ACIT, CIRCLE-4, JALANDHAR, C.R. BUILDING, CIVIL LINES, JALANDHAR vs. SH. JATINDER GUPTA, JALANDHAR

The Ld. AR advanced vehement arguments assailing impugned additions and referred to financial statements and other documents of the assessee. Reference has been made to various case laws to support the case of the assessee. The Ld. CIT-DR also advanced arguments and supported the assessment order of Ld. AO. Having heard rival submissions and upon perusal of case records as well as case laws, our adjudication would be as under. Assessment Proceedings 3.1 The assessee being resident individual is stated to be engaged in trading of molasses in its proprietorship concern M/s Mahajan Molasses Co. The assessee filed return of income at Rs.23.46 Lacs which was subjected to scrutiny u/s 143(3) on 16-12-2016. However, the case was reopened pursuant to receipt of information from ITO- 4(3), Abohar assessing another entity i.e., M/s Modern Sales Corporation that the assessee made bogus purchase of Naku / Rice Bran from that entity for Rs.316.58 Lacs. Accordingly, notice u/s 148 was issued on 27-07-2022 which was followed by notices u/s 142(1) requiring the assessee to substantiate the purchases made from M/s Modern Sales Corporation. 3.2 To bolster the allegation, Ld. AO referred to the statement of Shri Avinash Chander Prop. of M/s Modern Sales Corporation which was recorded u/s 131 on 26-12-2016 wherein he admitted to have provided entries of bogus sales and purchases to various beneficiaries including the assessee. On the basis of the same, it was alleged by Ld. AO that the purchases made by the assessee were nothing but bogus purchases. 3.3 The assessee furnished financial statements and copies of bills etc. However, going by the statement of Shri Avinash Chander, the amount of Rs.316.58 Lacs was added to the income of the assessee and the assessment was framed. Appellate Proceedings 4.1 The assessee field detailed written submission to assail the stand of Ld. AO. The assessee pointed out that assessee’s books of account were duly audited. The details of creditors, sales, debtors and quantitative stock details were duly verified in scrutiny proceedings u/s 143(3) and full disclosure was made by the assessee. The assessee furnished purchase bills with goods carriage receipt evidencing delivery of goods. The bills duly reflect quantity purchased, rate, details of goods carriage, truck number, date, transporter’s name and other details. The assessee also furnished VAT returns wherein these purchases were duly disclosed in VAT returns and accepted as such. The quantitative details of stock as well as bank statements evidencing payment through banking channels were also furnished. The assessee also furnished confirmed ledger of M/s Modern Sales Corporation. It was explained that most of the goods were directly dispatched to the customers who confirmed the transactions. 4.2 It was further stated that the assessee was having regular dealing with M/s Modern Sales Corporation whereas entire addition was made merely on the basis of statement of Mr. Avinash Chander. However, during search / survey on that party, no supporting documents were found substantiating allegation of bogus purchases by the assessee. Further, no opportunity of cross examination was provided to the assessee despite the request of the assessee and thus, violating the principles of natural justice. Therefore, the entire assessment proceedings were without jurisdiction and bad-in-law. The statement of third-party could not be relied upon solely unless there was corroborating evidence to support the same. Pertinently, the assessee made aggregate purchases of Rs.63.28 Crores during this year which was finally sold and VAT was paid on such sales. Without actual purchase of material, no sale could be possible. The quantitative details were duly reflected in the audit report and no discrepancy was pointed out in the same. The assessee also drew attention to the fact that an assessment was framed by VAT authorities for this year accepting the sale and purchases as declared by the assessee. Accordingly, the assessee made out a case that the impugned purchases were genuine and no disallowance could be made in the hands of the assessee in terms of various judicial decisions. 4.3 The assessee also tabulated that the Gross Profit (GP) rate in this year was 6.71% which was better than GP rate of 5.31% in immediately preceding year. Similarly, the Net Profit (NP) rate of 0.27% as reflected in this year was much better than NP rate of 0.20% in immediately preceding year. 4.4 In the backdrop of factual matrix as put forth by the assessee, Ld. CIT(A) partially concurred with assessee’s submissions and observed that AO did not disturb the sales of the assessee. The assessee maintained all records related to sales and the books were audited as required by law. The VAT returns were accepted by the authorities. The payments to the suppliers were through banking channels. The Ld. AO did not find any fault with quantitative details or stock register of the assessee. The purchases were part of the sale. It was logical that without purchases, there could not be any sales. However, going by general market practices, actual purchases are made from difference parties which gives rise to a situation that though purchase bills may not be genuine but actual purchases to make the sales are not necessarily bogus. In order to prevent leakages of revenue, it would be fair to add 12.5% of impugned purchases to account for profit element. In the result, the addition to the extent of Rs.39.57 Lacs was confirmed and balance addition of Rs.277.01 Lacs was directed to be deleted. Aggrieved, the revenue as well as the assessee is in further appeal before us.