TaxTMI 
TaxTMI 
2022 (9) TMI 827
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....ration has raised following grounds of appeal: "(i) Whether on the facts and circumstances of the case and in law, the CIT(A) was justified in directing the AO to apply GP@ 6% on total turnover whereas the AO had disallowed 25% of bogus purchase. (ii) Whether on the facts and circumstances of the case and in law, the CIT(A) was justified in directing the AO to charge commission @ 6% on restricted addition only, whereas commission @6% had been charged on bogus purchase disallowed by the AO. (iii) Whether CIT(A) was justified in law in ignoring the fact that the assessee has failed to discharge its burden to establish the genuineness of the alleged purchase claimed to have made in its books of account. (iv) "Whether CIT(A) was justified in law in ignoring the enquiring conducted by the investigation wing and proving that the assessee was indulging in bogus purchase. (v) "The appellant craves its rights to add, amend or alter any of the grounds on or before the hearing." 4. Assessee in ITA no. 122/JPR/2022 for the year under consideration has raised following grounds of appeal: "1 The Learned CIT(A) has erred in sustaining the a....
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.... entry. Thus, as per the information received in possession of the department, it was found that the assessee indulged in bogus purchases for the year under consideration from some bogus entities. As per the information, an inquiry was conducted by the ADIT (Investigation)(Hq-2), New Delhi wherein, it was observed that the assessee has shown purchases found from M/s. Unnati Alloys Private Limited and obtained bogus entry in the form of bogus purchases amounting to Rs. 21,05,94,215/- during the year under consideration. Based on these facts, information u/s. 133(6) of the Act was called from M/s. Unnati Alloys Private Limited to check the veracity of claim of purchase of the assessee. The AO has called for following information; (i) Copy of confirmations of account with M/s. Kandoi Metal Powders Manufacturing Company Private Limited duly certified in their books for FY 2011-12. (ii) Copy of detailed descriptions of the source from where the funds have been received including the Name, PAN and postal address of the source and proof of creditworthiness of the source for AY 2012-13. (iii) Copy of Bank account statement showing receipts of payment against sale....
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....ed that the account had been seen exceptionally high turnover in a short span of time and that too, by recording to and from transactions with the same group of entities in similar trend. Movement of funds among the group accounts pointed to the suspicion that the proceeds might not actually pertain to the business activities. All these entities have offered very low income as compared to very high turnover and even the director of these companies have offered very low income. It is also observed that the summons were issued and the letter were sent but no satisfactory replies were received. The ld. AO further observed that two biggest intermediary entities which transferred funds to Mroal Alloys Private Limited during the FY 2011-12 were Unnati Alloys Private Limited and Misawa Impex Private Limited, their bank account statements were analysed and it was seen that almost all fund credited in the bank account was transferred further to other entities on the same day and accounts are left with minimal balance which strengthens the fact that this is layering of funds through various accounts. 10. Based on the above back ground ld. AO held that Major entities which transferred to U....
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....the FY 2013-14. Thus he find that though there is an increase in GP rate in the year under consideration as compared to previous year but there is substantial decline in the turnover in the year under consideration than the previous years. It is observed that in the subsequent years the appellant has declared consistently higher GP. Thus, in such a case, once the provisions of section 145 were invoked, the best course of action would be to apply GP ratio and confirm certain percentage of sales to cover any leakage of revenue. Therefore, the AO is directed to apply a GP rate of 6% on the total turnover of Rs. 1,05,29,10,586/ to cover any possible leakage of revenue on account of bogus purchases which works out to Rs. 6,31,74,635/-. Since the appellant has already declared Rs. 5,16,97,909/- as the GP for the year under consideration, therefore addition to the extent of Rs. 1,14,76,726/- is sustained and the appellant gets a relief of Rs. 4,11,71,827/-. As regards the second addition he has based on the reduction in GP rate relief also granted relief on account of alleged commission from Rs. 31,58,913/- to 6,88,603/-. 13. As the assessee and revenue both not finding favour in full ....
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....ed upon the findings of the following cases laws * [2015] 58 taxmann.com 44 (Gujarat) (09-12-2014) Vijay Proteins Ltd. Vs. Commissioner of Income-tax * [2002] 125 TAXMAN 763 (RAJ.) Indian Woollen Carpet Factory Vs. Income-tax Appellate Tribunal. * [2018] 99 taxmann.com 47 (SC) (09-12-2014) Commissioner of Income-tax Vs. Clarity Gold (P.) Ltd. * [1997] 92 TAXMAN 356 (RAJ.) Commissioner of Income-tax Vs. Golcha Properties (P.) LTD. 16. The assessee has also challenged the order of the ld CIT(A) in confirming an addition of Rs.1,14,76,726/- and sustaining commission @ 6 % on this sustained addition of Rs. 1,14,76,726/- for an amount of Rs. 6,88,603/-. The ld. AR of the assessee has submitted following written submission against the grounds raised by the assessee: "The case of the assessee was reopened on the basis of information received from ADIT (Investigation) Head Quarter-2, New Delhi on 28/03/2019 regarding purchases of raw material of Rs. 21,05,94,215/- from M/s Unnati Alloys Pvt Ltd which is not a genuine supplier. During the assessment proceedings the assessee submitted all the possible evidences regarding genuiness of the purcha....
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....held that purchases cannot be held as bogus merely on suspicion and conjecture. 3. Favourable case laws: - (i) NIKUNJ EXIMP ENTERPRISES PVT LTD. vs. COMMISSIONER OF INCOME TAX, MUMBAI - BOMBAY HIGH COURT - (2012) - where it was held that - Respondent Assessee having been filed letters of confirmation of suppliers, copies of bank statement showing entries of payment through Account Payee cheques to the suppliers, copies of invoices for purchases and stock statement i.e. stock reconciliation Statement giving complete details with regard to opening stock, purchases, sales and closing stock and no fault with regard to it being found & the books of accounts not being rejected & the sales not being doubted - the purchases cannot be treated as bogus & be disallowed merely because the suppliers have not appeared before the Assessing Officer or the CIT(A) on the basis of suspicion & merely on the basis of 1 of the parties categorically being denying in having business dealings with the assessee company, one cannot conclude that the purchases were not made by the respondent assessee, when there are material on record to prove otherwise. (ii) CIT v. Adinath Industri....
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....al Jewels (P.) Ltd.(2012) 147 TTJ 308 (Del.) (Trib.) The assessee while furnishing necessary information regarding the transactions and the aforesaid parties like purchase bills issued against goods purchased, sales- tax registration numbers of the parties, PANs, their confirmations and Bank statements showing the debit of the amount paid through Account payee Cheques to them in the account of assessee and credited in the Bank Account of sellers, had discharged its primary onus, thereafter the onus shifted on the department to rebut the same. 4. Copy of documents which have been relied upon were not provided to the assessee - In the assessment order the learned AO has mentioned that she relied upon certain documents to reach on the conclusion that the transaction with M/s Unnati Alloys are not genuine which are as under: - (i) Copy of bank account of M/s Moral Alloys Pvt Ltd for the financial year 2011-12 to 2014-15. (ii) Transaction between Moral Alloys Pvt Ltd and Unnati Alloys. (iii) M/s Moral Alloys and Unnati Alloys has shown low income in comparison to turnover. (iv) There are inflow and outflow of equivalent amou....
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....thority though the statements of those witnesses were made the basis of the impugned order, is a serious flaw which makes the order nullity in as much as it amounted to violation of principle of natural justice because of which the assessee was adversely affected. (ii) Kerla Glue Factory Vs. Sales Tax Tribunal 65 CTR 233 (SC) Statement which was not tested by cross examination is not good evidence. (iii) Vasantlal & Co. (C) Vs. CIT (1962) 45 ITR 206 (SC) Where the Assessing Officer relies on the statement of a witness, or evidence allegedly given or a copy of accounts allegedly produced before some other authority by the assessee, the assessee be given, if he requires it and the circumstances warrant it, an opportunity to cross-examine the witness or official. (iv) In the following it was held that the Assessing Officer can make enquiries to gather material privately and confidentially. He can also summon witnesses and record their statement in the presence of the assessee or even behind his back. However the substance of any information sought to be used against the assessee, should be put to him and he should have fare opportunity. It is upto t....
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....ng Officer was not justified in rejecting the books of accounts. The following case laws are quoted in support: - (i) Shankar Exporters vs. Addl. CIT (2010) 42 DTR 441 (Jaipur ITAT) In our considered view only on account of non-verifying of few purchases the rejection of books of account was not justified as there was no other defect found by the AO in maintaining books of account. It is also not the case of the Department that there is any material outside the books which indicates that these purchases are bogus. Payments were made through proper banking channel. There is a possibility that sometimes after a gap of 1/2 years the party may not be available at the address given or that they did not bother to reply the summons issued by the Department. Otherwise, all other details along with purchases and sales vouchers, day-to-day stock register etc., were maintained by the assessee and they were not found incorrect. It is also a matter of fact that sales made against those purchases have been accepted by the AO himself. Therefore, in our considered view rejection of books of account were not justified. Accordingly, we allow this ground of the assessee. (i....
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....6 709061300 829795056 1205046686 1180457391 1224619368 1350149424 Gross profit 49358311.9 51697909.8 43252739 56757982 54640923 52311550 59050842 67179120 Net Profit 2753053.25 2316403.29 1559934.9 3651098.2 4209201 2154203 4772765 4638197 GP Rate 2.51% 4.91% 6.10% 6.84% 4.53% 4.43% 4.82% 4.98% NP Rate 0.14% 0.22% 0.22% 0.44% 0.24% 0.18% 0.39% 0.34% During the year under consideration the assessee has disclosed gross profit of Rs. 5,17,14,130/- on turnover of Rs. 1,05,28,58,563/- which gives a GP rate of 4.91%. The GP rate is all time better and also better than a disclosed in the line of trade. Therefore, considering the G.P. rate of the current year as reasonable the addition made by the learned assessing officer deserves to be deleted. It is further submitted that once the trading results are accepted there remains no case for disturbing the purchases or stock etc. In view of this it is submitted that once the trading results stood accepted the Learned Assessing Officer was precluded from making any addition in the trading accou....
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....T vs. Odeon Builders Pvt. Ltd (Supreme Court) (2019) 418 ITR 0315 (SC) it has been held that disallowance cannot be made solely on third party information without subjecting it to further scrutiny. The assessee has prima facie discharged the initial burden of substantiating the purchases through various documentation including purchase bills, transportation bills, confirmed copy of accounts and the fact of payment through cheques, & VAT Registration of the sellers & their Income Tax Return. The AO has also not provided a copy of the statements to the assessee, thus denying it opportunity of cross examination, hence no addition is warranted." 9. Addition of Rs. 1,14,76,726/- sustained by the learned CIT(A) is on estimate basis - After considering the aforesaid submission, the learned CIT(A) has sustained the addition by estimating the GP rate @ 6% as against 4.91% declared by the assessee. The learned CIT(A) has also rejected the books of accounts of the assessee u/s 145(3) of the IT Act 1961. It is submitted that even if books of accounts are rejected on one or the other ground, this in itself does not give a license to the Appellate Authority for applying higher ....
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....m these beneficiaries. It is also settled principle of law that statements which have not stood test of cross examination, cannot be used against the assessee. The assessee seeks support from the following decisions including Latest Decision of the Apex Court - (i) The Apex Court has observed that not allowing cross examination is a serious flaw and makes the order nullity. Andman Timber Ind. Vs. Commission of Central Excise (2015) 281 CTR 211 (SC). (ii) COMMISSIONER OF INCOME TAX vs. BIJU PATNAIK HIGH COURT OF ORISSA 190 ITR 0396 (iii) PRAKASH CHAND NAHTA vs. COMMISSIONER OF INCOME TAX (HIGH COURT OF MADHYA PRADESH) (2008) 301 ITR 0134 : (iv) HEIRS AND LRS OF LATE LAXMANBHAI S. PATEL vs. COMMISSIONER OF INCOME TAX (HIGH COURT OF GUJARAT ) (2010) 327 ITR 0290 It is further submitted that the Learned Assessing Officer has no documents in his possession or any categorical statement of any person to support his finding that in lieu of purchase and sale of shares the assessee has paid any commission. The action of the Learned Assessing Officer is based merely on assumption and presumption. The Learned Assessing Officer has no cogent evidence....
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....1% 2011-12 1,05,29,10,586/- 51697909.8 4.91% 2012-13 70,90,61,300/- 43252739 6.10% 2013-14 82,97,95,056/- 56757982 6.84% On perusal of the above chart it is observed that the appellant has declared a GP rate of 2.51% in the F Yr. 2010-11, 4.91% in the year under consideration, GP rate of 6.10% in the FY 2012-13 and has declared a GP rate of 6.84% in the FY 2013-14 Thus I find that though there is an increase in GP rate in the year under consideration as compared to previous year but there is substantial decline in the turnover in the year under consideration than the previous years. It is observed that in the subsequent years the appellant has declared consistently higher GP. Thus in such a case, once the provisions of section 145 were invoked, the best course of action would be to apply GP ratio and confirm certain percentage of sales to cover any leakage of revenue. Therefore, the AO is directed to apply a OP rate of 6% on the total turnover of Rs. 1,05,29,10,586/- to cover any possible leakage of revenue on account of bogus purchases which works out to Rs. 6,31,74,635/-. Since the appellant has already declared Rs. 5,16,97,909/- as th....
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....ited accounts. Based on the GP being in the range of 6 % the ld. CIT(A) has arbitrarily adopted GP @ 6 % which also not correct and the AO should be directed to accept the book results. He further referred to the finding of ld. CIT(A) where in he stated that when the books are rejected and provision of section 145 is invoked, the best course of action is to apply the GP ratio and confirm certain percentage of sales to cover up any leakage of revenue. The profit declared in the year under consideration is higher than the previous year and the same should be accepted as the assessee has shown better results. He therefore submitted that to that extent i.e. in deleting addition of CIT(A) is proper but while estimating the GP the ld. CIT(A) has made mere guess work and confirmed the addition at an another estimate only ignoring the book results. 18. We have considered the rival contentions, perused the material available on record and also gone through the findings of the lower authorities recorded in their respective orders. We have also gone through the various judicial ruling placed before us by both the parties to drive home to their contentions. The bench noted that against the ....
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....urchases. The quantum of the profit as generally estimated in the cases of bogus purchases should be at the rate of 12% of such purchases as held by the Honourable Jurisdictional High Court and we have not been guided by both the party as to why and how the said view of the Honourable Jurisdictional High Court is not acceptable in the present case. Accordingly, we reverse the order of the learned CIT - A and direct the learned assessing officer to compute the unaccounted profit earned by the assessee at the rate of 12% on bogus purchases. As we have followed the jurisdictional high court decision where in the court has not guided as to make separate addition on the commission on the bogus purchases and therefore, respectfully following that judgement we do not find any merits in the appeal of the revenue to confirm the addition of commission and thus this ground of the revenue is dismissed and that of the assessee is allowed. 22. Accordingly, in ITA no. 122/JPR/2022 the ground no. 1 raised by the assessee is dismissed, Ground no. 2 raised by the assessee is allowed, Ground no. 3 of the assessee is partly allowed and ground no. 4 is the ground to add or alter the grounds which th....