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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI RAMIT KOCHAR
Date of Hearing – 23.05.2016 Date of Order – 31.05.2016 2 Deepa Manshani O R D E R PER SAKTIJIT DEY, J.M.
Instant cross appeals are directed against the order dated 3rd February 2014, passed by the learned Commissioner (Appeals)–25, Mumbai, pertaining to assessment year 2009–10.
Brief facts are, the assessee an individual is engaged in the business of trading in electrical items through her proprietorship concern Brite Electric Corporation. For the assessment year under consideration, the assessee filed her return of income on 30th September 2009, declaring total income of ` 36,25,710. During the assessment proceedings, Assessing Officer on verification of the accounts of the assessee found that out of the total sales of ` 6,05,44,145, made during the relevant previous year, assessee has shown sundry creditors of ` 2,27,74,814. After calling upon the assessee to furnish list of sundry creditors, the Assessing Officer verified the same and issued notices under section 133(6) of the Income Tax Act, 1961 (for short "the Act") to the sundry creditors at random basis in the address provided by the assessee. As observed by the Assessing Officer, the notices issued under section 133(6) in respect of eight creditors representing purchases of ` 1,47,78,660, returned unserved by the postal authorities with the remarks “not known” or “left”. As observed by the eh Assessing Officer, when the 3 Deepa Manshani assessee was requested to produce the creditors along with books of account, the assessee could produce two parties namely Gautam Electricals and GLS Lighting Solutions Pvt. Ltd. However, assessee could not produce the other six parties. The Assessing Officer, therefore, called upon the assessee to explain why the purchases made from those six parties amounting to ` 91,94,123 should not be treated as bogus purchase as their names have been reflected in the list of suspicious dealers appearing in the website of sales tax department, who issue false bills without delivery of goods. In response to the query raised by the Assessing Officer, the assessee, as stated by the Assessing Officer, submitted a combined confirmation of six parties. The Assessing Officer observed when he made an attempt to verify the authenticity of the concerned parties through telephone in the telephone numbers mentioned in the bills, he found that none of the telephone numbers exist. He also observed that in spot verification carried out on 29th December 2011, it was found that none of the parties are available. Thus, it was concluded by the Assessing Officer that the claim of the assessee that it had purchased goods from the concerned parties is proved to be false. Accordingly, he disallowed the purchases of ` 91,94,123, and added back to the income of the assessee. Further, the Assessing Officer observed that in the case of sundry creditors on whom the notices under section 133(6) of the Act
4 Deepa Manshani were served numbering into four, all of them denied of having entered into any transactions with the assessee. Subsequently, the Assessing Officer issued summons under section 131 to the concerned persons to verify the genuineness of the transactions. As stated by the Assessing Officer, in response to the summons issued, the four creditors appeared before him and in the statement recorded, they accepted that they did not enter into any transactions with Brite Electric Corporation. In support of their statement, they also furnished affidavits before the Assessing Officer. Therefore, on the basis of enquiry made and evidence collected by examining these creditors, the Assessing Officer concluded that the purchases claimed to have been made by the assessee worth ` 81,42,762 is bogus in nature, hence, is to be disallowed. Accordingly, he added back the amount to the income of the assessee.
Further, the Assessing Officer found that six more creditors from whom the assessee claimed to have purchased goods as per the information published in the official website of the Sales Tax Department are suspicious dealers who issued false bills without delivery of goods. He, therefore, treated the purchases made from these parties amounting to ` 26,08,381, as bogus and added back to the income of the assessee. Being aggrieved of such additions made by the Assessing Officer, assessee preferred appeal before the learned
5 Deepa Manshani Commissioner (Appeals). In the course of hearing of appeal before the first appellate authority, the assessee made detail submissions contesting additions made by the assessee and also produced certain additional evidences. On the basis of submissions made and evidences produced the learned Commissioner (Appeals) called for remand report from the Assessing Officer. After perusing the remand report of the Assessing Officer in the context of submissions made by the assessee and evidences available on record, the learned Commissioner (Appeals) deleted the addition of ` 26,08,381, finding that the Assessing Officer simply relying upon the information obtained from the website of Sales Tax Department has made an addition without conducting any independent enquiry. He observed, the assessee had made full payments against the purchases and there was no outstanding balance at the year end. However, as far as addition of ` 91,94,123 is concerned, notices under section 133(6) to the parties returned unserved. Further, after submission of confirmation letter of the parties, when the Assessing Officer made an attempt to make enquiry in the telephone numbers given in the bills of the concerned parties, none of the telephone numbers were found existing. He also noted that during the remand proceeding, the assessee could not prove the genuineness of the parties, he, therefore, agreed with the view of the Assessing Officer that these purchases were bogus. As far
6 Deepa Manshani as the parties who responded to the notice issued under section 133(6), the learned Commissioner (Appeals) found that not only in response to the notice under section 133(6), they denied of having entered into transaction with the assessee but all of them in response to the summons issued under section 131 of the Act, appeared before the Assessing Officer and stated that they have not effected any sales to the assessee. They have also disputed the signature in bills. He, therefore, agreed with the Assessing Officer that these purchases have to be treated as bogus. Having held so, the learned Commissioner (Appeals) referring to the suggestion of the Assessing Officer in the remand report to decide the issue following ratio of the Tribunal, Ahmedabad Bench, in Vijay Proteins v/s ACIT, 55 TTJ (Ahd.) 76 (Ahd.), held the entire purchases cannot be added back as income of the assessee but profit element embedded into such purchases which according to the learned Commissioner (Appeals) can be estimated at 20% has to be added to the income of the assessee. Accordingly, he restricted the additions made by the Assessing Officer to that extent thereby deleting the additions of ` 1,64,77,000. Being aggrieved of the aforesaid decision of the learned Commissioner (Appeals), assessee is in appeal before us, whereas, the Department has challenged the partial relief granted by the learned Commissioner (Appeals).
7 Deepa Manshani
Learned Authorised Representative submitted, as far as assessee is concerned, he has produced all supporting evidences such as purchase bills, confirmation letter of the parties to prove the genuineness of the purchases. He submitted, the entire payment towards purchases were through cheque. Therefore, only on the basis of the information obtained from the Sales Tax Department or the fact that the concerned parties did not respond to the notices issued under section 133(6), it cannot be inferred that the purchases are bogus. Learned Authorised Representative submitted, when the Assessing Officer has not disputed the sales turnover declared by the assessee he is not justified in treating the purchases as bogus. He, therefore, submitted the purchases to the extent of ` 91,94,123 from six parties cannot be treated as bogus. (In the alternative, it was submitted by the assessee even assuming that the assessee could not prove the genuineness of the purchases for the satisfaction of Departmental Authorities, the profit of 20% applied by the learned Commissioner (Appeals) is high and excessive and should be reduced to between 10% and 12%.) As far as the purchases of ` 81,42,762 from four parties are concerned, the Assessing Officer submitted, though the Assessing Officer relied upon the statement of some of the parties who apparently denied of having effected any sales to the assessee, however, the statement recorded appears to be stereo typed and 8 Deepa Manshani recorded in a biased manner at the instance of the Assessing Officer. He submitted, much importance cannot be attached to such statements recorded from the parties. Learned Authorised Representative submitted, only on the basis of information obtained from Sales Tax Department, additions cannot be made when the Assessing Officer has not disputed the sales effected by the assessee nor rejected the books of account.
Learned Departmental Representative on the other hand relying upon the observations of the learned Commissioner (Appeals) submitted, as the assessee has not fully proved the genuineness of the purchases the entire purchases cannot be accepted and the learned Commissioner (Appeals) was justified in estimating the profit at 20%. As far as the rate of profit adopted by the learned Commissioner (Appeals), it was submitted by the learned Departmental Representative since the assessee has purchased the goods from grey market, it could have saved on account of Sales Tax and other taxes and duties and that may be a reason for the seller to charge lower rates for unaccounted goods as compared to accounted goods. For such proposition, he relied upon the decision of the Tribunal, Ahmedabad Bench, in Vijay Proteins Ltd. (supra) and CIT v/s Simit P. Seth, [2013] 356 ITR 451 (Guj.). As far as the decision of the learned Commissioner (Appeals) in deleting the addition of ` 26,08,381, the 9 Deepa Manshani learned Departmental Representative relied upon the observations of the Assessing Officer.
In the rejoinder, the learned Authorised Representative submitted, as far as the amount of ` 26,08,381 is concerned, the Assessing Officer has neither issued any notice under section 133(6) or summons to the concerned persons nor has independently conducted any enquiry. Therefore, the addition was rightly deleted by the learned Commissioner (Appeals).
We have considered the submissions of the parties and perused the material available on record. As far as assessee’s appeal is concerned, the issue in dispute relates to estimation of profit on purchases of ` 91,94,123 and ` 81,42,762, which have been treated as bogus purchases. As far as the purchases of ` 91,94,123 from six parties, details of which are in Para–4.1 of the assessment order, it is observed in the course of assessment proceedings, the Assessing Officer issued notices under section 133(6) of the Act in the address provided by the assessee, however, all the notices were returned back unserved with remark as “not known” or “left”. The assessee also did not produce the concerned parties in spite of request from the Assessing Officer to produce them. It is further seen from the assessment order, after the assessee submitted combined
10 Deepa Manshani confirmation from the concerned parties, the Assessing Officer tried to contact them in the telephone number mentioned on the bills, however, none of the telephone numbers were found to be existing. Even the Assessing Officer, as stated in the assessment order, conducted spot enquiries but failed to find the concerned parties. Thus, these facts prove that the Assessing Officer has not restricted himself in relying upon the information obtained from the Sales Tax Department alone. He has conducted enquiry independently to ascertain the genuineness of the purchases made by the assessee by conducting enquiry with the concerned parties from whom the assessee claimed to have effected purchases. Similarly, as far as purchases of ` 81,42,762 from four parties are concerned, it is observed, in response to notice issued under section 133(6), all of them denied of having effected sales to the assessee. In fact, in response to the summons issued under section 131, all these parties appeared before the Assessing Officer and in statement recorded on oath under section 131 of the Act, have denied of having effected sakes to the assessee. From these facts, it is evident that the assessee was not able to fully establish the genuineness of purchases at least to the extent mentioned herein above. It is also not in dispute that the Assessing Officer has independently enquired to verify the genuineness of purchases and on the basis of material obtained as a result of 11 Deepa Manshani enquiry has found the purchases claimed to have been made by the assessee to be doubtful. Thus, the assessee has not fully discharged its onus in proving the genuineness of such purchases. Therefore, in our view, the learned Commissioner (Appeals) was justified in estimating the profit of such purchases considering the fact that the entire purchases could not be treated as income of the assessee and only the profit element embedded can be assessed as income. This is due to the reason that the Assessing Officer has not disputed the sales turnover of the assessee. Therefore, in the absence of corresponding purchases the assessee could not have sold the goods. Having held so, it is necessary to examine the issue whether the profit rate adopted by the learned Commissioner (Appeals) at 20% is correct. After exmaination of the facts and material placed on record, we are of the view that the net profit rate adopted by the learned Commissioner (Appeals) at 20% is on a higher side. Though, there is no hard and fast rule to apply a particular profit rate in each case as it may vary from case to case depending upon the peculiar facts involved in a particular case, however, considering the fact that in the preceding assessment year, the gross profit rate shown by the assessee varied between 10% and 12% and corresponding net profit works out to 5% to 6%, we are inclined to reduce the disallowance to 12.5% of the 12 Deepa Manshani unproved purchases of ` 91,94,123 and ` 81,42,762. Therefore, the balance addition has to be deleted.
In the result, assessee’s appeal is partly allowed. p/Mum./2014 – Department’s Appeal
As far as grounds raised by the Department in its appeal are concerned, they are on following issues:–
Restriction of addition to 20% of the purchases made; and Deletion of ` 26,08,381.
As far as first issue is concerned, it is observed, the Assessing Officer in the remand report itself has recommended for addition on peak basis, therefore, in our view, the entire purchases could not have been added as income of the assessee considering the fact that the assessee has also effected sales which could not have been possible in the absence of purchases. Therefore, only the profit element can be treated as income of the assessee. As we have already estimated, the profit element on the unproved purchases at 12.5% the ground raised on this issue by department is dismissed.
As far as the second issue relating to deletion of ` 26,08,381 is concerned, as can be seen, the Assessing Officer had neither issued
13 Deepa Manshani any notice under section 133(6) nor has independently conducted any enquiry to ascertain the genuineness of the purchases. Only for the reason that name of the concerned parties appeared in the website of the Sales Tax Department, he has made the disallowance. In our view, without conducting any enquiry independently or bringing any material on record to prove the purchases as bogus, the Assessing Officer could not have made the addition. Therefore, the learned Commissioner (Appeals) was justified in deleting the addition.
In the result, assessee’s appeal is partly allowed and Department’s appeal is dismissed. Order pronounced in the open Court on 31.05.2016