Entire purchase cannot be disallowed for some bogus transaction


Entire purchase cannot be disallowed for some bogus transaction

IN THE INCOME TAX APPELLATE TRIBUNAL

The Text of the Order as follows :

The above captioned appeals filed at the instance of Revenue and Cross Objection filed by the assesse pertaining to Assessment Years 2009-10 & 2010-11 are directed against the orders of Ld. Commissioner of Income Tax (Appeals)-II (in short ‘Ld.CIT(A)’], Indore dated 31.05.2016 which is arising out of the order u/s 143(3)/147 dated 31.5.2016 framed by DCIT & JCIT, Khandwa respectively.

2. As the issues raised in these appeals are common these were heard together and are therefore being disposed off by this common order for sake of convenience and brevity.

3. We find that the Cross Objections filed by the assessee are delayed by 280 days and affidavits have been filed for condonation of delay. We have gone through the same and in the interest of justice we condone the delay of 280 days which in our considered view has occurred due to reasonable cause and thus admit the Cross Objections for adjudiciation on merits.

4. Respective I.T.A Numbers, grounds., Cross Objections and Ground are as under;

ITA No.882/Ind/2016 by Revenue

Assessment Year 2009-10

“1. The Ld. CIT(A) was not justified in restricting the disallowance made out of bogus purchase of Rs.5,49,177/- as against total addition made of Rs.62,50,997/-.

2. The appellant craves leave to add or otherwise amend the above grounds of appeal.

ITA.No.883/Ind/2016 by Revenue

Assessment Year 2010-11

“1. The Ld. CIT(A) was not justified in restricting the disallowance made out of bogus purchase of Rs.4,12,550/- as against total addition made of Rs.38,61,472/-.

2. The appellant craves leave to add or otherwise amend the above grounds of appeal.

C.O.No.51/Ind/2017 by Assessee
Assessment Year 2009-10

1. Without prejudice to addition deleted by Ld. CIT(A), the addition of Rs.5,49,117/- being 12.5% of the total alleged purchases liable to be deleted since the profit element in the sales against the alleged purchases have already been disclosed in the profit & Loss Account of the appellant.

2. Without prejudice to addition deleted by Ld. CIT(A), the addition Rs.5,49,177/- to be deleted since the GROSS PROFIT ratio and NET PROFIT ratios are higher as compared to earlier years.

The appellant craves leave to add, amend, alter and/or withdraw any of the grounds of appeal at the time of hearing.

C.O.No.51/Ind/2017 by Assessee
Assessment Year 2010-11

1. Without prejudice to addition deleted by Ld. CIT(A), the addition of Rs.4,12,550/- being 12.5% of the total alleged purchases liable to be deleted since the profit element in the sales against the alleged purchases have already been disclosed in the profit & Loss Account of the appellant.

2. Without prejudice to addition deleted by Ld. CIT(A), the addition Rs.4,12,550/- to be deleted since the GROSS PROFIT ratio and NET PROFIT ratios are higher as compared to earlier years.

The appellant craves leave to add, amend, alter and/or withdraw any of the grounds of appeal at the time of hearing.

5. We will first take up the revenue’s appeal for Assessment Year 2010-11 and since both the parties have agreed that the same issues have been raised by the revenue for Assessment Year 2009-10 also, our decision on adjudication of revenue’s appeal for Assessment Year 2010-11 shall apply mutandis mutandis on the appeal for Assessment Year 2009-10 also.

6. Brief facts of the case as culled out from the records for Assessment Year 2010-11 are that the assessee is an individual running sole proprietary ship concern in the name of Comprint Computers. Return of income was e-filed on 15.10.2010 which was subsequently revised declaring income of Rs.82,04,180/- and agriculture income of Rs.1,07,800/-. Case selected for scrutiny through Computer Assisted Scrutiny Selection (CASS). Notices u/s 143(2) and 143(1) of the Act duly served. Books of accounts, cash book, ledger sale, purchase bills & vouchers were produced. Various additions and disallowances were made by the Ld. A.O including the addition for unaccounted purchase at Rs.38,61,472/-. The instant appeal relates to the addition for unaccounted purchases. Ld. A.O on examining the records and also in light of the letter received from CIT(A)-II, Indore dated 1.3.2013 observed that the assessee had made purchase of goods from M/s. Soham International and M/s. Shweta Enterprises and Lifeline Pharmaceuticals and Madhur Impex. Both are having Permanent Account No.AEGPJ0412D and AIZPS7175D respectively and goods were purchased at Rs.12,57,012/-and Rs.20,43,392/- respectively. Though the assessee has submitted the purchase bills, audited financial statements with respective Permanent Account No as well as VAT registration numbers, he was unable to satisfy the Ld. A.O who was of the confirmed view that the alleged purchases including VAT paid @ 12% and commission paid at 5% are part of the bogus purchases and added them to the income. Income of the assessee assessed at Rs.1,37,58,671/- after making following additions;

7. Aggrieved assessee preferred appeal before Ld. CIT(A) challenging various additions made by the Ld.A.O and partly succeeded. As far as addition relating to unaccounted purchases is concerned Ld. CIT(A) restricted disallowance to Rs.4,12,550/- being 12.5% of the disputed purchases as the estimated profit embedded in alleged purchases. Ld. CIT(A) followed the judgment of Hon’ble Gujarat High Court in the case of CIT vs. Simit P. Sheth 38 Taxmann.com 385 (Guj) on arriving at this decision. Ld. CIT(A) also observed that the Ld. A.O neither rejected the books of accounts nor challenged the sales.

8. Aggrieved revenue is now in appeal before the Tribunal raising the sole ground against the finding of Ld. CIT(A) restricting the disallowance of bogus purchases at Rs. 4,12,550/- as against the addition of Rs.38,61,472/- made by the Ld. A.O.

9. Ld. Departmental Representative vehemently argued supporting the orders of Ld. A.O and contended that the alleged purchases are from group of concerns operating at Mumbai providing Tax paid bills and collecting payment through cheque and banking channels after payment of commission of its services charges and there is no actual delivery of goods.

Entire purchase cannot be disallowed for some bogus transaction

10. Per contra Ld. Counsel for the assessee contending that the alleged purchases cannot be categorized as bogus purchases and the total claim of purchases should have been allowed to the assessee. Ld. Counsel for the assessee further relied on the following written submissions placed on record.

1. General statement of 3rd parties recorded at back of the appellant whose copies were not provided to the appellant for confrontation. Further the statement of 3rd parties was general in nature and does not specify the appellant’s name nor appellant’s involvement in any no genuine bills. The appellant was not provided copy of statement and was not allowed opportunity of cross examination which is against principle of natural justice. (Hon’ble Supreme court in the case of Andaman Timber products vs. CCE reported in 127 DTR 241I 281 CTR 241)

2. No contrary evidence on record to prove the appellant had made any unexplained payments to unidentified parties, in absence of which sec 69C cannot be invoked.

3. The appellant made only al c payee cheque payments against supplies and had not made any unaccounted cash payment for purchase .of goods.

4. The Ld. AO has not rejected the books of accounts u/s 145(3). The appellant filed quantitative details of traded goods on record and even produced his audited books of accounts. The stock register justifies receipt and disposal of products. Sales have been accepted by the department (Pg. 129 of PB for audited P&L a/c).

5. To justify the genuineness of disputed purchase the and payments there on, following documents and details were submitted at the time of assessment proceedings:

a. Name, address, PAN, TIN of supplier
b. Ledger account of suppliers
c. Purchase bills
d. Bank statement evidencing the payments by the AI c payee cheque
e. Stock registers
f. Comparative GP NP chart for 3 years (Enclosed in PB at page 1-114)

9. The addition of entire purchase would be seriously unjustified as it would lead to a case of taxing entire sales without along with the rebate if corresponding purchase.

10. The Ld. AO without any justification and purely on basis of assumption and surmises erred in making the addition of sales tax (VAT) of Rs.2,29,394/- and unexplained commission of Rs.2,86,743/- without any corroborating material in hand.

11. Further, additional case laws enclosed Pgs (C )to (O)

12. Suppliers have been doubted, purchases have not been doubted.

11. Ld. Counsel for the assessee placed reliances on the following judgments;

1. CIT vs. Balchand Ajit Kumar 263 ITR 610 (MP-HC)
2. Man Mohan Sadani Vs. CIT 304 ITR 52 (MP-HC)
3. CIT vs. Simit P. Sheth 38 Taxmann.com 385 (Guj-HC)
4. CIT vs. Bholanath Poly Fab Pvt. Ltd 355 ITR 290 (Guj-HC)
5. CIT vs. Nangalia Fabrics Pvt. Ltd 40 Taxmann.com 206 (Guj-HC)
6. DCIT vs. Rajeev G. Kalathi ITA No.6727/Mum/2012
7.ACIT Vs G.V. Sons ITA No.2239/Mum/2012&2240/ Mum/2012
8. ITO vs. Eagle Implex ITA No.5697/Mum/2010
9. Madhukant B. Gandhi vs ITO ITA No.1950/Mum/2009
10.CIT vs. President Industries 258 ITR 654 (Guj-HC)
11.CIT Vs. Leaders Valves (P) Ltd 285 ITR 435 (P&H-HC)
12.Hiralal Chunilal Jain vs. ITO ITA No.4547/Mum/2014 dated 13.01.2016.
13. Ganpatraj A Sanghvi vs. ACIT ITA No.2826/Mum/2013
14. ITO vs. Shri Deepak Popatlal Gala ITA No.5920/Mum/2013
15. Ramesh Kumar & Co vs. ACIT ITA No.2959/Mum/2014
16. ACIT vs. Ramila Pravin Shah ITA No.5246/Mum/2013
17. ITO vs. Paresh Arvind Gandhi ITA No.5706/Mum/2013 dated 29.5.2015
18. CIT vs. Pokhraj P Doshi 43 Taxmann.com 46 (Guj)
19. CIT vs. Nikunj Eximp Enterprises(P) Ltd 35 Taxmann.com384 (Bom-HC) Confirmed by Hon’ble Apex Court vide civil appeal No.14828/2013 on 30.08.2013
20. Himalaya Distributors vs. ITO 239 DTR 267 (Pune-ITAT)
21. M.P. Malliwaql vs. JCIT 10 SOT 319 (Hyd-ITAT)(TM)
22. Rajmal Lakhichand vs. ACIT 79 ITD 84 (Pune-ITAT)

12. Ld. Counsel for the assessee also placed reliances on the judgment of Hon’ble High Court of Bombay in the case of PCIT V/s M/s. Mohommad Haji Adam & Co ITA No.1004 of2016 dated 11.2.2019 and also on the recent decision of Co-ordinate Bench, Mumbai in the case of V.R. Enterprises V/s ITO ITA No.4650/Mum/2018 order dated 16.05.2019.

13. We have heard rival contentions and perused the records placed before us and carefully gone through the decision referred, relied by the Ld. Counsel for the assessee. Revenue’s sole grievance is against the finding of Ld. CIT(A) restricting the addition for bogus purchase at Rs.4,12,550/- as against the addition for bogus purchase made by the Ld. A.O at Rs.38,61,472/-. We observe that the assessee is in the business of computer peripherals. Income of Rs. 82,04,180/- declared in the revised return of income. Books of accounts are regularly audited. Cash book, ledger sale, purchase bills and vouchers were produced. Books of accounts are not rejected u/s 145(3) of the Act. Quantitative details are regularly maintained. Sales declared by the assessee not been doubted by the revenue authorities at any stage. The issue raised before us relates to purchases from two concerns M/s. Soham International and M/s. Shweta Enterprises and lifeline Pharmaceuticals and Madhur Impex at Rs.12,57,012/- and Rs.20,43,392/-respectively. Ld. A.O had doubted the genuineness of the purchases and treated them as bogus purchases and added it to the income of the assessee along with VAT paid thereon and commission of Rs.1,65,020/- calculated @5%. Ld. CIT(A) restricted the disallowance to 12.5% of the alleged purchases bring down the addition toRs.4,12,550/- placing reliance on various judgments inclujding that of Hon’ble Gujarat High Court in the case of Cit Vs. Simit P. Sheth (supra) giving following finding of facts;

“Ground No. 9

9. This ground of appeal has been raised against the addition on account of bogus purchases of Rs. 38,61,472/-. The AO has discussed the issue at para 9 of the assessment order wherein the AO has treated the entire purchases made from two parties named Soham International and Shweta Enterprises amounting to Rs. 33,00,404/- along with VAT of Rs. 3,96,048/- (12% of Rs.33,00,404/-) and commission of Rs. 1,65,020/- (5% of Rs.33,00,404/-) totalling to Rs. 38,61,472/- as non-genuine and disallowed entire purchases for the reason that the above stated two parties were hawala dealers (non -genuine) by the Sales tax department, Mumbai and such parties were not found at their given addresses. During the course of appeal proceedings, the counsel of the appellant submitted that it has recorded confirmation of account, bank statements, stock register and sales bills, On perusal of the suppliers ledger account, it is observed that appellant has made the payments through banking channel. The AO has not issued notices 133(6) of Income tax Act, 1961 to the bank of the appellant nor of the suppliers to verify whether immediate cash was withdrawn against payments made by the appellant. Thus the AO has not brought on record conclusive proof that unaccounted money had been returned back to the appellant. The appellant has furnished the item-wise stock register to prove the receipt of materials. The AO has not even rejected the appellant’s books of account u/ s. 145(3) of the Income Tax Act, 1961. Admittedly, appellant has not produced the suppliers; however there is no evidence on record to justify that such parties had issued bogus bills to the appellant. The gross profit disclosed by the appellant in the impugned year is @10.39 on sales as against similar GP of 10 disclosed in the immediate preceding year.

9.1 The various judicial decisions relied upon by appellant support the case of the appellant wherein it had been decided that the purchase parties found as bogus would not mean that the purchases is also bogus and that the entire sales cannot be brought to tax and it is only the profit embedded on disputed transactions that could be brought to tax. In case of CIT vs. NikunjEximp Enterprises (P) Ltd. reported in 35 Taxmann.om 384 ,Hon’ble Bombay High Court decided that-

“Assessing officer disallowed income of assessee alleging non-genuine purchase from different parties Commissioner (Appeals) upheld order of Assessing Officer -Assessee filled letter of conformation of suppliers ,copies of bank statement showing entries of payment through account payee cheque to suppliers and stack reconciliation statement -Sales of the purchased goods were no doubted and substantial amount: of sales made by assessee was to Government Department – further ,books of accounts of the assessee has not been rejected -Tribunal deleted disallowance – Whether merely because suppliers had not appeared before Assessing Officer or Commissioner (Appeals), it could not be concluded that purchases were no made by assessee -Held yes”.

In case of ITO vs. Deepak Popatlal Gala ITA No.5930 /Mum /2013, Hon’ble Mumbai -ITAT decided that-

“In all the above cases the Co-ordinate Benches of the Tribunal has held that the A.O. was not justified in makinq the addition on the basis of statements given by third parties before the Sales Tax Department without conducting any other investigation. In the instant case also, the assessing officer has made the impugned addition on the basis of statements given by the parties before the Sales Tax Department. We notice that the Ld.CIT (A) has taken note of the fact that no sales could be effected without purchases.He has further placed reliance on the decision rendered by Hon’bleGujaraj High Court in case of CIT Vs. M.K Brothers (163 ITR 249}.He has further relied upon decision rendered by the Tribunal in the case of ITO Vs. Premanarui (2008) (25 SOT 11) (Jodh},wherein it has been held that where the A. O. has made addition merely on the basis of the observation made by the Sales Tax Department and has not conducted any independent enquiries for making the addition especially in case where the assessee has ischarged its primary onus of ITA No- 5920/mum /2013 showing books of accounts ,payment by way of account payee cheque and producing vouchers for sales of goods ,such an addition could not be sustained. The Ld. CIT(A) has also appreciated the contention of assessee that he was nat provided with an opportunity to cross examine the seller ,which is required to be given as per the decision of Hon’ble Kerala High Court in the case of Ponkunnam Traders (83 ITR 508 & 102 ITR 366).Accordingly ,the Ld. CIT(A) has deleted the impugned addition. On a careful perusal of the decision rendered by Ld. CIT(A}would show that the first appellate has analysed the issue in all angles and applied the ratio laid by the High Courts and Tribunals in deciding this issue.Hence ,we do not find any reason to interfere with this order on this issue”.

For Further Details – Read Full Order

Tags:  JudgementAppellant TribunalIncome Tax

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