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Income Tax Appellate Tribunal, “B” BENCH, PUNE
Before: SHRI D. KARUNAKARA RAO, AM & SHRI VIKAS AWASTHY, JM
आदेश / ORDER
PER D. KARUNAKARA RAO, AM
These are Cross appeals filed by the Assessee and the Revenue against the order of CIT(A)-2, Pune, dated 01.02.2016 for the A.Y. 2009-10.
2 ITA No.1495/PUN/2016 and ITA No.639/PUN/2016 M/s. Rang Rasayan
We shall take up the appeal of the Revenue first.
ITA No.1495/PUN/2016 – By Revenue A.Y. 2009-10
Grounds raised by the Revenue are extracted below :
“1. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) is justified in holding that only profit margin is embedded in respect of purchases of Rs.50,43,126/- and thereby estimating such profit @15% and restricting the addition to the extent of Rs.7,56,469/- as against the total disallowance of purchases of Rs.50,43,126/- without any jurisdiction. 2. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) is justified in directing the Assessing Officer to delete the additions of Rs.7,05,512/- without appreciating the fact that the purchases from M/s. Siddhi Vinay Corporation and M/s. Shah Industries are not genuine and these parties have been detected as Hawala parties by the Sales Tax Department.”
Briefly stated relevant facts includes that the assessee is a company
engaged in the business as Dealer in industrial and laboratory chemicals,
solvents and acids. Assessee filed the return of income on 29-09-2009
declaring total income of Rs.35,41,350/-. On receipt of the information from
the Sales Tax Department of Maharashtra Govt., AO noticed that assessee
made purchases from three parties namely (1) M/s. Grasim Industries
(Madhya Pradesh); (2) M/s. Sree Rayalaseema Alkalies & Allied Chemicals
Ltd.; (3) M/s. Lalji Lakhamshi & Company; and (4) Aditya Birla Nuvo Ltd.,
amounting to Rs.50,43,126/- (Para 1.4 of the CIT(A)’s order) and these
parties are in the list of Hawala Operators. Accordingly, AO issued notice
u/s.148 of the Act after recording the reasons. Assessee made CST on such
purchases as the parties are outside the Maharashtra State. Such tax paid
was not eligible for VAT set-off. It was alleged that in order to avail VAT set
off, assessee replaced the purchases from the above parties with bills
obtained from local parties. Assessee furnished relevant particulars before
the AO such as, bill numbers, amount of bills, name of the commodities
3 ITA No.1495/PUN/2016 and ITA No.639/PUN/2016 M/s. Rang Rasayan
purchases, quantity purchased, transporters name, vehicle numbers, LR
numbers, transport agency, payments etc. At the end of the assessment
proceedings, AO made addition of Rs.50,43,126/- as non-genuine
purchases.
AO also made addition of Rs.7,05,512/- on account of purchase of
materials made from M/s. Shah Industries and M/s. Siddhi Vinayak
Corporation. Assessee submitted copies of sales invoices, bank details,
delivery challans, octroi receipts, payments details etc,. However, the AO
denied the claim of the assessee treating the same as bogus purchases and
eventually added the same to the total income of the assessee. Thus, the AO
made addition of Rs.57,48,368.
In the First Appellate proceedings, the CIT(A) deleted the addition of
Rs.7,05,512/- made by the AO and held that AO failed to examine the
evidences produced by the assessee. It was also held that AO did not point
out any defects in the books of account and did not doubt any sales made to
Municipal Corporations and prominent parties. The CIT(A) eventually
concluded that the AO made the disallowance based on presumption and
surmises and without having any material to show that these purchases
were not genuine. However, regarding the addition made by the AO
amounting to Rs.50,43,126/-, the CIT(A) adopted the Gross Profit rate of
15% as against the 10 to 12% shown by the assessee relying on the
judgment of Hon’ble Gujarat High Court in the case of CIT Vs. Bholanath
Poly Fab Lvt. Ltd. 355 ITR 290. Thus, the CIT(A) confirmed the addition to
the extent of Rs.7,56,469/- and gave part relief to the assessee. Contents of
Para No.5.3.3 of the order of CIT(A) are relevant.
4 ITA No.1495/PUN/2016 and ITA No.639/PUN/2016 M/s. Rang Rasayan
Aggrieved with order of CIT(A) in partly sustaining the addition to the
extent of Rs.7,56,469/- as well as deletion of addition of Rs.7,05,512/- in
respect of the purchases made from M/s. Shah Industries and M/s. Siddhi
Vinayaka Corporation, the Revenue is in appeal. Aggrieved with the
confirmation of addition of Rs.7,56,469/-, the assessee is in appeal before
the Tribunal.
At the outset, Ld. AR for the assessee submitted that the appeal filed
by the Department is liable to be dismissed on account of low tax effect. The
Ld. AR pointed that as per CBDT Circular No.3/2018 dated 11th July, 2018,
the monetary limit for filing of appeal by the Department before the Tribunal
is Rs.20 Lakhs, therefore, the appeal filed by the Department is not
maintainable.
On the other hand, the Ld. DR for the Revenue defended the
assessment order and prayed for reversing the findings of the CIT(A).
However, the Ld. DR fairly admitted that the tax effect in the present appeal
is less than Rs.20 Lakhs.
Both sides heard. A perusal of the impugned order shows that the
addition made in the assessment year under consideration is on account of
purchases made by the assessee alleged to have been made from
bogus/hawala parties. The total tax on disputed addition of Rs.55,48,638/-
in the present appeal is undisputedly is less than Rs. 20 Lakhs. The CBDT
circular No.3/2018 dated 11th July, 2018 raised the monetary limit of tax
effect for filing of appeal by the Department before the Tribunal to Rs.20
Lakhs. The circular applies to the pending appeals of the Department before
the Tribunal too. Thus, in view of the CBDT circular, we are of the opinion
5 ITA No.1495/PUN/2016 and ITA No.639/PUN/2016 M/s. Rang Rasayan
that the present appeal of the Revenue is liable to be dismissed on account
of low tax effect.
In the result, the appeal of the Revenue is dismissed.
We shall now take up the appeal of the assessee.
ITA No.639/PUN/2016 – By Assessee A.Y. 2009-10
Grounds raised by the assessee are extracted as under :
“1. The Ld.CIT(A) was not justified in confirming the addition of Rs.7,56,469/- on account of gross profit on purchases of Rs.50,43,126/- without appreciating that the assessee had furnished all the particulars of purchases and sales along with details of quantity and the assessee had not earned any profit on these purchase which was not recorded in the books of account. 2. The Ld.CIT(A) was not justified in sustaining addition of Rs.7,56,469/- only on the basis of presumption and surmises and without any material to support his conclusion.”
From the above grounds, it is evident that the assessee is aggrieved
with the decision of CIT(A) in sustaining the addition to the extent of
Rs.7,56,469/- on account of purchases made from M/s. Shah Industries and
M/s. Siddhi Vinayaka Corporation by adopting 15% of GP on such
purchases. The details of such purchases are already was briefed in the
above paragraphs.
After hearing both the parties on this solitary issue and on perusal of
the orders of the revenue authorities, we find it relevant to reproduce the
finding given by the CIT(A) in Para No.5.3.3 of his order and the same reads
as under :
“5.3.3 In the light of the facts available in the case of the appellant, I feel that the ratio of the decision of Hon’ble Gujarat High Court applies to the present case as well. In the case of the appellant as well, it has been able to file evidences reflecting that purchases were there although from some other parties and not from the parties from whom just bills were obtained. There are corresponding sales also. Accordingly, following the ratio
6 ITA No.1495/PUN/2016 and ITA No.639/PUN/2016 M/s. Rang Rasayan
of this decision, it cannot be said that entire purchases of Rs.50,43,126/- is disallowable. I accordingly hold that the appellant is taxable on the amount of gross profit which has arisen out of such purchases for which bills have been procured from local parties. The average rate of G.P. shown by the appellant during the preceding years is between 10% to 12%. Considering the additional benefit on account of VAT credit on these purchases (a fact which has been admitted by the appellant), I consider it fair and reasonable to estimate Gross Profit at the rate of 15% on the amount of purchases of Rs.50,43,126/-, for which admittedly bills have been procured by the appellant from non-genuine parties. Thus, the amount of Gross Profit is computed at Rs.7,56,469/- being 15% of Rs.50,43,126/-. The addition to the extent of Rs.7,56,469/- is accordingly confirmed.”
From the above, it is evident that assessee furnished the purchase
bills and the evidences for payment to the suppliers through banking
channels. Copies of the bank statements are evident in the records.
Nowhere it is mentioned that the assessee failed to prove the trail of goods to
the premises of the assessee. Further, it is not the case of mere buying the
accommodation entries through the entry operators but there is an
undisputed fact of buying the equivalent purchases from the grey market.
Therefore, it is a case of not offering the relevant profits properly in the
return of income. Therefore, the CIT(A)’s decision in restricting the
disallowance to 15% on account of such purchases, despite the books
results are already offered by the assessee, is fair and reasonable.
Accordingly, the grounds raised by the assessee are dismissed.
In the result, the appeal of the assessee is dismissed.
To sum up, both the appeals of the Revenue as well as the Assessee
are dismissed.
Order pronounced on 20th day of July, 2018.
Sd/- Sd/-
(िवकास अव थी /VIKAS AWASTHY) (डी. क�णाकरा राव/D. KARUNAKARA RAO) �ाियक सद�/JUDICIAL MEMBER लेखा सद�/ACCOUNTANT MEMBER पुणे / Pune; िदनांक / Dated : 20th July, 2018. Satish
7 ITA No.1495/PUN/2016 and ITA No.639/PUN/2016 M/s. Rang Rasayan
आदेश की 'ितिलिप अ)ेिषत / Copy of the Order forwarded to : अपीलाथ� / The Appellant. 1. ��थ� / The Respondent. 2. 3. The CIT(Appeals)-2, Pune 4. The Pr. CIT-2, Pune िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, “बी” ब"च, 5. पुणे / DR, ITAT, “B” Bench, Pune. गाड% फ़ाइल / Guard File. 6.
आदेशानुसार / BY ORDER,
// True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण, पुणे / ITAT, Pune.