AI Structured Summary
Not yet generated for this judgment
Judgment
PER AMITABH SHUKLA, AM,
The captioned appeal has been preferred by the Revenue against order dated 19.02.2025 of National Faceless Appeal Centre/Ld. Commissioner of Income Tax (Appeals), New Delhi, [hereinafter referred to as ‘ld. CIT(A)’] arising out of assessment order dated 18.03.2024 passed u/s 143(3) r.w.s. 144B of the Income Tax Act, 1961 pertaining to Assessment Year 2022-23. The word ‘Act’ herein this order would mean Income Tax Act, 1961.
Assailing the order of the ld. CIT(A) (supra), the Revenue has raised following grounds of appeal:-
1.On the facts and circumstances of the case and in law, the Ld. CIT(A), NFAC has erred in restricting the disallowance of purchases to an amount of Rs.40,76,476/- (3.65% of purchases of Rs.11,16,84,280/-) from M/s R.K. Polymers by ignoring the fact that as per Investigation report in the case of M/s Royal Impex, one entity M/s R.K. Polymers has issued lake invoices and availed fictitious GST Inputs without delivering any goods or services.
2.On the facts and circumstances of the case and in law, the Ld. CIT(A), NFAC has erred in restricting the disallowance of purchases to an amount of Rs.40,76,476/- by ignoring the fact that M/s R.K. Polymers have minimal fixed assets and also failed to produce any documentary evidence of delivery of goods.
3.On the facts and circumstances of the case and in law, the Ld. CIT(A), NFA has erred in restricting the disallowance of purchases to an amount of Rs.40,76,476/- made by the assessing officer by ignoring the facts that the assessee has failed to provide any crucial details such as Transport invoice, weighing receipts, lorry receipts and proof of stock receipts in stock register in support of goods received.
At the outset, the ld. Counsel for the assessee fiercely opposed the appeal of the Department on the premise that it is hit by the instruction of CBDT on the issue of non-filing of the appeals in low tax effect cases. It was argued that the latest instruction mandates that the Revenue would not file appeals in cases where tax effect is below Rs.60 lakhs. The ld. Counsel argued that the tax effect of Rs.1,39,60,535/- indicated by the Department in Form-36 is erroneous. It was stated that the ld. CIT(A) had restricted the addition of the AO to Rs.40,76,476/- only and that the tax effect on the same would be below Rs.60 lakhs. The ld. DR, Shri Rajesh Kumar Dhanesta, opposed the proposal stating that the case is covered by exceptions provided in the impugned instruction of CBDT. The submissions of ld. DR were again countered by the ld. Counsel for the assessee agitating that the case is not covered by the cited exceptions contended para-3.1 of the impugned circular no.5 of 2024 dated 15.03.2024.
On the merits of the issue, we have noted following brief factual matrix of the matter. The case of the assessee was selected for scrutiny on the issue of non-reporting of assets and liabilities. The Revenue was in the receipt of the information from GST authorities that, the assessee had engaged into purchase transactions with one M/s R.K. Polymers. The GST Authorities had conducted enquiries against one M/s Royal Impex which indicated that the said party was a non-existent entity and was engaged in the acitivity of issuing bogus invoices for making fictitious GST Claims. It was alluded that the one R.K. Polymers was one such beneficiary and which had issued bogus bills of purchases worth Rs.11,16,84,280/- to the assessee. During enquiries at the assessment stage, the ld. AO noted that the assessee failed to provide transporters bills, lorry receipts, stock register, etc. It was also noted that R.K. Polymers did not respond AO’s query under section 133(6). Holding that the assessee had failed to discharge its onus and also the factum of GST enquiries, the ld. AO proceeded to add an amount of Rs.1,39,60,535/- being 12.5% of the purchases made from R.K. Polymers of Rs.11,16,84,280/-. In appeal, the ld. CIT(A) accorded part relief to the assessee and restricted the addition from 12.5% to 3.65% and thus confirmed addition to the extent of Rs.40,76,476/-. The Revenue is in appeal in respect of the said part relief accorded by the ld. First Appellate Authority.
We have heard rival submissions in the light of material placed on record. The ld. DR vehemently argued in favour of order of the Assessing Officer. It was submitted that the addition is purely maintainable as the R.K. Polymers from whom purchases were made was found to be a non-existent party and that the assessee had not discharged it’s onus before the AO. It was submitted that the relief was excessive and unwarranted.
The ld. Counsel for the assessee reiterated the arguments taken before the ld. CIT(A). It was argued that the ld. CIT(A) has accorded relief after due appreciation of the facts of the case. The ld. Counsel submitted that during the course of assessment proceedings, it had provided all the documents and material to the ld. AO which were required to be followed. The ld. Counsel vehemently argued that the facts for the present case are identical to those of the assessee for AY 2019-20 and further that this Tribunal had in ITA No.3552/Del/2025, dated 27.08.2025 had set-aside the order of the ld. CIT(A) and deleted the entire addition made by the ld. AO. It was argued that as the facts are same, the same decision would apply.
As regards, identical nature of the facts of the controversy of the present year with those of AY 2019-20, we have noted that the ld. AO in AY 2019-20 in para-3.3 of his order dated 21.03.2024 had observed as under:-
“…..3.3 The reply and submissions of the assessee has been perused. The assessee has provided sample copies of invoices raised by M/s. R. K. Polymers, e-way Bills and Bank statements in support of his claim. The assessee has not provided any crucial details such as Transporter invoice, weighing receipts, Lorry Receipts, proof of stock receipts in Stock Register that actually shows that the goods have been in fact received by the assessee. Further, e-way bill in standalone is not a proof of delivery of goods as the same is generated online by the seller without any actual verification of goods. A notice u/s 133(6) of the Act was issued to M/s. R. K. Polymers seeking proof of delivery of goods. M/s. R. K. Polymers also failed to provide any documentary evidences that undeniably prove the genuineness of transaction. Further, on perusal of the financials of M/s. R. K. Polymers, it is noticed that it has minimal fixed assets, and has not shown any expenses of crucial nature such as electricity, etc….”
We have noted that the ld. AO has made identical observations in his order under section 143(3) dated 18.03.2024 for the present year
“….3.3 Summary of information/evidence collected which proposed to be used against it. Vide the aforementioned notices and letters, the assessee was asked to explain the transactions related to the M/s R. K. Polymers and also provide irrefutable proof of receipt of goods or services from M/s R. K. Polymers amounting.
The reply and submissions of the assessee has been perused. The assessee has provided sample copies of invoices raised by M/s. R. K. Polymers, e-way Bills and Bank statements in support of his claim. The assessee has not provided any crucial details such as Transporter invoice, weighing receipts, Lorry Receipts, proof of stock receipts in Stock Register that actually shows that the goods have been in fact received by the assessee. Further, e-way bill in standalone is not a proof of delivery of goods as the same is generated online by the seller without any actual verification of goods. A notice u/s 133(6) of the Act was issued to M/s. R. K. Polymers seeking proof of delivery of goods. M/s R. K. Polymers also failed to provide any documentary evidences that undeniably prove the genuineness of transaction. Further, on perusal of the financials of M/s. R. K. Polymers, it is noticed that it has minimal fixed assets, and has not shown any expenses of crucial nature such as electricity, etc….”
We have noted that the ld. CIT(A) in his impugned order given following identical findings qua those of AY 2019-20 (supra)
“8.2The Assessing Officer though quoted the above case law for making the disallowance of purchases on the basis of profit element but went ahead to determine such profit element as 12.5% without any basis except saying that purchases from grey market will benefit the assessee by savings from tax. Hence, the issue in this case is not the complete disallowance of bogus purchases but the determination of profit element from the purchases of materials from other parties and not from the parties shown in the books of accounts.
8.3The profit element of the assessee M/s. Deep Jyoti Enterprises, prop. of Shri. Deepak Pawar) can be easily determined from the financial statements of the assessee. The average Gross Profit shown by the assessee for the relevant assessment year and the previous two Financial Years comes to 3.15%. The assessee in his submission has claimed that the savings in terms of maximum margin rate in case of grey market purchases is 0.25%. This is not acceptable and the savings is generally at 0.5% in the market between regular and grey market. Based on the above facts, the profit element for the assessee by making the above mentioned purchases is determined at Average GP of three years plus the purported savings of purchase in grey market, which in this case is coming to 3.15% + 0.5% = 3.65%. This profit element 3.65% of the purchases needs to be subjected to tax based on respectfully following the decision of Hon'ble Gujarat High Court in the case of CIT Vs Bhola Nath Polyfab private Limited (355 ITR 290) (2013). Hence, the Assessing Officer is directed to restrict the disallowance of purchases to an amount of Rs. 40,76,476/-(3.65% of purchases of Rs. 11,16,84,280/-).”
Thus, we have noted that there is no distinguishment of facts of the present year qua those appearing in AY 2019-20. We have noted that this Tribunal in their order in the case of the assessee for AY 2019-20 (supra) have decided as under:-
“….3. I have heard the rival submissions and perused the material available on record. The assessee, an individual, filed his return of income for assessment year 2019–20 on 24.10.2019 declaring total income of ₹7,69,120/-. The assessee is engaged in the business of trading of raw material for CPVC pipe industries since 2016 under the name and style of “Deepjyoti Enterprises”. The case of the assessee was sought to be reopened and show cause notice u/s 148A of the Act was issued on 21.03.2023, wherein it was alleged that assessee had made a bogus purchase of ₹2,09,39,760/- from M/s. R.K. Polymers during the year under consideration and accordingly, this sum had escaped assessment in the hands of the assessee. An order dated 31.03.2023 was passed u/s 148A(d) of the Act and case of the assessee was reopened vide issuance of notice u/s 148 of the Act. In response to the said notice, the assessee filed his return of income on 14.09.2023 declaring total income of ₹7,69,120/- being the same income as was declared by him originally. The assessee in the course of assessment proceedings submitted sample copies of invoices raised on M/s. RK Polymers through e-Way bills and bank statement evidencing the payment made to the said supplier by the assessee in support of his claim. The assessee further submitted that the purchases made from M/s. RK Polymers duly shown by the assessee and details of mapping of each purchase with the corresponding sales were also furnished. The ld AO proceeded to accept the sales shown by the assessee. Since, the sales were not doubted, the ld AO resorted to estimate the profit element embedded in the value of purchase from M/s. RK Polymers as tainted and bogus and accordingly made addition u/s 69C of the Act, treating the same as unexplained expenditure and made an addition of ₹26,17,470/- (12.5% of 2,09,39,760/-).
4.The ld CIT(A) sought to disturb the profit element of 12.5% considered by the ld AO. He proceeded to adopt the gross profit shown by the assessee for the year under consideration, immediately preceding previous year and immediately succeeding financial year. The average of such gross profit was 2.54%. The ld CIT(A) observed that assessee had indeed made purchase from the grey market and the savings in the grey market was estimated to be 0.5% by ld CIT(A). Accordingly, the total profit element embedded in the value of purchase was worked out at 3.04% (average of GP 2.54% + grey market profit of 0.5%). This profit percentage of 3.04% was applied on the value of disputed purchase from M/s. RK Polymers at ₹2,09,39,760/-and addition of ₹6,36,568/- was sustained by the ld CIT(A). The ld CIT(A) categorically gave a finding that proceedings u/s 69C of the Act which was applied by the ld AO cannot be applied at all in the instant case. The ld CIT(A) also held that the enhanced rate of profit u/s 115BBE of the Act also cannot be made applicable in the facts and circumstances of the instant case as the addition is not in the nature referred to in Sections 68 to 69D of the Act.
5.I am of the considered opinion that the assessee has furnished the sample copies of purchase invoices together with the e-Way bills and the bank statement evidencing the fact of payment made to the suppliers by account payee cheque. The revenue was not able to bring on record any material or evidence to show that there had been cash withdrawal in the account of M/s. RK polymers, which had surfaced back to the assessee after the receipt of cheque from the assessee. No evidence has been brought on record by the revenue to prove that assessee had indeed made purchase of goods in grey market by paying cash and substituted the same by showing purchase from M/s. RK Polymers. The assessee had even produced e-Way bills evidencing the delivery of goods from the suppliers. Hence, there is no question of disbelieving the purchase made by the assessee at all. Accordingly, no amount of addition could survive in the facts and circumstances of the instant case. Accordingly, the grounds raised by the assessee on merits are hereby allowed….”
Thus, considering the facts that there is no distinguishment of facts of the present year with those of AY 2019-20 and therefore in respectful compliance to the order of this Tribunal in assessee’s own case (supra) and for the purposes of consistency, we set-aside the order of the ld. CIT(A) and direct the ld. AO to delete the impugned addition. The appeal of the Revenue is therefore dismissed.
As the assessee has succeeded on merits of the case, the arguments taken by it qua legal admissibility of Revenue’s appeal vis a vis instruction of the Department on low tax effect cases, have become academic in nature.
In the result, the appeal of the Revenue is dismissed.