INCOME TAX OFFICER WARD 23(1), NEW DELHI vs. SHANKARRAJ IMPEX PRIVATE LIMITED, DELHI

5. Since certain documents were required to be obtained from the appellant at the fag end of assessment proceedings by Ld. AO, therefore suitable time was also sought. Apparently, huge additions were made not because there was any fallacy in the claim or anything in contradiction brought of record at assessment stage.

6. It is also a matter of fact that for reason beyond control, on account of certain technical exigencies the appellant could not place on record additional supporting documents and therefore precluded from submitting the same as a result made were treated as unexplained and additions/disallowances were made.

7. It may be appreciated that inspite of best of efforts by the appellant, for reasons beyond control and in absence of proper opportunity to rebut the case granted by Ld. A.O., the appellant was prevented by sufficient cause to place on record certain documents in support of apparent genuineness. 11.2. The appellant’s submission, along with the additional evidence, was sent to the AO for examination and his comments. Below is a reproduction of the relevant part of the remand report. “2. In this regard, it is submitted that as per Rule 46A of the Income Tax Rules 1962, the additional evidence is not acceptable except in the following circumstances – where the AO has refused to admit evidence / where the appellant was prevented from sufficient cause from producing the evidence / where the AO passed the order without giving sufficient opportunity to the appellant to produce evidence. None of the above-mentioned circumstances are fulfilled in this case which is clearly evident from the order dated 28.03.2022 passed u/s 147 rws 144B of the Income Tax Act 1961. Therefore, the additional evidences filed by the assessee may not be admitted.

2. However, the comments on the submissions/additional evidence submitted by the assessee before Ld. CIT(A) are as under: 2.1 The assessee company has filed its return of income declaring income of Rs. 64,520/- on 29.09.2015. An information was received that the assessee has obtained accommodation entries of Rs. 4,94,42,270/- from Parth International and Rs. 5,32,26,443/- from Riddhi Siddhi Impex. The case was reopened u/s 147 of the Act after recording the reasons and obtaining the prior approval of the concerned authority. 2.2. During the course of reassessment proceedings, various opportunities of being heard was provided to the assessee and after considering the replies filed by the assessee, order u/s 147 rws 144B of the Act was passed on 28.03.2022 making the addition of Rs. 1,37,32,650/-. 2.3 Now, the assessee has claimed before the Ld. CIT(A) that the Gross Profit earned on other products cannot be assumed to be the gross profit of grains traded by the assessee. In support of its claim, the assessee has filed copies of VAT returns, invoices, ledger accounts, bank statements etc. before the Ld. CIT(A). Therefore, it is amply clear that the assessee was required to file all the details during the aforesaid assessment proceedings. Which were not filed by him despite being specifically asked for. Further, all these documents do not support the aforesaid claim of the assessee. In view of these circumstances, the additional evidences filed by the assessee may not admitted.” 11.3. The remand report received from the AO was provided to the appellant to submit a rejoinder at the latest by August 1st, 2024. The appellant has not provided a rejoinder yet. Therefore, it is necessary to determine whether additional evidence is admissible based on the facts and circumstances of the case. 11.4. The assessment order and remand report show that despite the ample opportunities given to the appellant, they failed to submit the documents that they have now filed as additional evidence. The appellant has not met any of the conditions specified in Rule 46A, as stated by the AO in his remand report. As per the record, the AO did not decline to accept the documents that the appellant wanted to submit. Hence ,It is necessary to examine if there were sufficient reasons for the appellant to not submit the documents in question before the AO. 11.5 It can be seen from the appellant’s additional evidence list that the documents listed under serial numbers a, b, c, e, and g are common documents and must be kept in their office. According to the appellant, they were unable to produce the documents in question before the AO due to circumstances beyond their control and technical exigencies. The appellant did not elaborate on the circumstances and technical exigencies that hindered their submission of the documents in question to the AO. The appellant’s explanation for not producing the documents when they were supposed to be available in their office is not convincing. 11.6 The parties provided the confirmation letters, which indicate that they did not deal in moong dal. They actually deal in clothes, gold, and silver, and other similar items. The dispute in this case pertains to the estimation of gross profit for moong dal’s turnover. Therefore, the confirmation letters are not relevant for the matter in question. According to the appellant, the moong dal was not subject to VAT, so the VAT return won’t be helpful in resolving this issue. The appellant’s filing of additional evidence is not sufficient to advance the justice. In light of the previous discussion and the entirety of the facts, I am unable to accept the additional evidence. 12.1. In terms of the merits of the additions, it has been noted that the appellant has disputed the additions made by the AO by making an initial submission, which was supplemented by subsequent submissions filed during the appellate proceedings, which have carefully been considered and kept on record. A brief summary of the appellant’s submission is provided below:

1. 1. The AO estimated the gross profit by applying GP rate of other products to GP rate of moong dal.

2. The moong dal had a positive gross profit in the assessment years involved, and it is not a case of low gross profit or loss.

3. Profit margins in the commodity market are very low and fluctuate on a daily basis.

The AO ignored the fact that the moong dal’s GP in the assessment year under consideration was better than the previous assessment year. Dal is produced by farmers, and all suppliers, through their brokers, contact the assessee who, after verifying the quality on the basis of samples, buys it. The broker does not disclose the name of the actual seller, but the assessee will only be able to identify the supplier through their bill or invoice after Moong receiving the material. The buyer is uncertain if the supplier sold the goods to them on their own bill or someone bill. Receiving goods on a properly documented invoice is the only thing that matters to the buyer, for which payment can be made either by cheque or through banking channels. All purchases are duly documented in the books of account. If the real supplier was providing on the bills of others, the assessee cannot be held accountable for it. The buyer has no responsibility for identifying the suppliers as the moong dal purchased is not a brand owner but an agricultural-based commodity. Each of sale and purchase were made by account payee cheque. Each sale and purchase was backed up by invoices and complete books of account were maintained. All transactions are genuine entries entered by the assessee during the course of his normal business operations. The aforementioned. The purchases/sales were genuine transactions and were duly considered in the financial statements prepared for the period under consideration. The purchases/sales were made from the aforementioned parties at market rate. Goods were received and payments were made in accordance with the bills received from these entities. There is no indication that transactions with the alleged entities are suspicious, except for the allegation uploaded on the insight portal and the alleged statements. Neither the statements of the aforementioned persons were confronted nor any person was presented for cross- examinations. The appellant has placed reliance on the decisions various Hon’ble High Courts and Tribunals to back up their contention.

12.2. To make it convenient, I will briefly describe the relevant fact that led to gross profit estimation, even if it means repeating myself. During the survey, it was discovered that Shri Ashok Gupta was involved in unethical practices of providing accommodation entries to various beneficiaries through his entities that he controlled and managed, according to the records. The appellant was one of the beneficiaries and obtained both bogus purchases and sales from the entities controlled by Shri Ashok Kumar Gupta. The transactions were carried out through the banking channel to make them seem genuine, but they were not. 12.3. The appellant made both purchases and sales of moong dal in the grey market, as observed by the AO, and accommodation entries were entered to ensure regularization of the purchases and sales. During the assessment proceedings, the AO observed that the appellant disclosed a gross profit of 2.39% for moong dal turnover, compared to a gross profit of 10.07% for the total turnover. According to the AO, the gross profit on turnover for goods other than moong dal was 26.12%. 12.4 The AO noted that the appellant didn’t provide the F.Y.2014-15 stock register, purchase and sales register, and evidence of the movement of goods such as delivery challans, lorry receipts, and transportation bills, among other items, during the assessment. According to the appellant before the AO, trucks and lorries were used to transport the goods, and the truck numbers were incorporated in the sales/purchase bills. The AO verified the purchase and sale bills and discovered that the sale and purchase invoices did not have truck numbers, which contradicted the appellant’s claim. 12.5. The appellant’s failure to provide necessary documents led the AO to conclude that they made purchases and sales from the gray market and obtained accommodation entries from entities managed and controlled by Shri Ashok Gupta to regularize those purchases and sales. The AO applied the 23.02% GP rate for the total turnover, which resulted in a gross profit of Rs.1,17,32,650/-. The AO also relied on the decision of the Hon’ble Gujrat High Court in the case of CIT vs. Simit P. Sheth (2013) 356 ITR 451(Gujarat). 12.6 According to the appellant’s submission, they bought moong dal through a broker but were unsure if the supplier sold the goods to them on their own or somebody else’s account. The appellant has further stated that it is not the appellant’s responsibility if the actual supplier was providing bills for others. Since the moong dal purchased is not a brand owned commodity, the buyer is not responsible for identifying the suppliers. According to the submission above, the appellant bought moong dal, but not from the parties they claimed to have bought it from. It is the appellant's responsibility to prove the genuineness of the purchases. There is no doubt that transactions were conducted through the banking channel. At the same time, the appellant failed to produce evidence of the movement of goods, including delivery challans, lorry receipts, and transportation bills for F.Y.2014-15 stock register, purchase and sales register, and evidence of the movement of goods like lorry receipts, even during the appellate proceedings. The striking feature of the transactions in moong dal that does not escape one’s attention is that the entire quantity of goods were purchased from a single entity, M/s Parth International, and sold to another single entity, M/s Riddhi Siddhi Impex. As previously stated, Shri Ashok Kumar Gupta, who was involved in providing accommodation entries for bogus purchases and sales to multiple entities, was in charge of managing and controlling both entities. As it appears, both entities existed only on paper and were created solely for the purpose of accommodating bogus purchases and sales to interested entities. The facts above and the findings of survey support the view that the appellant substituted their purchases and sales of goods from the grey market by acquiring documentation from the above-mentioned entities to make them appear authentic. It appears that there were untested or unproven purchases and sales that were replaced by accommodation entries. The documents that were produced as additional evidence by the appellant are self-serving evidence and cannot contradict the survey findings. 12.7 It is reiterated that the appellant bought and sold moong dal from other individuals, possibly without any paperwork. The appellant’s failure to present a stock register, a movement register, and insufficient transportation details, as well as the discovery of accommodation entries from the entities mentioned earlier, lead to the conclusion that they purchased and sold from the grey market and obtained entries to substitute them. As a result, the purchase and sale amounts printed on the invoice are not acceptable. In the event that purchases are made from the grey market, bogus bills are always obtained from other parties. In the same way, sales are made to parties, but false bills are obtained from other individuals to whom actual sales were not made. Obviously, false bills are obtained to receive certain benefits. 12.8 It is important to mention that the assessment for the A.Y 2018-19 which is also a subject matter of appeal pending before me, was reopened under section 147 of the Act on the same grounds as in the current assessment year. The appellant requested the AO for the statement of Shri Ashok Kumar Gupta, which was recorded under section 131(1A) of the Act, during the proceedings, and the AO provided them with the statement. It has been observed that the appellant did not ask for Shri Ashok Kumar Gupta’s cross examination. 12.8.1 The AO and the verification unit of the Department conducted thorough inquiries into the purchases and sales that the appellant claimed to have made. In response to a request made by the AO in section 133(6) of the Act, Madho Prasad Goel claimed that he did not have any valid transactions with the appellant company and all the recorded transactions were fraudulent. In addition, he asserted that all transactions were fake and only accommodation entries were given in accordance with the customer’s needs, which Ashok Kumar Gupta provided. When confronted by Mahavir Prasad Suresh Kumar’s response, the appellant opted to remain silent. 12.8.2 It was found in the investigation that the other parties the appellant claimed to have purchased goods or sold to were not located at the given address. Confronted with the above facts, the appellant provided confirmation letters to the AO. After examining the conformation letters, the AO discovered that the confirmation letters were not reliable due to a number of shortcomings, such as the absence of seals for the entities and the defunct GSTIN provided in those letters. The above facts demonstrate that the appellant has been given accommodation entries not just for A.Y 2018-19, but also for previous assessment years. 12.8.3 The usual phenomenon that has been observed is that the purchase or sale of commodities was not done by the same entities in each of the assessment years, and the buyer or seller was changed every year for the purchase and sale of commodities. Moreover, the appellant made multiple purchases and sales of the same goods from the same entity. Furthermore, the appellant was unable to demonstrate that the goods were received and delivered by producing the necessary documents.

12.8.4 All of these aspects indicate that fake transactions of commodities (grains) were conducted with those entities that were documented in their books of accounts. The purchase and sale of commodities were just book entries to give a false impression of authenticity to transactions that were otherwise bogus. 12.9 Therefore, I do not see any reason to interfere with the order in terms of estimating the gross profit. Having said that, I note that the AO estimated a higher rate of gross profit because the appellant dealt in different types of goods, which means that the GP rate for one item cannot be applied to another item that is completely different in nature. According to the record, the appellant dealt in cloth, gold bars, and silver jewelry, among other items, during the period under consideration. 12.10 The Hon’ble Jurisdictional Gujarat High Court delivered on Jan 16, 2013, in the case of CIT Vs Summet P. Sheth 356 ITR 451 (Guj) in which AO placed reliance held that the estimation of rate of profit return must necessarily vary with the nature of business and no uniform yardstick can be adopted.To determine the gross profit rate, it is necessary to consider the nature of the goods traded and the prevailing market conditions. The price of pulses, including Moong dal, increased significantly in 2014 and 2015 due to a shortage of supply and a change in the minimum support price. The trader makes a substantial profit in the Moog Dal Trading market because of the shortage of supplies. The current case is not about regular business profits, but about the suppression of profit through accommodation entries. From the above, I am of the opinion that estimating the gross profit on Moong Dal's turnover at 10% is just and fair. In view of the above, the AO is directed to estimate the gross profit of moong dal at 10% and delete the balance gross profit determined by him. It is clarified that the gross profit rate for goods other than moong dal should be taken at 26.12% as declared by the appellant. The grounds No. 5, 6 and 7 are, thus, partly allowed.”