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Income Tax Appellate Tribunal, DELHI BENCH: ‘A’ NEW DELHI
Before: SHRI J. SUDHAKAR REDDY & SHRI A.T. VARKEY
PER J. SUDHAKAR REDDY, ACCOUNTANT MEMBER
These are Cross Appeals directed against the order of the Ld.CIT(A), Rohtak dt. 25.3.2013 for the A.Y. 1995-96.
ITA 3618/Del/2013 & ITA 3920/Del/13 A.Y. 1995-96 BRD Textiles (P) Ltd.
This case has a checkered history. Briefly the facts are as follows. The assessee company is in the business of manufacturing of cotton yarn. Originally it filed its return of income on 28.11.1995 declaring loss of Rs.19,99,178/-. The AO completed the assessment u/s 143(3) of the Income Tax Act 1961 (the Act) on 30th March, 1998 determining total income at Rs. 1,02,12,490/-. The additions/disallowances that are in dispute in this current appeals were originally made in this A.Y. These are: (a) Disallowances on account of purchases from M/s Surendra Cotton & Co. Rs.7,16,316/-, (b) Disallowance on account of purchases from M/s Neeraj Cotton factory Rs.5,97,048/-, (c) Trading addition of Rs.1,00,39,238/-.
The A.O. at para 3.11 page 8 observed as follows. “3.11. In the light of aforesaid facts when the fall in G.P. had not been substantiated, despite opportunities given nor any evidence in support of reasons given in letter ….. of fall in G.P. rate has been submitted the assessee having not explained the reasons for debiting bogus purchases particularly of M/s Surendra Cotton & Co. and M/s Neeraj Cotton Factory, there is no recourse but to reject the trading results of the assessee u/s 145(2) of the Act and by applying last year G.P. rate of 25% on the estimated sales of Rs.7.5 crores, gross profit of Rs.7.5 lacs is worked out resulting in addition of Rs.1,13,52,602/- (1,87,50,000 – 73,97,398). However since addition on account of bogus purchases from Surendra Cotton Co. Rs.7,16,315/- & Neeraj Cotton Factory Rs.5,97,048/- have separately been made, accordingly trading addition of only Rs.1,00,39,238/- is made here.”
ITA 3618/Del/2013 & ITA 3920/Del/13 A.Y. 1995-96 BRD Textiles (P) Ltd.
The assessee carried the matter in appeal. Before the Ld.CIT(A) the assessee raised many specific contentions and also brought out numerous errors committed by the AO including commissions and omissions and submitted that the additions cannot be sustained. Specific evidences were filed. The contentions are brought out by the Ld.CIT(A) from pages 4 to 16 of his order thereafter the Ld.CIT(A) at para 4 page 17 of his order has held as follows.
4. On going through the written submissions I am convinced that not only there are serious mistakes of facts and figures while drafting the assessment order but the AO has failed to give reasonable opportunity to the assessee before passing the assessment order. Had he given reasonable opportunity of being hears specially on the issues against which he has made additions, these mistakes and discrepancies could not have been occurred. Further, the A.O. has made a trading addition of more than Rs.1 crore but as mentioned in the written submissions above clearly it is not based on material and sound reasoning. Obviously, the addition is not only excessive but contains many mistakes while computing the amount of said additions.
3.1. He remanded the matter to the file of the A.O. The A.O. passed a fresh assessment u/s 143(3) r.w.s. 253 of the Act on 21.3.2001. In this order he has not dealt with any of the specific contentions raised by the assessee nor with any of the evidences filed. The assessee carried the matter in appeal and the Ld.CIT(A), Rohtak in his order dt. 22.7.2002 partly allowed the case of the assessee. On the addition of Rs.5,97,048/- pertaining to purchases jfrom M/s Niraj Factory, the Ld.CIT(A) upheld the addition. Similarly the addition of Rs.7,16,319/- being purchases made
ITA 3618/Del/2013 & ITA 3920/Del/13 A.Y. 1995-96 BRD Textiles (P) Ltd. from M/s Surendra Cotton Co. was also confirmed. Further an addition of Rs.1,39,00,238/- made on the ground that there is an unrealistic fall in the gross profit rate was confirmed. The assessee carried the matter in appeal. The Delhi D Bench of the Tribunal in ITA 3808/Del/2002 order dt. 8.9.2006 at para 5 held as follows.
5. We have heard Shri Rakesh Gupta for the assessee and Shri KC Jain for the Revenue. As regards ground nos. 1 to 7 it is to be held that the issue needs to be relooked by the AO afresh. When the matter was remanded back originally by the Ld.CIT(A) by his order dt. 18.12.1998, the AO was not justified in reiterating the finding in the original assessment. The AO was required to state whether the discrepancies in the accounts were reconciled or in respect of which satisfactory explanation has been filed or not. As rightly contended by Dr.Gupta, once the assessee has been able to file details in respect of discrepancies still exist or not and whether they were irreconcilable. Since the details were filed in this regard it is incorrect on the part of the AO to ignore such details. We accordingly restore the matter back to the file of the AO to consider the issues raised in ground nos. 1 to 7 afresh and to arrive at a finding as to whether such additions made are sustainable or not. The AO shall afford reasonable opportunity of being heard to the assessee. The assessee is also directed to cooperate in the matter and file all the details in this regard.
3.2. The impugned order was passed by the A.O. on 15.5.2007 on this order of remand by the Tribunal. In this order which runs into 3 pages the A.O. simply repeated the additions made. On appeal the First Appellate Authority vide his order dt. 25.3.2013 deleted the addition of Rs.1,39,00,238/- made on account of trading addition and confirmed the disallowance on purchases of Rs.7,16,316/- and Rs.5,97,048/-. On the ITA 3618/Del/2013 & ITA 3920/Del/13 A.Y. 1995-96 BRD Textiles (P) Ltd. trading addition he held that the AO had made addition on account of alleged bogus purchases only to the extent of Rs.7,16,316/- and Rs.5,97,048/- and has not made addition of any other purchases. He deleted the addition on the ground that the AO only doubted the purchases made from other parties as well as the sales made by the assessee and simply made a gross profit addition without verification of the evidences, vouchers, books etc., though, the books of accounts were impounded and were very much in the possession of the department.
Aggrieved the Revenue as well as the assessee are in appeal before us.
In the Revenue’s appeal the deletion of the addition on account of low gross profit rate of Rs.1,00,39,238/- is disputed and in the assessee’s appeal the addition on account of two bogus purchases is disputed.
We have heard Sh.K.K.Jaiswal, Ld.Sr.D.R. on behalf of the Revenue and Shri Naveen Gupta, the Ld.Counsel for the assessee.
The contention of the Ld.Sr.D.R. is that the assessee has not cooperated nor produced any evidences nor substantiated the purchases or sales made by them in any of the three rounds of assessment proceedings. He further submitted that enquiries made by the AO directly with third parties did not support the claim of the assessee and that the books were rightly rejected by the A.O. and profit estimated. He found fault with the findings of the Ld.CIT(A). In reply the Ld.Counsel for the assessee submitted
ITA 3618/Del/2013 & ITA 3920/Del/13 A.Y. 1995-96 BRD Textiles (P) Ltd. that the company is in liquidation and all the books and records are in the possession of the department and that the A.O. could have verified the same. He further submitted that the assessee has raised specific contentions and pointed out numerous errors arithmetical and otherwise committed by the AO, in the first round of appellate proceedings before the Ld.CIT(A), which was recorded by him in order dt. 18.12.1998. The Ld.CIT(A) has elaborately recorded the factual mistakes and errors committed by the AO, wrong conclusions drawn, as well as the evidences produced by the assessee. He submitted that instead of meeting each and every contention of the assessee and considering the evidences and submissions, and without rectifying the errors and mistakes pointed out, the AO has simply repeated the addition. He pointed out that after a detailed exercise the AO could find only purchases from two parties as bogus purchases from out of huge purchases of around Rs.7 crores done by the assessee. He submitted that in case the AO was of the view that the purchases were bogus and not proved, then the entire purchases should have been disallowed and not only two purchases totaling to Rs.13,13,364/-. He vehemently contended that rejection of books of accounts is bad in law and the rate of profit adopted by the AO is arbitrary and against facts of the case.
7.1. After hearing rival contentions we find that the assessee has pointed out many factual mistakes, arithmetical errors in the first assessment order. It had also made specific submissions on each and every item of addition made by the AO in the first round of appellate proceedings before the Ld.CIT(A). Evidence was lead by the assessee before the Ld.CIT(A). The ITA 3618/Del/2013 & ITA 3920/Del/13 A.Y. 1995-96 BRD Textiles (P) Ltd. Ld.CIT(A) directed the AO to consider and specifically addressed each and every contention of the assessee. The A.O. was directed to rectify the errors and mistakes. This was not done. The books and records have been seized by the Revenue and it is in possession of the A.O. No verification was done of these books and records. The assessee company is under liquidation and under those circumstances, it is for the Revenue to have verified the contentions raised by the assessee along with the books and other records in its possession. The AO has not done this exercise and for the third time repeated the addition. The addition is based on wrong facts and wrong figures as demonstrated by the assessee in the first round of appellate proceedings itself. After a detailed exercise the AO has made only two additions on the ground that these are bogus purchases amounting to Rs.13,30,364/- only. This means that the balances purchases of around Rs.6.07 crores is found to be genuine by the AO. Under such circumstances, merely based on doubts, inference has been drawn against the assessee. On these facts and circumstances we are of the considered opinion that the order of the First Appellate Authority, deleting the addition in question, has to be upheld. Despite repeated remands to the A.O. by the appellate authorities the exercise directed to be done, was not carried out and simply blame is put on the defunct assessee company, when in fact all the required material are in the possession of the AO. After verification with third parties, the A.O. found that only two purchases are bogus. Out of purchase of above Rs.7 crores only about Rs.13,13,364/- worth of purchases held as bogus. Thus there is no way the balance purchases can be rejected as bogus. The books are rejected based on surmises and conjectures. The rate
ITA 3618/Del/2013 & ITA 3920/Del/13 A.Y. 1995-96 BRD Textiles (P) Ltd. of G.P. applied by the A.O. is erroneous and against the facts of the case. Thus we uphold the order of the First Appellate Authority and dismiss this appeal of the Revenue.
Coming to the assessee’s appeal, on the two additions made on account of bogus purchases, the Ld.CIT(A) at para 4.4 observed that the ITAT for the subsequent A.Y. 2006-07, deleted a similar addition by observing that, bogus purchases would be having corresponding bogus sales as well. Thereafter he confirmed the addition. Consistent with the view taken by the Co-Ordinate Bench of the ITAT in the assessee’s own case for the subsequent A.Y. 2006-07, we direct that only the gross profit @ 14%, of Rs.13,13,364/- may be brought to tax as these bogus purchases. The balance addition on account of bogus purchases is hereby deleted.
In the result the appeal of the Revenue is dismissed and the appeal of the assessee is partly allowed.
Order pronounced in the Open Court on 15th December, 2015.