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Income Tax Appellate Tribunal, DELHI BENCH “B ”: NEW DELHI
Before: SHRI NARENDRA KUMAR BILLAIYA & SHRI ANUBHAV SHARMA
O R D E R PER ANUBHAV SHARMA, JM:
The assessee has come in appeal against the order dated 02.02.2018 passed by the Commissioner of Income Tax (Appeals), Ghaziabad (hereinafter referred as “learned First Appellate Authority” or in short “FAA”) in appeal no. 604879581280117 for the assessment year 2014-15, arising out of assessment
30.12.2016 passed by the Income-tax Officer Ward-1(2), Ghaziabad (hereinafter referred in short as “Ld. AO”) u/s 143(3) of the Act. 2. The assessee has raised following grounds of appeal.
“1. That the order of ld. Authority is bad in law and is against the facts & circumstances of the case.
That, learned CIT(A) grossly erred in not admitting the jurisdictional ground that addition is made beyond the scope of limited scrutiny by wrongly holding that the ground is factual.
3. That, without prejudice to above, n alternative on merits, learned CIT(A) grossly erred in sustaining addition of Rs. 82,41,726/- by applying ad-hoc rate of 8% though book of accounts impounded and accepted after repeated examination without finding any defect or invoking provisions of s. 145(3) or 144 of the Act, hence addition is against all the canons of law.
4. That, learned CIT(A) erred in not appreciating the facts on record like sale/purchase is 100% vouched, receipt/payment is through banking channel, purchases are FOR etc.
5. Because, the learned lower authority further erred in relying on imaginary doubts duly clarified by assessee but not backed with any material and/or direct enquiry, hence order is based on conjectures and surmises.”
2.1. The assessee has also raised additional ground as follows:
That addition of Rs. 8241726/- being 8% NP on turnover, made specifically u/s 68 of the Act is wholly against the said provision itself as well as law settled by hon’ble jurisdictional high court and other courts/tribunals, therefore addition is wholly illegal.
The assessee is a private limited company and declared income from business – trading of fabrics of Rs. 5,14,960/-. The case of assessee was selected for scrutiny through CASS. During assessment proceedings learned AO examined
the books of accounts i.e. ledger, cash book, sale/purchase bills for AY 2014-15. Learned AO was not satisfied with the transactions of fabrics with M/s Sybly Thread Ltd. and M/s Alps Industries Ltd. and also observed that there was no opening and closing stock of the assessee company and accordingly held that the impugned sales/purchases were bogus and made the addition at 8% net profit of turnover of Rs. 82,41,726/-. The learned CIT(Appeals) has sustained the same. Relevant findings in paras 5.2. and 5.2.2 are as follows:
“5.2 Ground nos. 1 to 5: The appellant has challenged the addition of Rs. 82,73,516/- made by the AO u/s 68. During the course of appellate proceedings the appellant ahs challenged the addition contending that addition has been made without routing through the provisions of section 145, disregarding the sale and purchase made by the appellant during the year.
5.2.1 “Examination of facts reveals that appellant claim to engaged in trading fabrics and declared loss of Rs. 18,697/-. The AO found difference in quantitative details filed during assessment proceedings and as given in the audit report. It is noted that even during assessment proceedings the appellant did not furnish any details to support the fact that appellant has undertaken the business activity of purchase and sale of shares. The AO also noted that there was no opening stock, no closing stock and no expenses regarding cartage or freight was debited to the P&L account and sales made to the parties namely M/s Sybly Thread Ltd. and to M/s Alps Industries Ltd. were made in the same pattern and same rate. The appellant claimed total sale of Rs. 10,30,21.585/- and purchase during the year of Rs. 10,36,56,700/-. Even during appellate proceedings no details of freight expenses etc. were given rather according to the appellant fabric was purchased on FOR basis (understood as free on rail or road basis). However, no document to substantiate the above said claim was furnished during the appellate proceedings. Considering above facts it is held that appellant failed to prove the genuineness of the alleged business undertaken by the appellant.
5.2.2 Considering the above facts and circumstances of appellant’s case where the purchase and sale of bed sheet and cotton fabrics is questionable and found to be non genuine by circumstantial evidence and lack of convincing evidence by the appellant, there is no hesitation in confirming the addition made by the AO being undisclosed income claimed by the appellant as trading profit u/s 68. The AO has rightly placed reliance on Sumati Dayal Vs. CIT (1995) 214 ITR 801 (SC), Durga Prasad More 82 ITR 540 (SC), McDowel & Co. Ltd. 154 ITR 148 (SC), CIT vs. RS Sibbal 269 ITR 429, Delhi, Sajan Das and Sons vs. CIT 264 ITR 435, Delhi, DC Rastogi vs. ACIT 57 ITD 295, Delhi. What needs to be considered is whether the transaction is a device to avoid tax and whether the transaction is such that judicial process may accord its approval to it. It has been held that judicial process can remove the ways to find the real nature of transaction and colorable devices cannot be permitted to be a part of tax planning. The substance of transaction should prevail over its form, has been held in the case of Karanpura Development Co. Ltd. vs. CIT(SC) 44 ITR 362.”
Heard and perused the record.
Learned AR submitted that addition on the basis of net profit is beyond the provisions of Section 68 of the Act. It was submitted that without invoking the provisions of Section 145(3) or 144 of the Act no addition on the basis of net profit could be made. It was specifically pointed out that case of M/s Sybly Thread Ltd. and M/s Alps Industries Ltd. are accepted u/s 143(3) of the Act and on examination of accounts and invoices no suspicion was found and accounts were accepted by the Revenue. As regards additional ground it was submitted that the jurisdictional defect is the pure question of law and can be raised at any stage and reliance in this regard was placed on the judgment of the Hon’ble Supreme Court in the case of National Thermal Power Co. Ltd. Vs. CIT (1998) 97 taxmann 358 (SC).
On the other hand, learned DR supported the findings of learned tax authorities below.
At the outset the additional ground being pure question of law stands admitted. 8. Appreciating the material on record it can be observed from the order of learned tax authorities below that the case of the assessee was selected through CASS citing the reasons “Suspicious Transaction relating to short term capital loss/long term capital gains on shares (inputs from investigation Wing)”. However, no addition on that count was made. 9. Learned AO has found the sales and purchases to be doubtful on the basis that no expenses with regard to cartages/freight charges have been debited to the P&L A/c., however, was unable to point out any specific deficiency or irregularities in the books of account as produced during the assessment proceedings. 10. It comes up from the order of learned AO that addition has been made u/s 68 of the Act but the orders show that the books of a/c of the assessee were doubted only for the reason there were no cartage expenses. However, without pointing out any specific irregularity in vouchers etc. and ignoring the fact that all transactions were through banking channels. Further ignoring the fact that there was no dispute with regard to identity of the parties or their business-worthiness to have transacted and without any enquiry from the two parties from whom assessee had purchased and sold the fabric addition was made. 11. In fact as the case of the assessee has been that no cartage/freight charges have been debited to the P&L A/c as assessee purchased fabrics on capital FOR and the freight etc. were borne by the seller. It was specifically pointed out that the purchases made from M/s Sybly Thread Ltd. were sold to M/s Alps Industries Ltd.
at the same rate, which was a business requirement. It was put up before learned CIT(Appeals) that advances were received in earlier years. However, the goods could not be supplied, therefore to compensate without charging any profit goods were sold to M/s Alps Industries Ltd. so absence of enquires from these parties is fatal.
In any case if the Ld. Tax authorities were doubting the sales and purchases as bogus then there was no logic to make addition on the basis of NP margin. If it was a case of bogus business shown in the books then either the assessee was entry operator and in that case addition of commission may have been justified or if was beneficiary of bogus transactions, then addition on the whole of amount doubted to be unexplained entry in books could have been justified. However, tax authorities erred in making addition u/s 68 of the Act on the basis of net profit percentage u/s 68 of the Act.
Thus the grounds ground raised and argued no 3 to 5 and additional ground are allowed. Appeal of the assessee is allowed. Order pronounced in open court on 03.08.2023.