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Income Tax Appellate Tribunal, “ A ” BENCH, AHMEDABAD
Before: SHRI S.S. GODARA & SHRI PRADIP KUMAR KEDIAShri K.Madhusudan, Sr.DR Shri M.J. Shah, AR
आदेश / O R D E R PER PRADIP KUMAR KEDIA - AM: The captioned cross-appeals by the Revenue and Assessee are directed against the common order of the Commissioner of Income Tax
ITA Nos.948 & 1460/Ahd/2012 ACIT vs. Deep Cotton Industries (cross) Asst.Year – 2008-09 - 2 - (Appeals)-I, Ahmedabad [CIT(A) in short] dated 26/03/2012 emanating from the assessment order passed under s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as "the Act") dated 10/12/2010 relevant to Assessment Year (AY) 2008-09 respectively.
Revenue’s appeal in ITA No.948/Ahd/2012 – AY 2008-09
The grounds of appeal raised by the Revenue read as under:- 1) The Ld.CIT(A) has erred in law and on facts in deleting the addition of Rs.1,57,12,258/- out of total addition of Rs.2,09,49,678/- made on account of bogus purchases.
2) On facts and in the circumstances of the case and in law, the CIT(A) ought to have upheld the entire addition of Rs.2,09,49,678/- made on account of bogus purchases.
Assessee’s Appeal in ITA No.1460/Ahd/2012 – AY 2008-09
Likewise, grounds of appeal raised by the assessee is also reproduced hereunder: 1. The Assessing Officer has erred in law as well as on facts by making addition amounting to Rs.2,09,49,678/- on account of bogus purchases and the Ld.CIT(Appeals) has also erred in law as well as on facts by confirming the additions to the extent of Rs.52,37,420/- @25% of the total addition made by the Assessing Officer. 2. The Assessing Officer has erred in law as well as on facts by accepting the statement recorded by the third party as a evidence for the bogus purchase and again the CIT(Appeals) has erred in law by confirming the same as a valid evidence.
ITA Nos.948 & 1460/Ahd/2012 ACIT vs. Deep Cotton Industries (cross) Asst.Year – 2008-09 - 3 - 3. The Ld.CIT(Appeals) has erred in law as well as on facts by applying the rate of 25% of the alleged bogus purchases for confirming the bogus purchases without any specific evidence or law. 4. The Assessing Officer has erred in law as well as on facts by initiation of penalty proceedings u/s.271(1)(c) for concealment of income without any specific evidence or law.
Since both the appeals are inter-connected and concerns the common issue of addition towards bogus purchases, both the appeals are disposed of together.
Briefly stated, the assessee a proprietor of M/s.Deep Cotton Industries is engaged in the business of cotton trading and processing and other food grains items. A survey action under s.133A of the Act was carried out at the business premises of the assessee on 01/09/2008 in conjunction with other search and survey actions at the premises of ‘Edible Oil Mills’ group of Patan District and agents/brokers of Mehsana and Sabarkantha District of Gujarat. Subsequent to survey, the assessee filed return of income for AY 2008-09 on 30/09/2009 declaring a total income of Rs.1,49,610/-. The return filed by the assessee was subjected to scrutiny assessment. It was observed by the AO that in the course of search proceedings and survey proceedings in the case of ‘Edible Oil Mills’ group, it was found that one M/s.’Vishal Traders’ Virpur, Dist.Kheda had issued bogus/adjustment bills to a large number of concerns of Mehsana and Patan districts of Gujarat during Financial
ITA Nos.948 & 1460/Ahd/2012 ACIT vs. Deep Cotton Industries (cross) Asst.Year – 2008-09 - 4 - Year 2006-07 onwards. The Assessee is one of the beneficiaries of such accommodation bills. The AO noted that the assessee has shown purchase of Rs.2,09,49,678/- from M/s.Vishal Traders during the financial year relevant to AY 2008-09. The AO also observed that a statement of the proprietor of M/s.Vishal Traders Shri Dharmendra J.Pandya was recorded under s.131 of the Act where he categorically admitted that the aforesaid proprietorship concern was not in existence since last two years and bills issued were bogus/adjustment bills only. It was further confessed by the purported supplier that he has not delivered any goods like oil seeds, oil cakes or any other item mentioned in the bill to various parties including the assessee. The transportation details like vehicle numbers written on the bill etc. were also admitted as fictitious. It was further deposed by the proprietor that one Shri Madanlal L.Shah (Chandak) had introduced all the parties to him. It was pointed out that the bogus bills were issued to various concerns towards fictitious supply in lieu of commission payments earned by him. The AO next observed that on perusal of the bank statement of the supplier, a continuous pattern of deposit and immediate cash withdrawal thereafter is seen. The AO observed that such a pattern of deposit and immediate withdrawal in cash is untypical of business of any concern which is really engaged in manufacturing/trading related to edible oil business. It was thus held that the statement of the supplier was thus substantiated by continuous pattern of deposit and withdrawal. The AO further observed that the statement
ITA Nos.948 & 1460/Ahd/2012 ACIT vs. Deep Cotton Industries (cross) Asst.Year – 2008-09 - 5 - of proprietor was confirmed in the statement of Shri Madanlal L.Shah dated 22/09/2010. In the aforesaid statement intermediary Shri Madanlal L.Shah has stated that he had introduced various traders to purported supplier who only issued bogus adjustment bills without any delivery of goods. In this regard, the statement of Shri Kamleshbhai G.Thakkar (Power of Attorney holder of the assessee) dated 10/10/2008 was also taken into account by the AO whereby it was stated by the POA does not possess any proof to support supply such as gate pass – LR receipts, challans or vouchers in respect of goods purchased. The claim of Assessee is dependant only on bill issued by supplier. The AO also noticed that in spite of several opportunities thereafter, the assessee could not produce any evidence to corroborate actual delivery of supply. The AO also noted that Shri Madanlal L.Shah was also cross-examined on behalf of the assessee. The copy of the proceedings recorded were also provided to the assessee which has remained uncountered. The AO finally noted that in spite of number of opportunities granted to the assessee to explain the issue of bogus purchases/accommodation entries, the assessee has failed to discharge the onus lay upon him. The purchase register/sale register/stock register for the relevant period were not produced nor quantitative correlation between purchase and sales together with yield percentage, wastage ratio and power consumption was provided. In view of these aforesaid facts, the AO proceeded to disallow the claim of expenditure towards alleged bogus purchases from
ITA Nos.948 & 1460/Ahd/2012 ACIT vs. Deep Cotton Industries (cross) Asst.Year – 2008-09 - 6 - Vishal Traders amounting to Rs.2,09,49,678/- and added to the same to the total income of the assessee.
Aggrieved, the assessee preferred the appeal before the CIT(A).
The CIT(A) re-examined the issue and obtained remand report from the AO. The copy of purchase/sale register, quantitative tally of items purchased, consumed and sold was stated to be submitted before the CIT(A). The CIT(A) took note of the statement made by the supplier adverse to the assessee and finally arrived at the conclusion that the impugned transactions with M/s.Vishal Traders are only an eye-wash and the bills issued by the purported supplier are in effect accommodation bills. The CIT(A) however, observed that while the purchases were not made from M/s.Vishal Traders, the existence of purchases cannot be rejected. The purchases were probably made from other farmers/cultivators who are unregistered dealers. The CIT(A) accordingly concluded that purchase costs recorded by the assessee are inflated. In this background, the CIT(A) estimated addition to the extent of 25% on account of impugned bogus purchases by applying the broad principles laid down by the Hon’ble Gujarat High Court in the case of Sanjay Oilcake Industries (2009) 316 ITR 274 (Guj.). The CIT(A) accordingly directed the AO to scale down and restrict the addition made towards bogus purchases from M/s.Vishal Traders to the extent of 25%
ITA Nos.948 & 1460/Ahd/2012 ACIT vs. Deep Cotton Industries (cross) Asst.Year – 2008-09 - 7 - of Rs.2,09,49,678/- which comes to Rs.52,37,420/-. The balance addition to the extent of 75% was thus deleted.
Both AO as well as the assessee are aggrieved by the partial relief granted by the CIT(A). While the AO, on one hand, has challenged the direction to delete 75% of the bogus purchases made from M/s.Vishal Traders, the assessee was impugned the sustenance to the extent of 25% of alleged bogus purchase.
The Ld.DR for the Revenue submitted at the outset that the facts of the case are gross, worse and peculiar. It is a matter of fact on record that the so-called supplier M/s.Vishal Traders is found to have issued accommodation bills to the assessee and is a bogus supplier. The facts were unraveled due to strenuous action of survey under s.133A of the Act and consequent unequivocal statement deposed by the suppliers as well as the introducer Shri Madanlal L.Shah. Shri M.L.Shah was also cross-examined by the representative of the assessee without any success. The assessee could not substantiate the alleged fact of purchase from supplier M/s.Vishal Traders by producing lorry receipts etc. The payment made by the assessee towards the purported supply was found to be withdrawn immediately in cash. These facts when read together gives an unambiguous and unflinching impression of assessee indulging in camouflaging the book results by introducing bogus bills. The Ld.DR
ITA Nos.948 & 1460/Ahd/2012 ACIT vs. Deep Cotton Industries (cross) Asst.Year – 2008-09 - 8 - submitted that the CIT(A) ought not to have given any relief to the assessee based on symbolic bills obtained from the fictitious supplier for set purposes. To buttress its case, the Ld.DR relied upon the decision of Hon’ble Gujarat High Court in the case of N.K.Industries Ltd. vs. Dy.CIT (2016) 292 CTR 354(Guj.). He accordingly urged the Tribunal to reverse the action of the CIT(A) granting the relief and restore the order of the AO.
The Ld.AR for the assessee, on the other hand, challenged the sustenance of disallowance of Rs.52,37,420/- out of purchases made from M/s.Vishal Traders. The ld.AR submitted that the Revenue has wrongly placed reliance on the statement of the third party to draw inference against the Assessee in violation of principles of natural justice. The Ld.AR also simultaneously pleaded that estimation of 25% of alleged bogus purchase towards alleged suppressed income is highly excessive and not in accord with decision of Hon’ble Gujarat High Court in Pr.CIT vs. Jagdish H.Patel (2017) 84 taxmann.com 259 (Guj.) where gross profit rate of 8% on purchases was estimated towards bogus purchases by Tribunal was approved. The Ld.AR also referred to the decision of the Coordinate Bench of the Tribunal in the case of Shri Jagdish H.Patel vs. ACIT in ITA Nos.582 & 610/Ahd/2012 order dated 14/03/2016 where addition of 8% was estimated to meet the ends of justice. The Ld.AR submitted that in the aforesaid case before the
ITA Nos.948 & 1460/Ahd/2012 ACIT vs. Deep Cotton Industries (cross) Asst.Year – 2008-09 - 9 - Tribunal, the supplier was the same i.e. M/s.Vishal Traders. The Ld.AR thereafter referred to the decision of the Hon’ble Gujarat High Court in the case of N.K. Industries Ltd.(supra) cited on behalf of the Revenue and submitted that the Ld.DR has misunderstood the conclusion of dismissal arrived at by the Hon’ble Gujarat High Court. The Ld.AR submitted that addition on account of bogus purchases was retained at 25% only by the ITAT which was subject matter of consideration before Hon’ble High Court under s.260A of the Act.as against the claim of the Revenue that entire amount should be disallowed.
We have carefully considered rival submissions. The controversy revolves around the quantification of disallowance on account of bogus purchases. We straight away notice from para-9 of the order of the CIT(A) where it was recorded that the AO himself has accepted that while purchase bills from M/s.Vishal Traders are adjusted bills but the purchases per se are not bogus. This implies that the AO himself has admitted the fact of existence of purchase albeit from unregistered dealers who do not have bill books. Simultaneously, the corresponding sales have also not been disputed. Noticeably, the assessee has recorded total sales to the tune of Rs.323.43 lakhs during the year and recorded purchase of Rs.401.88 lakhs including impugned purchases of Rs.209.49 lakhs from M/s.Vishal Traders. Apparently, in the absence of actual purchases made from unknown unregistered dealers, it will not be
ITA Nos.948 & 1460/Ahd/2012 ACIT vs. Deep Cotton Industries (cross) Asst.Year – 2008-09 - 10 - possible to record the staggering sales. Thus, the fact of purchases made from unidentified other source cannot be denied on wholesome basis. Therefore, in our view, the CIT(A) has correctly appreciated the facts and granted relief towards actual purchases.
The second limb of the dispute is towards estimation and quantification of inflated purchases element. The CIT(A) has estimated 25% towards possible inflation of the quantum of purchase and drew support for such estimation from the decision of the Hon’ble Gujarat High Court in the case of Sanjay Oilcake Industries(supra). The assessee, on the other hand, seeks lower estimation on the basis of another decision of the Hon’ble Gujarat High Court in Jagdish H. Patel(supra) whereby the estimation of 8% determined by the Tribunal was approved. Contextually, we find that the assessee has remained defiant despite substantive evidence on record which unmasked the fictitious or accommodation bills. The probable purchases made from unregistered dealers were disguised by way of accommodation bills from M/s.Vishal Traders. The accommodation bills account for more than 50% of the total purchases. Therefore, the assessee clearly has indulged in subverting facts and attempted to lessen the tax burden in a brazen manner. The estimation of possible evasion by inflating purchase cost is essentially in the realm of peculiar facts of a given case. The estimation of GP has to be seen in the hands of individual assessee and not with
ITA Nos.948 & 1460/Ahd/2012 ACIT vs. Deep Cotton Industries (cross) Asst.Year – 2008-09 - 11 - reference to a supplier supplying to various parties. The GP ratio of different assessee can vary dramatically depending on the circumstances the purchaser is placed in. Thus, GP ratio in the hands of purchaser need not be at par with other purchaser who availed accommodation from same supplier. We notice that 25% estimation was found to be fair estimate by the Hon’ble Gujarat High Court at least in two cases noted above. Coupled with this, as noticed above, the assessee has camouflaged a substantial portion of purchases. This being so, estimation of 25% towards inflated purchases is quite befitting in the circumstances. Thus, we hold that the CIT(A) has rightly drawn its conclusion and estimated 25% of the value of the bogus purchases as unaccounted income of the assessee. We thus do not find any potency in the plea of the assessee for further relief towards downward estimation.
In the result, respective appeals of both Revenue and Assessee are dismissed. This Order pronounced in Open Court on 02/ 11 /2017
Sd/- Sd/- (एस.एस.गोदारा) (�द�प कुमार के�डया) �या�यक सद�य लेखा सद�य ( PRADIP KUMAR KEDIA ) ( S.S. GODARA ) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad; Dated 02/ 11 /2017 ट�.सी.नायर, व.�न.स./T.C. NAIR, Sr. PS
ITA Nos.948 & 1460/Ahd/2012 ACIT vs. Deep Cotton Industries (cross) Asst.Year – 2008-09 - 12 -
आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)-I, Ahmedabad �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy//
उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation .. 30.10.17/1.1.17 (dictation-pad 31-pages attached at the end of this appeal-file) 2. Date on which the typed draft is placed before the Dictating Member …01.11.17 3. Other Member… 4. Date on which the approved draft comes to the Sr.P.S./P.S…………….. 5. Date on which the fair order is placed before the Dictating Member for pronouncement…… 6. Date on which the fair order comes back to the Sr.P.S./P.S…….02.11.17 7. Date on which the file goes to the Bench Clerk…………………02.11.17 8. Date on which the file goes to the Head Clerk…………………………………... 9. The date on which the file goes to the Assistant Registrar for signature on the order…………………….. 10. Date of Despatch of the Order………………