DCIT CEN CIR 1(4), MUMBAI vs. TIRUPATI IRON & IMPEX P.LTD, MUMBAI

ITANos.4399-4400,3940-41/Mum/2016 Tirupati Commodities Impex Private Limited Assessment Years 2010-11 & 2011-12 2.2 During assessment proceedings it was noted that the assessee dealt in trading of MS steel pipes, MS joints, RSJ polls angles, channels and TMT bars and its main customers were from telecom infra and power transmissions sectors. It was noted that the assessee obtained bogus purchase bills from a person namely Pramod Kumar Singh and his various concerns without actually buying any goods. The assessee defended the purchases made by him. However, after considering the statements of stated person, other key persons including mediator namely Om Prakash Singh as recorded by the revenue during search / survey proceedings, Ld. AO came to the conclusion that the assessee booked bogus purchases to reduce the profits with a view to evade the taxes. The amount of alleged bogus purchases during the impugned AY was Rs.11,17,60,349/- against which Ld. AO worked out peak credit balance of Rs.7,33,05,306/-. After adjusting the additional income of Rs.25 Lacs offered by the assessee in the return of income, the net addition, thus made, came to Rs.7,08,05,306/-. The Ld. AO made another addition of 1% of these bogus purchases to account for commission paid by the assessee to the mediators to obtain these bogus bills which resulted into another addition of Rs.11,17,603/-.

Aggrieved, the assessee contested the same with partial success before Ld. CIT(A) vide impugned order dated 18/03/2016, where Ld. CIT(A) after considering the factual matrix and various judicial pronouncements restricted the estimated additions to 4.12% of peak purchases and altogether deleted estimated addition on account of commission in the following manner:-

The Ld. Authorised Representative for assessee [AR] pleaded for further relief in the matter whereas Ld. Departmental Representative [DR] pointed out that the factual matrix demands higher additions.

We have carefully heard the rival contentions and perused relevant material on record. We are of the considered opinion that there could be no sale without purchase of material since the assessee was a trading concern. The assessee was in possession of primary purchase documents and the payments were through banking channels. At the same time, the assessee could not produce any of the suppliers before lower authorities and substantiate the delivery of material with cogent ITANos.4399-4400,3940-41/Mum/2016 Tirupati Commodities Impex Private Limited Assessment Years 2010-11 & 2011-12 evidences. Further, the assessee reflected purchases from these entities, all of which were controlled by the same group and the search / survey action clearly revealed that the said group was engaged in providing accommodation bills to the interested person. All these factors cast a serious doubt on assessee’s claim. Therefore, in such a situation, the addition, which could be made, was to account for profit element embedded in these purchase transactions to factorize for profit element earned by assessee against possible purchase of material in the grey market and undue benefit of VAT against alleged bogus purchases, which Ld. CIT(A) has rightly done. However, we find that the assessee had made gross purchases of Rs.11,17,60,349/- from alleged bogus suppliers. The Ld. AO has worked out peak credit balance of Rs.7,33,05,306/- against the same. The Ld. first appellate authority has restricted the addition to 4.12%, being average Gross profit Rate [GP rate] of past three years. This rate, in our opinion, has to be applied on Gross purchases and not on peak purchases. Further, considering the fact that the assessee procured bills from certain mediators and Ld. CIT(A) has deleted the addition on account of estimated commission being paid by the assessee, the normal GP rate of past three years could not be applied as such to the facts of the case. Therefore, after considering totality of facts & nature of assessee’s business, while confirming the reasoning of Ld. CIT(A), we modify the same by estimating the additions @5% of alleged bogus purchases of Rs.11,17,60,349/- which comes to Rs.55,88,017/-. After adjusting the additional income of Rs.25 Lacs offered by the assessee in the return of income, the net additions as sustained by us comes to Rs.30,88,017/-.

Resultantly, the assessee’s appeal stands dismissed whereas revenue’s appeal stands partly allowed in terms of our above order. Cross Appeals for Assessment Year 2011-12 7. The assessee, in AY 2011-12, broadly on similar facts, has reflected income of Rs.1,56,68,990/- in return of income pursuant to notice u/s 153A. The Ld. AO, after due inquiry, noted that the assessee, in this year, made bogus purchases as well as bogus sales amounting to Rs.22,51,72,903/- & Rs.22,56,75,225/- respectively and reflected meager Gross Profit of Rs.5,02,322/- against the same. The Ld. AO estimated the addition on these transactions @6% of alleged bogus purchases which came to Rs.1,35,10,374/-. Since, the assessee had already offered additional income of Rs.1.15 crores in the return of income, the net addition, thus made, came to Rs.20,10,274/-. The Ld. AO has made another addition of 4% to account for wrong VAT credit claimed on the alleged bogus purchases which came to Rs.90,06,916/-. The Ld. CIT(A) has confirmed the addition of Rs.20,10,274/- but deleted estimated addition of Rs.90,06,916/- on account of wrong VAT credit. Aggrieved, the assessee as well as revenue is in further appeal before us with similar arguments. Since the broad facts and circumstances are similar except for minor variations, taking the same stand and keeping in view the meager profit reflected by the assessee against alleged bogus purchase / sale transactions, we confirm the stand of Ld. CIT(A) finding the same to be fair & reasonable.