TaxTMI 
TaxTMI 
2014 (8) TMI 720
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....sessee is a registered firm engaged in the business as a wholesale dealer in Iron and Steel. It filed its return of income on 31-08-2008 declaring income of Rs. 36,01,340/-. During the course of assessment proceedings the Assessing Officer observed that as against gross turnover of Rs. 44.89 crores the assessee has declared gross profit of Rs. 1.31 crores only which worked out to 2.93%. Since the gross profit disclosed by the assessee was very low, the Assessing Officer made enquiries to ascertain the genuineness of claim of purchases. From the addresses of all the suppliers given by the assessee, the Assessing Officer called for information u/s.133(6) of the Income Tax Act from 34 suppliers. Further enquiries were also conducted through the Ward Inspector. The Assessing Officer noted that out of the 34 notices issued u/s.133(6) to the suppliers, 14 notices came back unserved for the reason that the said suppliers were not existing at the addresses given by the assessee. Enquiries conducted through the Inspector revealed that one M/s. Bharat Steel Company, Room No.56, Khetsi, Chaturbhuj Building, 172/86, S.T. Road, Mumbai 400 009 was not available at that address. Even the Telephon....
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....comparison, the AO selected the same size and same date. From the above exercise, he found that the purchase rates from Bharat Steel Company, Mumbai, are more than the rates charged by Bhuleswar Steel and Alloys Pvt. Ltd., and Shri K.N.Mahalaxmi Ispat Pvt. Ltd. According to the AO, there is no reason as to why the assessee should buy the same product from a small trader when the same product is supplied at a lower rate by standard companies. He prepared a chart which is as per pages 4 and 5 of the assessment order to find out the difference between rate paid to Bharat Steel Company and other supplier and noted that the excess rate paid to Bharat Steel Company varies from 19.14% to 32.25%. 2.3 The compilation so done by the AO was brought to the notice of the authorized representative of the assessee during the course of the assessment proceedings. However, no satisfactory explanation was provided to the AO. In view of the above, the AO held that the assessee has boosted the purchases by taking accommodation entries from bogus concerns like Bharat Steel Company, Mumbai. In view of the above, the AO issued a show cause notice to the assessee on 27-12-2010 which reads as under (Para ....
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....d to reject the books of account of the assessee." 2.4 In response to the said notice, it was explained by the assessee that the entire purchases are genuine and from suppliers who at the time of purchases were in existence and were carrying out business from the addresses given in the bills. It was explained that the books of accounts along with purchases and sales were produced for verification. The books of accounts are audited. The total purchases were effected on credit basis and payments to all the suppliers were effected from time to time by crossed account payee cheques. Sales are also effected on credit basis and payment received through bank account. It was submitted that the assessee has no control over the creditors and it has no concern whatsoever as to what was done by Bharat Steel Company in its bank account or by other suppliers. It was clarified that the rate of gross profit is dependent on market conditions and the price of the commodity in which the assessee deals are subject to volatile fluctuation on daily basis through the year. It was further explained that since books of accounts are properly maintained and are duly audited, there is no reason for rejecting....
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....sed at 9.15% on a turnover of Rs. 45.52 crores. Asvee Trading Company also deals in the same products as dealt by the assessee. Since the turnover is comparable the AO gave an opportunity to the assessee for its comments. Rejecting the explanation given by the assessee the AO adopted the gross profit rate of 9% on the turnover of Rs. 44.89 crores. After reducing the gross profit of Rs. 1,31,55,168/- declared by the assessee from the gross profit of Rs. 4,04,09,666/- determined by him, the AO calculated the suppressed gross profit at Rs. 2,72,54,498/- and added the same to the total income of the assessee. 3. In appeal the Ld.CIT(A) upheld the action of the AO in rejecting the book results u/s.145(3) of the I.T. Act. However, he directed the Assessing Officer to adopt gross profit rate of 8% as against 9% adopted by the Assessing Officer as fair and reasonable. 4. Aggrieved with such part relief given by the CIT(A), the assessee as well as the revenue are in appeal before us with the following grounds : Grounds by Assessee: "1. The Ld. CIT(A) erred in confirming that proper opportunity of hearing was provided to the assessee by the Assessing Officer and that there was no violati....
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.... 7. Balaji Textile Industries P. Ltd. Vs. ITO (Bom.) 49 ITD 177 8. M/s. Bassein Drugs Ltd. Vs. ITO I(Mubai) ITA No.4328 to 4334/2003) 9. ACIT Vs. Mahendra Kumar Agarwal (Jaipur) 142 TTJ 35 10. Nathu Ram Premchand Vs. CIT (HC ALL.) 49 ITR 561 11. Koyammankutty Vs. Fourth Additional ITO (HC Kerala) 58 ITR 871 12. Malani Ramjivan Jagannath Vs. ACIT (HC Raj.) 316 ITR 120 13. CIT Vs. Smt. Poonam Rani (HC Delhi) 326 ITR 223 14. CIT Vs. M.K. brothers (HC Gujarat) 163 ITR 246 15. Anis Ahmad & Sons Vs. CIT & Anr (SC) 297 ITR 441 16. Dhakeswari Cotton Mills Ltd. Vs. CIT (SC) 26 ITR 775 He again reiterated that the assessee has submitted everything at his command and therefore the Assessing Officer was not justified in rejecting the book results and estimating the profit. 5.2 So far as the rate of gross profit estimated by the Assessing Officer at 9% by relying on the trading result of M/s. Asvee Trading Company he submitted that the said assessee was a retailer whereas the assessee is a wholesaler. He submitted that although the various distinctive features were brought to the notice of the CIT(A), however, the same were brushed aside by him. He submitted that when the trading re....
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....have also considered the various decisions cited before us. There is no dispute to the fact that out of the 34 notices issued u/s.133(6) by the Assessing Officer, 14 notices were returned unserved. There is also no dispute to the fact that in one case, i.e. M/s. Bharat Steel Company from whom the assessee has made substantial purchases it was reported by the Inspector that the said party is not available at that address. Even the Telephone number mentioned in the invoice was found to be incorrect. It is also a fact that the price paid to M/s. Bharat Steel Company is more than the price charged by other traders for purchase of identical products on same date. All these facts were brought to the notice of the assessee by the Assessing Officer. Since the purchases from Bharat Steel Company were held to be non-genuine and it was brought to the notice of the assessee by the Assessing Officer that the price paid to Bharat Steel Company is higher than price charged by other traders for the same product on the same date, the Assessing Officer, in our opinion, has discharged his onus and onus was on the assessee to prove the genuineness of purchases. The assessee has failed to do so. It has....