Case Law Details
Kailash Judhistir Sahu Vs CIT (ITAT Mumbai)
Introduction: The case of Kailash Judhistir Sahu vs. CIT (ITAT Mumbai) involves an appeal against orders passed by the National Faceless Appeal Centre, Delhi, under section 250 of the Income Tax Act, 1961, for the Assessment Years 2009-10 and 2010-11. The primary issue revolves around the addition made by the Assessing Officer (AO) due to the inability of the assessee to produce parties of alleged bogus purchases.
Detailed Analysis: In this case, the assessee had made purchases totaling Rs. 88,32,789 during the relevant assessment years. To verify the genuineness of these purchases, the AO issued notices under section 133(6) of the Act to the supplier parties. However, these notices were returned as “not known.” The assessee was then asked to produce the supplier parties and relevant details, which they failed to do. Instead, the assessee’s representative requested the AO to consider the gross profit rate as determined and make additions to the returned income.
Given the inability of the assessee to produce the supplier parties and provide sufficient evidence to prove the transactions as genuine, the AO added Rs. 7,71,833 (12.99% of total purchases) to the assessee’s income.
On appeal, the CIT(A) reduced the addition to 12.5% of the unproved/non-genuine purchases based on relevant decisions of the Mumbai and Gujarat High Courts. The assessee challenged this decision.
The assessee raised several grounds on merit and legality. On merit, they argued that they had already shown the profit and accounted for the purchase consideration, making additional additions unnecessary. The assessee also cited various judgments of the Tribunal to support their case.
The Department, represented by the ld. DR, opposed the assessee’s claims.
After considering the arguments and evidence, the ITAT observed that the assessee had admitted their inability to produce the supplier parties. In light of this, and considering the peculiar facts and circumstances, the ITAT directed the AO to reduce the addition from 12.5% to 6% of the alleged purchases made.
It was clarified that if the alleged purchases and profits had already been shown and offered for tax at a higher rate, as claimed by the assessee and considered by the AO, the addition would be restricted to the amount already offered, and the assessee would not be entitled to any refund.
Conclusion: The ITAT’s decision in the case of Kailash Judhistir Sahu vs. CIT reduced the addition made by the AO from 12.5% to 6% due to the inability of the assessee to produce parties of alleged bogus purchases. This case underscores the importance of maintaining proper records and substantiating transactions to avoid additional tax liabilities.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The Assessee/Appellant herein has preferred these appeals against the orders even dated 09.02.2023 impugned herein passed by National Faceless Appeal Centre, Delhi {in short ‘NFAC’}/Ld. Commissioner of Income Tax (in short Ld. Commissioner”) u/s 250 of the Income Tax Act 1961 (in short ‘the Act’) for AYs 2009-10 & 2010-11.
2. As both the cases having involved almost identical issues, therefore, for sake of brevity, are being disposed of by this composited
3. ITA No. 1637/Mum/2023 is a lead case and during the course of scrutiny proceedings in this case, it was observed by the AO that the Assessee during the AY under consideration made total purchase of Rs. 88,32,789/- and has submitted the list of purchase parties, sale parties, sundry creditors and debtors, therefore, in order to verify the genuineness of the purchases made, the AO issued the notices u/s 133(6) of the Act to the supplier parties at the addresses provided by sale tax department and as per PAN data base, however, the notices were returned back by the postal authority with the remarks ‘not known’. Consequently, as per show cause notice u/s 142(1) dated 11th Feb, 2015, the Assessee was asked to produce the said parties along with relevant details, which the Assessee failed to produce, however the Assessee’s representative vide letter dated 26th May, 2015 while submitting a copy of acknowledgement for the last 2 years and details of GP & NP ratio, requested the AO to consider the gross profit rate as determined and make the additions to the return income. Therefore, considering, the peculiar facts and circumstances, as the Assessee failed to produce the supplier parties as well as details qua supplier parties allegedly recorded in its ledger account/ books of account and also failed to produce any cogent evident to prove the transactions as genuine, the AO ultimately made the addition of Rs. 7,71,833/- being 12.99% of total purchases of Rs. 59,41,753/- and added the same in the income of the Assessee.
4. The ld. CIT(A) on appeal, by following decisions in the case of Hon’ble High Courts of Mumbai and Gujarat respectively in the cases of PCIT vs. JK Surface Coatings Pvt. Ltd. dated 28/10/2021 and CIT vs. Simit P. Sheth [2013] 38 taxmann.com 385 (Gujarat) restricted the addition to 12.5% instead of @ 12.99% of the unproved/non-genuine purchases. The Assessee being aggrieved is in appeal before this bench.
5. The Assessee raised various grounds on merit as well as on legal The Assessee also raised additional grounds of appeal challenging the legality of the passing of the assessment order. The Assessee on merit also relied upon various judgments of the Tribunal including in the cases of M/s Noble Corporation vs. ITO, Ward 33(1)(1), Mumbai in ITA Nos. 6962 and 6963-Mum-2017 decided on dated 4.4.2018 and in the case of M/s Paramshakti Distributor Pvt vs. ACIT, Cent. Cir.-45, Mumbai in ITA No. 8748/Mum/2010 and ITA No. 9223 & 9224/Mum/2010 decided on dated 09.10.2015 etc. and claimed that the Assessee has already shown the profit and accounted the amount of the purchase consideration and therefore, no such addition is warranted.
6. On the contrary, the ld. DR refuted the claim of the Assessee.
7. Having heard the parties and perused the material available on record, It has been observed that the Assessee before the AO, himself has admitted his inability to produce the parties from whom the alleged purchases have been made and shown and in fact vide letter dated 26th May, 2015, requested the AO to consider the gross profit as determined and make additions to the returned income and therefore, in the constrained circumstances, the AO made the addition of an amount of Rs. 7,71,833/- (12.99 % of Rs. 59,41,753/-) as embodied in the said purchases and on appeal, the ld. CIT(A) reduced the addition and restricted to 12.5% of the unproved/non-genuine purchases. Even otherwise in the cases relied upon by the Assessee, the Hon’ble Co-ordinate Benches of the Tribunal restricted the addition qua bogus purchases @ 6 to 7 % of the sales, hence, considering the peculiar facts and circumstances, I deem it appropriate to direct the AO to restrict the addition being profit embodied, from 12.5% to 6% of the alleged purchases made. Consequently the addition is confirmed only to the extent of 6% of the purchases made.
However, I clarify that in any case, if the alleged purchases and profit embedded therein have already shown and offered to tax at higher rate, as claimed by the Assessee and has been considered by the AO, then the addition shall be restricted to the amount already offered to tax by the Assessee and the Assessee shall not be entitled for any refund.
As I decided the appeal on merits, hence not dwelling into other grounds of appeal, as the same would prove futile exercise.
8. In the result, both the appeals filed by the Assessee are partly allowed in the same terms.
Orders pronounced in the open court on 10th Oct, 2023.
