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Income Tax Appellate Tribunal, DELHI BENCH ‘E’ NEW DLEHI
Before: SHRI ANIL CHATURVEDI & SHRI N.K. CHOUDHRY
This appeal has been preferred by the Assessee against the order dated 08.08.2019, impugned herein, passed by the learned Commissioner of Income-tax (Appeals)-16, New Delhi (in short “Ld. Commissioner”), u/s. 250(6) of the Income-tax Act, 1961 (in short ‘the Act’) for the assessment year 2015-16.
In the instant case, the appellant declared total income of Rs.20,66,940/- by e-filing its return of income on dated 30.09.2015 which was selected for limited scrutiny under CASS for the reasons (i) unsecured loans; (ii) other expenses claimed in the profit & loss account; (iii) low net profit or loss; and (iv) loss from currency fluctuations. The return of income to the tune of Rs.20,66,940/- was accepted by passing an order dated 06.12.2017 u/s. 143(3) of the Act.
Subsequently, the said order u/s. 143(3) of the Act was set aside by the Principal CIT by exercising the Revisionary Powers u/s. 263 of the Act with the direction to the Assessing Officer to examine the issue of low profit by calling the details of purchases, packing material charges, processing and freezing charges, addition to sundry creditors, advances from customers etc. The ld. PCIT also directed the Assessing Officer to examine why opening and closing stocks are “NIL” and why there is sharp fall in net and gross profit rate and after examination of such details and enquiries and giving opportunity to the Assessee of being heard, decide the issue on merits as per law.
The Assessing Officer in compliance to the order dated 10.01.2018 passed u/s. 263 of the Act, initiated the proceedings u/s. 143(3) read with section 263 of the Act and asked the Assessee to produce the details of meat and live buffalo purchased during the F.Y. 2014-15, purchase ledger, bills and vouchers. In response, the Assessee produced the list of 65 suppliers amounting to Rs.1,91,34,04,464/- along with the RTGS details of the money paid to suppliers. The Assessee also produced some self made vouchers and on confrontation claimed to be a trade practice but failed to establish such trade practice. The Assessee was also asked to provide addresses and PANs of all the suppliers, but the Assessee filed the addresses of 55 persons on 15.12.2018 when no time was left to the Assessing Officer for verification of all the purchases. Moreover 133(6) notices were sent to 29 parties, whose addresses were given initially, 22 of them either returned un-complied and did not reply to it.
The Assessee was also asked to produce the details of packing material charges amounting to Rs.1.29 crores and the processing and freezing charges amounting to Rs.5.31 crores and the details of outstanding sundry creditors. The Assessee was also asked to explain the reason for such sharp fall in GP from 24.4% in the preceding previous year to 2.21% in the concerned previous year and in the N.P. from 6.33% to 0.07%. Though the Assessee filed some details and documents, however, failed to substantiate its claim. Therefore, it was concluded by the Assessing Officer that this proves that all these were fake parties and thus, the books of account produced by the Assessee could not be relied upon and the books of account of the Assessee rejected u/s. 145(3) of the Act by the AO, on the below mentioned reasons :
“i. The assessee failed to substantiate purchases in proper manner. It is because purchase bills are self made and are not provided by the sellers of meat. In these circumstances the assessee failed to answer specific query raised in this regard as to how such goods are received without any invoices, how they are counted and on what basis the seller claims money against such sale. In this regard the assessees explanation that it is a common practice in such trade is rejected because both purchases and payments are not possible without purchase invoices. The assessee also failed to submit any weighing bridge vouchers issued to every' supplier and therefore assessees contention that purchase vouchers are not required in view of weighing bridge is also rejected because no weighing bridge slips were presented. It is interesting to note that if a seller of meat sells it without any invoices and is only partly paid, then how will the party know what is the balance payment without there being any sale vouchers. ii. In continuation of the above issue of not having valid purchase invoices there is another connecting issue whereby despite being given several opportunities, the assessee failed to submit name, address and PAN of many of the seller parties. To be precise out of a total 65 supplier parties, assessee couldn't produce such details of about 36 parties and therefore failed to prove genuineness of such purchases. iii. The point of questionable purchases is also visible in the details called on sundry creditors where reply for only 5 creditors out of 26 against a notice u/s 133(6) was received. iv. It may also be mentioned that wherever addresses of seller parties and sundry creditors were available , letters u/s 133(6) were sent but most of these letters returned unserved. Some letters were served but surprisingly replies were received in very few cases. v. In similar manner verification were also done by issuing letters u/s 133(6) to parties mentioned under the head "processing and freezing charges" and "packaging material charges" but these letters were either not served or no replies were received.”
4.1 The Assessing Officer consequently rejected the book results of the Assessee on the ground that the Assessee failed to give valid explanation for fall in GP ratio from 24.40% last year to 2.21% this year and the explanation of the Assessee that nature of business has changed is found misleading because same business of meat sales is continued in local and foreign markets. The business of the Assessee has only increased in volume and somewhat diversified. The Assessee has miserably failed to explain the reason for such sharp fall in G.P. ratio. Though the Assessee before the Assessing Officer also submitted the GP ratio of some cases being comparable, out of which two caseses namely, M/s. Al-Nasir Agro and Mr. Salahuddin Prop.of MDA Exports, were not found comparable to the Assessee’s case because they are mostly doing local meat sale and their exports are small whereas in the Assessee’s case major portion is export sales. The Assessing Officer ultimately by taking into consideration that sales are verified and not found questionable and comparing the Assessee’s own case for the preceding previous year wherein the GP ratio was @ 24.40% and GP Ratio @ 1.03% and 3.99% as declared in two comparable cases, determined the GP rate of the Assessee for the assessment year under consideration @ 3%. Resultantly, the Assessing Officer made the addition of Rs.1,59,87,516/- in the income of the Assessee.
The ld. Commissioner on appeal, on the similar footings as done by the Assessing Officer, affirmed the rejection of books of account by invoking the provisions of section 145(3) of the Act as well as the GP rate @ 3% to the turnover of the Assessee as applied by the Assessing Officer.
The Assessee before us claimed as under:
“The Assessee is carrying out the business activities in an unorganized sector and during the assessment proceedings submitted the details of the purchases made on the basis of self made purchase vouchers and certain documents from time to time as asked by the Assessing Officer during the assessment proceedings. It is a fact that the Assessee also provided seven confirmation letters from seven sundry creditors, out of 26 sundry creditors. The addresses along with PANs of all the sundry creditors outstanding as on 31.03.2015 were also provided to the Assessing Officer. Further, copy of ledger account of sundry creditors along with bank details were also provided to the Assessing Officer at the time of submissions dated 03.12.2018. Further, party-wise details of purchases containing the addresses and PANs of 55 suppliers out of total 65 suppliers were also provided. The Assessing Officer, in response to the notices sent u/s. 133(6) to 26 sundry creditors and to 29 meat suppliers, received reply directly from five sundry creditors and seven suppliers, in which no ambiguity was vpointed out by the Assessing Officer. It is a matter of fact that the payment to the suppliers made through banking channel and the same is submitted with complete details of payment, the details produced before the Assessing Officer in the format as suggested by him. As the Assessee submitted all the requisite information, explanation and documents during the assessment proceedings, as the same is also discussed in para No. 15, but still the Assessing Officer ignored all the submissions made by the Assessee qua purchases and wrongly declared the purchases made from fake parties only on account of that the notices sent u/s. 133(6) were either returned un- complied or did not reply. Even though the major group of suppliers of packing material was also produced before the Assessing Officer in order to substantiate the payment made to the suppliers qua packing material. It is a fact that packing material was purchased against the VAT invoices and all suppliers of packing materials are registered under the Trade Tax Act. Therefore, the doubt on the expenses of packing material cannot be justifiable merely on the ground that notices u/s. 133(6) of the Act were returned as un- delivered. With regard to the issue raised for the processing and freezing charges incurred of Rs.5.31 crores, the Assessee provided the ledger copy of suppliers of processing and freezing charges, entries of processing and freezing charges as well as the payments to the respective suppliers through banking channel only, which have been made after deduction of TDS as per the rate applicable on the payee. Therefore, the doubt on the expenses of processing and freezing charges is not justifiable merely on the ground that notices u/s. 133(6) of the Act were returned un-complied.”
6.1 With regard to the sundry creditors, the Assessee claimed as under:
“That payment either for purchase or expenses has been made through banking channel only. Even though five out of 26 creditors replied positively and no ambiguity pointed out by the Assessing Officer on such reply/confirmation, therefore, doubt on sundry creditors is also not justifiable. The books of account of the Assessee have, duly been audited by the Chartered Accountant and all the issues raised by the Assessing Officer, as discussed above, are duly substantiated with the documents and information asked by the Assessing Officer from time to time, therefore, the books of account of the Assessee are correct and complete in every aspect.”
We have given thoughtful consideration to the peculiar facts and circumstances of the case and observe that the Assessee not only failed to produce all the relevant details and documents before the Assessing Officer, but it is also a fact that the notices issued under the provisions of section 133(6) of the Act to 22 parties out of 29 parties either returned un-served or did not reply to it. Further, in order to verify the packing material charges, notices were sent to the suppliers u/s. 133(6) of the Act, however, most of the notices were returned unserved by the Postal Department with the comments like “left”, “no such person” etc. Similarly, in order to confirm the processing and freezing charges to the tune of Rs.5.31 crores, notices u/s. 133(6) were sent for confirmation, but most of which also returned as un- complied with the comments like “left”, “no such person” etc. Further, in order to verify the outstanding sundry creditors, the Assessing Officer also issued notices u/s. 133(6) of the Act to such sundry creditors, however only five sundry creditors replied out of 26 suppliers and rest were either un-complied or no reply was received from them. Further out of total 65 supplier parties, the Assessee could not produce the details of about 36 parties and the Assessee also failed to answer specific query as to how the goods were received without any invoice which the Assessee has claimed as a common practice. The Assessing Officer categorically held that the purchases and payments are not possible without purchase invoices. The Assessee also failed to submit any weighing bridge vouchers issued to every supplier. Therefore, the Assessing Officer raised the issue if seller of meat sells it without any invoices and is only partly paid, then how will the party know what the balance payment is without there being any sale vouchers. Though we are in agreement with the contention of the ld. AR that the Assessing Officer has not pointed out any ambiguity in the reply of seven parties out of 29 parties, however, it is an undisputed fact that maximum parties to whom notices have been issued u/s. 133(6) of the Act were not served as the notices sent were returned back with the remarks “left” or “no such person” etc. Therefore, the ld. Assessing Officer rightly drew the presumption against the Assessee’s claim. Consequently, on the aforesaid reasons, the Assessing Officer rejected the books of accounts of the Assessee and the ld. Commissioner has also rightly affirmed the rejection of books of account, invoking the provisions of section 145(3) of the Act. Hence, we are inclined not to interfere in the decision of the Ld. Commissioner in confirming the rejection of books of account by invoking the provisions of section 145(3) of the Act.
Coming to GP rate of 3% as applied by the Assessing Officer and affirmed by the ld. Commissioner, we observe from the orders passed by the authorities below that the Assessee had declared the GP rate of 2.21% in the year under consideration, which was rejected by the Assessing Officer on the ground that the Assessee has failed to give valid explanation for sharp fall of GP ratio from 24.40% (Last year) to 2.21% (this year). Further, though the Assessee has submitted the GP rates of some of the comparable cases, out of which two cases pertaining to M/s. Al-Nasir Agro and Mr. Salahuddin Prop. of MDA Exports, whose GP rates were 1.03% and 3.99% respectively, were not found comparable to the case of the Assessee on the ground that they are mostly doing local meat sales and their exports are small whereas in Assessee’s case major portion is export sale. However, the Assessing Officer by considering the Assessee’s own case in the F.Y. 2013-14 wherein the Assessee had declared 24.40 GP ratio and the GP ratio of the above referred two comparable cases, determined the GP ratio @ 3% as against 2.21% as declared by the Assessee.
We have given thoughtful consideration to the peculiar facts and circumstances and observe that in the F.Y. 2013-14, the turnover of the Assessee was only Rs.44,86,426/- whereas in F.Y. 2012-13, the turnover was Rs.10,30,89,361/- wherein the Assessee had declared gross profit ratio @ 2% only and in the F.Y. 2014-15, which is under consideration, the turnover of the Assessee raised to 200,04,03,166/- wherein the Assessee has declared gross profit ratio @ 2.21%. Therefore, in our considered view, the G.P. rate as declared in F.Y. 2012-13 on the respective turnover of Rs.10,30,89,361/- would be more relevant than to consider the GP rate declared by the Assessee in F.Y. 2013-14 on a total turnover of Rs.44,86,426/-. Though the Assessing Officer considered the aforesaid two cases, but found the same not comparable to the case of the Assessee, however, while determining the GP rate considered the GP of the said two comparable cases and the fact that the sales are verified and not found questionable.Therefore, considering the peculiar facts and circumstances in totality, we deem it appropriate to apply the GP ratio by considering the average of GP ratio declared by the Assessee @ 2% in the F.Y. 2012-13 and 1.03% and 3.99% respectively declared by M/s. Al-Nasir Agro and Mr. Salahuddin Prop. of MDA Exports, whose GP ratio have also been taken into consideration by the AO in determining the GP Ratio and consequently result would come to 2.34% (2%+1.03%+3.99%=7.02/3). Hence the AO is directed to recompute the GP rate accordingly.
In the result, the appeal filed by the Assessee stands partly allowed.
Order pronounced in the open court on 29/03/2023.