Loading judgment…
Facts
The assessee, a manufacturer, filed its return for AY 2009-10. Based on intelligence regarding bogus purchases amounting to Rs.31,43,752/-, the AO initiated reassessment proceedings and added Rs.31,42,752/- for bogus purchases, which was upheld by the CIT(A).
Held
The Tribunal, referring to its previous decision for AY 2011-12 where a 12.5% profit on disputed purchases was considered adequate, noted that the assessee's declared GP rate of 18.63% for AY 2009-10 was higher than the accepted rate in the earlier year. Thus, no further addition was justified, and the disallowance of Rs.31,42,752/- was directed to be deleted. The grounds related to reassessment validity were rendered academic.
Key Issues
1. Whether the reassessment proceedings initiated under section 147 and the assessment order passed under section 143(3) read with section 147 were valid. 2. Whether the Ld. CIT(A) erred in confirming the addition for 'bogus purchases'.
Sections Cited
147, 143(3), 148
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI BENCH “D” MUMBAI
Before: SHRI OM PRAKASH KANT & SHRI SUNIL KUMAR SINGH
This appeal has been preferred by the assessee against order dated 11.12.2023 passed by the Ld. Commissioner of Income-tax (Appeals) – National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2009-10, raising following grounds:
On the facts and in the circumstances of the case and in law, On the facts and in the circumstances of the case and in law, On the facts and in the circumstances of the case and in law, the proceedings initiated u/s 147 of the act is invalid and bad the proceedings initiated u/s 147 of the act is invalid and bad the proceedings initiated u/s 147 of the act is invalid and bad in law. in law.
On the facts and in the circumstances of the case and in law, On the facts and in the circumstances of the case and in law, On the facts and in the circumstances of the case and in law, the order passed u/s 143(3) r.w.s. 147 of the act is invalid and the order passed u/s 143(3) r.w.s. 147 of the act is invalid and the order passed u/s 143(3) r.w.s. 147 of the act is invalid and bad in law. bad in law.
On the facts and in the circumstances of the case and in law On the facts and in the circumstances of the case and in law On the facts and in the circumstances of the case and in law the learned CIT(A) erred in confirming the action of th the learned CIT(A) erred in confirming the action of th the learned CIT(A) erred in confirming the action of the learned A.O. in making an addition of an amount of Rs.31,41,752/ A.O. in making an addition of an amount of Rs.31,41,752/ A.O. in making an addition of an amount of Rs.31,41,752/- as 'Bogus purchase'. 'Bogus purchase'. 2. Briefly stated, facts of the case are that the assessee is a Briefly stated, facts of the case are that the assessee is a Briefly stated, facts of the case are that the assessee is a manufacturer of industrial furnace and its controlling systems. For manufacturer of industrial furnace and its controlling systems. For manufacturer of industrial furnace and its controlling systems. For the year under consideration, the a the year under consideration, the assessee filed return of income on ssessee filed return of income on 29.09.2009 declaring total income at Rs.11,68,751/-. In view of 29.09.2009 declaring total income at Rs.11,68,751/ 29.09.2009 declaring total income at Rs.11,68,751/ information received from the Director General of Income-tax information received from the Director General of Income information received from the Director General of Income (Investigation), Mumbai that the assessee had obtained bogus (Investigation), Mumbai that the assessee had obtained bogus (Investigation), Mumbai that the assessee had obtained bogus purchases bills amounting to Rs.31,4 purchases bills amounting to Rs.31,43,752/- from 8 parties, t from 8 parties, the Assessing Officer recorded reasons to believe that income escaped Assessing Officer recorded reasons to believe that income escaped Assessing Officer recorded reasons to believe that income escaped assessment and issued notice u/s 148 of the Income-tax Act, 1961 assessment and issued notice u/s 148 of the Income assessment and issued notice u/s 148 of the Income (in short ‘the Act’), which was , which was duly served upon the assessee. In the on the assessee. In the assessment order passed u/s assessment order passed u/s 147 r.w.s. 143(3) of the Act, t s. 143(3) of the Act, the Assessing Officer added Assessing Officer added total amount of allege bogus purchase total amount of allege bogus purchases amounting to Rs.31,42,752/ amounting to Rs.31,42,752/-.
3. On further appeal, the Ld. CIT(A) also upheld the disallowance On further appeal, the Ld. CIT(A) also upheld the disallowance On further appeal, the Ld. CIT(A) also upheld the disallowance relying on the decision relying on the decisions referred in the impugned order. referred in the impugned order.
We have heard rival submission of the parties and perused the e have heard rival submission of the parties and perused the e have heard rival submission of the parties and perused the relevant material on record. We find that in the case of the assessee relevant material on record. We find that in the case of the assessee relevant material on record. We find that in the case of the assessee in assessment year 2011 in assessment year 2011-12 identical issue of bogus purchases 12 identical issue of bogus purchases from sales tax tainted dealers (i.e. hawala dealers) has been decided from sales tax tainted dealers (i.e. hawala dealers) has been d from sales tax tainted dealers (i.e. hawala dealers) has been d observing as under:
“5.3. We find that though the assessee appeared to have made 5.3. We find that though the assessee appeared to have made 5.3. We find that though the assessee appeared to have made purchases from two tainted dealers as detailed supra, those purchases purchases from two tainted dealers as detailed supra, those purchases purchases from two tainted dealers as detailed supra, those purchases have been duly recorded in the stock register maintained by the have been duly recorded in the stock register maintained by the have been duly recorded in the stock register maintained by the assessee which has been submitted assessee which has been submitted before the lower authorities. These before the lower authorities. These materials have been duly consumed by the assessee in the materials have been duly consumed by the assessee in the materials have been duly consumed by the assessee in the manufacturing process. Pursuant to the said consumption, the finished manufacturing process. Pursuant to the said consumption, the finished manufacturing process. Pursuant to the said consumption, the finished product has been produced and sale of those finished goods have also product has been produced and sale of those finished goods have also product has been produced and sale of those finished goods have also been made by the assesse been made by the assessee in the instant case. We find that the ld. AO e in the instant case. We find that the ld. AO had absolutely not disputed the quantitative details submitted by the had absolutely not disputed the quantitative details submitted by the had absolutely not disputed the quantitative details submitted by the assessee in respect of opening stock purchases, consumption, closing assessee in respect of opening stock purchases, consumption, closing assessee in respect of opening stock purchases, consumption, closing stock of raw materials and production of finished goods, sale of finis stock of raw materials and production of finished goods, sale of finis stock of raw materials and production of finished goods, sale of finished goods and closing stock of finished goods while completing the goods and closing stock of finished goods while completing the goods and closing stock of finished goods while completing the assessment. We also find that the consumption details and sales assessment. We also find that the consumption details and sales assessment. We also find that the consumption details and sales reported by the assessee have been accepted by the lower authorities. reported by the assessee have been accepted by the lower authorities. reported by the assessee have been accepted by the lower authorities. Hence, it would be totally unfair to add 100% value of Hence, it would be totally unfair to add 100% value of Hence, it would be totally unfair to add 100% value of purchases. However, the assessee could not prove the genuineness of the However, the assessee could not prove the genuineness of the However, the assessee could not prove the genuineness of the purchases beyond reasonable doubt by producing those suppliers purchases beyond reasonable doubt by producing those suppliers purchases beyond reasonable doubt by producing those suppliers before the ld. AO. In these type of cases, it would be just and fair that before the ld. AO. In these type of cases, it would be just and fair that before the ld. AO. In these type of cases, it would be just and fair that only the profit element embedded in the value o only the profit element embedded in the value of such tainted purchases f such tainted purchases be brought to tax. But we find from page 43 of the paper book filed by be brought to tax. But we find from page 43 of the paper book filed by be brought to tax. But we find from page 43 of the paper book filed by the assessee containing GP chart that assessee had reported the the assessee containing GP chart that assessee had reported the the assessee containing GP chart that assessee had reported the following GP in the past years as under: following GP in the past years as under:- A.Y. GP% 2007-08 18.99% 2008-09 18.21% 2009-10 18.63% 2010-11 15.92% 2011-12 18.06% 5.4. We find that this Tribunal has been consistently holding that profit 5.4. We find that this Tribunal has been consistently holding that profit 5.4. We find that this Tribunal has been consistently holding that profit percentage of 12.5% on the value of disputed purchases would meet the percentage of 12.5% on the value of disputed purchases would meet the percentage of 12.5% on the value of disputed purchases would meet the ends of justice. Since in the instant case, the profit declared by the ends of justice. Since in the instant case, the profit declared by the ends of justice. Since in the instant case, the profit declared by the assessee itself is much more than 12.5%, we hold that no further ssessee itself is much more than 12.5%, we hold that no further ssessee itself is much more than 12.5%, we hold that no further addition is required to be made in the peculiar facts and circumstances addition is required to be made in the peculiar facts and circumstances addition is required to be made in the peculiar facts and circumstances of the instant case. Accordingly, we direct the ld. AO to delete the of the instant case. Accordingly, we direct the ld. AO to delete the of the instant case. Accordingly, we direct the ld. AO to delete the disallowance of Rs.8,89,868/ disallowance of Rs.8,89,868/- made on account of bogus purchases. gus purchases. Accordingly, the ground No.3 raised by the assessee is allowed. Accordingly, the ground No.3 raised by the assessee is allowed. Accordingly, the ground No.3 raised by the assessee is allowed.” 4.1 Before us, the Ld. counsel for the assessee has filed a chart of Before us, the Ld. counsel for the assessee has filed a chart of Before us, the Ld. counsel for the assessee has filed a chart of the comparative gross profit from assessment years 2007-08 to the comparative gross profit from assessment year the comparative gross profit from assessment year 2011-12 which is reproduced as under: 12 which is reproduced as under:
QUARTET THREMAL ENGG CO P LTD COMPARATIVE STATEMENT ACCOUNTING YEAR 2007-08 % 2008-09 % 2009-10 % 2010-11 2010 % 2011-12 SALE OF GOODS 5,27 47,110 4,88,25,663 5,34,43,773 7,31,38,702 7,31,38,702 7,35,08,778 LABOUR CHARGES 12,36,200 7,15,000 8,67,237 5,58,350 5,58,350 5,50,241 5,39,83,310 4,95,40,563 5,43,11,010 7,36,97,052 7,36,97,052 7,40,59,019 OP STOCK 26,35,795 47,74,453 22,23,208 66,23,675 66,23,675 38,30,950 PURCHASES 4,18,55,735 3,48,88.295 4,39,09,683 5,21,51,905 5,21,51,905 5,76,36,680 4,44,91,530 3,96,62,748 4,61,32,891 5.87.75.580 5.87.75.580 6,14,67,630 CLOSING STOCK 47,74,453 22,23,208 66,23,675 38,30,950 38,30,950 95,00,375 CONSUMPTION OF 3,97,17,077 75.30 75.30 3,74,39,540 76.68 3,95,09,216 73.93 5,49,44,630 5,49,44,630 75.12 5,19,67,255 70.70 RAW MATERIALS LABOUR CHARGES 33,56,605 6.22 23,24,932 4.69 37,50,971 6.91 53,83,648 53,83,648 7.31 75,31,300 10.17 TRANSPORT, 6,60,035 1.22 7,56,281 1.53 9,30,872 1.71 16,33,862 16,33,862 2.22 11,81,999 1.60 OCTROI, FREIGHT 4,37,33,717 82.74 82.74 4,05,20,753 82.90 4,41,91,059 82.55 6,19,62,140 6,19,62,140 84.65 6,06,80,554 82.46 Gross Profit 1,02,49,593 18.93 18.93 90,19,910 18.21 1,01,19,951 18.63 1,17,34,912 1,17,34,912 15.92 1,33,78,465 18.06 4.2 On perusal of the above chart, we find that in the year under On perusal of the above chart, we find that in the year under On perusal of the above chart, we find that in the year under consideration the assessee has declared gross profit rate of 18.63% assessee has declared gross profit rate of 18.63%, assessee has declared gross profit rate of 18.63% which being more than the gross profit rate accepted by the which being more than the gross profit rate accepted by the which being more than the gross profit rate accepted by the Tribunal(supra) in the assessment year 2011 in the assessment year 2011-12 i.e. 18.06% 12 i.e. 18.06% therefore, following the above finding of the Tribunal no further therefore, following the above finding of the Tribunal no further therefore, following the above finding of the Tribunal no further addition is justified in the case d in the case of the assessee on the bogus of the assessee on the bogus purchases. Accordingly, we direct the Ld. Assessing Officer to delete purchases. Accordingly, we direct the Ld. Assessing Officer to delete purchases. Accordingly, we direct the Ld. Assessing Officer to delete the disallowance of Rs.31,42,752/ the disallowance of Rs.31,42,752/- made on account of bogus made on account of bogus purchases. The ground No. 3 of the appeal of the assessee is purchases. The ground No. 3 of the appeal of the assessee is purchases. The ground No. 3 of the appeal of the assessee is allowed. Since, we hav allowed. Since, we have already allowed the appeal e already allowed the appeal of the assessee on the merit, therefore, ground No. 1 and 2 of the appeal therefore, ground No. 1 and 2 of the appeal therefore, ground No. 1 and 2 of the appeal challenging the validity of the reassessment are merely rendered challenging the validity of the reassessment are merely rendered challenging the validity of the reassessment are merely rendered academic and therefore, same are left open academic and therefore, same are left open for adjudication for adjudication.
In the result, the app In the result, the appeal of the assessee is allowed. eal of the assessee is allowed.
Order pronounced in the open Court on nounced in the open Court on 23/09/2024. /09/2024.