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Income Tax Appellate Tribunal, PUNE BENCH “SMC”, PUNE
आदेश / ORDER
PER SUSHMA CHOWLA, JM:
The appeal filed by assessee is against the order of CIT(A)-1, Nashik, dated 21.09.2016 relating to assessment year 2011-12 against order passed under section 143(3) of the Income-tax Act, 1961 (in short ‘the Act’).
The assessee has raised the following grounds of appeal:-
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1) The Hon. CIT (A) was not right in restricting the disallowance of alleged Hawala purchases instead of granting 100% relief: The Hon. CIT (A) in first appeal has allowed a partial relief of Rs. 18,96,094/- out of the total disallowance of Rs.25,28,125/-. In the result, an addition to the extent of Rs.6,32,031/- i.e. 25% of total disallowance has been confirmed. Appellant pray to set aside the said disallowance in totality in view of following; The appellants were engaged in manufacturing and sale of automobile and industrial parts. For AY.2011-12 relevant to PY.2010-11 the appellant disclosed a turnover of Rs.1,07,25,492/- and Gross Profit of Rs.31,47,273/- which was 29.34% of total turnover. Gross Profit disclosed was in line with the percentage achieved in immediately preceding two financial years which stood at 4.87% and 5.52% for PY.2009-10 and 2008-09 respectively. Appellant had consistently achieved the gross profit in that range. Once the learned CIT(A) has agreed that, there was no bogus nor non genuine purchases involved in the matter then the appellants believe that the Hon. CIT(A) has erred in restricting the disallowance at 25% of total additions of Rs.25,28,125/- and therefore, the confirmed addition of Rs.6,32,031/- on account of alleged non genuine purchases was arbitrary and not justified. Further the said confirmed addition was based on the third party information provided by the Maharashtra sales tax department where the appellants were not given an opportunity to cross examine the concerned third party and hence the confirmed addition is liable to be set aside. II) The purchases aggregating Rs.25,28,125/- were genuine purchase and not inflated as inferred by the assessing officer: The appellant state that, the purchases made amounting to Rs.25,28,125/- were genuine and not inflated as alleged for the reasons as under; a) The suppliers were duly registered dealers under MVAT Act and Rules 2005 and they had supplied materials against tax invoice and delivery challans. The appellant had returned a copy of invoice and delivery challans duly acknowledged to the respective suppliers in token of receipt of material. b) As per the verbally agreed terms, transportation and other incidental charges were borne by the suppliers as such the expenditure was not debited in appellant's books nor appellant maintained any record in that regard. c)As per agreed terms, the appellant had made full payments against the material procurement through acceptable modes of payment in the succeeding F.Y i.e. in the financial year 2011-12 and there was no outstanding payable to those suppliers in the books. d) The material procured has been utilized in the process of manufacturing and the finished goods manufactured have been sold in compliance to the excise rules and regulations. e) The appellant had recorded Gross Profit at 4.95%. The GP ratio was satisfactory and within the accepted norms. Under an
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hypothetical scenario, if the purchases from URD dealers of Rs.26,09,740/- were removed from direct expenses then the Gross Profit percentage would have been at 6.70% and this was unachievable. f) All the purchases made during 2010-11 were genuine and therefore there were no erratic movements in Gross Profit, Net Profit, purchases to turnover, Stock to turnover ratios etc. Precisely, the operating performance of business in the financial terms has not shown any unusual movement at the instance of such purchases. g) The subject purchases were recorded in the books as raw material and the material used in manufacturing process had direct nexus to the sales reported during the year. The financial books for the period beginning from 01/04/2010 to 31/03/2011 were closed duly audited and Auditors did not report any adversity in audit report about such alleged irregularities as stated by the learned respondents. h) Purchase consideration paid to the respective suppliers was not returned back to the appellant in any manner. i) The Maharashtra Sales Tax department has recovered the VAT on the said purchases and allowed the same. j) The chronology of events taken place on procurement of material and subsequent period was absolutely as per the standard trade practices followed by appellants such as; Procurement of Raw Material, Consumption of raw material in manufacturing process, Conversion of WIP into finished goods, Payment of excise duty on manufacturing goods, Supply of finished goods to customers as per sales order. j) There wasn't fictitious increase in the stock of finished goods in the books and store as well and therefore, there was no reason to support the contention of bogus purchase as raised by the learned respondents. In view of the appellant's contentions stated at (a) to (j) above rightly supported by the judicially pronounced decisions of various authorities, the appellant state that the purchases aggregating Rs.25,28,125/- were de-facto and de-jure genuine purchases instanced within the standard procurement policy and the material so procured was consumed in the process of manufacturing of finished goods. The finished goods so manufactured were duly sold to the customers and from the sale proceeds so generated on regular intervals the supplier's trade liabilities were settled in due course of time. The settlement of trade creditors concerned was through the acceptable modes of payments where no irregularly and illegality was observed. The purchases so made were directly linked to sales where no untowered movements or fluctuations in the financial ratios such as GP, NP, Stock, and Purchases had been observed. Under
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these supporting circumstances the appellant categorically deny the contentions of CIT(A) contention that the said purchases aggregating Rs.25,28,125/- were inflated purchases. Therefore, an issue of disallowance of Rs.6,32,031/- and addition of the same amount to the appellant's taxable income in respect of P.Y.-2010-11 did not arise.
Despite service of notice, none appeared on behalf of the assessee. However, written submissions have been filed by the assessee, which are on record.
The present appeal has been filed by the assessee after delay of 19 days and the assessee has filed an application for condonation of delay. In view of the facts and circumstances, we find merit in the plea of assessee and the delay in filing the appeal late by 19 days is condoned.
The assessee is in appeal against the order of CIT(A) in restricting addition on account of alleged hawala purchases to 25% of the total value of purchases.
Briefly, in the facts of the case, the assessee was engaged in manufacture and sale of automobile and industrial parts. The assessee for the year under consideration had disclosed turnover of ₹ 1,07,25,492/- and Gross Profit of ₹ 31,47,273/-, hence GP of 29.34%. The Assessing Officer received information from the Maharashtra Sales Tax Department in respect of hawala dealers. The assessee had made purchases to the tune of ₹ 25,28,125/- from the said hawala dealers. The Assessing Officer held the said purchases to be bogus purchases, since the VAT collected was not deposited by the alleged hawala dealers. The Assessing Officer added the said amount to the total income of the assessee.
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In appeal, the CIT(A) first upheld re-assessment proceedings and then considered the addition made on account of alleged bogus purchases. The assessee explained that out of the aggregate sum of ₹ 25,28,125/-, payment aggregating ₹ 17,15,032/- equivalent to 68% of total purchases were made through RTGS to the respective parties, remaining amount of ₹ 8,13,093/- was paid in cash. The assessee produced the receipts for cash payment. However, he showed inability to produce the parties since no other transaction had taken placed with them. The CIT(A) after deliberating upon the issue of bogus purchases, was of the view that it was not a case of bogus purchases but a case of inflated purchases. The Assessing Officer was directed to restrict the disallowance to 25% of purchases i.e. ₹ 6,32,031/-.
The assessee is in appeal against the order of CIT(A).
The assessee has filed written note before the Tribunal and pointed out that the addition made of 25% of the alleged purchases is both arbitrary and not justified. In the written note, the assessee has pointed out that it had recorded GP rate at 4.95% and in case the purchases from said dealers were excluded, then Gross Profit percentage would be at 6.70%. The assessee in the final plea has pointed out that in similar cases, the addition has been restricted to 10% of total purchases.
The learned Departmental Representative for the Revenue on the other hand, stressed that the assessee had declared Gross Profit at 29.34% and hence the addition by applying GP rate at 25% by the CIT(A) needs confirmation.
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On perusal of record and after hearing the learned Departmental Representative for the Revenue, I find that the issue of purchases from hawala dealers has already been decided by the Tribunal in different cases. In view of the issue being decided, I hold that net profit is to be applied in the present set of facts. In order to decide the issue of purchases from the alleged bogus parties, information of which was received from the Sales Tax Department, alleged bogus dealers had failed to deposit VAT though the same was collected from the respective parties. The case of the persons who had purchased the goods was that they had purchased the items and once it was known that the said parties had not paid VAT, they had made good deficiency to the Sales Tax Department and there was no merit in making any addition. However, the Tribunal has decided the issue and held that GP rate of 10% be applied on the alleged bogus purchases. The assessee before the Tribunal in the written submissions has also pleaded the same. On the other hand, the CIT(A) has restricted the addition to 25% of net purchases. The case of Revenue before the Tribunal is that the assessee had declared GP rate at 29.34% and this find mention also in the assessment order. However, the assessee in the written submissions has pointed out that it had recorded GP rate at 4.95%. This aspect needs verification at the level of Assessing Officer, since the necessary information is not available with the Tribunal. In case, the assessee had declared GP rate of 4.95% only, then addition is to be restricted to 10% of bogus purchases. However, in case GP rate declared by the assessee at 29.34%, then addition is to be made at 25% of bogus purchases. Accordingly, the Assessing Officer is directed to verify the said claim of assessee and decide
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the issue of addition to be made in the hands of assessee. The grounds of appeal raised by the assessee are thus, allowed as indicated above.
In the result, appeal of assessee is allowed as indicated above.
Order pronounced on this 28th day of August, 2018.
Sd/- (SUSHMA CHOWLA) न्याययक सदस्य / JUDICIAL MEMBER ऩुणे / Pune; ददनाांक Dated : 28th August, 2018. GCVSR आदेश की प्रयिलऱपप अग्रेपषि/Copy of the Order is forwarded to : 1. अऩीऱाथी / The Appellant; 2. प्रत्यथी / The Respondent; 3. आयकर आयुक्त(अऩीऱ) / The CIT(A)-1, Nashik; 4. The Pr.CIT-1, Nashik; ववभागीय प्रतततनधध, आयकर अऩीऱीय अधधकरण, ऩुणे, एक-सदस्य 5. मामऱा / DR ‘SMC’, ITAT, Pune; गार्ड पाईऱ / Guard file. 6. आदेशािुसार/ BY ORDER, सत्यावऩत प्रतत //True Copy// वररष्ठ तनजी सधिव / Sr. Private Secretary आयकर अऩीऱीय अधधकरण ,ऩुणे / ITAT, Pune