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Income Tax Appellate Tribunal, MUMBAI BENCH “J”, MUMBAI
Before: SHRI C.N. PRASAD, HONBLE & SHRI MANOJ KUMAR AGGARWAL, HONBLE
2 to 1369 & 1610/MUM/2017 M/s. Jitendra Harshadkumar Textiles P.Ltd. O R D E R PER C.N. PRASAD (JM) 1. These appeals are filed by the assessee for the Assessment Years 2006-07, 2008-09 and 2009-10 and by Revenue for the Assessment Year 2008-09 against the common order of the Learned Commissioner of Income Tax (Appeals) -9 Mumbai dated 08.12.2016.
The assessee in its appeals raised the following common ground except for the change in figures: - “(1) Under the facts and the circumstances of the case of your Appellant, the Ld.CIT(A) -9 has erred in confirming the addition of ₹.5,84,527/- made by Ld.A.O. as “unexplained/unproved purchase/investments in purchase” u/s. 69 of I.T.Act, 1961”.
The Revenue has filed cross appeal only for the Assessment Year 2008-09 contending that Ld.CIT(A) erred in directing the Assessing Officer to consider Gross Profit at 1.87% being Gross Profit rate of the assessee for the purchases from Gupta parties without considering the fact that assessee has not been able to prove actual delivery of goods purchased even during the re-assessment proceedings as directed by the Hon'ble ITAT.
The Learned Counsel for the assessee at the outset submits that in all these Assessment Years the purchases made by the assessee from Shri Rakesh Kumar Gupta have been considered as non-genuine based 3 to 1369 & 1610/MUM/2017 M/s. Jitendra Harshadkumar Textiles P.Ltd. on the statement given by the Shri Rakesh Kumar Gupta in the survey proceedings conducted in his premises. The Learned Counsel for the assessee submits that, Rakesh Kumar Gupta has retracted the statement subsequently and therefore in the absence of any corroborative evidence except for the statement by Rakesh Kumar Gupta there is no justification in treating the purchases as non-genuine when the assessee has submitted all the evidences of purchases in the course of assessment proceedings. The Learned Counsel for the assessee referring to Page No.83 to 88 of the Paper Book submits that on similar circumstances the Tribunal in assessee’s own case for the Assessment Year 2007-08 deleted the addition made towards unproved purchases. Learned Counsel for the assessee also submits that in the sister concerns of the assessee the Tribunal deleted similar additions made by the Assessing Officer.
The Ld. DR submits that this is the second round of appeal and in the first round the Tribunal in its common order restored the matter to the file of the Assessing Officer to decide the issue in the light of the observation made by the Tribunal. The Ld. DR invited our attention to Page No.2 of the Assessment Order where the observations of the Tribunal was extracted by the Assessing Officer. Referring to the said observations the Ld. DR submits that matter was restored to the Assessing Officer to prove the genuineness of the purchases and sales, 4 to 1369 & 1610/MUM/2017 M/s. Jitendra Harshadkumar Textiles P.Ltd. supporting material has to be produced to show that the transaction in question are backed by actual delivery. The Ld.DR referring to Para 4.1 of the re-assessment submits that the assessee could not prove the physical delivery of goods as directed by the Tribunal. Ld. DR submits that it is the finding of the Assessing Officer that the purchases and sale of goods was shown on the very same day and the very same pattern was observed by the Assessing Officer on examination of other bills submitted by the assessee and there is absolutely no mention about the mode of delivery of material purchased and sold. Therefore, the Ld. DR vehemently submitted that since the assessee could not prove the delivery of goods the entire purchases have to be treated as bogus purchases and accordingly the Assessing Officer is justified in treating entire purchases as bogus purchases.
We have heard the rival submissions, perused the orders of the authorities below. The Tribunal by common order dated 17.10.2013 for the Assessment Years under consideration restored the issue to the file of the Assessing Officer to prove the genuineness of the purchases and sale transactions and to produce evidences to show that the transaction in question are backed by actual delivery. In the re-assessment proceedings, the assessee expressed its inability to produce any documents regarding the mode of delivery of the material purchased and
The Ld.CIT(A) taking the totality of facts and circumstances into consideration and taking the fact that the addition was made based only on the statement recorded from Shri Rakesh Kumar Gupta who stated that they have only provided accommodation entries which was later retracted the statement by Rakesh Kumar Gupta, concluded that there shall be an addition towards Gross Profit on such purchases and in addition the Ld.CIT(A) estimated the initial investment capital on such purchases at 20% and accordingly estimated the disallowance in all these Assessment Years observing as under:-
5.3.6.2. A.Y. - 2006-07: I have considered the submissions of the AR and finding of the AO. It is seen that the sales are identifiable and quantitative details are available on record. The books of accounts are audited and there is no adverse reference by the auditors. The alleged bogus purchases are based on the statement and the assessment record of third part, the said persons were not available for cross examination nor the material found from the third party was made available to the appellant. It is seen that the addition is made on the basis of statement recorded during the course of survey from Mr. Rakeshkumar Gupta, Mr. Mohnit Gupta and Mrs. Hema Gupta who have admitted that they only gave accommodation entries. The payments were received from the parties by cheque were deposited in bank and encashment the same was returned to the persons minus the commission. Based on above, the addition of Rs.28,72,536/- has been made treating the entire purchases as unexplained. It is observed from the assessment order itself that the appellant must have purchased goods from open market, outside the books of 6 to 1369 & 1610/MUM/2017 M/s. Jitendra Harshadkumar Textiles P.Ltd. account and to cover the said purchases obtained Hawala bills. Therefore, it can be concluded that the appellant has made purchases although these were now disputed one. Therefore, the peak investment outside books of accounts has to be considered and benefit of the same required to be given to the appellant which has not been done by the A.O. In such type of cases where ore party denies making the sales whereas the other parties affirms of having received the good's and of having made the payments by cheques and subsequently having sold the same very items to 3rd parties and booking these sales a income then the entire purchases be added back as unexplained because the appellant has already shown the sale proceed such alleged purchases. In such cases, there always been the legal jurisprudence that if any addition is to be made then it is only on account of GP rate or some adhoc additions. This view is also supported by the case laws Balaji Textiles vs ITO (49 lTD 177) relief by the AR wherein it was held that purchases were made from untraceable parties and assessee made sales to a party which is recorded in the books of both parties, purchases have to be belief and deduction is to be allowed. It is seen that the CF rate is in case of appellant for these purchases comes to around 0.29% therefore it would be reasons to consider the GP @ 0.29% on unrecorded purchases which comes to Rs.8,354/ (i.e. 28,72,536 + 8,330 = 28,80,866). Further, to invest such unexplained purchases the assessee must have invested initial capital which is not recorded in the books hence, it would be reasonable to estimate 20% of Rs.28,80,866/- (28,72,536 + 8,330) total sale proceeds to consider unexplained initial as well as P & L account investment which works out at Rs.5,76,173/ (20% of 28,80,866/-). This amount will serve the purpose because all the cheques issued by the-appellant to the three parties namely Shri. Rakeshkumar Gupta, Mrs. Hema Gupta and Shri. Mohit Gupta have been enchased after in short time. This is also because, the said initial investment must have been re-circulated / rotated in making purchase. Accordingly, the total addition being unexplained investment is Rs.5,76,173/- and GP addition of Rs.8,354/- aggregating to Rs.5,84,527/- is confirmed and the balance of Rs.22,88,009/- (28,72,536 - 8,354) is deleted. This ground is therefore partly allowed.
7 to 1369 & 1610/MUM/2017 M/s. Jitendra Harshadkumar Textiles P.Ltd.
The Ld.CIT(A) made similar calculations for the other two Assessment Years and arrived at the disallowance of ₹.16,09,2010/- and ₹.9,42,434/- for the Assessment Years 2008-09 and 2009-10 respectively. The case law relied on by the Learned Counsel for the assessee in assessee’s own case for the Assessment Year 2007-08 will not help the assessee for the reason that the Coordinate Bench has recorded a finding that for Assessment Year 2007-08 assessee submitted various evidences to show that actual delivery of goods was received by the assessee from the said purchases and this would not have disregarded by the Assessing Officer. In the Assessment Years before us i.e. 2006-07, 2008-09 and 2009-10 the assessee could not produce the necessary evidences to show that there is actual delivery of goods and in fact it is the finding of the Assessing Officer that the assessee expressed inability to produce any documents regarding the mode of delivery of material purchased and sold. The finding of the Assessing Officer is not rebutted with evidences. In the circumstances we cannot follow the order of the Tribunal for the Assessment Year 2007-08 and delete the entire addition of bogus purchases though vehemently relied upon by the Learned Counsel for the assessee.
On a careful reading of the observations of the decision of the Ld.CIT(A) we do not find any valid reason to interfere with the findings and 8 to 1369 & 1610/MUM/2017 M/s. Jitendra Harshadkumar Textiles P.Ltd. decision made by the Ld.CIT(A) in estimating the Gross Profit on such bogus purchases. However, in respect of the percentage adopted by the Ld.CIT(A) towards initial investment of capital on these purchases at 20% is on higher side. Thus, we direct the Assessing Officer to modify this percentage to 10% instead of 20% adopted by the Ld.CIT(A). Except for this percentage there is no infirmity in the order passed by the Ld.CIT(A). In the circumstances the grounds raised by the assessee are partly allowed and grounds raised by the Revenue are dismissed.
In the result the appeals of the assessee are partly allowed and Revenue’s appeal is dismissed.
Order pronounced in the open court on the 20th September, 2017.