Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “J” BENCH, MUMBAI
This appeal by the Revenue and Cross Objection by the assessee are arising out of the order of CIT (A)-45, Mumbai in appeal No. CIT (A)-45/ITO.33(3)(4)/ITA- 56/2013-14 dated 20-01-2015. The Assessment was framed by ITO-Ward 33(3)(4), Mumbai for the A.Y. 2010-11 vide order dated 07-03-2013 under section 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).
The only common issue in this appeal of Revenue and the CO of the assessee is against the order of CIT(A) in estimating the profit rate at 8% of bogus purchases added by the AO. For this Revenue has raised following two grounds: -
Mr. Urvish B. Mehta (2010-11) (In CO. 196/Mum/2016) “1. Whether on the facts and in the circumstances of the case and in law the ld. CIT(A) erred in deleting the addition made in respect of bogus purchases especially when CIT(A) has clearly found that the assessee didn’t substantiate the claim of genuine purchases. Besides, the CIT(A) could have made inquiry or directed the AO to conduct inquiry to establish the correct facts in this case, when it is noted that the assessee had completely failed to establish the genuineness of purchase.
2. Whether on facts and in the circumstances of the case and in law the Ld. CIT(A) is erred in determining the profit percentage at the rate of 8% of bogus purchase, while the assessee failed to establish the genuineness of purchase.”
The assessee has also raised following ground: -
“1.1 The learned CIT(A)45, Mumbai – 45, Mumbai, erred in confirming the addition on account of the alleged unexplained expenditure under section 69C of the Income tAx Act, 1961 (“the Act”) as made by the AO, to the extent of Rs. 13,08,843/- of such purchases.
1.2 While doing so, the Ld. CIT(A) failed to appreciate that:
(i) The case of the Appellant did not fall under section 69C of the Act; and (ii) Without prejudice to the above, the Appellant had discharged his onus, if any, under the Act.”
Briefly stated facts are that the assessee is engaged in wholesale business of Iron and Steel Plates under the name and style of M/s Krishna Steel. The Income Tax Department received information from the official website of Sales Tax Department of Government of Maharashtra that various parties are indulging in providing bills without supply of any goods or material on commission basis. According to AO the following parties has supplied goods and assessee has recorded purchase in his books of accounts : -
Mr. Urvish B. Mehta (2010-11) (In CO. 196/Mum/2016)
The AO require the assessee to produce the relevant details of purchases in respect of the above 11 parties. The assessee provided purchase bills. The AO issued notices under section 136 of the Act to the above 11 parties. Either the notices could not be served or return unserved by Postal Authorities with the note ‘None available’. Accordingly, the AO treated these purchases as unexplained / bogus under section 69 of the Act amounting to Rs.63,60,543/- and added to the return of income of the assessee. Aggrieved assessee preferred the appeal before CIT(A). Before CIT(A) assessee contended that complete purchases are supported by proper invoices duly reflected in the books of accounts and the payments have been made by account payee cheque. He also filed confirmation of accounts, sale bills of brokers through whom estimated transactions have taken place and movement of goods. Before CIT(A), assessee contended that the AO has not doubted sale effected vide making corresponding purchases.
Accordingly, the CIT(A) considering the facts of the case estimated the profit rate at 8% on the bogus purchases by observing as under: -: -
“The AO has gone into the issue of suspected bogus purchases by sending 133(6) notices and making field enquiries, but has not found any concrete evidence to doubt the genuineness of the payments being shown by the appellant through the bank account. The AO has also definitely not been able to question the availability of the inventory that has been subsequently used. To that extent, the examination of that aspect has not created any doubt in terms of the purchases. However, as far as the evidence submitted by the appellant is also concerned, the appellant has Page 3 of 6
Mr. Urvish B. Mehta (2010-11) (In CO. 196/Mum/2016) filed his own books, ledger accounts and its own bank statement to further his argument. The fact that the payments are being made through cheques is not something that is being doubted. In fact, that is the contentious issue, that these parties. which are indicated by the Sales Tax Department through a procedure which appears to be technically correct on paper, are in fact engaged in false billing for a fee / commission. The onus of proving the entire transactions to be genuine is definitely on the tax payer, when he is making the claim of purchase and especially in light of the doubt that has been raised by the enquiries conducted by the ax Department, the onus is even more on the tax payer to show far as he is concerned, he has discharged his tax related liabilities accurate manner. So therefore, while on one hand the AO may not d a clinching proof but the primary responsibility which is ensued on the tax payer has also not been discharged in terms of establishing the genuineness of the transaction. Merely filing copies of his own ledger accounts and bank accounts does in no way establish that the parties actually existed, but then considering that tr:e books of accounts have not been disputed, sales have not been disputed arid neither cheques have been shown to be received back as cash by the appellant, I am of the considered view that in the context of the situation where the AO has himself said that what is being doubted is not the quantity of purchases per Se, which has entered into the books of the appellant, but that the purchases were billed through bogus parties, then the cause of justice would be served by looking at the gross profit margins being declared by the appellant. I am guided by the ratio of decision of the Hon'ble Gujarat High Court in the case of CIT Vs Simit P. Sheth pronounced on 16.1.2013 in tax appeal No.5531 of 2012 wherein the Hon'ble Court have held that when the total sale is accepted by the AO, then the entire purchases cannot be added to the income of the assessee. The Hon'ble Court have, therefore, held that fair profit ratio would be needed to be added back to the income of the assessee. Therefore, 8 % of the purchases i.e. 8% of Rs.1,63,60,543/- which works out to of Rs.13,08,843/- is upheld for lack of credible evidence being provided by the appellant to substantiate the purchases. The appellant gets relief of Rs.1,50,51,700/-.”
Aggrieved, both came in appeal before Tribunal. Page 4 of 6
Mr. Urvish B. Mehta (2010-11) (In CO. 196/Mum/2016) 7. We have heard the rival contentions and gone through the facts and circumstances of the case. Before us, assessee mainly contended the application of gross profit rate. The assessee’s Counsel Miss K Desai referred to the net profit and gross profit ratio of assessee for these years, which reads as under: -
Asst Year G.P. Ratio N.P. Ratio 2008-09 0.97% 0.28% 2009-10 0.82% 0.34% 2010-11 1.06% 0.48% She stated a reasonable estimation be made instead of 8%. On the other hand, learned Sr. DR heavily relied on the assessment order.
We have going through the facts in entirety and noticed that the assessee could produce entire purchase bills, delivery challans, bank statements and payment effected through cheque. These factor shows that the assessee had made purchase and without making purchase assessee could not have effected the sales. It means that the assessee might have purchase these items from grey market and assessee’s profit rate is be applied which CIT(A) has rightly applied. Only disputed points remain that what should be the profit rate. The assessee has disclosed the gross profit rate of 1.06% in these years and net profit ratio at 0.48%. the assessee might have saved on taxes and some element of higher profit and for that we feel that 8% of profit rate is on higher side and hence, we restrict the profit rate at 5%. We order accordingly.
In the result, the appeal of Revenue is dismissed and the CO of assessee is partly allowed.
Order pronounced in the open court on 15-02-2017.