Nickunj Eximp Enterprises Pvt. Ltd. Vs ACIT (ITAT Mumbai)
ITAT Mumbai held that addition under section 69 of the Income Tax Act based on tally data having various inherent discrepancy is unsustainable as AO failed to verify or ask the assessee to reconcile the same from actual books of accounts or physical stocks.
Facts- A survey action u/s. 133A of the Act was carried out in the case of the assessee and M/s. Nickunj EDM Wires and Consumables P. Ltd on 16.11.2017. Statement of Shri Vithal Gopal Patil was recorded u/s 133A of the Act on 16.11.2017. During the course of the survey, details of the stock of raw materials and finished goods and tally data extracted from the stock register were provided.
AO issued notice stating that there is a huge discrepancy in stock and the closing balance maintained in the computer accounting system as against the actual calculation of the closing balance. AO was of the view that the value of the closing balance has to be calculated by applying the formula; opening balance + purchases -sales. Thus, AO was of the view that difference of Rs. 3,17,90,089/- should be added u/s 69 of the Act. CIT(A) had simply upheld the order of AO. Being aggrieved, the present appeal is filed.
Conclusion- The entire inference which has been drawn by the AO is based on seized tally data which has been demonstrated before us, by Ld. Counsel could not have been relied due to various discrepancies and the figures could not tallied due to entry errors. Nowhere there is any defect or discrepancy in the physical stock found and the entries in the regular books of account.
There are various inherent discrepancy in the tally data which shows that the tally data was not at all reliable and AO should have been verified or asked the assessee to reconcile from the actual books of accounts or physical stocks.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The aforesaid cross appeals have been filed by the assessee as well as by the revenue against the separate impugned order dated 05.08.2021, passed by Ld. PCIT (Appeals)-48 Mumbai for the quantum of assessment passed u/s 153A r.w.s. 143(3) for the AY 2018-19.
2. Since the issues involved in both the appeals are common arising out of identical set of facts, therefore the same were heard together and is being disposed of by way of this consolidated order.
3. In various grounds of appeal, assessee has raised the following issues:-
Ground no. 1 & 2: Overall addition of Rs. 19,36,96,457/- in absence of incriminating material found during the course of search (however this ground has not been pressed).
Ground no. 3 & 4: Addition on account of alleged bogus purchases of Rs. 5,39,15,841/-.
Ground no. 5: Addition on account of discrepancy in stock of Rs. 13,76,21,050/-.
Ground no. 6: Estimated addition of Rs. 8,05,495/- on account of alleged unaccounted stock of Graphite.
Ground No. 7: Addition of Rs. 13,94,071/- in respect of alleged labour job payments.
Ground No. 8: Incorrect invocation of provision of section 115BBE of the Act, levying tax @ 60% on the addition made u/s 69 and 69C in respect of ground no. 5 to 7.
4. In the department appeal, the only issue raised is that, Ld. CIT (A) has erred in restricting the addition to 10% of the total alleged purchases as against the entire purchases added by the AO.
5. Ground no. 1 & 2 have not been pressed by the assessee; therefore the same is dismissed as not pressed.
6. In so far as addition on account of alleged bogus purchases of Rs. 5,39,15,841/- and the similar ground raised by the department whereby revenue has challenged that Ld. CIT(A) should not have restricted the addition to the extent of 10% of gross profit rate.
7. Both the parties are agreed that these grounds are identical to the issue involved in the appeals for AY 2014-15 to 2017-18 which was heard on 13.09.22 & 14.09.22. Thus, it was submitted that the view taken therein will apply mutatis mutandis in this year also.
8. The brief facts qua the issue of purchases in this year are that during the previous year relevant to the assessment year under consideration, the assessee has traded in food grains and HR plates and has earned profit which has been offered to tax. The Assessing Officer has held purchases from the following parties as non-genuine:-
i) Daman Oil Industries (Purchase of foodgrain)
ii) Maxgrow Agri Commodities Ltd. (Purchase of foodgrain)
iii) Maxgrow Overseas Ltd. (Purchase of HR plates)
9. In this year also like in the appeals for the AY 2014-15 to 2017-18, one of the main contentions raised was that there was one to one nexus between the purchase and sale of goods. The complete bill wise quantitative details of purchase from all the parties and the corresponding sales made during the year was submitted before the lower authorities. It was further submitted that details such as purchase order, invoice, delivery challan, material receipt stamp, confirmation, ledger accounts, bank statements etc were submitted before the lower authorities. Further, the assessee has produced all the documents to prove that the purchases from the above parties are genuine. It was further submitted that the Assessing Officer has not conducted any independent inquiry to verify the purchase or sale from the parties. The Assessing Officer has not issued summons to any parties. Apart from that, it was submitted that this not a case where the purchase parties have been found to be non-genuine on account of inquiry conducted by sales tax authorities, DIT(Inv.) or where the parties have admitted in course of search or statement that the sales made by them are non-genuine. In respect of two parties, the Assessing Officer has relied upon the information received from DIT 10(2)(2). On perusal of the information, it is quite evident that the same pertains to the proceedings for A.Y. 2011-12 and 2012-13 and does not pertain to the year under consideration. The assessee has never admitted during the course of search that purchases from these parties are not genuine. It was further submitted that the assessee has not blocked its own capital for making the purchase. The assessee has first received sales consideration from which it has paid for purchases. During the relevant previous year, the assessee has traded in food grains and HR plates and Food grains are exempt from GST. In respect of HR plates, GST is chargeable at 18%. However, the assessee has traded in HR plates hence GST has been levied both on purchases and sales and no benefit has been availed by the assessee. Hence there is no question of any savings in GST.
10. The objection of the AO was that, firstly; assessee has not produced the purchase party, secondly; invoices were submitted only on simple basis despite the details, ITR, balance sheet of the parties was not produced, thirdly; SOP was not filed in respect of purchases made from the said third parties; and lastly; assessee had traded any items other than regular business items of these 3 parties.
11. To controvert these objections, firstly; the assessee had submitted that AO has not conducted any inquiry while coming to the conclusion as the parties are not genuine. Secondly; the AO has asked for invoices only on simple basis which is evident from para 12.5 of the assessment order at page 5 and this fact has also been noted by Ld. CIT(A) in para 6.18 at page 28 of his order. Apart from that it was also submitted that delivery challan were submitted before the lower authorities and AO had not issued any notices despite getting all the details to the parties. Regarding SOP not filed, it was submitted that during the course of search, it was stated that relevant and specific documents are not available since the section of the office was undergoing renovation and documents have been shifted. However, later on all these details were submitted before the authorities below. Lastly; assessee has traded any items other than regular business items of these 3 parties. All along assessee in various assessment years have been stating that assessee apart from other items has also traded in edible oils and food grains and HR Plates, but that itself does not mean purchases are not genuine when all the documents have been produced.
12. This issue of bogus purchases on similar set of facts had come for consideration before us in the appeals for AY 2014-15 to 201718, in our order dated 31.10.2022, wherein we have observed and held as under:-
13. We have heard the rival submissions, perused the relevant finding given in the impugned orders as discussed above and the material referred to before us. Before us Ld. Counsel for the assessee submitted that, one of the strong reasons given by the AO is the statement of Shri Manohar Balkrishna Pai, Executive Vice President of the assessee. However, from the perusal of the said statement it can be seen that, nowhere he has stated in his statement that purchases are bogus. He has mentioned only about the SOP followed for purchases. Before us, Ld. Counsel has submitted that nothing incriminating has been found during the course of search which show that these purchases are bogus. AO has mainly relied on outside information and which cannot be treated as incriminating material found during the course of search and AY 2014-15 being the non-abated year. He further submitted that here in this case there is one to one nexus between the purchase and sale of goods. The copy of which has also been placed before us vide covering letter dated 13th September 2022, where assessee has given bill wise, date wise purchases which shows the exact quantity and amount and also corresponding sales of the same quantity and same amount which are duly recorded in the books of account. This fact has also been noted by Ld. CIT (A) also. This detail has been filed in response to query raised by us during the course of hearing by us to furnish the date wise detail of trading account showing the gross profit percentage in respect of alleged bogus purchases and other purchases and apart from that, details of bill wise sales against such alleged bogus purchases for the above captioned assessment years.
14. From the perusal of the same, we find that there is one to one co-relation of exact quantity of purchases as well as sales and also the corresponding GP on such sales. Apart from that, details of purchase order, invoice, delivery challan, material receipt stamp, confirmation, ledger accounts of the bank statements have been submitted before us which has also been filed before the lower authorities and which fact we find that, Ld. CIT (A) has also noted and in the assessment order also which are mentioned from pages 6-8 of the assessment order. Ld. Counsel before us filed item wise registers showing purchases and sales of goods which have also placed in the paper book. Once the source of purchases are from the books of accounts and the payment have been made through banking channel and there is a corresponding sales which matches with the quantitative bill and purchases recorded in the books of account, then it cannot be said that purchases have been made outside books which could lead to any inference that all purchases have been made outside the books or are bogus.
15. With regard to inference drawn in respect of one party, i.e., Ramka Silk House, Ld. Counsel submitted that assessee has provided new address of the party and AO has issued summon u/s 131 on ITBA portal on 16.12.2019 and the assessment order has been passed on 18.12.2019. Thus, the time given was only 2 days and no adverse inference could be drawn that party could not be produced. There is no information from any outside agency that this party is non-genuine or engaged in any accommodation entries. Thus, we agree with the prima facie observation of Ld. CIT(A) that the purchases cannot be held to be bogus.
16. Ld. DR submitted before us that Ld. AO has analyzed each and every party based on conclusion drawn by Investigation Wing during the course of search in the case of Nickunj Group. The details which were filed by the assessee have been found lacking which facts have been brought on record by the AO. Thus, it cannot be held that purchases were genuine.
17. The contention of Ld. DR cannot be accepted in the light of the evidences which itself have been noted by Ld. CIT (A). In support of purchases, we have discussed in the foregoing paragraphs. One of the most vital and important factor going in favour of the assessee that there is one to one co-relation of purchases and sales not only quantity wise but also bill wise details. All these purchases and sales are duly recorded in the books of account and AO has not distributed the sales at all. Once the sale of the same quantity has been accepted, then it cannot be said that the entire purchases are bogus. Accordingly, we are of the opinion that the entire purchases cannot be added.
18. With regard to assessee’s appeal that Ld. CIT (A) has not justified in importing gross profit of 10% on such alleged bogus purchases. Before us, Ld. Counsel has demonstrated that the assessee before placing the purchase order had buyers and based on the demand of buyer assessee use to place the order. Thus, after getting the sales order, assessee has made the purchases on credit and immediately after the purchases received, assessee makes the corresponding sales on the same day or next day, which fact has been noted by Ld. CIT(A) and has also been demonstrated and filed before us. Thus, there was no working capital or investment which has been blocked for alleged bogus purchases. From the details furnished before us and also before Ld. CIT(A), it is seen that assessee has received sale consideration and immediately from such sale assessee had made purchases and this fact has been noted by Ld. CIT(A) in para 6.27 as noted above.
In any case assessee is trading in fabrics which items are exempt from VAT, Octroi etc., therefore, it cannot be presume that assessee has taken accommodation entries of purchases to save VAT of 10% or 12%. Assessee has filed justification for GP rate on these items which is ranging 1.36% to 2.34% and looking into the fact that there is minimum movement of the stock right from the moment purchase to sales and it is in consistent with its gross profit margins showed by the assessee in the earlier and in subsequent years, therefore it cannot be held that assessee’s GP rate on these items are low. It is brought on record that overall assessee’s GP in trading of all items are ranging between 26.14% to 36.14% and overall GP shown in the trading account is far higher and therefore, no adverse inference should be drawn. Thus, we do not have any justification of such adhoc estimation of GP of 10% for each and every purchases made from these parties and estimate corresponding GP, when overall GP and the trading account has been accepted. Accordingly, the addition sustained by Ld. CIT(A) by applying adhoc GP rate 10% is also deleted. Resultantly, the appeal of the assessee is allowed on merits.
13. Since same details and similar facts are permeating in this year and the findings of the AO and Ld. CIT (A) is also same, therefore, our findings given in the aforesaid appeal will apply mutatis mutandis. Accordingly, we hold that none of the purchases can be held to be bogus. Therefore, no addition can be made nor any addition on account of estimated gross profit because all the purchases and corresponding sales have been fully tallied and verified and no discrepancy has been found. Hence, ground no. 3 & 4 raised by the assessee are allowed and ground raised by the revenue in this regard is dismissed.
14. In so far as addition on account of discrepancy of stock as raised in ground no. 5, the break-up of the addition of discrepancy of various kinds of stocks are as under:-
