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Income Tax Appellate Tribunal, MUMBAI BENCH “C”, MUMBAI
Before: SHRI D. KARUNAKARA RAO & SHRI AMIT SHUKLA
आदेश ORDER अिमत शु�ला, �या. स.: PER AMIT SHUKLA, JM:
The aforesaid appeal has been filed by the assessee against impugned order dated 20.10.2010, passed by CIT(A)-33, Mumbai for the quantum of assessment passed u/s 143(3) for the assessment year 2007-08, mainly on the following grounds :- “1. That on the facts and circumstances of the case and in law the learned CIT (A) erred in conforming the addition of Rs. 35,99,465/- made by the assessing officer on account of unproved purchases without considering the details filed before him.
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2. That while confirming the addition of Rs. 35,99,465/- to the returned income on account of unproved purchases the learned CIT(A) has taken irrelevant into consideration and thereby arrived at an erroneous conclusion.
3. That the learned CIT(A) failed to appreciate that M/s Naraqyan Polyplast had filed the details and the payment to the said party was made by payee’s a/c cheque. 4. That the learned CIT(A) further failed to appreciate that the addition sustained u/s 41(1) of the I.T. Act, 1961 the liability has not ceased and in fact the appellant had made the payment in the subsequent years by payee’s a/c cheque. 5. That the learned CIT(A) further failed to appreciate the fact that the G.P. shown in the year under consideration is higher than the G.P. of previous year and hence there is no question of inflating the purchases”.
Brief facts are that, the assessee in his proprietary concern is carrying out the business of manufacturing plastic goods. In the books of accounts, the assessee had shown gross profit @ 23.77% on turnover of Rs. 89,27,756/- as against gross profit @ 29.69% on turnover of Rs. 80,89,061/- in the preceding year. The AO noted that the assessee had shown purchases to the tune of Rs. 64,70,932/- and sundry creditors as on 31.03.2007 at Rs. 40,22,864/-. In order to verify the genuineness of the purchase and sundry creditors he issued letters to some of the parties u/s 133(6), however some of these letters ‘returned unserved’ as the said parties were not available at the address given by the assessee. The AO also deputed Inspector, in case of certain parties, however, some of them could not get confirmed. Accordingly, AO after detailed remark on each and every parties shown under the 3 Chandrakant Manilal Thakkar head “purchases” and “sundry creditors”, made the addition on account of un-proved / inflated purchases for sums aggregating to Rs. 35,99,465/-. The parties name under whom the said addition on account of Unproved/inflated purchases were made are as under :- a) M/s Amrut Traders Rs. 2,38,810 b) M/s Mahajan Impex Rs. 3,60,256 c) M/s Vardhaman International Rs. 8,81,140 d) M/s Abhijit Enterprises Rs.10,52,883 e) M/s Shah Trading Corpn. Rs. 3,47,400 f) M/s Narayan Poly Print Rs. 4,45,428 Rs.35,99,465 =========== Besides this, AO also made separate addition on account of cessation of liability u/s 41(1) in the case of one party, M/s Rajesh Trading for Rs. 1,46,548/-.
Ld. CIT(A), too confirmed the said addition after following the decision of ITAT Bangalore in the case of Shri Suresh K Jain vs ITO in ITA No. 667/Bang/2009.
Before us, Ld. Counsel submitted that, assessee had submitted the ledger account of the parties and the bank statement showing the payment by cheque and also one of the parties M/s Narayan Poly Print through its C.A. had confirmed the transaction. He further submitted that all the payments of the purchases were made through banking channels and the GP rate as well as NP rate was higher as compared to earlier years and subsequent years. If the addition made by the AO is added in the trading account then the gross profit will work out to 64.25% which is too abnormal. The un-proved purchases as added by the AO constitutes approximately 54% of the total purchases and if sales are not doubted, then entire purchases cannot be disallowed. Out of the 12 parties, only 4 parties did not responded u/s 133(6) and, therefore, adverse inference should not be drawn. Besides
4 Chandrakant Manilal Thakkar Ld. Counsel submitted that so far as addition on account of 41(1) of Rs. 1,46,558/- with respect to one party, M/s Rajesh Trading is concerned, Ld. Counsel submitted that assessee is now filing additional evidences showing payment as well as the income on this score offered by the assessee in the subsequent year. Therefore, this matter can be verified by the AO and appropriate relief can be given.
On the other hand, Ld. DR strongly relied upon the order of the AO as well as CIT(A).
After considering the rival submissions and on perusal of the impugned orders, we find that first of all, the main addition has been made for sums aggregating to Rs. 35,99,465/- on account of unproved purchases. The addition has been made on the ground that some of the parties have not confirmed the purchases in response to the notice issued u/s 133(6) as they were not traceable on their respective addresses. We find that the assessee had shown turnover of Rs. 89.28 lakhs in this year as compared to Rs. 80.9 lakhs in the earlier year. The gross profit shown by the assessee is also high that is 23.77% in the earlier years as against 21.69% in this year. If the entire purchases are to be disallowed, then assessee’s GP will be enhanced to 62.5%, which looking to the past and subsequent history of the assessee is much too high and excessive. The purchases even if are not accepted, then also it is seen that these purchases have been made through account payee cheques and there is no information on record that these purchases have been routed through accommodation bills from such parties. Therefore, the source of making the purchases is from the books of account only. In any case, if the entire purchases are not verifiable, then it can only lead to rejection of books of account. If any addition at all is called for in such situation then same should be made on account of gross profit after bringing on record certain comparable cases as GP shown by the assessee is not correct. Thus, in the interest of justice, we feel that this matter
5 Chandrakant Manilal Thakkar AO to make proper assessment of income and after examining the books of account in principle laid down by the Hon’ble Bombay High Court in the case of CIT vs Nikunj Eximp Enterprises (P) Ltd., reported in [2013] 216 Taxman 171, as relied upon by the Ld. Counsel, wherein it has been held by Hon’ble High Court that, if the sales are supported by purchases and payments have been made through banking channels then mainly because suppliers are not traceable or had not appeared before the AO, purchases could not to be rejected as ‘bogus’. Accordingly, we direct the AO to examine the issue in the light of the decision of the Hon’ble High Court. If the books of account are found reliable then no addition should be made. Regarding addition u/s 41(1), the assessee had filed additional evidences before us which we take into account and admit the same and remand the matter to the file of the AO who will scrutinize and examine the contention of the assessee that the income has been offered in the subsequent year. Accordingly, on both the scores the matter is restored to the file of the AO.
In the result, appeal filed by the assessee is partly allowed for statistical purposes. Order pronounced in the open court on 30th October, 2015.
Sd/- Sd/- (िड. क�नाकर राव) (अिमत शु�ला) लेखा सद�य �याईक सद�य (D. KARUNAKARA RAO) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Date: 30th October, 2015 ��त/Copy to:- 1) अपीलाथ� /The Appellant. 2) ��यथ� /The Respondent. 3) The CIT(A) -33, Mumbai. 4) The CIT -23, Mumbai. 5) िवभागीय �ितिनिध “सी”, आयकर अपीलीय अिधकरण, मुंबई/ The D.R. “C” Bench, Mumbai.