ACIT 20(1), MUMBAI vs. KITMAN INTERNATIONAL, MUMBAI

Aforesaid appeal by revenue for Assessment Year [AY] 2006-07 contest the order of the Ld. Commissioner of Income-Tax (Appeals)-31 [CIT(A)], Mumbai, Appeal No.CIT(A)-31/IT-102/AC-20(1)/2008-09 dated 25/02/2013 qua certain relief provided to the assessee on account of alleged bogus purchases. The assessment for impugned AY was framed by Ld. Assistant Commissioner of Income Tax-20(1), Mumbai [AO] u/s Kitman International Assessment Year-2006-07 143(3) of the Income Tax Act, 1961on 31/12/2008 wherein the loss has been determined at Rs.101.90 Lacs as against returned loss of Rs.315.57 Lacs filed by the assessee on 30/10/2006. None has appeared for assessee despite notice and no adjournment application is on record. Left with no option, we proceed to dispose-off the same on the basis of material available on record and after hearing Ld. Departmental Representative [DR], Shri. Rajesh Kumar Yadav. During the impugned AY the assessee was engaged in the business of manufacturing and exports of readymade garments.

During assessment proceedings, to confirm the purchase transactions, notices u/s 133(6) was issued to many suppliers. However, the same elicited no satisfactory response with respect to eight suppliers aggregating to Rs.69.46 Lacs, the details of which have been extracted in the quantum assessment order. Further, the gross profit rate reflected by the assessee, in the opinion of Ld. AO, was not commensurate with earlier years. Therefore, while rejecting the books of accounts, Ld. AO estimated the income of the assessee by making following additions:- Sr.No. Particulars Amount (Rs.) 1. Estimated gross profit @12.15% on sales of Rs.951.84 Lacs 1,15,64,935/- 2. Alleged bogus purchases from eight parties 69,46,664/- 3. Gross loss claimed by the assessee 28,55,075/- Total 2,13,66,674/-

Aggrieved, the assessee contested the same with partial success before Ld. CIT(A) vide impugned order dated 26/02/2013 wherein the matter has been decided in the following manner:- 4.5. I have carefully considered the facts as they emerge from the assessment order, remand report and the submissions made during these proceedings. As stated in the assessment order, several parties from whom the AO sought to make confirmation regarding their transactions with the appellant failed to respond to the Kitman International Assessment Year-2006-07 letters u/s.133(6). The appellant also did not furnish any details in this respect during assessment proceedings. As observed by the AO in the remand report dated 12.04.2012 even at the stage of remand proceedings, the appellant was unable to provide supporting evidences by way of copies of invoices, delivery challans etc. The appellant also was unable to produce bank statements containing the relevant entries for the payment said to have been made for these purchases. Accordingly, in view of these lacunae, it is clear that the books of accounts of the appellant do not give accurate picture of the transactions undertaken by the appellant during this assessment year. It is also evident that the profit/loss declared by the appellant can also not be taken at its face value. In such a situation, the Assessing Officer has to take recourse to estimation of profits since by virtue of rejection of books and application of G.P. rate the income of the appellant has been duly estimated by the said action and any further disallowance or addition will serve only to enhance, in effect, the G.P. rate so applied. The G.P. loss claimed by the appellant has also been taken into account by virtue of application of the G.P. rate at 12.15%. In view of the fact that the appellant has shown GP at 12.15% in A.Y.2004-05, the application of this rate to the appellant’s business for this year is upheld. However, once the AO has rejected he books of accounts and applied suitable GP rate, further addition on account of bogus purchases or disallowance of loss claimed by the appellant is not tenable. Accordingly, the additions made by the AO are sustained to the extent of value of GP at 12.15% at Rs.1,15,64,935/-. The disallowance on account of bogus purchase at Rs.69,46,664/- and the disallowance of GP loss at Rs.28,55,075/- are deleted. Aggrieved, the revenue is in further appeal before us. The Ld. DR has defended the stand of Ld. AO.

Upon perusal of orders of lower authority, it is noted that the books of accounts has been rejected and the profit has been estimated by applying earlier years’ Gross Profit rate to Sales Turnover reflected by the assessee in the impugned AY. Once the addition was made by estimating Gross Profit as a whole, separate additions / disallowances to increase the same further was not warranted / justified. The Ld. AO, in our opinion, erred in making multiple additions, which, in effect, resulted into increase in Gross Profit Rate only. Therefore, finding the stand of Ld. CIT(A) quite reasonable one, we see no reason to interfere with the same.

Resultantly, the revenue’s aappeal stands dismissed.