What did the Tribunal hold?

The Tribunal found that while the assessee provided ledger accounts, the identity and genuineness of Simplex Industries were not established. However, since sales of these goods were accepted, the Tribunal applied a 25% profit margin on the disputed purchases.

The assessee, a trader in medical surgical equipment, showed creditors including Simplex Industries. The Assessing Officer found Simplex Industries untraceable at the given address and treated purchases of Rs. 13.80 lacs as bogus.

What were the issues?

Whether purchases from an untraceable creditor can be treated as bogus, and if so, to what extent can an addition be made to the income.

Shri Manishbhai Champaklal… vs ITO | ITAT Ahmedabad 2017

Income Tax Appellate Tribunal, AHMEDABAD “C” BENCH

Before: SHRI N.K. BILLAIYA & SHRI MAHAVIR PRASAD

For Appellant: Shri T.P. Hemani, AR

PER N.K. BILLAIYA, ACCOUNTANT MEMBER:

This appeal by the Assessee is preferred against the order of the Ld. CIT(A)- XXI, Ahmedabad dated 27.02.2014 pertaining to A.Y. 2009-10.

ITA No. 1983/Ahd/2014 2 . A.Y. 2009-10 2. The appeal is late by 57 days. The assessee has requested for the condonation of the appeal by explaining facts for causing the delay in filing the appeal supported by an affidavit. We are convinced with the cause of delay and the same is condoned.

The sum and substance of the grievance of the assessee is that the ld. CIT(A) erred in confirming the addition of Rs. 13.80 lacs.

Briefly stated the facts of the case are that the assessee is trading in Medical Surgical Equipment. The return for the year was filed on 25.09.2009 declaring total income of Rs. 5,02,528/-. The return was selected for scrutiny assessment and accordingly statutory notices were issued and served upon the assessee.

During the course of the scrutiny assessment proceedings, the A.O. found that the assessee has shown creditors of Rs. 1,07,94,642/-. The A.O. further found that one of the creditors namely Simplex Industries was not traceable at the given address which was confirmed by the I.T. Inspector. The assessee was asked to prove the genuineness of the aforementioned creditor. The assessee was also asked to produce the said creditor for verification. In response the assessee could furnish only the ledger account of Simplex Industries. Neither any new address was given nor the party was produced. The A.O. concluded by treating the purchases of Rs. 13.80 lacs as bogus and made the addition of the same.

Assessee carried the matter before the ld. CIT(A) but without any success.

ITA No. 1983/Ahd/2014 3 . A.Y. 2009-10 7. Before us, the ld. counsel for the assessee once again drew attention to the copy of the ledger account of Simplex Industries. It is the say of the ld. counsel that the purchases are duly reflected in the books of accounts which were subject to audit and the auditors have not drawn any adverse inference in support of the said purchases. The ld. counsel further stated that the goods purchased from Simplex Industries were subsequently sold to various parties and the Assessing Officer has accepted sales made to various parties. Therefore, there is no question of treating the purchases as bogus.

Rebutting to the submissions made by the ld. counsel, the ld. D.R. vehemently stated that the assessee has failed to establish the identity of Simplex Industries and has not brought on record any evidence to prove the genuineness of the purchases. The ld. D.R. strongly relied upon the findings of the lower authorities.

We have carefully considered the orders of the authorities below. There is no dispute that the assessee has only furnished the copy of ledger account of Simplex Industries. There is also no dispute that on physical verification, the said firm was not found at the given address. It is also true that the assessee has not furnished any new address of Simplex Industries. In our considered opinion, it appears that the assessee must have purchased goods from the grey market at a much lesser value and has taken accommodation invoices from Simplex Industries. Our view is fortified by the fact that the assessee could demonstrate the sale of goods purchased from Simplex Industries and the same can be understood from the following chart:-

P.F.C. Sigma T.K.R. Implants Set Item Register

ITA No. 1983/Ahd/2014 4 . A.Y. 2009-10 1-Apr-2008 to 31-Mar-2009

Date Particulars Vch Type Vch No. Inwards Outwards Closing Quantity Quantity Quantity

9-2-2009 SIMPLEX INDUSTRIES Purchase 00329/08 - 09 2 SET

Mrs. SARLA JAIN Retail Invoice RI/0120 1 SET

Mrs. CHANDRAMANI KASLIWAL Retail Invoice RI/0121 1 SET OSET

22-2-2009 SIMPLEX INDUSTRIES Purchase 00343/08 - 09 5 SET 5 SET

23-2-2009 SATISHKUMARI VASISTHA Retail Invoice RI/0135 1 SET

SUMITRADEVI BARAYA Retail Invoice RI/0136 1 SET

Mrs. SARLA HALWAI Retail Invoice RI/0137 1 SET

SAVITRIDEVI Retail Invoice RI/0138 1 SET

Mrs. M.S. BAXI Retail Invoice RI/0139 1 SET OSET

5-3-2009 SIMPLEX INDUSTRIES Purchase 00356/08 - 09 3 SET 3 SET

6-3-2009 Mrs. Vimla Devi Retail Invoice RI/175 2 SET

Mrs. NIRMALADEVI Retail Invoice RI/176 1 SET OSET

4-3-2009 SIMPLEX INDUSTRIES Purchase 00367/08 - 09 2 SET 2 SET

5-3-2009 Sumedha Durlabhji Retail Invoice Rl / 202 Retail 1 SET 1 SET OSET Mrs. NIRMALA CHATURVEDI Invoice Rl / 203

Totals : 12 SET 12 SET OSET

10.

It is equally true that the revenue has not drawn any adverse inference orders sales of such items are concerned.

ITA No. 1983/Ahd/2014 5 . A.Y. 2009-10 11. In our understanding of the fact and as mentioned elsewhere, the goods must have been purchased from the grey market at a much lesser value. Therefore, the assessee must have made substantial profit in addition to what is shown in its books of accounts. Therefore, we are of the opinion that a margin of 25% on goods of Rs. 13.80 lacs should be added to the total income of the assessee which means that an addition of Rs. 3.45 lacs should meet the ends of justice. However, we make it clear that this margin of 25% is applied only for the year under consideration because of the clandestine activities of the assessee.

12.

In the result, the appeal filed by the Assessee is partly allowed.

Order pronounced in Open Court on 17 - 10- 2017

Sd/- Sd/- (MAHAVIR PRASAD) (N. K. BILLAIYA) JUDICIAL MEMBER True Copy ACCOUNTANT MEMBER Ahmedabad: Dated 17 /10/2017 Rajesh Copy of the Order forwarded to:- 1. The Appellant. 2. The Respondent. 3. The CIT (Appeals) – 4. The CIT concerned. 5. The DR., ITAT, Ahmedabad. 6. Guard File. By ORDER

Deputy/Asstt.Registrar ITAT,Ahmedabad

SHRI MANISHBHAI CHAMPAKLAL REPERELIA,AHMEDABAD vs. THE INCOME TAX OFFICER, WARD-7(2), AHMEDABAD

What did the Tribunal hold?

What were the facts?

What were the issues?

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