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Income Tax Appellate Tribunal, AHMEDABAD “C” BENCH
Before: Ms. Annapurna Gupta & Shri Mahavir Prasad
Appellant by : Shri D.K. Parikh, CA Respondent by : Shri V.K. Singh, Sr. D.R. Date of hearing : 22-03-2022 Date of pronouncement : 25-03-2022 आदेश/ORDER PER : ANNAPURNA GUPTA, ACCOUNTANT MEMBER:-
The present appeal has been filed by the Assessee against the order passed by the Commissioner of Income Tax (Appeals)-2, Ahmedabad, (in short referred to as CIT(A)), dated 24-10-2018, u/s. 250(6) of the Income Tax Act, 1961(hereinafter referred to as the “Act”) pertaining to Assessment Year (A.Y) 2015-16.
Ground raised by the assesse reads as under:
The Ld CIT(Appeals) erred both in law and on facts in confirming the addition of Rs. 31,34,102/- by estimating GP at 20% and thereby not deleting entire Page No 2 Dharati Associates vs. ACIT addition made by AO when the fact regarding goods being used for construction from the material purchased was accepted by him and books of account were accepted. The addition of Rs. 31,34,102/-be deleted.
2. The Ld CIT (Appeals) erred both in law and on facts in allowing the appeal in part only by retaining addition to the extent of Rs. 31,34,102/- when the fact that mere cancellation of TIN by Commercial tax Department does not conclusively prove that the suppliers have not supplied material is accepted by him. On the facts and circumstances of the case and having prima facie proved receipt of material and payment being made by banking chanel, entire addition made by the AO ought to have been deleted. It be so held now.
The Ld CIT(Appeals) ought to have allowed the appeal in toto considering the various judgments including the binding judgment of Gujarat High Court.
3. The solitary issue, as is evident from the grounds raised before us, relates to disallowance made by the A.O. of bogus purchases, which was restricted by the Ld. CIT(A) by estimating G.P. @ 20%. The solitary contention for the ld. Counsel for the assesse before us was that the order of the Ld. CIT(A) restricting the addition on account of bogus purchases by estimating the gross profit of the assesse @ 20% as against 16% disclosed by the assesse was not in accordance with law. That rightfully the ld. CIT(A) ought to have estimated the purchases to be disallowed and not estimated the gross profit of the assessee. In this regard he has referred to certain case laws before us.
3.1. In this background we shall proceed to adjudicate the issue .Coming to facts of the case as noted in para 4.3 of the order of the ld. CIT(A),the Assessing Officer made the disallowance of purchase of building materials of Rs.1,12,17,285/- in respect of M/s, Apollo Trading of Rs.15,01,902/-M/s. Dhrumil Industries of Rs.35,04,970/-, M/s. M. B. Corporation of Rs.25,07,400/-, M/s. Yogesh Traders of Rs.7,21,360/- and Shri Ambica Enterprises and Maruti Cement Depo of Rs. 15,01,213/- & 1,99,300/- respectively on the Page No 3 Dharati Associates vs. ACIT ground that above purchases were bogus. The Assessing Officer concluded the above purchases as bogus since notice issued u/s, 133(6) of the Act for the verification of purchase had returned unserved and their registration had also been cancelled by Gujarat Commercial Tax Department. The assessee contended that it has purchased construction material of Rs.1,33,94,660/- against the sale of Rs;8,14,70,500/-. However, the AO disallowed the purchase to the extent of Rs. 1,12,17,285/- in respect of the five parties ignoring the fact that the assessee had submitted the purchase bill and evidence of payment by cheque to the above parties.
The ld. CIT(A) noted that the A.O. had virtually disallowed 84% of the total purchases made by the assesse which was not possible and therefore he resorted to estimating the gross profit of the assesse @ 20% of the turnover. His findings in this regard at Para 4.4 of the order is as under:
4.4, Appellant has shown sale of flat of Rs,8,14.70,500/- and claimed purchase of material of Rs. 1,33,94,660/- for construction of the flat. The Assessing Officer has disallowed the purchases of Rs,1,12,17,285/- out of the total expenditure of Rs. 1,33,94,660/- which is 84% of the total expenditure, II is an established fact that there cannot be construction without the building material. Appellant on its part has submitted the bills for purchase and the payments for the same. However, the bills could not be verified as the notices issued by AO has been returned back. The AO has stated that Gujarat Commercial Tax Department has cancelled the TIN, but it does not conclusively prove that they have not supplied material when there is a payment to them suggesting otherwise. Therefore, looking at the entire matter and the fact that sales have been accepted but 84% of the purchase has been disallowed, if is fair to estimate the G.P, ® 20% of the sale as the purchase has not been fully verified. Appellant has shown a gross profit of Rs. 1,31,59,998/- and 20% of the sale comes to Rs. 1,62,94,100/-. Therefore, addition to the extent of Rs,31,34,102/- is confirmed. Relief is granted for the balance disallowance. The ground of appeal is accordingly partly allowed.
Page No 4 Dharati Associates vs. ACIT
We have considered the submissions of the ld. Counsel for the assesee. We are of the view that the ld. CIT(A) has approached the issue in a very just and fair manner while acknowledging the fact that almost the entire purchases of the assesse could not be treated as bogus when the sales had not been doubted. The issue now boils down to whether the act of the ld. CIT(A) in estimating the GP @ 20% thereafter, considering that the investigation of the Assessing officer revealed that the purchases remained unverified ,was justified or not. In this regard, where the majority of the purchases of the assesse are in doubt tantamounting to the book results not representing the true picture of the financial results of the assesse for the impugned year, the only recourse left is to estimate the profit to the best judgment of the authorities. It is nobody’s guess that the most appropriate method has to be applied and whether it is estimating the gross profit or estimating the purchases to be disallowed both have to have a reasonable basis for adoption. We have noted from the order of the ld. CIT(A) that there is no basis given for adopting 20% gross profit as the reasonable gross profit in the business of the assesse. Even the Ld. Counsel for the assesse has merely contended that the purchases be estimated without pointing out what would be a reasonable and justifiable figure of estimation, despite repeatedly being asked at bar to point out the same. In the light of the same therefore we consider it fit to restore this issue back to the ld. CIT(A) to work out a just and reasonable estimation of the disallowance of purchases to be made .Whether by way of estimating the gross profit or by estimating the reasonable purchases, the method to be adopted is left to the best judgment of the ld. CIT(A) . The assesse is free to canvass the most appropriate and just method as per its considered view before the ld. CIT(A) who is directed to give opportunity of hearing to the assesse in this regard before adjudicating the issue.
The grounds of appeal raised by the assesse are therefore allowed for statistical purposes.
Page No 5 Dharati Associates vs. ACIT
In effect, appeal of the assesee is allowed for statistical purposes.