1000000 Ltd 11.01.2006 788804 13290 900000 06.02.2006 Rajasthan Metals 461888 800000 Ramji Traders 11.02.2006 374774 13290 Rajasthan Metals 600000 04.03.2006 Shree Balaji Trading 461891 12877 795000 Co 11.03.2006 461890 -- Ramji Traders 11.03.2006 800000 752469 — 300000 Ramji Traders 11.03.2006 71,95,000
The assessee was asked to explain the transaction to establish the genuineness of the purchases by furnishing copy of accounts of the aforementioned parties with respect to confirmations.
In spite of the specific requisition, the assessee did not file the requisite details. The Assessing Officer was of the opinion that the assessee has nothing to say and treated the transaction of purchases of Rs. 71.95 lakhs as bogus and added back the same to the total income of the assessee.
The assessee strongly agitated the matter before the ld. CIT(A) and pointed out that the purchases made from Rajasthan Metals were to the tune of Rs. 1.45 crores and the Assessing Officer has doubted only purchases to the extent of Rs. 71.95 lakhs which means that the Assessing Officer has accepted the genuineness of the purchases from the same supplier for the balance amount. It was further contended that during the year under consideration, the assessee has made payment of only Rs. 10 lakhs and balance of Rs. 61.95 lakhs pertained to subsequent years. It was brought to the notice of the ld. CIT(A) that during the year, the assessee has effected sales of Rs. 5.54 crores and without there being any purchases, sales could not have been effected.
After considering the facts and submissions and also the remand report called for during the appellate proceedings, the ld. CIT(A) held as under:
“After going through the records and the evidences adduced by the appellant, copies of lave also been placed before me, I am of the opinion that sincee- the AO has not been able to pin point any adversity in the books of account and other details (including details) in respect of sales effected by the appellant which have been accepted by him. As the turnover and the quantitative details thereof have not been controverted by the AO. therefore., I find force in the arguments of the appellant that without purchases there can be no sales The appellant has effected sales which have been accepted in the assessment and the purchases from M/s Rajasthan Metal are nothing but accommodation entries. However, if the total purchases of Rs. 1.45,23,400/- (which amount to app. 26% of turnover of Rs.5,54,49,023/-) are treated as bogus purchases and added to the income of the appellant it will result into an exorbitant Gross profit rate of 29% which is not heard of in the line of trade of the appellant. Therefore in my considered view addition of Rs. 1,45,23,400/- as proposed by the AO in the remand report cannot be made in its entirety since the sales could not be made without making purchases. At the same time, it cannot be denied that there could have been leakages in this process and therefore it would be in the fitness of things to estimate the income of the appellant having regard to the industry’s barometers and the trading results in the case of the appellant in the subsequent years. In order to arrive at a fair estimate of income further inquiries were made and following information was called from the appellant in terms of provisions contained in section 250(4) of the Act: i) G.P rate offered by the appellant for the year under consideration and next two years. ii) copy of account of M/s Rajasthan Metal for the next two years duly showing the purchases and payments made to them and proof of identity. iii) comparable gross profit rate in the trade of the assessee.
6.5.5 The appellant vide its reply dated 23.02.2015 has submitted the required information. From perusal of the same it is seen that the appellant’s G.P rate for the three years is as under: -
Asstt Year 2006-07 3.83% Asstt Year 2007-08 1.37% Asstt Year 2008--09 2.84% 6.5.6 It is also seen that the appellant has made purchases from M/s. Rajasthan Metal and made payments to them as under: -
Asstt. Year Purchases Payments made 2006-07 Rs. 1,45,23,400/- Rs. 10,00,000/- 2007-08 NIL Rs. 1,35,23,400/- 2008-09 NIL NIL
6.5.7 The appellant has furnished a letter from Delhi Stainless Re- rolling Association (Regd), a representative body of the manufacturers and traders in the line of trade of the appellant, of which it is a member, and it has been mentioned therein that G.P. rate ranges between 4% to 5%.
6.5.8. I find that the G.P rate declared by the appellant is highly variable and not comparable to the G.P rate prevailing in the trade, thus the trading results declared by the appellant cannot be accepted. Therefore after perusal of the material available before me I am of the considered view that to meet the ends of justice it would be fair to apply G.P rate of 5% on the turnover declared by the appellant and an addition to the extent of Rs. 6,43,466/- is upheld as calculated below:-
Sales (accepted by AO) Rs 5,54,49,023 23/■ 27,72,451 Gross Profit (estimated @ 5%) Rs. /- Less: Gross Profit declared (@ 3.83%) Rs. 21,28,985 / Difference to be taxed 6,43,466- Rs.
6.5.9 Hence the addition on account of accommodation entries in the form of bogus purchases will be restricted to Rs. 6,43,466/- as against Rs. 71,95,000/- made by the AO and the AO is directed accordingly to restrict the addition to Rs. 6,43,466/-and the appellant gets relief of Rs. 65,51,534/-. This ground of appeal is partly allowed.”
Aggrieved by this, the Revenue is before us.
The ld. DR strongly supported the findings of the Assessing Officer.
Per contra, the ld. counsel for the assessee relied upon the orders of the first appellate authority.
We have heard the rival submissions and have given thoughtful consideration to the orders of the authorities below. At the very outset, we have to state that during the year under consideration, the payment for purchases is only for Rs. 10 lakhs. The same can be seen from the following chart:
S:No. Name of Cheque Actual date Amount F.Y. Asstt operator of payment Year No. involved involved Rajasthan 374759 10.03.2006 10,00,000/ 2005-06 2006-07 1. Metals - Ess Mart 461887 10,00,000/ 2006-07 2007-08 2. 02.11.2006 Enterprises - Ramji 752468 10,00,000/ 2006-07 2007-08 3. 01.11.2006 Traders - Rajasthan 788804 03.06.2006 9,00,000/- 2006-07 2007-08 4. Metals Ramji 461888 8,00,000/- 2006-07 2007-08 5. 03.11.2006 Traders Rajasthan 374774 03.04.2006 6,00,000/- 2006-07 2007-08 6. Metals Shree Balaji 461891 7,95,000/- 2006-07 2007-08 7. 04.11.2006 Trading Co.
Ramji 461890 8,00,000/- 2006-07 2007-08 8. 04.11.2006 Traders Ramji 752469 3,00,000/- 2006-07 2007-08 9. 04.11.2006 Traders Total 71,95,000/ -
It is a fact that during the year, the assessee has made total purchases from Rajasthan Metal to the tune of Rs. 1.45 crores which is about 26% of the total turnover of Rs. 5.54 crores, though, in his remand report, the Assessing Officer had requested the ld. CIT(A) to enhance the additions to Rs. 1.54 crores. Assuming that the entire purchases from Rajasthan Metals was bogus, then it would be commercially impossible for the assessee to sell Rs. 5.54 crores of goods. Moreover, sales effected by the assessee has been accepted by the Sales Tax Department.
Further, we find that the assessee has given complete quantitative details in the form of stock register of raw material as S.S. Patti which is exhibited at page E-3/81 to E-3/109 of the paper book. A perusal of the same clearly reveals that the raw materials, in fact, entered the business of the assessee which were used for making final product and accordingly, sales were executed by the assessee.
In our understanding of the facts, it appears that the assessee must have purchased the raw material from the grey market and must have taken supporting purchase bills from the accommodation entry provider which means that raw material were, in fact, purchased and there was movement of the same which enables the assessee to produce its final product. In our considered opinion, over and above the additions sustained by the ld. CIT(A), the assessee must have incurred some expenditure in procuring accommodation bills which we estimate at 5% of the total purchases from Rajasthan metals which is Rs. 1.45 crores which means that the assessee must have incurred expenditure of Rs. 7 lakhs for procuring accommodation bills. Modifying the findings of the ld. CIT(A), we direct the Assessing Officer to restrict the addition to Rs. 13.43 lakhs.
In the result, the appeal of the revenue in is partly allowed.
Order pronounced in the open court on 11.03.2019.