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Income Tax Appellate Tribunal, KOLKATA ‘C(SMC
Before: Shri P.M. Jagtap
This appeal filed by the assessee is directed against the order of the ld. Commissioner of Income Tax-(Appeals)-7, Kolkata dated 09.12.2015 for the assessment year 2006-07 and the grounds raised by the assessee therein read as under:-
1. For that the Ld Commissioner of Income Tax Appeals erred in not adjudicating the grounds of appeals on merits and thus the appellate order was bad in law and the said order be set aside for disposal on merits.
2. For that in the facts and circumstances of the case the appellate order passed was in violation of principals of natural justice hence is bad in law and be quashed.
3. For that in the facts and circumstances of the case the Ld. Commissioner of Income Tax Appeals erred in upholding the addition of bogus purchases from the following parties:-
(a) Sen Enterprises .......................Rs. 13,245/ - ./2016 Assessment year: 2006-2007 Page 2 of 6 (b) Loknath Distributors.............. Rs.1, 15,215/- (c) Organ Pharmaceuticals............ Rs. 2,472/- (d) Gopal Medical Agency ....... Rs.1,50,565/- (e) Central Medical Hall .......... Rs. 2,942/- _________________________
Total : Rs.2,84,439 /- _________________________ The addition is not called for hence the same be deleted.
4. For that in the facts and circumstances of the case the learned CIT (Appeals) erred in upholding the addition of out of book purchase of Rs.6,47,601/- from Life Drug House Pvt. Ltd. The addition is uncalled for and hence the same be deleted.
5. For that in the facts and circumstances of the case the learned CIT Appeal erred in upholding the addition of Rs.12,879/- on account of profit earned on undisclosed purchase from Life Drug House Pvt. Ltd. The addition is uncalled for and hence the same be deleted.
For that in the facts and circumstances of the case the Ld. Assessing officer couldn't have relied on the Books of Accounts after rejecting the Books of Accounts. Hence all additions made on this basis are illegal and uncalled for and thus the same be deleted.
For that in the facts and circumstances of the case it be directed that the computation of interest u/s 234A/B/C/D of the I.T. Act, 1961 be recomputed t4he interest as per law”.
The assessee in the present case is a partnership firm, which is engaged in the business of trading of medicines on wholesale basis. The return of income for the year under consideration was filed by it on 31.10.2006 declaring total income of Rs.3,406/-. During the course of assessment proceedings, the Assessing Officer made inquiries from the ./2016 Assessment year: 2006-2007 Page 3 of 6 suppliers of the assessee in order to verify the purchases shown by the assessee. These inquiries revealed the following discrepancies:-
The above discrepancies were confronted by the Assessing Officer to the assessee seeking the later’s explanation in the matter. The explanation offered by the assessee in respect of the said discrepancies was found by the Assessing Officer to be unsubstantiated by furnishing proper documentary evidence. He, therefore, held the books of account maintained by the assessee as unreliable and rejecting the same under section 145(3), the Assessing Officer proceeded to determine the income of the assessee by estimation. In this regard, the Assessing Officer felt that the best method of estimation would be to make additions on account of various defects instead of making an estimate of gross profit. Accordingly the difference of Rs.13,245/-, Rs.1,15,215/-, Rs.2,472/-, Rs.1,50,565/- and Rs.2,942/- representing excess purchases shown by the assessee were treated by the Assessing Officer as bogus purchases and additions to that extent were made by him to the total income of the assessee. As regards the difference of Rs.6,47,601/- in respect of one party M/s. Life Drug House Pvt. Limited representing short purchases ./2016 Assessment year: 2006-2007 Page 4 of 6 shown by the assessee, the Assessing Officer held that the same was nothing but undisclosed purchases made by the assessee and the same was entirely added by him to the total income of the assessee along with gross profit thereon worked out at Rs.12,879/- by applying the gross profit rate of 1.90%. Accordingly the total income of the assessee was estimated by the Assessing Officer at Rs.9,48,325/- in the assessment completed under section 143(3) read with section 145(3) of the Act vide order dated 23.12.2008.
Against the order passed by the Assessing Officer under section 143(3) read with section 145(3), an appeal was preferred by the assessee before the ld. CIT(Appeals) and after considering the submissions made by the assessee and perusing the relevant material available on record, the ld. CIT(Appeals) confirmed all the additions made by the Assessing Officer to the total income of the assessee for the following reasons given in his impugned order:-
“I have gone through the submission made by the appellant, assessment order and the remand report. During the course of assessment proceedings, the appellant has not furnished any evidence from the suppliers to reconcile the differences. Though the time limit for completion of assessment was up to 31.12.2008 nearly one and half year from the earlier assessment year the appellant has not furnished required evidences before the assessing officer to prove his case. During the appeal though the remand report was called for from the A.O., the AO has given number of opportunities to the appellant but the appellant did not submit the necessary information and cooperate with the department to prove his case instead he has refused the notices issued by the AO. In the circumstances, l have no option except to hold that the purchases made from Sen Enterprise, Rs.13,245/-,Lokhnath Distdbutors,Rs.l,15,215/-,· Organ Pharmaceuticals Rs.2,472/-, Gopal Medical Agency Rs.1,50,565/- and Central medical Hall Rs.2,942/- as bogus purchases and in the case of Life Drug House Pvt. Limited as undisclosed purchases for Rs.6,47,601/-. Accordingly the addition made by the AO amounting to Rs.9,44,919/- ./2016 Assessment year: 2006-2007 Page 5 of 6 (including the gross profit of Rs.12,879/- estimated by the AO separately) is confirmed and the appeal is dismissed”.
Aggrieved by the order of the ld. CIT(Appeals), the assessee has preferred this appeal before the Tribunal.
I have heard the arguments of both the sides and also perused the relevant material available on record. As rightly submitted by the ld. counsel for the assessee, when the books of account maintained by the assessee were rejected by the Assessing Officer under section 145(3), there was no justification on his part to rely on the purchases shown by the assessee in the said books to work out the difference and make addition on account of such difference. Having rejected the books of account, the Assessing Officer, in my opinion, should have resorted to the estimation of income independent of books of account by following the generally accepted method by applying gross profit or net profit rate on the estimated turnover and this is not disputed even by the ld. D.R. at the time of hearing before me. In this regard, it is observed that the case of inflation of purchases was indeed made out by the Assessing Officer by establishing that the purchases shown by the assessee were actually more than that shown by the concerned suppliers thereby making it clear that the gross profit rate of 1.90% declared by the assessee was on the lower side. Similarly the case of undisclosed purchases was also established by the Assessing Officer on the basis of inquiry directly made by him with one of the suppliers of the assessee, namely Life Drug House Pvt. Limited, which is sufficient to show that the assessee was indulging in some business outside the books of account. Having regard to all these facts and circumstances of the case, I am of the view that it would be fair and reasonable to estimate the turnover of the assessee’s business at Rs.2.50 crores as against Rs.2.28 crores and apply higher gross profit rate of 3% instead of 1.9% declared by the assessee. This would result in trading ./2016 Assessment year: 2006-2007 Page 6 of 6 addition of about Rs.3.20 lakhs as against the additions of Rs.9.45 lakhs made by the Assessing Officer. The Assessing Officer is accordingly directed to re-compute the income of the assessee.
In the result, the appeal of the assessee is partly allowed.