INCOME TAX OFFICER, PARWANOO vs. AJAY KADIAN, KALA AMB (SIRMOUR)

Addition of Alleged Bogus Purchases 2.1 The assessee’s case was scrutinized to examine the purchases. The assessee is stated to be engaged in production of lead ingots through recycling of waste lead acid batteries. In support of purchases, the assessee furnished financial statements, bank account details, list of sundry creditors, purchase register, ledger extracts etc. To verify the purchases, notices were issued u/s 133(6) to 36 parties most of which remained non-responsive. Only 6 parties responded. These suppliers were mainly non-filers. Pursuant to investigation in the case of another group entities by the name M/s Stalwart Alloys India Pvt. Ltd., a list of suppliers was received who allegedly passed input tax credit to M/s Stalwart Alloys India Pvt. Ltd., without actual supply of material. Out of 199 suppliers as identified therein, 11 suppliers had supplied goods to the assessee also and accordingly, Ld. AO doubted the purchases so made by the assessee. The inspector of DDIT (inv.) had made physical enquiries in 5 such cases and addresses of these suppliers could not be traced. On these facts, Ld. AO show-caused the assessee to prove the genuineness of the purchases so made. The assessee contended that purchases were made through bank transfers. The cheques were given to various persons who had given complete details including KYC in the bank account. There was no obligation on the assessee to ensure fulfillment of tax obligations by the suppliers. The assessee furnished copies of invoices as issued by the suppliers. However, going by the outcome of 133(6) notices and field enquiries of DDIT(Inv.), Ld. AO made addition of 37.40 Lacs with respect to 5 parties. The parties who responded to 133(6) notices were accepted. On the remaining purchases, Ld. AO estimated addition of 25%. The addition thus made on account of alleged bogus purchases aggregated to Rs.11.17 Crores. 2.2 The Ld. CIT(A), after due consideration of assessee’s elaborate written submissions, noted that the assessee reflected turnover of Rs.44.03 Crores with purchase of Rs.42.95 Crores. The Gross Profit (GP) rate was 2.45%. The basic raw material for the assessee was lead which is extracted from discarded and disposal of old batteries which is usually sourced from Kabadis (dealer selling waste material). These vendors were mostly street vendors who would collect waste material from door to door and from certain shops dealing in the same. The assessee has to deal with number of such people who keep on moving from one place to another and from city to city. The assessee had duly taken their respective GST numbers and the payments to the suppliers were through baking channels. The Ld. AO did not question the ledger entries and the bank statements as furnished by the assessee during the course of assessment proceedings. Non- response to the notices by suppliers would not automatically lead to a conclusion that the purchases were not genuine. The suppliers had filed their respective GST / VAT returns and GST department did not deny input tax credit to the assessee for the purchases so made. There was no adverse finding in regard to input tax credit. The sales to the assessee were reflected in the respective GST returns of the suppliers. When the sale was not found to be bogus, the entire purchases could not be treated as bogus. The addition so made by Ld. AO would yield GP rate of 27.72% which was very abnormal. Reference was made to the decision of Chandigarh Tribunal in the case of M/s Ganesh Dass Piara Lal Jain (ITA No.83/Chd/2023) discarding addition in this manner. Finally, Ld. AO was directed to estimate the addition @2.45% on these purchases. Aggrieved the revenue is in further appeal before us. 2.3 From the facts, it emerges that the assessee is engaged in production of lead ingots through recycling of waste lead acid batteries. The nature of assessee’s business is that the basic raw material is lead which is extracted from discarded old batteries. This raw material is usually sourced from Kabadis (dealer selling waste material) who are mostly street vendors. The vendors would collect waste material from door to door and from certain shops dealing in the same. The assessee has to deal with number of such people who keep on moving from one place to another and from city to city. The assessee reflected turnover of Rs.44.03 Crores with purchase of Rs.42.95 Crores. The sales turnover has been accepted but the purchases have been doubted primarily because of the fact that the notices sent u/s 133(6) did not yield satisfactory response. The same could be explained by the fact that the vendors are moving vendors and may not be available at the given addresses at the time of enquiries which has large time gap from the date of purchases so made by the assessee. Nevertheless, the assessee has furnished requisite documents with respect to these purchases which include purchase invoices, financial statements, bank account details, list of sundry creditors, purchase register, ledger extracts etc. The payments to the suppliers are through banking channels only. The Ld. AO has not questioned the ledger entries and the bank statements as furnished by the assessee during the course of assessment proceedings. Non-response of the suppliers would not automatically lead to a conclusion that the purchases were not genuine. The suppliers have filed their respective GST / VAT returns and GST department has not denied input tax credit to the assessee for these purchases. There is no adverse finding in regard to input tax credit. The sales to the assessee have been reflected in the respective GST returns of the suppliers. It is quite logical that there could not be any sales without actual purchase of material. When the sales are accepted, entire purchases could not be treated as bogus. The addition so made by Ld. AO would yield abnormal GP rate of 27.72% as against regular GP rate of 2.45% as reflected by the assessee. In fact, an assessment has been framed by Ld. AO on identical lines for AY 2022-23 wherein the assessee’s purchases were subjected to scrutiny. In this year, Ld. AO has doubted the purchases and finally applied GP rate of 2.45% as reflected by the assessee during AY 2021-22. Therefore, the adjudication of Ld. CIT(A) in applying GP rate of 2.45% could not be faulted with. The same find our concurrence. The corresponding grounds of appeal stand dismissed.