MRS. DAXABEN JAYESHBHAIPATEL,VAPI vs. ITO, WARD-2, VAPI, VAPI

आदेश / O R D E R PER DR. A. L. SAINI, AM: Captioned two appeals filed by the assessee, pertaining to the Assessment Years (AYs) 2011-12 and 2012-13, are directed against the separate orders passed by the Learned Commissioner of Income Tax (Appeals), Vadodara [in short “the ld. CIT(A)”], which in turn arise out of separate assessment orders passed by the Assessing Officer under section 143(3) r.w.s 147 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”).

228 & 229/SRT/2020/AY.2011-12 & 2012-13 Daxaben Jayeshbhai Patel 3. Grounds of appeal raised by the assessee (in ITA No.228/SRT/2020 for AY.2011-12) are as follows: “1. On the facts and in the circumstances of the case and in law, the ld. CIT (A), Valsad, ought to have accepted the returned income of the appellant at Rs.5,90,849/- and should have deleted the huge addition of Rs.19,86,653/- made by AO. 2. On the facts and in the circumstances of the case and in law, the ld. CIT (A), Valsad has erred in partly upholding the addition of Rs.4,95,913/- out of total addition of Rs.19,86,653/- made by AO. 3. On the facts and in the circumstances of the case and in law, the ld. CIT (A), Valsad has erred in partly upholding addition of Rs.4,95,913/- being 2% of URD Purchases over and above returned income of Rs.5,37,620/- without appreciating the binding legal precedent of the Honorable ITAT Ahmedabad Bench in case of ITO, Vapi vs. Tayan Yunus Bamdgar (IT A No.1351/AHD/2012), having identical facts and nature of business like the appellant. 4. On the facts and in the circumstances of the case and in law, the ld. CIT (A), Valsad has erred in partly upholding addition of Rs.4,95,913/- being 2% of URD Purchases of Rs.2,47,95,666/- over and above returned income of Rs.5,37,620/- without looking in to the fact that 100% of sales of the appellant are confirmed and cross verifiable. 5. On the facts and in the circumstances of the case and in law, the Id. CIT (A), Valsad has erred in upholding addition of Rs.4,95,913/- being 2% of URD Purchases of Rs.2,47,95,666/- over and above returned income of Rs.5,37,620/- without appreciating the fact that consequent ratio of NP determined is quite excessive and not in line with industry average. 6. For various reasons and on different grounds, the action of the Learned CIT (A), Valsad, in partly confirming the addition of Rs.4,95,913/- (out of total addition of Rs.19,86,653/- made by the AO) deserves to be deleted. 7. Without prejudice to the above grounds, the Learned CIT (A), Valsad, ought to have at (he most estimated the net taxable business income of the appellant at Rs.6,71,316/- (being 2% of the Total Turnover of the business Rs.3,35,65,839/-) in line with the various decision of the ITAT, Ahmedabad, including in case of ITO, Vapi vs Tayan Yunus Barudgar (ITA No.1351/AHD/2012). 8. The above Grounds of Appeal are without prejudice to and are independent of each other. Your Appellant craves, leave to amend, alter, delete and/or add to foregoing Grounds of Appeal any time before the appeal is decided.” 4. Brief facts qua the issue are that the assessee is a proprietorship concern engaged in the business of trading of waste paper under the name and style of M/s.

228 & 229/SRT/2020/AY.2011-12 & 2012-13 Daxaben Jayeshbhai Patel Honest Enterprise. The books of accounts of the assessee are audited under the provisions of section 44AB of the I.T. Act and the assessee has filed tax audit report in Form No.3CB and 3CD along with audited profit and loss account, balance sheet and other relevant annexures forming part of tax audit report along with the return of income. The facts of the issue are that, a piece of information was in possession of the Investigation Wing regarding the bank account transactions of the assessee. Following were the main reasons to raise suspicion in this case: Current A/c. No.04841100065 and CC A/.c No.048413031005 (limit Rs.15 lacs) of M/s.Honest Enterprise were opened on 10.05.2002 and 14.10.2009 respectively with our Vapi branch, Surat Region. Ms. Daxaben J. Patel is the proprietor of the firm, having her PAN AHSPP3273F. In support of the firm has taken CST Registration certificate and registration certificate issued by Gujarat State Government. It is confirmed by the branch manager that Ms. D.J. Patel is dealing in paper scrap. Since beginning lacs of rupees are received through clearing cheques, mostly from IOB, Vapi Branch. The total credit summation in the current account of M/s. Honest Enterprise from period 01.09.2011 to 08.06.2012 funds were received to the extent ofRs.5 crores, out of which cash withdrawals are to the tune of Rs.3.89 crores and remaining amount was transferred either to her CC account or to M/s. Mayor Packaging Service, on account with our Panji (Goa) branch having their account no.014311023846. In the cash credit account funds were received to the extent of Rs.7.49 crores from 01.09.2011 and upto 12.04.2012, thereafter there are no operations in the account and the same period Rs.5.86 crores were withdrawn by cash. Funds received from IOB, Vapi Branch through clearing and on realization, they are withdrawn in two stages by cash i.e. initially funds transferred to CC account of her own and are directly withdrawn by the account holder herself and some funds are transferred to on account of Panji branch and they are also withdrawn in cash by different individuals. Since the use of funds is not ascertainable and majority of transactions are cash withdrawals over the period in crores of rupees i.e. total cash withdrawals from both accounts in 8 months is to the tune of Rs.9.75 crores. Therefore, we are reporting the transactions in the aforesaid two accounts as STR". 5. During the course of proceedings before the Investigation Wing, it was stated by the assessee that she had closed down the business activities on 31.03.2012 in the name of M/s. Honest. That is why no return of income has been filed in the name of M/s. Honest Enterprises after A.Y.2012-13. However, financial activities from debtors and creditors continue till June, 2012. During the course of proceedings before the Investigation Wing, the assessee only submitted list of names of the persons from whom URD purchasers have been made. The assessee has expressed her inability in producing the remaining details as the same

228 & 229/SRT/2020/AY.2011-12 & 2012-13 Daxaben Jayeshbhai Patel are not obtained and maintained. This fact has also been admitted by the assessee in her statement recorded during the course of proceedings before the ADIT (Inv.) Unit, Vapi u/s 133(1A) of the IT. Act. It was further submitted by her that she has no evidentiary proof to prove that the URD purchases are genuine. Despite the repeated requests, the assessee could not furnish the ledger accounts, full name, address, PAN etc. of the persons from whom URD purchases have been made. Further, the assessee had also failed to produce purchase bills, invoices, cash vouchers and payment register evidencing the purchases and payments made by her, even after repeated requests to produce them. The assessee had also failed to produce the purchase parties for cross verification. The assessee also failed to produce any evidence regarding delivery of goods to her or directly to Shree Ajit Pulp and Paper Limited by the sellers. During the A.Y.2011-12, the assessee was engaged in the trading of scrap and waste paper. Total purchases and sales of scrap and waste paper as shown by the assessee in Trading and P&L A/c., for A.Y.2011- 12 Was Rs.3,22,13,971/-. Out of the total purchases of Rs.3,22,13,971/-, the assessee has shown URD purchases of Rs.2,47,95,666/-. In view of the above, during the course of assessment proceedings, the assessee was specifically asked to furnish the following information / details: i) Please submit party-wise details of sales along with copy of ledger account. ii) Please furnish details of purchases made from Registered dealers along with copy of ledger account and contra account. Please produce bills for verification. iii) Please furnish details of purchases made from Unregistered dealers URD along with copy of ledger account and contra account. Pleased produce purchase bills issued by the URD parties for verification. Please furnish proof of transit of goods. 6. In response to the above, the assessee vide her submission dated 10.12.2018 has made written submission along with copy of ledger account of the parties to whom sales were made, ledger account of the parties from whom purchases made from registered dealers and unregistered dealers. However, the assessee has failed

228 & 229/SRT/2020/AY.2011-12 & 2012-13 Daxaben Jayeshbhai Patel to furnish any bills / invoices or any documentary proof for transportation of goods / materials from one place to another place. In view of the above, the assessee has been given another opportunity by Assessing Officer vide show cause notice dated 22.12.2018 wherein the assessee was specifically asked to show cause as under: “1. Vide this office notice u/s.142(1) of the IT. Act dated 05.12.2018, you were specifically asked to furnish bills/invoices for the URD purchases made from various parties during the year under consideration. However, vide your submission dated 10.12.2018, you have simply submitted the purchase and sale register and failed to furnish even a single bill for the purchases made to prove the genuineness of the purchases made from URDs. 2. During the course of statement recorded u/s.131 of the Act, you had repeatedly stated that you did not have any vouchers in respect of the URD purchases. On the other hand, it was noted from your purchase register, that against each URD purchase, you have mentioned a voucher number. Please justify the same. 3. It has been claimed by you and observed by this office that you have made various payments above Rs.5,000/- in cash. On the other hand, you have not produced any vouchers with revenue stamp affixed, on the same for indicating such payment. Please produce the same. 4. You have claimed that you had made payment to various parties in GOA through their truck drivers. In this connection, you are requested to furnish the evidences/vouchers in this respect, indicating the details of the person receiving the payment, as without any identity. Clarification, no payment can be made to third person, which is a general habitual trait. Please justify.” 7. In response to the above, the assessee has made submission vide letter dated 24.12.2018, the relevant portion of which is reproduced as under: “Ans.1: I am submitting sample copy URD purchases. Xerox copy of the period 01.04.2010 to 31.03.2011. Please verify with our books, I am show the all original voucher URD purchases for the period 01.04.2010 to 3103.2011. Ans.2: During the course of statement recorded u/s.131 of the Act, I state that I did not have any voucher in respect of the URD purchases. I was fear from income tax department that time. I was produced the purchases registered for the period 01.04.2010 to 31.03.2011. Please verify without books. Sample copy of above voucher submits the Xerox copy with the letter. I was also paid the tax of vat on URD purchases. I was also submitted the annual return form number 205 of vat and every month paid the VAT tax URD purchases. Total purchases refitting in the profit and loss account which come from RD purchases and URD purchases. Thus, that is genus transition for the period 01.04.2010 to 31.03.2011.

228 & 229/SRT/2020/AY.2011-12 & 2012-13 Daxaben Jayeshbhai Patel Ans.3: I am show all the original voucher more than Rs.5000/- paid in cash URD purchases for the period 01.04.2010 to 31.03.2011. Please verify with our books. Sample copy of above vouchers submits the Xerox copy with the letter. Ans:4: I am claimed that I was made payment to various parties in GOA through their truck drivers. All original vouchers more than Rs.5000/- paid in cash various parties in GOA for the period 01.04.2010 to 31.03.2011. Please verify with our books. The cash amount was given to driver. Hence, thus no payment made to third person.” 8. However, the Assessing Officer has rejected the contention of the assessee and held that the assessee has failed to furnish any original bills / vouchers for verification during the course of assessment proceedings. Even during the course of proceedings before the Investigation Wing also, the assessee had failed to furnish any such documents for verification which was also admitted by the assessee in her statement recorded u/s.131(1A) of the I.T. Act, 1961. During the course of present proceedings before Assessing Officer, the assessee has only submitted copy of the ledger account of the persons from whom URD purchases have been made but has expressed her inability in producing documentary evidences in support of bills / invoices / vouchers for verification as the same are not obtained and maintained by the assessee. This fact has also been admitted by the assessee in her statement recorded u/s.131(1A) of the I.T. Act during the course of proceedings before the ADIT (Inv.), Vapi. The assessee has also failed to produce any evidence regarding delivery of goods to her or directly to Shree Ajit Pulp and Paper Limited by the sellers. No delivery challans are produced for verification in spite of several opportunities given. The assessee has also failed to demonstrate by evidence that the cash payment shown in. her books as made to the persons named therein have actually been paid to them. Further, on verification of the cash book produced by the assessee, it is observed that the assessee has shown payments in cash just below the threshold limit of Rs.20,000/-, parties in one day during the year under consideration. However, as the name, identity etc. of the receiving parties (URDs) are not mentioned therein, therefore, it cannot be ascertained as to whether the payments have been actually been made to party or note. There is also possibility that the payments aggregating to Rs.20,000/- or more in a day may have been made to a single party in violation to section 40A(3)

228 & 229/SRT/2020/AY.2011-12 & 2012-13 Daxaben Jayeshbhai Patel of the Act and the assessee has split the payments below the threshold limit. Therefore, Assessing Officer noted that the assessee has no evidentiary proof to prove that the URD purchases are genuine. On verification of the bank accounts of the assessee, it is found that the sale receipts are received through cheques and the entire amount is withdrawn in cash immediately on the same day. The every single transaction of cash 'withdrawal runs into lakhs of rupees. This cash withdrawal is shown as cash payment to various unknown persons for which the assessee has failed to file any evidence. Further, the onus of proving the expenditure debited in her books to be correct was on the assessee and the assessee has failed to discharge the onus cast upon her. It is also admitted by the assessee that she has no evidence to prove the genuineness of the purchases. The pattern of the transactions in the bank account of the assessee shows that the sales receipts are immediately withdrawn in cash on the same day. The dispersal of cash as shown in the books is admittedly not proved leading to safe presumption that the entire cash as withdrawn from the bank has been returned back to the party in whose name sales have been shown. In view of the above the Assessing Officer noted that the genuineness of the URD purchases as shown by the assessee are in serious doubt. Therefore, purchases of Rs.2,47,95,666/- made from URD parties remain unexplained. Therefore, the assessee's arguments were not accepted and the sales shown are not genuine sales and are mere accommodating entries. From the above, it is proved beyond doubt that the assessee is engaged in providing accommodation entries of purchases to M/s. Shree Ajit Pulp and Paper Limited, and for such activities of providing accommodation entries, the assessee had received commission which has not been booked by her in its books of accounts maintained for the assessment year under consideration. Considering the above facts and circumstances of the case, it was held by Assessing Officer that the assessee has received commission at 8% on the total URD purchases of Rs.2,47,95,666/- made during the year under consideration which works out to Rs.19,83,653/- and the same was added back to the total income of the assessee as her income from undisclosed sources.

228 & 229/SRT/2020/AY.2011-12 & 2012-13 Daxaben Jayeshbhai Patel 9. Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A), who has partly allowed the appeal of the assessee, observing as follows: “3.3. Decision: Grounds of appeal 1 to 3 After considering the findings of the assessing; officer and submissions of the appellant, I find that the appellant has challenged the addition of Rs.19,83,653/- by way of disallowance @ 8% of the total URD purchases of Rs.2,47,95,666/-. In the assessment order, the AO noted that the total turnover of the appellant was Rs.3,22,13,971/- which included URD purchases of Rs.2,47,95,666/-. It is brought out in the assessment order that the case was reopened on the basis of Suspicious Transaction Report (SIR) received before the Investigation Wing, Vapi. During the course of inquiry by investigation wing as well at the time of assessment proceedings, the details of purchases from URDs in cash were not furnished for cross-verification. The appellant had stated that the sale details of purchases were not maintained as the URD purchases were from small and petty withdrawasl as. As the appellant did not file any purchase details pertaining to URD purchases for verification, 8% of the URD purchase was disallowed by the AO and added to the total income.

On the other hand, the appellant has contended that the nature of business of the appellant involved dealing with the small and petty raddiwalas for purchases of waste papers. As these raddiwalas were mostly homeless and belonging to poorest strata of the society, they did not have any bank a/c or registration with any government authority and all such purchases were made in cash after withdrawals from bank account. The appellant thus, contended that there was no way such details could have been maintained. It was further contended that the sales turnover offered by the appellant was accepted by VAT/sales tax authority and the sales could not have been effected without such purchases. It was also stated that VAT payment on URD purchases were also made by the appellant which proved the waste paper purchases pertaining to the sales. The AR contended that sales of waste paper were made to M/s. Ajit Pulp & Paper Mills Ltd Vapi and Mahavir Sales Corporation Vapi and the evidences of weight of waste paper and delivery pass were produced before the AO which was ignored. AR also emphasized that the AO did not find any payment in violation of sec.40A(3) of the Act. The AR stressed that the disallowance @8% of URD purchases of Rs.2,47,95,666/- was done mechanically. It was contended that the proofs of VAT payments and receipt of sale through cheque justifies genuineness of sales and these sales could not have been possible without the commensurate purchases. The AR referred to several decisions of Hon'ble ITAT benches in similar cases of unverifiable URD purchases and rate of disallowance were mostly in the range of 3% in search and seizure related assessment cases and 2%

228 & 229/SRT/2020/AY.2011-12 & 2012-13 Daxaben Jayeshbhai Patel in non-search assessments. The decision of Hon'ble ITAT Ahmedabad in the case of ITO, Vapi vs. Tayag Yunus Barudgar (ITA no.1351/AHD/2012 dated 27.05.2016) was enclosed to further contend that the maximum disallowance out of URD purchase at the rate of 2% could be made as against disallowance by the AO at the rate of 8%. Considering the fact that the Hobble ITAT Ahmedabad Bench has confirmed disallowance @ 2% of URD purchases in the case of similar business activity of the assessee Tayag Yunus Barudgar and I my predecessor had decided cases of Gurfan A. Khan, Purnima Agarwal & Tayab Barudgar for different A.Yrs in which additions were restricted to 2% of turnover, the disallowance by the AO @8% of URD purchase is not sustainable. I also find that the facts of the current case is not similar to the one in the case of N.K. proteins wherein 100% "disallowance of purchases (based on specific facts found in search) was confirmed by higher judicial forums. Therefore, the disallowance in the appellant case @2% of Rs.2,47,95,666/- (URD purchases) is worked out to Rs.4,95,913/-. Thus, the addition of Rs.19,83,653/- is hereby reduced to Rs.4,95,913/-. Thus, will take care of element of profits supported due to non-verifiable purchases of the appellant. The appellant gets partial relief.

Ground of appeal no. 9 pertains to initiation of penalty u/s 271(1)(c) of the Act which is premature in nature and hence not adjudicated.

Grounds of appeal no. 10 & 11 are general in nature.” 10. Aggrieved by the order of ld. CIT(A), the assessee is in appeal before us.

228 & 229/SRT/2020/AY.2011-12 & 2012-13 Daxaben Jayeshbhai Patel Barudgar Star Builders, in ITA No. 1351/AHD/2012, dated 27.05.2016, wherein it was held as follows: “4. We have heard the Ld.DR, perused the material available on record and gone through the orders of the authorities below. We find that the ld.CIT(A) while deciding the issue in favour of assessee has given a finding that though the AO has doubted the purchases but has not brought on record any instance of bogus or inflated purchase and has also not doubted the sales figure disclosed by the assessee. He has further given a finding that Paper Mill Association had fixed the price for purchases of waste-paper from the traders and, therefore, the scope of manipulated sales price was not established and there was no evidence to conclude that waster-paper supplier have higher gross margin on sales only because their purchases are from small type vendors. He has further given a finding that 15% margin of profit is not possible in the case of assessee. He has further given a finding that Central Circle Surat had completed the assessment of small traders by estimating the Gross Profit and had considered the gross profit rate between 0.5% to 0.75% on similar facts as that of assessee. He thereafter after considering the Gross Profit and Net Profit ratio shown by the assessee, estimated the Net Profit at 2% as against 1.10% disclosed by the assessee. Before us, Revenue has not brought any material on record to controvert the findings of ld.CIT(A). Looking to the totality of the facts of the present case, we do not see any reason to interfere with the order of the ld.CIT(A). Thus, this ground of Revenue is dismissed.” 12. On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity.

228 & 229/SRT/2020/AY.2011-12 & 2012-13 Daxaben Jayeshbhai Patel 2%. Therefore, Assessing Officer is directed to make addition as indicated above, which should not exceed 2% including net profit already shown by assessee.

Registry is directed to place one copy of this order in all appeals folder / case file(s).

Order is pronounced on 10/02/2023 by placing the result on the Notice Board.

Sd/- Sd/- (PAWAN SINGH) (Dr. A.L. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER lwjr /Surat �दनांक/ Date: 10/02/2023 SAMANTA Copy of the Order forwarded to 1. The Assessee 2. The Respondent 3. The CIT(A) 4. CIT 5. DR/AR, ITAT, Surat 6. Guard File By Order // TRUE COPY // Assistant Registrar/Sr. PS/PS ITAT, Surat