KANDOI METAL POWDERS MANUFACTRUING COMPANY,JAIPUR vs. DCIT, CC-3, JAIPUR

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”A” JAIPUR Jh lanhi xkslkbZ] U;kf;d lnL; ,oa Jh jkBkSM deys’k t;arHkkbZ] ys[kk lnL; ds le{k BEFORE: SHRI SANDEEP GOSAIN, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;dj vihy la-@ITA. No. 122/JP/2022 fu/kZkj.k o"kZ@Assessment Year : 2012-13 cuke Kandoi Metal Powders Manufacturing DCIT, Company Pvt. Ltd., Vs. Central Circle-3, F-381, 382, Road No. 9F, VKI Area, Jaipur. Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AABCK 0316 R vihykFkhZ@Appellant izR;FkhZ@Respondent

fu/kZkfjrh dh vksj ls@ Assessee by : Sh. S. L. Poddar (Adv.) jktLo dh vksj ls@ Revenue by : Sh. A. S. Nehra (Addl. CIT) a lquokbZ dh rkjh[k@ Date of Hearing : 08/08/2024 mn?kks"k.kk dh rkjh[k@Date of Pronouncement : 01/10/2024 vkns'k@ ORDER PER: RATHOD KAMLESH JAYANTBHAI, AM Captioned assessee aggrieved with the order of the Commissioner of Income Tax (Appeals)-4, Jaipur dated 29/03/2022 [here in after ld. CIT(A) ] for assessment year 2012-13 filed the present appeal. The said order of the ld. CIT(A) arises because the assessee challenged the finding recorded in the order dated 29.12.2019 passed under section 147 r.w.s 143(3) of the Income Tax Act [ for short Act ] by ACIT, Central Circle-03, Jaipur.

2 ITA Nos. 122 /JP/2022 Kandoi Metal Powders Manufacturing Co.

“1. The Learned CIT(A) has erred in sustaining the addition of Rs. 11476762/- on account of gross profit by applying GP Rate of 6% against 4.91% declared by the assessee. Because of unverifiable purchases. 2. Under the facts and circumstances the Learned CIT(A) has erred in sustaining the amount of Rs. 6,88,603/- against an addition of Rs. 31,58,913/- made on account of alleged commission payment. 3. Under the facts and circumstances the Learned (CIT(A) has erred in confirming the action of the Learned AO on account of reopening of assessment by appreciating wrong facts and without making proper enquirers only on the basis of information received. 4. The assessee craves your indulgence to add amend or alter all or any grounds of appeal before or at the time of hearing.”

assessee was decided by the Bench on 15.09.2022 taking into

consideration the judgment of clarity gold rendered by our High

Court decided issue of bogus purchase in the case of CIT(Central),

Jaipur vs. M/s Clarity Gold (P.) Ltd. (100 CCH 0396 Rajasthan

High Court). In that case Hon’ble High Court estimated profit of the

assessee’s case @ 12% of such bogus purchase. Thereafter, the

assessee filed Misc. Application contending that our High Court in

that case while estimating the profit also held that in para 6 that “in

our consider opinion, taking into account, the industry which is

running the business, the addition which have been made on the

3 ITA Nos. 122 /JP/2022 Kandoi Metal Powders Manufacturing Co. basis of GP which has been shown identical industries”. As is

evident that assessee is engaged in the business of metal whereas

the case relied upon was decided by the Hon’ble High Court in the

case of M/s Clarify Gold (P.) Ltd. (Supra) industries was gold.

Therefore, considering that specific mistake apparent on record,

the Misc. Application filed by the assessee was decided on

09.05.2024 and thereby this appeal is decided.

is a private limited company and engaged in the business of

manufacturing of copper wire and other copper related products.

The return in this case was filed on 17.03.2013 declaring a total

income of Rs. Nil. The original assessment was completed u/s

143(3)/153C of the Income Tax Act, 1961 on 26.03.2015. On the

basis of information received and after analyzing the fact related to

escapement of income, the case of the assessee was re-reopened

under section 147 of the Act. The necessary approval of the

Principal Commissioner of Income Tax, (Central), Jaipur was

obtained. Thereafter, the case was reopened u/s. 148 after

recording the reasons for satisfaction and obtaining due approval.

4 ITA Nos. 122 /JP/2022 Kandoi Metal Powders Manufacturing Co. Notice u/s. 148 was issued on 30.03.2019 which was duly served

on the assessee. In response to the statutory notice issued during

the proceedings the assessee efiled the reply.

declaring the income at Rs. Nil as filed originally u/s 139 of the

Income Tax Act, 1961 on 17.03.2013. Thereafter, the assessee

requested for providing copy of reasons recorded for reopening of

the case u/s. 148. The copy of the reasons recorded for issuing

notice u/s. 148 were provided and assessee was required to file

information in response to the notice issued.

authorities. During investigation, it was found that various entities

were indulged in giving and taking non-genuine accommodation

entries in which assessee is one of those beneficiaries which has

taken such entry.

Thus, as per the information received in possession of the

revenue, it was found that the assessee indulged in bogus

purchases for the year under consideration from some bogus

5 ITA Nos. 122 /JP/2022 Kandoi Metal Powders Manufacturing Co.

entities. As per the information, an inquiry was conducted by the

ADIT (Investigation)(Hq-2), New Delhi wherein, it was observed

that the assessee has shown purchases found from M/s. Unnati

Alloys Private Limited and obtained bogus entry in the form of

bogus purchases amounting to Rs. 21,05,94,215/- during the year

under consideration.

Based on these facts, information u/s. 133(6) of the Act was

called from M/s. Unnati Alloys Private Limited to check the veracity

of claim of purchase of the assessee. The AO has called for

following information;

(i) Copy of confirmations of account with M/s. Kandoi Metal Powders Manufacturing Company Private Limited duly certified in their books for FY 2011-12. (ii) Copy of detailed descriptions of the source from where the funds have been received including the Name, PAN and postal address of the source and proof of creditworthiness of the source for AY 2012-13. (iii) Copy of Bank account statement showing receipts of payment against sale of goods to the above party for F. Y. 2011-12. (iv) Copy of sales vouchers.

ledger account of the assessee in its books of account. The

remaining details was not provided and thus AO considered that

the assessee has taken an entry of bogus purchase to reduce its

own tax liability. During the assessment proceedings a show cause

6 ITA Nos. 122 /JP/2022 Kandoi Metal Powders Manufacturing Co. notice dated 13.12.2019 was issued requiring the assessee to

explain as to why the amounts as mentioned in reasons recorded

u/s. 148 should not be added back to the total income of the

assessee on account of unverifiable purchases.

The assessee submitted its reply on 13.12.2019 stating that

the allegation is only based on third-party information gathered by

the investigation wing of the department without any further

verification on the part of the assessing officer. Therefore, no

addition can be made by based on such information. Assessee

also submitted that Hon’ble apex court in a judgment of Odeon

Builder Private Limited held that the third-party information without

further verification cannot be used for making any addition on

account of bogus purchase allegation.

alleged that the assessee indulged in bill shopping from bogus

concern M/s. Unnati Alloys Private Limited. During enquiries it was

found that Moral Alloys Private Limited in an effective period 4

years (FY 2011-12 to 2014-15) has made turnover of Rs. 856

crores in its bank account. As per the information said account was

7 ITA Nos. 122 /JP/2022 Kandoi Metal Powders Manufacturing Co. opened on 23.08.2011 in Axis Bank. The aforesaid company was

incorporated in September 2010 and declared its activity as trading

in metals. The outflows in the said account were exact equivalent

to inflows and on same day. Account exhibited unusual transaction

pattern of high value rounded amount transfer/RTGS credits from

different entities such as listed in the order of the ld. AO. The ld.

AO further observed that in all these entities the out flow in the

account were to the similar entities. A large number of debits to

companies was noticed in the account. After every withdrawal, the

account was left with minimal balance. Though account had

witnessed transactions with entities into the same line of activity,

trend of transactions raised suspicion.

exceptionally high turnover in a short span of time and that too, by

recording to and from transactions with the same group of entities

in similar trend. Movement of funds among the group accounts

pointed to the suspicion that the proceeds might not actually

pertain to the business activities. All these entities have offered

very low income as compared to very high turnover and even the

8 ITA Nos. 122 /JP/2022 Kandoi Metal Powders Manufacturing Co. director of these companies have offered very low income. It is

also observed that the summons were issued and the letter were

sent but no satisfactory replies were received. The ld. AO further

observed that two biggest intermediary entities which transferred

funds to Moral Alloys Private Limited during the FY 2011-12 were

Unnati Alloys Private Limited and Misawa Impex Private Limited,

their bank account statements were analyzed and it was seen that

almost all fund credited in the bank account was transferred further

to other entities on the same day and accounts are left with

minimal balance which strengthens the fact that this is layering of

funds through various accounts.

entities which transferred to Unnati Alloys Private Limited (i.e.

Purchases claimed by them from Unnati Alloys Private Limited or

credits extended by them to Unnati Alloys Private Limited) were

identified and assessee was found to be one of the beneficiaries of

such accommodation entries in the grab of purchase to the extent

of Rs. 21,05,94,215/-. The director of these companies from where

these purchases made has elaborately described the modus

9 ITA Nos. 122 /JP/2022 Kandoi Metal Powders Manufacturing Co. operandi of their business accepting the fact that they are indulged

in issuing bogus bills only against certain commission. This

admission is considered by the AO and concluded that the

purchases recorded by the assessee company is bogus purchases

arranged by the assessee. The ld. AO further concluded that the

assessee not been able to provide the satisfactory explanation for

the show cause notice issued to them. The ld. AO has also relied

upon the various judicial decisions on the issue and based on the

discussion and judicial decision he hold that

a) The primary onus is on the assessee to establish the genuineness of the alleged accommodations entries claimed by it. b) If the investigation done by the department leads to doubt regarding the genuineness of alleged accommodation entries in lieu of bogus purchases, it is incumbent on the assessee to produce the parties along with necessary documents to establish the genuineness of the transaction. c) The purchases have been made from alleged bogus concerns and therefore, it was the duty of the assessee to establish the existence of the concerns which allegedly entered into the said transactions. Therefore, it is the duty of the assessee to satisfy the Assessing Officer regarding the existence of the payee and to establish the genuineness of the payment for business needs.

assessment was completed by making addition of Rs.

10 ITA Nos. 122 /JP/2022 Kandoi Metal Powders Manufacturing Co. 5,26,48,554/- by disallowing 25% out of alleged bogus purchases

and Rs. 31,58,913/- on account of commission paid determining

total income at Rs. 5,58,07,470/-.

preferred an appeal before the ld. CIT(A) who has after

considering the arguments and submission held that the appellant

has declared a GP rate of 2.51% in the F Yr. 2010-11, 4.91% in

the year under consideration, GP rate of 6.10% in the FY 2012-13

and has declared a GP rate of 6.84% in the FY 2013-14. Thus, he

find that though there is an increase in GP rate in the year under

consideration as compared to previous year but there is substantial

decline in the turnover in the year under consideration than the

previous years. It is observed that in the subsequent years the

appellant has declared consistently higher GP. Thus, in such a

case, once the provisions of section 145 were invoked, the best

course of action would be to apply GP ratio and confirm certain

percentage of sales to cover any leakage of revenue. Therefore,

the AO is directed to apply a GP rate of 6% on the total turnover of

Rs. 1,05,29,10,586/ to cover any possible leakage of revenue on

11 ITA Nos. 122 /JP/2022 Kandoi Metal Powders Manufacturing Co. account of bogus purchases which works out to Rs. 6,31,74,635/-.

Since the appellant has already declared Rs. 5,16,97,909/- as the

GP for the year under consideration, therefore addition to the

extent of Rs. 1,14,76,726/- is sustained and the appellant gets a

relief of Rs. 4,11,71,827/-. As regards the second addition he has

based on the reduction in GP rate relief also granted relief on

account of alleged commission from Rs. 31,58,913/- to 6,88,603/-.

the assessing officer and vehemently argued that the assessee is

engaged in the bogus purchases and thereby inflating their

purchase and thereby reducing the profit. The ld. DR further draw

our attention to the findings of the AO recorded at para 7 of his

order, wherein he has discussed various aspect and investigation

done what is the bogus circulating transaction done by the parties

from where the assessee has also done the purchase transactions.

The ld. DR drawn our attention that during the assessment

proceeding the ld. AO pointed certain questions to the party from

whom the purchases were made, same were not replied and only

confirmation was filed. Thus, the assessee failed to substantiate

12 ITA Nos. 122 /JP/2022 Kandoi Metal Powders Manufacturing Co. the figures of their purchases alleged to have been paid from the

bogus suppliers and submitted that the assessee is engaged in the

bill shopping only. In support of estimation of profit @ 25 % ld. DR

relied upon the decision of M/s. Vijay Protein wherein also the

issue of bogus purchase was involved and in that case profit

estimated @ 25 %. Thus, he supported the addition made by the

AO @ 25 % of purchase. The ld. DR also draw our attention to the

findings recorded by the AO that how the exact credit and debit

transactions recorded in the parties from where these purchases

are accounted. He has also drawn our attention to the findings that

all these companies have high volume of turnover and very low

income for taxation. The ld. DR also supported various legal

decision cited by the ld. AO while making the assessment and he

has submitted that the AO has instead of adding 100 % purchases

as non-genuine only added a justified percentage of 25 %. In last

the ld. DR has relied on the recent judgment of the M/s. Clarity

Gold in ITA No. 125/2014 delivered by the jurisdictional high court

to support his arguments. The ld. DR also relied upon the findings

of the following cases laws • [2015] 58 taxmann.com 44 (Gujarat) (09-12-2014) Vijay Proteins Ltd. Vs. Commissioner of Income-tax

13 ITA Nos. 122 /JP/2022 Kandoi Metal Powders Manufacturing Co. • [2002] 125 TAXMAN 763 (RAJ.) Indian Woollen Carpet Factory Vs. Income-tax Appellate Tribunal. • [2018] 99 taxmann.com 47 (SC) (09-12-2014) Commissioner of Income-tax Vs. Clarity Gold (P.) Ltd. • [1997] 92 TAXMAN 356 (RAJ.) Commissioner of Income-tax Vs. Golcha Properties (P.) LTD.

confirming an addition of Rs.1,14,76,726/- and sustaining

commission @ 6 % on this sustained addition of Rs. 1,14,76,726/-

for an amount of Rs. 6,88,603/-. The ld. AR of the assessee has

submitted following written submission against the grounds raised

by the assessee:

“The above matter was recalled because the profit rate applied by Hon'ble Bench in ITAT Order dated 15.09.2022 was of jewelry trade as per Hon'ble Rajasthan High Court Order in the case of M/s Clarity Gold Pvt. Ltd. in DB Income Tax Appeal No. 125/2014 order dated 19.09.2017. In this High Court order it was observed by the Hon'ble High Court that the GP Rate shown by identical industry should be applied.

The assessee company is engaged in the manufacturing and trading of Copper Wires and Other Copper Items. Therefore, the rate of identical industry should be applied. In the Hon'ble Rajasthan High Court Order the GP Rate applied was of the assessee himself average GP Rate. In our case the GP Rate chart is as under :-

14 ITA Nos. 122 /JP/2022 Kandoi Metal Powders Manufacturing Co.

In the year under consideration the assessee has declared 4.91% GP on increased turnover. Therefore, there is no question of other addition. If we go by the industry then we have collected data's for the following assessee which are in the same trade :-

Therefore, you are requested to decide accordingly and oblige.”

authorised representative supported the order of the learned CIT –

A for deletion of addition and further submitted that even the

additions confirmed by the learned CIT – A cannot be sustained in

view of the fact that the purchase are genuine and the ld. AO

treated genuine purchases as non-genuine simply on suspicion

doubts and conjectures. The assessee has furnished PAN,

address, bills were filed before the assessing officer. The assessee

is subjected to excise duty and all are records mentioning all the

inwards and outwards with the quantitate records. Thus, the

allegation made by the department are far from the truth. The ld.

AR of the assessee submitted that even the addition sustained by

the ld. CIT(A) is required to be deleted as copy of the relied upon

documents were not supplied to the assessee. He has relied upon

15 ITA Nos. 122 /JP/2022 Kandoi Metal Powders Manufacturing Co. various judgments to drive home to the various aspects of

arguments raised by him. The learned authorised representative

took us to the finding paragraph of the order of the ld. CIT(A).

Relying on that finding he submitted that the assessee has

declared a GP rate of 2.51 % in the F. Y. 2010-11, 4.91 % in the

year under consideration the GP rate is 6.10 % in the FY 2012-13

a GP rate of 6.84 %. Thus, the ld. CIT(A) find that there is an

improvement of GP in the results declared by assessee supported

by audited accounts. Based on the GP being in the range of 6 %

the ld. CIT(A) has arbitrarily adopted GP @ 6 % which also not

correct, and the AO should be directed to accept the book results.

He further referred to the finding of ld. CIT(A) wherein he stated

that when the books are rejected and provision of section 145 is

invoked, the best course of action is to apply the GP ratio and

confirm certain percentage of sales to cover up any leakage of

revenue. The profit declared in the year under consideration is

higher than the previous year and the same should be accepted as

the assessee has shown better results. He therefore submitted

that to that extent i.e. in deleting addition of CIT(A) is proper but

while estimating the GP the ld. CIT(A) has made mere guess work

16 ITA Nos. 122 /JP/2022 Kandoi Metal Powders Manufacturing Co. and confirmed the addition at another estimate only ignoring the

book results.

material available on record and also gone through the findings of

the lower authorities recorded in their respective orders. We have

also gone through the various judicial ruling placed before us by

both the parties to drive home to their contentions. The bench

noted that against the allegation made by the revenue the

assessee has not demonstrated that the contentions of the

department can be put a side. He has even in the reassessment

proceeding remained silent and has not made any effort to revert

the contentions raised by the revenue. The fact of the case shows

that during reopened assessment for reasons that assessee has

purchases of Rs 21,05,94,215/– as part of bogus purchases the

parties are in appeal before us. Therefore, now the question arises

that what is the amount of income earned by the assessee out of

the bogus purchases arising out of the circular trading. We do not

have any hesitation in confirming the action of the learned CIT – A

in stating that the 25 % of the purchases cannot be added in the

17 ITA Nos. 122 /JP/2022 Kandoi Metal Powders Manufacturing Co.

hands of the assessee. But now, the question arises is that how

much income is to be imputed and in what manner.

honourable jurisdictional High Court in the case of Clarity Gold (P)

Ltd in ITA No. 125/2014 where in the court has held that:

Judgment wherein the High court stated that while estimating the

gross profit the industry gross profit which is running the business

and that gross profit shown by the comparable cases should be

considered. Considering that aspect of the matter, ld. AR of the

assessee filed comparable cases with evidence of following cases.

highest gross profit is 4.37 % as against the assessee has

18 ITA Nos. 122 /JP/2022 Kandoi Metal Powders Manufacturing Co. declared profit @ 4.91 % which is higher than the comparable

cases. As against this information filed by the assessee revenue

did not brought any cases having higher profit we direct the ld. AO

to adopt 5 % as gross profit to end justice in the matter. While

holding so we have respectfully followed the finding of our high

court taking the industry comparable profit in the case of Clarity

Gold (Supra) and direct the ld. AO to adopt the Gross Profit @ 5%.

As the assessee has already disclosed Gross Profit @ 4.91%

balance gross profit to be add @ 0.09% and determine the Income

accordingly.

In the result, the appeal of the assessee is partly allowed.

Order pronounced in the open Court on 01/10/2024.

Sd/- Sd/- ¼ lanhi xkslkbZ ½ ¼ jkBkSM deys’k t;arHkkbZ ½ (Sandeep Gosain) (Rathod Kamlesh Jayantbhai) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 01/10/2024 *Ganesh Kumar, Sr. PS आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू vihykFkhZ@The Appellant- Kandoi Metal Powders Manufacturing 1. Company, Jaipur. izR;FkhZ@ The Respondent- DCIT, Central Circle-3, Jaipur. 2.

19 ITA Nos. 122 /JP/2022 Kandoi Metal Powders Manufacturing Co. vk;dj vk;qDr@ CIT 3. 4. vk;dj vk;qDr@ CIT(A) 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत. 6. xkMZ QkbZy@ Guard File { ITA No. 122/JP/2022} vkns'kkuqlkj@ By order, सहायक पंजीकार@Aेेज. त्महपेजतंत