Case Law Details
Opel paper Mills Limited Vs DCIT (ITAT Mumbai)
The learned CIT appeal noted that the major items of the expenditure is a purchase of paper from the sister company specialty papers Ltd amounting to ₹ 888,827,942/–. These transactions were doubted by the learned assessing officer during the remand proceedings as the purchases are transacted only through the journal entries and there are no bank transaction as well as there is no transportation receipts connected with these purchases. The claim of the assessee is that these are parties, who are separate and distinct and all of them have duly acknowledged these transactions, which are entered in the books of accounts and in their financial statements. It was also noted that assessee has purchased raw material from another sister concern global paper Impex Ltd amounting to Rs 1 48,48,200/– out of the total raw material consumed of ₹ 36,240,709. The manufacturing expenses are claimed of only ₹ 6,410,223 out of which a sum of ₹ 4,116,000/– is paid to a related party global paper Impex Ltd at the same address. Major amount of Rs. 15,97,805/- was also paid to a related party without any address. On examination of the documents during the appellate proceedings, the learned CIT – A noted that the purchases and sales are made with the related parties are in the nature of circular transactions made repeatedly. The transactions are not settled through banking channel but are rooted through journal entries. The AO has further stated that there is no evidence of transportation of the goods from buyer to the seller. Therefore, following the decision of the honourable Gujarat High Court in CIT versus Smit P Sheth 356 ITR 451 he sustained the disallowance in court to 12.5% of bogus purchases he noted that the total purchases of ₹ 888,827,942/– is made from specialty papers private limited and ₹ 14,848,200/– is from another sister concern global paper Impex Ltd amounting in all to ₹ 903,676,142/– and 12.5% of the same comes to ₹ 112,959,517/–. He sustained this addition. He also considered the gross profit ratio of the assessee and stated that it is shown too less by the assessee and therefore it should be ignored. He noted that gross profit ratio of the assessee over a period of 3 years ranges from 0.14% to 1.07% and gross profit ratio in manufacturing segment is 6.38% to 104.67 % . On careful reading of the order of the learned CIT – A, we do not find any infirmity in the reasoning given for sustaining the disallowance of ₹ 112,959,517/–. Further it is a case of the circular trading entered into by the assessee along with its related parties where there is no evidence whether the rates charged by the parties in the circular rate were at market rate and further when the goods are sold without any physical movement of the goods, the sales and the purchases are not at all reliable. The transactions are also rooted through journal entries. The quantity of goods involved in the circular trading is also not ascertained that how much is involved in circular trading and what is the actual sale and purchase of the assessee. The assessee has purchased 2,44,29,155 KG and sold the same quantity and there is no opening stock and closing stock during the year. Therefore, the explanation of the assessee becomes unreliable with respect to the gross profit shown by the assessee. In view of this, we do not find any infirmity in the order of the learned CIT – A in upholding disallowance of expenditure of ₹ 112,959,517/– estimating income at the rate of 12.5% of such bogus purchases.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
01. These are cross appeals filed by parties against the Appellate Order passed by The Commissioner of Income tax (Appeals)-9, Mumbai [the learned CIT (A)] on 11 December 2018 for A.Y. 2009-10. By this appellate order appeal filed by assessee against the assessment order passed on 23rd March, 2015 by The Dy. Commissioner of Income Tax, circle 4(3)(1), Mumbai (The learned A O ) u/s 144 read with section 147 of the Income-tax Act, 1961 (The Act) was partly allowed. Both the parties are aggrieved, have preferred these appeals.
02. In ITA No. 1064/Mum/2019 filed by the assessee raising following grounds of appeal: –
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