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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI SHAMIM YAHYA, AM & SHRI RAM LAL NEGI, JM
सुनवाई क� तार�ख / : 10.01.2018 Date of Hearing घोषणा क� तार�ख / : 01.03.2018 Date of Pronouncement आदेश / O R D E R Per Shamim Yahya, A. M.: This appeal by the assessee is directed against the order by the Commissioner of Income Tax (Appeals) dated 08.03.2016 and pertains to the assessment year 2003- 04.
The grounds of appeal read as under: 1. On the facts and in the circumstances of the case and in the law the Learned Commissioner of Income Tax (Appeals) has erred in confirming the (A.Y. 2003-04) M/s. Basudev Kumar Sanghai (HUF) addition of income of Rs. 67,95,9107- by way of estimation of income @ 10% of sales by rejecting the verification of the additional evidence despite of the direction of the ITAT to examine the additional evidence.
2. The learned CIT(A) failed to appreciate the fact that: a. The explanation of the type of the finished goods which has resulted in the lowering of the profitability cannot be termed as additional evidence. b. The said explanation was accepted by the then CIT(A) while passing the order. c. Mere acceptance made by AR before the Bench of ITAT does not make the said explanation an additional evidence. d. The mandate of the ITAT "deciding it afresh on relevant considerations after complying with the mandate of Rule 46A of the Income Tax Rules" was not followed by the CIT(A) by rejecting the additional evidence.
3. Thus the appellant therefore prays that the non verification of the evidence and reversing the earlier order by the then CIT(A) is bad at law and the earlier CIT(A) order may please be restored.
In this case, during the course of original assessment, the Assessing Officer observed that the gross profit shown by the assessee for the current year was only 7.67% and in the preceding year the same was 10.21%. On the assessee’s explanation, regarding the fall in GP, the Assessing Officer was not convinced. The Assessing Officer made random verification of purchases and issued notices u/s. 133(6) of the Act to about 13 parties, out of which notices of five parties have come back. The Assessing Officer asked the assessee to provide the complete address of the parties, which the assessee failed to do so.
Upon the assessee’s appeal, the ld. Commissioner of Income Tax (Appeals) decided the issue in favour of the assessee accepting the explanation that fall in GP was due to the assessee’s venture into a new product. Upon the Revenue’s appeal, the (A.Y. 2003-04) M/s. Basudev Kumar Sanghai (HUF) ITAT remanded the matter to the Assessing Officer by observing that the issue of launch of new product was considered by the ld. Commissioner of Income Tax (Appeals) as additional evidence and, hence, there was a violation of Rule 46A. In the remand proceedings, the Assessing Officer continued with the addition and the ld. Commissioner of Income Tax (Appeals) granted part relief.
We may gainfully refer to the operating part of the ld. Commissioner of Income Tax (Appeals)’s order as under:
The assessee is in the business of printing saree and selling the same to wholesale business. During the course of assessment proceedings, various discrepancies were pointed out by the AO which led to the rejection of books of account u/s.145(3) of the I.T.Act, 1961 ana thereby estimating the profit at 12% of the sales. The assessee filed the appeal against this assessment order which was allowed by the CIT(A). The revenue filed an appeal with the ITAT which has restored the matter to the file of the AO for giving an opportunity to the AO under Rule 46A with regard to additional evidences filed. The assessee's AR has admitted in the ITAT that the fact of venturing into the block print of saree is additional evidence which was brought to the notice of the CIT(A) for the first time. The matter was remanded to the AO. The AO in his remand report has objected to the filing of additional evidence and requested to uphold the assessment order. However, the additional evidence being crucial to decide the case, is admitted The assessee averred that there is no additional evidence filed and it was only a clarification which is not correct. The information furnished by the assessee is clearly in the nature of additional evidence. 3.3.3. In view of the various enquiries made by the AO, discrepancies pointed out and the assessee's inability to explain the discrepancies satisfactorily, the AO is right in rejecting the books of accounts and estimating the profit. During the assessment year, the assessee has shown GP of 7.98% as against the G.P of 10.21% shown in the earlier year. The AO has estimated at 12% which appears to be very high. The average GP of the appellant over a period of 10 years
(A.Y. 2003-04) M/s. Basudev Kumar Sanghai (HUF) works out to around 9%. It has been fluctuating from 6% to 10%. Therefore, to meet the ends of justice, it is felt that a GP estimate of 10% of the sales will be reasonable. The AO is directed to estimate the GP at 10% of the sales and give consequential relief to the appellant.
Against the above order, the assessee is in appeal before us.
We have heard both the counsel and perused the records. Upon careful consideration and carefully examining the facts of the case, we note that basically this is the case of the bogus purchase where the Assessing Officer has elaborately brought on record that purchases are not verifiable. In the absence of the lack of verification of purchase and the return of notices issued to the creditors/sellers u/s.133(6) of the Act books were rejected and the addition in this case was originally made. In our considered opinion, on the facts and circumstances of this case, instead of rejection of books, disallowance for bogus purchase needs to be considered. We find that it is incumbent upon the assessee to provide necessary details of purchases for verification thereof. In the present case, we find that the facts of the case indicate that notices to the seller was returned unserved and complete details of the sellers have not been provided.
In these circumstances, the learned Departmental Representative has referred to Hon’ble Gujarat High Court decision in the case of Tax Appeal No. 240 of 2003 in the case of N K Industries vs. Dy. CIT vide order dated 20.06.2016, wherein 100% of the bogus purchases was held to be added in the hands of the assessee and tribunals restriction of the addition to 25% of the bogus purchases was set aside. It was (A.Y. 2003-04) M/s. Basudev Kumar Sanghai (HUF) expounded that when purchase bills have been found to be bogus, 100% disallowance was required. The special leave petition against this order along with others has been dismissed by the Hon’ble Apex Court vide order dated 16.1.2017.
We further note that Hon’ble Rajasthan high court has similarly taken note of decisions of the apex court on the issue of bogus purchases in the case of CIT Jaipur vs Shruti Gems in of 2009. The Hon’ble High Court has referred to the decision of CIT Jaipur vs. Aditya Gems, D. B. in ITA No. 234 of 2008 dated 02.11.2016, wherein the Hon’ble Court had inter alia held as under:
"Considering the law declared by the Supreme Court in the case of Vijay Proteins Ltd. Vs. Commissioner of Income Tax, Special Leave to Appeal (C) No.8956/2015 decided on 06.04.2015 whereby the Supreme Court has dismissed the SLP confirmed the order dated 09.12.2014 passed by the Gujarat High Court and other decisions of the High Court of Gujarat in the case of Sanjay Oilcake Industries Vs. Commissioner of Income Tax (2009) 316 ITR 274 (Guj) and N.K. Industries Ltd. Vs. Dy. C.I.T., Tax Appeal No.240/2003 decided on 20.06.2016, the parties are bound by the principle of law pronounced in the aforesaid three judgments.
We find that in this case the sales have not been doubted. It is settled law that when sales are not doubted, 100% disallowance for bogus purchase cannot be done.
This proposition is supported from Hon’ble jurisdictional High Court decision in the case of Nikunj Eximp Enterprises (in writ petition no 2860, order dt. 18.6.2014).
However, the facts of the present case indicate that assessee has made purchase from the grey market. Making purchases through the grey market gives the assessee savings on account of non-payment of tax and others at the expense of the exchequer. In such situation, in our considered opinion, on the facts and circumstances of the case the (A.Y. 2003-04) M/s. Basudev Kumar Sanghai (HUF) 12.5% disallowance out of the bogus purchases meets the ends of justice. This is following the decision of the Hon’ble Gujarat High Court in the case of Simit P. Sheth (2013) 356 ITR 451, followed by the ITAT Mumbai Benches in a number of cases. Accordingly, we modify the order of the ld. Commissioner of Income Tax (Appeals) and hold that disallowance of 12.5% of the bogus purchases would meet the end of justice. The ld. Counsel of the assessee fairly agreed to this proposition.
In the result, this appeal by the assessee stands partly allowed.
Order pronounced in the open court on 01.03.2018 Sd/- Sd/- (Ram Lal Negi) (Shamim Yahya) �या�यक सद�य / Judicial Member लेखा सद�य / Accountant Member मुंबई Mumbai; �दनांक Dated : 01.03.2018 व.�न.स./Roshani, Sr. PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : अपीलाथ� / The Appellant 1. ��यथ� / The Respondent 2. आयकर आयु�त(अपील) / The CIT(A) 3. आयकर आयु�त / CIT - concerned 4. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR, ITAT, Mumbai 5. गाड� फाईल / Guard File 6. आदेशानुसार/ BY ORDER,