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Income Tax Appellate Tribunal, “C” BENCH: KOLKATA
Before: Shri J. Sudhakar Reddy & Shri S.S. Viswanethra Ravi
Date of hearing : 07.01.2019 Date of pronouncement : 11.01.2019 ORDER Shri S.S. Viswanethra Ravi, JM:
This appeal by the assessee against the order dated 04.02.2016 passed by the Commissioner of Income Tax (Appeals)-11, Kolkata for Assessment Year 2010-11.
The only issue is to be decided is whether the CIT(A) is justified in confirming the disallowance made by the Assessing Officer on account of purchases with six vendors treating the same as bogus purchases in the facts and circumstances of the case.
The brief facts of the case are that the assessee is a firm and engaged in the business of exports and contractors of work orders of M/s ITC Ltd, Kolkata. In support of the same, the assessee filed an affidavit dated 01.06.2016 attested by the Judicial Magistrate of 1st Class, Alipore, Kolkata at Page 90 of Paper Book. There is no dispute by the Assessing Officer in respect of nature of business though it is M/s J. K. Enterprise Assessment Year: 2010-11 mentioned as advertisement agencies in the assessment order dated 30.03.2015.
Coming to the addition as confirmed by the CIT(A), during the course of assessment proceedings under 263 directions, the Assessing Officer issued notices u/s 133(6) of the Act to six sundry creditors seeking explanation in respect of credit balance of Rs.49,22,777/-. According to Assessing Officer, all the creditors except one complied to the notices u/s 133(6) of the Act. Further, he observed that M/s Ramkrishna Hardware, M/s. Sovabazar Paints admitted that there was no credit sale to assessee. The compliance of other parties were not at par with the assessee’s statement. Considering the above, the Assessing Officer added an amount of Rs.40,93,300/- treating the same as bogus purchases involving six parties which are as under:
Sl. No. Name of the party amount reflected Amount declared Amount of in assessee’s a/c by the party (Rs.) mismatch (Rs.) (Rs.) 1 RamKrishna 8,83,303/- Nil 8,83,303/- Hardware 2 Sovabazar Paints 6,57,000/- No credit sale 6,57,000/- 3 Kundan Shaw 7,96,675/- 5,50,542/- 2,46,133/- Mill 4 Sanjanivani 7,28,209/- Not traceable 7,28,209/- Impex 5 R. Shantilal & 8,52,085/- Cash sales took 8,52,085/- Co. place of Rs.35117/- 6 Create 10,05,504/- 2,78,928/- 7,26,576/-
The assessee challenged the same before the CIT(A). Before the CIT(A), it was contended by the assessee that the Assessing Officer did not grant opportunity of cross-examination of said creditors and placed reliance on case laws in respect of such M/s J. K. Enterprise Assessment Year: 2010-11 argument. The CIT(A) considering the submissions held when there is no statement recorded u/s 131 of the Act, no opportunity of cross- examination is required, and he confirmed the view of the Assessing Officer by taking into consideration the Inquiry Report as conducted by the Inspector of the Department. The relevant portion of which is reproduced hereinbelow: “I have perused the case laws. Third case law relates to proceedings under Criminal Penal Code in a criminal matter. First 2 case laws relate to I.T. proceedings but these are in respect of statement recorded u/s 131 of the Income Tax Act, 1961. However, in assessee’s case statements has not been recorded u/s 131 of the Income Tax Act, 1961. So far as fresh enquiry is concerned, it is mentioned that the Inspector had made the inquiry and the suppliers had confirmed their replies given in response to notice u/s 133(6) of the Income Tax Act, 1961. Hence, this ground of appeal is dismissed.”
6. Heard both sides and perused the materials available on record. Before us, the ld. AR submits that the assessee produced all the details in original assessment proceedings in respect of the parties. Further, during the regular assessment proceedings, the assessee produced books of accounts, bills, challans and all other documents in respect of purchases made from the specified vendors as reflected in chart in the assessment order. The Assessing Officer while examining the record, due to the mismatch of figures of M/s R. Shantilal & Co. and M/s Create, an amount aggregating to Rs.15,78,661/- was disallowed as bogus purchases. The ld. AR further pointed out to Page No.6 of Volume No.2 of Paper Book to show the rate of net profit earned by the assessee for the F.Y 2006-07 up to F.Y 2011-12. Further, he submitted for the year under consideration, the net profit as reported by the assessee is 5.84%.
Having considered the same in order to finalize net profit, we suggested to adopt 8% taking into consideration a net profit rate as reported for F.Y 2011-12. The ld. AR fairly agreed for the same proposition. The ld. DR vehemently opposed the same and supported the order of the authorities below. On perusal of the assessment
M/s J. K. Enterprise Assessment Year: 2010-11 order as confirmed by the CIT(A), it is noted that the Assessing Officer made additions treating the purchases from the six parties as bogus which is reflected in Page No.2 of the Assessment order. The Assessing Officer on examination of the replies filed by the said parties opined that the parties admitted that no credit sale was made to the assessee and the said replies are not at par with the submissions of the assessee. In our opinion, having observed the said purchases as bogus purchases, the Assessing Officer could not make additions u/s 68 of the Act as the requirement u/s 68 of the Act is that there should be cash credit in the books of accounts. When the purchases are held as bogus the corresponding sale is also to be treated as bogus or in the alternative we have to conclude that the purchases have taken place and it was only these goods which were purchased that were sold. So only net profit can be brought to tax. Therefore, we deem it proper to adopt net profit at 8% on analyzing the net profit rates as submitted by the assessee at Page No.6 of Paper Book Volume No.2 from F.Y. 2006-07 to F.Y 2011-12 and accordingly, the Assessing Officer is directed to compute net profit at 8% and pass order accordingly. Thus, order of CIT(A) is set aside and ground raised by the assessee is allowed for statistical purposes.
In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open court on 11.01.2019.