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Income Tax Appellate Tribunal, DELHI ‘G’ BENCH,
Before: SHRI N.K. BILLAIYA, & MS. ASTHA CHANDRA
PER N.K. BILLAIYA, ACCOUNTANT MEMBER:-
This appeal by the assessee is preferred against the order of the ld. CIT(A), Karnal dated 27.11.20189 pertaining to Assessment Year 2010-11.
The substantive grievances of the assessee read as under:
“1. That the Id. CIT(A) has erred in law and on facts while confirming the assessment order passed by the ld. AO without appreciating the fact that reasons to believe recorded for initiating proceedings uls 147 of the Income Tax Act, 1961 must be reasonable and based on reasons which are relevant and material, which is not so in the present case. Hence, the reopening of this case is not valid and tenable as per law. As such, the assessment order may please be quashed.
2. That the ld. CIT(A) has erred in law and on facts while upholding the decision of the ld Assessing Officer account of purchases made from Ganpati Enterprises without appreciating the submissions of the assessee. As such the addition of Rs. 10,99,578/- may please be deleted.
3. That the ld. CIT(A) has erred in law while not considering that the ld. AO has made an addition of Rs. 10,99,578.000 on account of appreciating the supporting documents placed on record by the assessee in respect of purchases made from Ganpati Enterprises to prove the genuineness of the transactions. As such, the addition of Rs. 10,99,578.00 may please be deleted.
4. That the ld. CIT(A) erred in law and facts of the case while not appreciating that the fact that ld. Assessing Officer has made addition of Rs.10,99,§78 on account of bogus purchases whereas reasons to believe
were recorded only for Rs.10,52,140. As such the addition of Rs. 10,99,578/- may please be deleted.”
Briefly stated, the facts of the case are that, during the course of scrutiny assessment proceedings, on the basis of information received from the office of the DDIT, Investigation, Panipat, the Assessing Officer came to know about the purchases made from M//s Ganpati Enterprises, which are not genuine but are accommodation entries.
During the course of scrutiny assessment proceedings, statement of Shri Rajesh Kumar, P/o M//s Ganpati Enterprises was recorded u/s 131 of the Income-tax Act, 1961 [the Act, for short] accepting that he is not doing any business, but was only providing accommodation bills.
The assessee was asked to prove the genuineness of the purchases made from M//s Ganpati Enterprises.
In its reply, the assessee explained that purchases are genuine and are supported by invoices from M//s Ganpati Enterprises on which VAT has been separately charged and paid by the assessee. It was further explained that since the purchases are made in the month of March, entire purchases are part of closing stock as on 31st March and, therefore, it would be a futile exercise in treating the purchases as bogus as it would amount to removal of the same from stock in trade as on 31st March and the entire exercise would be Revenue neutral.
The contention of the assessee did not find any favour with the Assessing Officer who proceeded by making addition of the entire purchases from M//s Ganpati Enterprises.
The assessee agitated the matter before the ld. CIT(A) but without any success.
Before us, the ld. counsel for the assessee reiterated what has been stated before the lower authorities.
We have carefully perused the orders of the authorities below. The entire dispute is that the entire purchases from M//s Ganpati Enterprises was made in the month of March. It is also an admitted fact that the entire purchases are part of closing stock as on 31st March, which means that if the alleged purchases from M//s Ganpati Enterprises are treated as bogus and the entire purchases of Rs. 10,99,578/- including VAT is excluded from the purchases, then the same amount has to be excluded from the stock in trade as on 31st March, which would make the entire exercise futile and Revenue neutral for the year under consideration.
However, at the same time, if we agree with the contention of the Revenue that M//s Ganpati Enterprises was providing accommodation entries/accommodation bills, then the assessee must have paid something for arrangement of accommodation bills and normally, in such line, commission ranges from 0.5% to 1%. Therefore, for the purchases of Rs. 10,52,140/- excluding VAT, the assessee must have paid commission of 1%. Therefore, we direct the Assessing Officer to restrict the addition to the extent of 1% of the purchases of Rs. 10,52,140/-.
The ld. counsel for the assessee did not press the ground relating to reopening of assessment. The same is, therefore, dismissed as not pressed.
In the result the appeal of the assessee in is partly allowed.
The order is pronounced in the open court on 10.05.2023.