DCIT, CIR-22(1), MUMBAI vs. ASHISH S. JOBANPUTRA, MUMBAI

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ITA 2566/MUM/2013Status: DisposedITAT Mumbai14 October 2015AY 2009-104 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal upheld the order of the CIT(A), finding that while a portion of the purchases (Rs. 1.05 crores) remained unproven, the remaining purchases were sufficiently substantiated, especially after the assessee provided reconciliation statements. The Tribunal relied on the principle that books of account should not be rejected entirely if sales are not doubted and purchases are partially verified.

What were the facts?

The Assessing Officer (AO) disallowed purchases of Rs. 3.95 crores on the grounds that the assessee failed to substantiate them with proper documentation and proof of payment to farmers. The CIT(A) restricted the disallowance to Rs. 1.05 crores, considering that some purchases were substantiated.

What were the issues?

Whether the entire disallowance of purchases made from Unregistered Dealers (URD) was justified, or if a partial disallowance was appropriate based on the evidence provided by the assessee.

Which sections of the Income-tax Act were involved?

Section 68

AI-generated summary — verify with the full judgment below

Cases cited in this judgment(3)Show list

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आयकर अपीलीय आयकर अपीलीय अिधकरण अिधकरण, " ए” खंडपीठ खंडपीठ मुंबई मुंबई आयकर आयकर अपीलीय अपीलीय अिधकरण अिधकरण खंडपीठ खंडपीठ मुंबई मुंबई INCOME TAX APPELLATE TRIBUNAL,MUMBAI-“A”,BENCH सव"ी राजे"", लेखा सद"य एवं एवं एवं संजय गग", "याियक सद"य एवं Before S/Sh. Rajendra,Accountant Member & Sanjay Garg,Judicial Member आयकर आयकर अपील अपील संसंसंसं/.ITA No.2566/Mum/2013,िनधा"रण िनधा"रण वष" वष"/Assessment Year-2009-10 आयकर आयकर अपील अपील िनधा"रण िनधा"रण वष" वष" The Dy. CIT, Circle-22(1) Shri Ashish S. Jobanputra Room No.411, 4th Floor Vs 8, Parmeshwar Krupa, Tilak Road Tower No.6, Vashi Station Complex Ghatkopar (E),Mumbai-400 077. Mumbai-400 703. PAN:ADIPJ 8012 E (अपीलाथ" /Assessee) (""यथ" / Respondent) िनधा"रती िनधा"रती िनधा"रती ओर िनधा"रती ओर ओर सेसेसेसे/Assessee by ओर : Shri Devendra Jain राज"व क" ओर से/ Revenue by : Shri Raghuveer Madnappa सुनवाई सुनवाई सुनवाई क" सुनवाई क" क" तारीख क" तारीख तारीख / Date of Hearing :16- 09-2015 तारीख घोषणा क" तारीख / Date of Pronouncement : 14-10-2015 आयकर आयकर अिधिन अिधिनयम यम,1961 1961 क" धारा क" धारा 254 254(1)के अ"तग"त आदेश के अ"तग"त आदेश आयकर आयकर अिधिन अिधिन यम यम क" धारा क" धारा के अ"तग"त आदेश के अ"तग"त आदेश 1961 1961 254 254 Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा सद"य राजे"" के अनुसार PER RAJENDRA, AM- लेखा सद"य राजे"" के अनुसार लेखा सद"य राजे"" के अनुसार लेखा सद"य राजे"" के अनुसार Challenging the orders dt.24.01.2013 of CIT(A)-33,Mumbai, the Assessing Officer(AO) , has filed following grounds of appeal: “1.On the facts and in the circumstances of the case and in law, the ld. Commissioner of Income tax(Appeals) erred in restricting the disallowance of each purchases to Rs.1,05,43,677/- as against Rs.3,95,75,587/- disallowed by the Assessing Officer.

2.

The appellant prays that the order of CIT(A) on the above ground be reversed and that of the Assessing Officer be restored. 3.The appellant craves to leave amend or alter any ground or add any new ground, if necessary.” Assessee,an individual,engaged in the business of cotton trading,filed his return of income on 30.09.2009,declaring total income of Rs.50.52 lakhs.The AO completed the assessment u/s.143(3) of the Act,on 21.12.2011,determining the income of the assessee at Rs.4,68, 38, 180/-. 2.Effective ground of appeal is about restricting the disallowance to Rs.1,05,43,677/-,as against Rs.3,95,75,587/- disallowed during the assessment proceedings.During the assessment proceedings,the AO found that the assessee had made Unregistered Dealers (URD) purchases of Rs.3.95 crores,that he had made cash payment of Rs.2.89 Crores,that balance amount of Rs.1.05 Crores was reflected as balance outstanding and in sundry creditors in the balance sheet.He gave the assessee various opportunities to produce the parties and to file details of transportation of the goods.As per the AO,the assessee merely submitted the accounts of the parties,that in some cases it did not file full addresses of the parties from whom he had purchased goods.He directed the assessee to substantiate his claim by furnishing details of the parties along with documentary evidences and to show that all the purchases were covered under the provisions of Rule 6DD(e)(i).After considering the reply of the assessee,the AO held that he had not produced the corroborative documents to prove the purchase of Rs.3.95 crores,that he did not furnish the addresses of the parties from whom goods were purchased,that no stock register was produced,that no evidence was furnished that the payments were made to the cultivator/ grower/producer,that cash payments were made after 2-3 months,that payments for the purchases made in the October-November were claimed to have been made in subsequent year,that no evidence about such payments were produced.Finally,the AO held that an amount of Rs.3.95 crores represented unexplained 1

Ashish S.Johanputra-2566/13.AY.09-10 credit that was not verifiable.He added the said amount to the total income of the assessee u/s.68 of the Act. 3.Aggrieved by the order of the AO,the assessee preferred an appeal before the First Appellate Authority (FAA).Before him it was contented that during the year under appeal the assessee started trading in Kapas,that the farmers would accept payment in cash only,that he had produced the accounts,that all the corresponding sales were made to a big processing house, that he had received payment for the sold good by cheque, that assessee withdrawn huge cash for making payments against URD purchases,that necessary details of land holdings of the farmers were made available to the AO. After considering the submissions of the assessee the FAA observed that there was difference in the quantity details filed by him.So,he asked the assessee to reconcile the same. The assessee filed a detailed reply in that regard. Deliberating upon it the FAA held that the assessee had not shown trading in almonds and cotton seeds in the return of income,that the auditor had mentioned the fact about it in his report,that the assessee had claimed that he had gone into ginning and processing business,that the claim made by him did not much substance,that there was no documentary evidence to support the claim.He directed the assessee to file details of location of the factory.But,no details were made available by the him to the FAA.He held that the claim made by the assessee about purchase of raw cotton from URD remained unreconciled,that the assessee had not reconciled mismatch of quantity of raw cotton,that the assessee had produced any supporting evidence that the farmers from whom he had purchased the goods has actually grown cotton in their fields.He issued a fresh show cause notice to the assessee on 13.12.2012 to furnish party wise details of purchase of raw cotton quantity,amount,payment made against the same during the year and mode their of and balance outstanding on 31.03.2009. After considering the submissions of the assessee and the assessment order,the FAA held that in case of 44 parties the amount claimed as purchases remained outstanding, that the assessee was specifically directed to support his claim about those purchases,that the assessee had claimed that the sellers were farmers,that he did not produce certified extracts of 7/12,that he had produced such extracts in 16 cases only,that the extracts showed that the farmers were the owners of the land,that in many a cases those farmers had taken loans from the banks,the revenue records did not prove that cotton was grown in their fields,that identity of seller of goods was not supported by any identification card, that the assessee’s claim in absence of any proof of crop grown and the very fact that the 7/12 extract and form 8A could not be accepted, that these documents were downloaded from the internet and were not certified, same were liable to be rejected, that the assessee had failed to support his plea that goods had been purchased from persons who were farmers and grew raw cotton in their fields, that he had given logic for not maintaining proper documents and details for raw cotton purchased from those persons, that he had not explained the reasons for maintaining the documents, that without the documents the amounts outstanding in the books of account could not be verified, that the assessee himself had pleaded that disallowance u/s. 68 if at all was to be made same had to be restricted to Rs.1.05 crores. The FAA held that the cases cited by the assessee E- Land International (P) Ltd. (26 DTR 113) Saraf Gramudyog Sansthan (108 ITD 115) were no held, that the facts of the case under appeal were totally different. Accordingly,he held that the disallowance had to be made for the sundry creditors outstanding.Finally,he upheld the addition of Rs.1.05 crores out of disallowance made of Rs. 3.95 crores. 4.During the course of hearing before us the ,Authorised Representative (AR) stated that the assessee has produced quantitative reconciliation of goods purchased processed and sold before the FAA alongwith the alonwith stock movement of URD purchases, that proof of sale 2

Ashish S.Johanputra-2566/13.AY.09-10 of raw cotton and processed are also furnished besides the 7/12 extracts of the farmers, that FAA had accepted the purchases with regard to Rs.2.90 crores,that she had restricted the disallowance to Rs.1.05 crores only, he referred to the pages Nos.24 to 50 and 186-203 of the paper book and relied upon the case of Nikunj Exim enterprises Pvt. Ltd. (372 ITR 619), Liakat Ali M.Saddiq (81 TTJ 769) and E-Land International P.Ltd.(supra).He further argued that the gross profit for the year was 2.04% as compared to 0.39% and 0.47% for the earlier two A.Ys., that the AO had not rejected the books of account, that if the contention of the AO were to be accepted the gross profit would be 7.42%.Departmental Representative (DR) supported the order of the AO.

5.

We have heard the rival submissions and perused the material before us.We find that the FAA had,during the appellate proceedings directed the assessee to file various details with regard to the discrepancies highlighted by the AO in his assessment order, that after obtaining the reconciliation statement she had given a categorical finding of fact that in case of 44 parties the amount claimed as purchases made of raw cotton remained outstanding as on 31.3.2009,that in case of remaining purchases the assessee had produced necessary documents, that there was no justification for upholding the entire addition, that the AO had accepted the sales with regard to purchases made, that entire purchases could not be doubted.We find that after segregating the purchases in two categories the FAA had judiciously upheld a portion of it and deleted the other portion.It was found by her that the assessee had not proved the purchases to the tune of Rs.1.05 crores and she had confirmed the addition.As far as the remaining addition is concerned,we are of the opinion that her order does not suffer from any legal infirmity especially after the reconciliation statement was filed by the assessee before her.Here we would like to refer to the case of Nikunj Exim Enter - prises(P)Ltd.(supra) of the Hon’ble Bombay High Court wherein the court has held as under :- “We have considered the submission on behalf of the Revenue. However, from the order of the Tribunal dated April 30, 2010, we find that the Tribunal has deleted the additions on account of bogus purchases not only on the basis of stock statement, i.e., reconciliation statement but also in view of the other facts. The Tribunal records that the books of account of the respondent-assessee have not been rejected. Similarly, the sales have not been doubted and it is an admitted position that substantial amount of sales have been made to the Government Department, i.e., Defence Research and Development Laboratory, Hyderabad. Further, there were confirmation letters filed by the suppliers, copies of invoices for purchases as well as copies of bank statement all of which would indicate that the purchases were in fact made. In our view, merely because the suppliers have not appeared before the Assessing Officer or the Commissioner of Income-tax (Appeals), one cannot conclude that the purchases were not made by the respondent-assessee. The Assessing Officer as well as the Commissioner of Income-tax (Appeals) have disallowed the deduction of Rs. 1.33 crores on account of purchases merely on the basis of suspicion because the sellers and the canvassing agents have not been produced before them. We find that the order of the Tribunal is well a reasoned order taking into account all the facts before concluding that the purchases of Rs. 1.33 crores was not bogus. No fault can be found with the order dated April 30, 2010, of the Tribunal.”

Respectfully following the above and upholding the order of the FAA, we decide the effective ground of appeal against the AO.

As a result appeal filed by the AO stands dismissed. फलतः िनधा"रती "ारा दािखल क" गई अपील मंजूर क" जाती है Order pronounced in the open court on 14th October,2015. आदेश क" घोषणा खुले "यायालय म" "दनांक 14 अ"टूबर,2015 को क" गई । (संजय गग" / Sanjay Garg) (राजे"" / RAJENDRA) "याियक सद"य / JUDICIAL MEMBER लेखा लेखा सद"य सद"य / ACCOUNTANT MEMBER लेखा लेखा सद"य सद"य मुंबई/Mumbai,"दनांक/Date: 14.10.2015 व.िन.स.Jv.Sr.PS. 3

Ashish S.Johanputra-2566/13.AY.09-10

आदेश क" क" "ितिलिप "ितिलिप अ"ेिषत अ"ेिषत/Copy of the Order forwarded to : आदेश आदेश आदेश क" क" "ितिलिप "ितिलिप अ"ेिषत अ"ेिषत 1.Appellant /अपीलाथ"

2.

Respondent /""यथ" 3.The concerned CIT(A)/संब" अपीलीय आयकर आयु", 4.The concerned CIT /संब" आयकर आयु" 5.DR “A” Bench, ITAT, Mumbai /िवभागीय "ितिनिध, ए खंडपीठ,आ.अ."याया.मुंबई 6.Guard File/गाड" फाईल स"यािपत "ित //// आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार Dy./Asst.

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