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Judgment
PER KRINWANT SAHAY AM
Appeal in this case has been filed by the assessee against the order passed by the CIT(A)/NFAC, Delhi for the A.Y. 2020-21.
The assessee has filed its grounds of appeal alongwith submission which is reproduced as under :-
GROUNDS OF APPEAL AND BROAD SUBMISSIONS
A. Grounds of Appeal
a. Ground-1
That on facts and circumstances of the case and in law, the order passed by the Ld. CIT (Appeals) is contrary to the facts and bad in law. Therefore, the addition confirmed for INR 95,38,341 on account of unsubstantiated purchases and non-deduction of TDS u/s 40a (ia) must be deleted.
b. Ground-2
That on the basis of facts and circumstances of the case and in law, the Ld. CIT (Appeal) was not justified in confirming and Ld. A.O. was not justified in making addition of INR 93,00,801/- related to purchase expenses.
Appellant's Submission :
We respectfully submit that the additions made by the Ld. Assessing Officer and confirmed by Ld. CIT (Appeal) on account of unsubstantiated purchases are factually incorrect, legally unsustainable, and based on incorrect appreciation of records.
1.Incorrect Treatment of Sales as unsubstantiated Purchases (Shalla & Sons, JJ Enterprise and Archana Enterprises)
The Appellant respectfully submit that the Ld. CIT(A) and Ld. A.O. have erred in law and on facts in treating the sales made to Shalla & Sons, JJ Enterprise and Archana Enterprises as bogus purchases, without properly appreciating the documentary evidence and the underlying records available on assessment.
It is submitted that the transactions with the aforesaid parties are purely sales transactions, duly recorded as sales in the books of account, reported in GSTR-1, and reflected as such on the Income-tax Insight Portal. In this regard, your honour's attention is invited to para 7.4 of the assessment order, wherein it is acknowledged that, as per the Insight Portal, the said amounts are reflected as sales.
Despite the above factual position, the Ld. A.O. has incorrectly re-characterized the said sales as unsubstantiated purchases and Ld. CIT(A) confirmed, which is contrary to the documentary evidence on record and untenable in law. The addition results in an artificial and erroneous inference of under-reporting of income, whereas in reality:
- The sales have already been offered to tax;
- There is no suppression of turnover; and
- There is no incorrect claim of expenditure.
In support of the above, the Appellant is enclosing "Annexure-B", comprising:
- Detailed ledger accounts of Shalla & Sons, JJ Enterprise and Archana Enterprises; and
- GSTR-1 screenshots, evidencing that the impugned amounts were duly reported as sales.
It is respectfully submitted that treating disclosed and taxed sales as bogus purchases is legally impermissible and vitiates the very basis of the addition. Since the transactions are correctly recorded as sales and accepted as such in the system records, no addition can be sustained on account of unsubstantiated purchases or alleged under-reporting of income.
Accordingly, the addition made on this account is factually incorrect, legally unsustainable, and liable to be deleted in full.
2)Addition of INR 8,53,900 on Account of Alleged Purchases from Zetex Enterprises – Factually Incorrect and No Under-Reporting of Income :-
The Appellant respectfully submits that the addition of INR 8,53,900 made on account of alleged purchases from Zetex Enterprises (Proprietor: Mr. Suraj Kumar Chaudhary) is factually incorrect and unsustainable in law.
During the year under consideration, the Appellant did not receive any purchases from Zetex Enterprises, nor was any expenditure claimed or debited in the books of account in respect of the said party. Accordingly, there is no question of any understatement of income or under-reporting on this account.
In support of the above factual position, the Appellant is enclosing "Annexure-C", comprising:
- Ledger account of Zetex Enterprises for the relevant financial year; and
- GSTR-2A for F.Y. 2019-20, which clearly establish that no purchase transactions were recorded or claimed from the said party during the year under consideration.
It is submitted that, in the absence of any purchase booked or expenditure claimed, the addition made by the Ld. A.O. and subsequently confirmed by Ld. CIT(A) is based on incorrect assumptions and misreading of records, and consequently results in an erroneous allegation of under-reporting of income.
Accordingly, the addition of INR 8,53,900 on account of alleged purchases from Zetex Enterprises is without factual basis, legally untenable, and liable to be deleted in full.
3)No Under-Reporting of Income – Purchases Reversed in the Same Financial Year (Avenue Traders, Surbhi Traders and Gems Enterprises)
The purchases recorded from Avenue Traders (Vishnu) amounting to INR 25,00,272, Surbhi Traders (Kedar Thakur) amounting to INR 25,00,210, and Gems Enterprises (Sanjay Singh) amounting to INR 25,00,210 were fully reversed during the same financial year and credited to Indirect Income. Consequently, no purchase expense was ultimately debited or claimed in the Profit & Loss Account in respect of the said parties for the year under consideration.
The Hon'ble INCOME TAX APPELLATE TRIBUNAL in A C I T – 17(3) v. Shri Vipin B. Shah [2014] addition u/s. 69C of the Act on account of alleged bogus purchases was factually unsustainable in the legal and factual matrix of the case. Consequently, the finding of the learned CIT(A) in the impugned order that adhoc addition of 12.64% on account of alleged bogus purchases is to be made, would also not be sustainable as the profit on sale thereof would already be embedded in the assessee's income. We, therefore, delete this adhoc addition of 12.64% profit on alleged bogus purchases.
As a result of the above accounting treatment:
- There is no understatement of income;
- There is no reduction in taxable profits; and
- The returned income already includes the impact of such reversals.
Therefore, the computation of income as disclosed in the return is true and correct, and no income has escaped assessment on account of the alleged purchases.
It is submitted that under-reporting of income, as contemplated under Section 270A, presupposes that the income assessed exceeds the income determined in the return of income due to suppression, misstatement, or incorrect claim. In the present case, since the alleged purchases were reversed in the same year and no deduction was claimed, there is neither misstatement nor incorrect claim, and hence the very foundation for alleging under-reporting fails.
Further, the accounting reversal having been carried out voluntarily and within the same financial year, demonstrates the bonafide conduct of the Appellant and absence of any intention to under-report income or evade tax.
In support of the above, the Appellant is enclosing "Annexure-D", comprising:
- Ledger account of Indirect Income, and
- Ledger accounts of the respective purchase accounts, Audited Statement of Profit & Loss
- Extracted relevant page of Income Tax Return which clearly establish that the purchases from all three parties were reversed during the year itself and that no expense was booked or claimed, thereby eliminating any possibility of under-reporting of income. The reversal in the same year means no loss to the revenue, as the income is brought to tax under "indirect income".
Accordingly, it is respectfully submitted that:
- No addition is warranted on account of the alleged purchases; and
- The initiation / levy of penalty for under-reporting or misreporting of income is wholly unwarranted and liable to be dropped.
✓ Summary of the above-submissions :-
From the above, it is evident that:
> Sales have been wrongly characterized as bogus purchases; > Additions have been made despite no purchases or expenditure having been claimed; and
- ➤ Purchases, wherever initially recorded, were fully reversed within the same year, resulting in no understatement or under-reporting of income.
Accordingly, the additions made by the Ld. A.O. and confirmed by Ld. CIT (A) are factually incorrect, legally unsustainable, and liable to be deleted in full, and any consequential proceedings for alleged under-reporting or misreporting of income deserve to be dropped.
10.Ground-3
Addition of INR 2,37,540 on Account of Alleged Non-Deduction of TDS – Factually Incorrect.
Appellant's Submission :
The Appellant respectfully submits that the addition of INR 2,37,540 made by the Ld. Assessing Officer and confirmed by Ld. CIT(A) on account of alleged non-deduction of TDS on rent is factually incorrect and unsustainable in law.
It is submitted that the Appellant has duly deducted tax at source at the applicable rate of 10% on the rent payments during the year under consideration and has deposited the same within the prescribed time with the credit of the Central Government. Accordingly, there is no default under the provisions of Chapter XVII-B of the Income-tax Act, 1961. Copy of TDS returns, TDS challans evidencing payment, and Ledger accounts of rent and TDS payable, which conclusively establish that TDS was duly deducted and deposited.
It is therefore submitted that the addition made by the Ld. A.O. is based on an incorrect appreciation of facts and records and results in an erroneous disallowance, despite full compliance by the Appellant.
Accordingly, the addition of INR 2,37,540 on account of alleged non-deduction of TDS is without factual basis, legally untenable, and liable to be deleted in full.
d. GROUND 4
That on the facts and in the circumstances of the case and in law, the Ld. AO erred in charging interest and the Ld. CIT (Appeals) erred in confirming interest under section 234A, 234B and 234C of the Act.
e. GROUND 5
That on the facts and in the circumstances of the case and in law, the Ld. AO erred in initiating and the Ld. CIT (Appeals) erred in confirming penalty proceedings under section 270A of the Act
f. GROUND 6
General: That the appellant craves leave to add, alter and modify any of the grounds during the course of proceedings.
The Appellant has submitted requisite details, documents, explanations to the Ld. AO and Ld. CIT(A) time to time during the course of assessment/ appeal proceedings. The Ld. CIT (A) mentioned that no statement of facts was provided during appellate proceedings, however the same were already provided and forming part of our written submissions. The Ld. CIT(A) also mentioned in para 5 of the order that multiple notices were issued and the Appellant would like to submit that due to a major accident happened in the family of the Authorized Representative, time for adjournment for 30 days was asked for and medical documents were uploaded on the portal but instead of granting time on account of medical emergency, Ld CIT(A) keeps for sending notices every week to complete the proceedings without understanding the merits of the case which is incorrect in law and must be deleted. If you require any other explanations or detail, we are happy to share the same with you.
We assure you of our full attention and co-operation always. Thanking you and assuring our best co-operation always.
Yours truly,
For BAKI PACKI PVT LTD
Authorized Representative
During proceedings before us the Ld. Counsel of the assessee brought it to the notice of the Bench that the order passed by the AO was u/s.147/144, therefore, he requested that for due verification all the details / documents the matter may be remanded back to the file of the AO.
Per contra the Ld. DR relied on the order of the authorities below.
We have considered the findings given by the AO in the exparte assessment order passed in the case of the assessee and we are of this considered view that most of the addition have been made because of none verification of all the documents at AO level.
Accordingly, keeping in view the element of natural justice we remand this case back to the file of the AO. The AO is directed to give adequate opportunity to the assessee as required under law and the assessee is also directed to file all details and documents to the revenue so that the order may be passed at the earliest.
In the result, the appeal filed by the assessee is allowed for statistical purpose.