Shankarraj Impex Pvt. Ltd. vs Income Tax Officer

“11.

The next issue of appeal pertain to estimati ng t he gross profit at Rs.1,17,32,650/- take n through grounds No . 5, 6 and 7. According t o the appellant, t he AO calculated the i ncome as Rs.1,37 ,97,170/- by adding Rs.1,37,32,650/- to the returned i nco me o f Rs .64,520/-and i nc orporati ng an af-hoc GP of 23.73 % into the s ale of moong dal during the year . The appellant furt her contends that the gross profit (GP) for grains (m oong dal) purc has ed fro m Parth Int ernational i s 2.39% for FY 201516, while the gross pro fit (GP) f or pr oducts ot her tha n grai ns (moong dal) is 26.12% for FY 2015-16.

11.1

Before I conti nue with the issue, I f eel it nec essary to mention tha t t he appellant s ubmitted additi onal evidenc e i n the appeal proceedi ngs through their submissi on date d 27/05/2024.The relevant portion of t he app ell ant’s s ubmissio n is reproduc ed below for conveni e nce.

“a. copy o f VAT R et urns are attached as A nnexur e-A for your refer ence

b. The sal es made were through valid tax i nvoices. The copy of s ales inv oices issued to c us tomers are attac hed as Annex ure-B for your reference.

c. T he Purchas e Invoices fr om who m purchases are made are at tached as A nnexur e-C for your refer ence.

d. The copy of C onfirmati on of Accounts of Purchas e & Sale Parti es are at tached as A nnexur e-D.

e. The abov e Purc hase & Sales pa rti es have been register ed under DVAT. The copy of online stat us of above parties under D-VA T are a ttac hed as A nnex ur e-E.

f. The si gned ledger acco unts of above parties are attac hed as A nnexure - F.

g. The payment made /recei ved are t hrough banki ng channel onl y. The copy of Extrac t of Bank Stateme nt reflecti ng t he relevant payments agains t sale & purchase made ar e attac hed as A nnex ure-G.

h. The similar c ase of M/s. Siya General Tradi ng Pvt. Ltd., a company deal ing i n grai ns a GP Rati o @ 0.24% has been o bser ved and assessment has been made on ret urned i ncome. The copy of assessment order , calculation of GP Ratio and c opy of financial sta teme nt of M/s Siya Gener al Tradi ng Pvt. Ltd.

5.

Since cert ain documents were requir ed to be obt ained from the appellant at the fag end of ass essme nt proc eedi ngs by L d. AO, therefore suitable time was also sought. A ppar ently, huge ad ditions wer e made not because t here was any fallacy in the claim or anythi ng in contradicti on br ought of record at as sess ment s tage.

6.

It is also a matter of fact that for reason beyond control, on account of cer tai n technical exi gencies t he appellant c ould not pl ace on recor d additi onal supporti ng doc uments and theref ore precl uded fr om s ubmit ting the same as a result made we re tr eated as unexplai ned and additi ons/disallo wances wer e made.

7.

It may be appreciat ed that i nspite of best o f effort s by the appellant, for reasons beyo nd co ntrol and i n absence of pr oper opp ortunit y to rebut the case grant ed by Ld. A.O., t he appellant was prevent ed by sufficient cause to place on record certai n doc uments i n support of appar ent genui neness.

11.2.

T he appel lant’s submission, along with t he additi onal evidence, was sent t o the A O for exami nation and his comments. Bel ow i s a re pr oduction of t he rel evant part of the remand report.

“2 . In t his r egard, it is submitted that as per R ul e 46A of the Inc ome Ta x Rules 1962, the additional evi denc e is not acc eptable ex cept i n the follow ing cir cums tances – where the AO has r efus ed t o admit evide nce / where t he appellant was prevented from s uffi cient caus e from prod uci ng t he evi dence / where t he AO passed the or der without givi ng sufficient opportunity to the appellant to prod uce evidence. No ne of the abov e-mentio ned circumstances are fulfill ed in this case whi c h is clea rly evident fr om the ord er dat ed 28.03.2022 passed u/s 147 rws 144B of the I ncom e Tax Ac t 1961. The refore, the additi onal evide nces filed by the assess ee may not be admitted.

2.

However, the comm ents on the submissions /additi onal evidence submit ted by the ass essee before Ld. C IT(A) are as under:

2.1

The assess ee compa ny has filed its retur n of i nco me declari ng i nc ome of Rs. 64,520/- on 29.09.2015. An informati on was rec eived t hat t he assess ee has obtained accommodation entri es of Rs. 4,94 ,42,270/- fr om Pa rth Int ernatio nal and Rs. 5 ,32,26,443/- from Riddhi Siddhi Impex. The case was reope ned u/s 147 of the Act aft er rec ording the reas ons and obtai ni ng the prior approval of the concerned autho rity.

2.2.

Duri ng the cours e of reas se ssment pr oceedi ngs, vari ous opport uniti es of bei ng heard was provided to t he assessee and after c onsideri ng t he replies filed by t he assessee, order u/s 147 rws 144B of the Ac t was passed on 28.03.2022 maki ng the addition of Rs . 1,37,32,650/-.

2.3

Now, the assessee has claimed before t he L d. C IT(A ) tha t the Gross Profit e arned on other products cannot be assumed t o be the gr oss pr ofit of grai ns traded by the assessee. In support of its claim, the asses see has filed copies of VA T r etur ns, i nvoic es, l edger a ccounts , bank stat ements etc. before the Ld. CIT (A). Therefore, it is amply cl ear t hat the assesse e was requi red t o file all the details duri ng the afo resaid ass essment proceedi ngs. Whic h were not filed by him despite bei ng specifically as ked for. F urther , all these doc uments do not support the aforesaid clai m of the assesse e. In view of these circumstances, the additional evidenc es filed by the assessee may not admitted.”

11.3.

The rema nd repor t receiv ed from t he AO was provided to the app el lant t o submi t a rejoinder at t he latest by A ugus t 1st, 2024. The appellant has not provided a rej oi nder yet. Therefore, it is necessary to det ermi ne whe ther additional evidence is admissible bas ed on the facts and circ ums tances of the case.

11.4.

The ass es sme nt or der and rema nd r epor t s how tha t despit e the ample opport unities gi ven t o the appellant, they fai led to submit t he documents t hat they hav e now filed as additi onal evidence. The appellant has not met any of the conditi ons specified i n R ul e 46A, as stat ed by the AO in his remand report. As per the record, the AO did not decl ine t o accept the documents that the appellant wante d to submit. H ence ,It is necessar y to exami ne if there were suffi cient re aso ns for the appella nt to not s ubmit the documents i n question before t he AO .

11.5

It can be seen from t he appellant ’s additi onal evidence list that the documents listed under se rial numbers a, b, c, e, and g are com mon documents and must be kept i n their office. Ac cording to the appellant, they were unabl e to produc e the documents i n question before t he AO due to circums ta nces bey ond their control and tec hnical exi genci es . The appellant did not elaborate on the ci rcumstances a nd t ec hnical exi gencies that hi nder ed t heir submission of t he docume nts i n question to the AO. The appellant ’s explanatio n for not producing the docum ents when they were supposed t o be available in their of fice is not convi nci ng.

11.6

The pa rti es pro vided the c onfirmati o n lett ers , which indicate t hat they did not deal in moong dal . T hey actually deal in clot hes, gold, a nd silver, and ot her similar items. The dispute in this case pertains to the esti mati on of gr oss pro fit for moong dal’s t urnover. Ther efore, the c onfirmati on l etters are not releva nt for the matter in question. According to the appellant, t he moo ng dal was not s ubj ect to VAT, s o the VA T r et urn won’t be hel pful i n resolvi ng this i ssue. T he ap pellant’s filing of additiona l evidence is not suf ficient t o advanc e the justice. In light of the previ ous discussio n and t he entirety of t he facts, I am unabl e t o accept the additi onal evidence.

12.1.

In ter ms of t he merits of the additio ns, it has been not ed that t he a ppellant has disputed the additi ons m ade by t he AO by maki ng an i nitial submission, which was suppl ement ed by s ubs equent s ubmi ssions filed duri ng the appellate procee dings, which hav e car efully been considered and kept on rec ord. A brief summary of t he appellant’s s ubmission is pr ovided below:

1.

The AO es timated the gr oss pr ofit by appl yi ng GP rate of other pr oduc ts to GP rate of moong dal.

2.

The m oong dal had a positive gr oss pr ofit i n the assessment yea rs involv ed, and it is not a case of l ow gross profit or l oss.

3.

Profit mar gi ns i n t he commodit y mar ket ar e very low and fl uctuat e o n a daily basis. The AO i gnored the fact that t he moong dal ’s GP i n the assessment year under consideration was better than the previ ous ass essment year.

Dal is produced by farmers, and all suppliers , through their br okers, c ontact the assess ee who, after verifying the quality on the basis of s amples, b uys i t. The broker does not disclose t he name of t he actual seller, but the assessee wil l only be abl e t o identify the supplier through their bill or i nvoic e aft er Moong rec eiving the material.

The buye r is uncertai n if the s upplier sold the goods to them on thei r own bill or some one bill. Receivi ng goods on a properly doc umented i nv oice is the onl y thi ng that mat ters t o the buyer, fo r which payment can be made eit her by cheque or t hrough banki ng c hannels. All purc has es ar e duly documented i n the bo oks of acc ount .

If the real s upplier was pr ovidi ng on the bi lls of others, the assessee cannot be held account able for it. T he buyer has no responsibility for identifyi ng the s uppliers as the moo ng dal purc hased is not a brand owner but an agric ultural -bas ed com modity.

Eac h of sal e and purchase wer e made by acco unt payee cheque. Eac h sale and purchase was backed up by invoices and complete books of account were mai ntained.

All tr ansactions are genui ne entries entered by the assessee duri ng the c ours e of his normal business ope rations. The aforementioned.

The purchases /s ales were genui ne tra nsacti ons and w ere dul y considered i n the fi nancial statements prepar ed for the peri od unde r considerati on. The purc hases/s ales were made from the aforeme ntioned parti es at market ra te.

Goo ds were received and payments were made in accordance wi th the bills rec eived from these entiti es. Ther e is no i ndication tha t trans acti ons wi th the alle ged entities are s uspi cious , exc ept for the allegation upl oaded on t he i nsi ght por tal and the alle ged stat ements.

Neither the stat ements of the aforem entioned persons were confro nted nor any person was prese nted for cr oss-exami nati ons.

The appellant ha s placed r eliance on the decisions vari ous Ho n’ble High Courts and Tribunals to bac k up their conte ntion.

12.2.

T o ma ke it conveni ent, I wi ll briefly des cribe t he rel evant fact t hat led t o gr oss profit esti mati on, e ven i f it means repeati ng myself. Duri ng the s urvey, it was disco vered that Shri Asho k Gupta was i nvolved in unet hi cal practices o f providi ng ac co mmodati on e ntri es to vari ous beneficiaries through hi s entities t hat he controlled a nd managed, according to the rec ords. The appellant was one of t he beneficiari es and obtai ned b oth bogus purchases and sales from the entities contr olled by Shri Ashok Kum ar Gupta. The transactio ns were car ried out thr ough t he banki ng channel to make them seem genui ne, but they were not.

12.3.

The appellant made bot h purc hases and sal es of moo ng dal in the grey market, as observed by the AO, and accommodati on entri es were ent ered t o ensure regularizati on of the p urcha ses and sales . Duri ng t he assessment pr oce edi ngs, the A O observed that the appellant disclosed a gross profit of 2.39% for moong dal tur nover, c ompared to a gr oss p rofi t of 10.07% for t he to tal turnov er. According to t he AO, the gross profit on tur nover for go ods ot her than moong dal was 26.12%.

12.4

The AO noted that the appel lant didn’t provi de the F.Y.2014-15 stock r egi ster, purchase and sales register , and evidence of t he movement of goods such as deliv ery c hallans, lorr y rec eipts , a nd transportation bills, amo ng other items, during the asse ssment . Accordi ng to the appellant befo re t he AO, trucks and l orries were used to trans port the goods , and the tr uc k numbe rs we re incorporated in the sales/purc has e bills. The A O verified the p urchase and sale bills and disc ove red that the s ale and purc hase i nvoices did not have truck numbers, which contradict ed t he appellant ’s claim.

12.5.

The appellant ’s fail ure to provide nec essary doc uments l ed the AO t o concl ude that t hey made purc has es and sal es fro m t he gray market and obtai ned accommodation entri es fr om enti ties managed and controlled by S hri Ashok G upta to regularize tho se purc has es and sal es . The AO applied t he 23.02% GP rate for the total turnover, whic h resulted i n a gross profit of Rs.1,17,32,650/-. T he AO also relied on the decision of the H on’bl e Gujrat High Cour t i n the case of CIT vs. Simit P. Sheth (2013) 3 56 ITR 451(Gujarat).

12.6

Accordi ng to the appellant ’s submission, t hey bought moong dal through a broker b ut wer e uns ure if the supplier sold the goods to them on their own or somebod y else’s account. The appell ant has furt her stat ed that it is not the appellant’s res ponsibility if the actual supplier was providi ng bill s f or ot hers . Since t he moo ng dal purchased is not a brand owned com modi ty, the buyer is not responsible for identifyi ng the suppliers. Accordi ng to the submission above, the app ellant bought moo ng dal, but no t from t he parti es t hey claimed t o have bought it from . It is the appell ant's responsibi lity to prov e the genuineness of the purchases. There is no doubt tha t trans actions were co nduct ed t hrough t he banki ng c hannel. At t he same time, the ap pel lant failed to pr oduce evidence of the m oveme nt of go ods, i ncl uding deliv ery c hallans, lorr y receipts , and transpor tatio n bills for F.Y.2014-15 stock regist er, purc hase and sales register , and evidence o f the movement of goods like lorr y rec eipts, even duri ng the appellat e pr oceedi ngs. The striki ng fe ature of the transacti ons i n mo ong dal that does not escape one’s at tentio n is that t he entire quanti ty of goods were purchas ed from a si ngl e e ntity, M/s Part h International , a nd s old to anothe r si ngl e entity, M/s Ridd hi Siddhi Impex. As previously stated, Shri As hok K umar Gupta, who was involve d i n pro viding accommodation entries for bogus purc hases and s ales to multiple entities , was in c harge of managi ng and controlling bot h entities .

As it appears, both entities exi sted only on pape r and were created solely for the pur pose of acc ommodati ng bogus purchases a nd sal es t o i nt eres ted entities . The facts above and the fi ndi ngs of sur vey s upport t he view tha t the appellant substituted their purc hases a nd sales of goods from the grey market by ac qui ring doc ument ation from the above-me ntioned entiti es to make them appear a uthentic. It appe ars that t here were untest ed or unproven purc hases and sal es that were replaced by accommodation e ntries. The documents that were produc ed as additi onal evidence by t he appellant are self-servi ng evidenc e and cannot co ntradict the survey fi ndi ngs .

12.7

It is reiterat ed that t he appellant bought and sold mo ong dal from other i ndividuals, possibly without any paperwork. The appellant ’s failure to present a stock register , a movement register, and i nsufficie nt tr anspo rtation details, as well as the disc overy of accommodation entri es from the entities menti oned earlier, lead to t he c oncl usion that t hey purchased and sold f rom the grey market and obt ai ned entrie s to substitute the m. As a res ul t, the purchas e and s ale amo unts pri nt ed o n the i nvoice are not acc eptable. In t he ev ent that purc hases ar e made from the grey market, bogus bills are al ways obtai ne d fr om other parti es. In t he same way , sales ar e made to pa rties , but false bills are obtai ned from other individuals to whom actual sales were not made. Obvi o usly, false bil ls are obtai ned to rec eiv e cer tai n be nefits.

12.8.4

All of these aspects indicate that fa ke tr ansactions of c ommodities (grai ns) were conducted with those entiti es that were doc ument ed i n thei r boo ks of acco unts. The purchase a nd s ale of commoditi es w ere just book entri es to give a false impressi o n of aut henticity to transactio ns that were otherwise bogus .

12.9

The refore, I do not se e any reason t o i nt erfere with the or der in terms of estimat ing the gross pro fi t. Havi ng said t hat, I no te that the AO es timated a hi gher rat e of gr oss profi t because the appellant dealt in different types of goods, whi ch means that the GP rat e for one item c annot be applied to anot her it em t hat is compl et el y different in nature. Accordi ng t o the record, the appell ant deal t in clot h, gold bars, and silver j ewelry, amo ng other items , duri ng t he peri od under consideratio n.

12.10

The Hon’bl e Jurisdictio nal G ujarat Hi gh Co urt deliv ered on Jan 1 6, 2013, in the c ase of CIT Vs S umme t P. Shet h 356 ITR 451 (Guj ) i n which AO plac ed relianc e held that the es timation of r ate of profit r eturn mus t nec essarily vary with the nature of busi ness and no uni form yardstic k can be adopt ed.To determi ne the gr oss profit rat e, it is nec essar y to consider the nat ure of the goods tr aded and the prevailing mar ket conditi ons. The price of pulses, incl udi ng Moong dal, i nc reased significantly i n 2014 and 2015 due t o a short age of supply and a change i n the mi nimum support pri ce. The tr ader makes a s ubstantial profit in the Moog Dal T rading mar ket bec aus e of the shortage of s upplies . The curre nt case is not about regular busi ness profits , but about the suppression of profit through acc ommodati on entri es. Fr om the above, I am of the opi ni on that estimati ng the gross profit on Moong Dal's turnover at 10% i s j us t and fair . In vie w of the above , the AO is direct ed t o estimate the gr oss profit of moong dal at 10% and delete t he balance gross profit dete rmi ned by him. It i s clarifi ed tha t t he gross pro fit rate for go ods other than moong dal shoul d be taken at 26.12% as decla red by the a ppellant. The grounds No. 5 , 6 and 7 are, thus , partly allowed.”