Mehsana Steel Syndicate , Navsari vs Assessee

अपीलाथ!/ (Appellant) "#यथ!/ (Respondent)

Assessee(s) by : Shri D.C. Mishra, Sr.DR Revenue by : Shri Anil Kshatriya

सन ु वाई क तार ख/ Date of Hearing : 07/05/2015 घोषणा क तार ख / Date of Pronouncement: 08/05/2015

आदे श/O RDER

PER N.S. SAINI, ACCOUNTANT MEMBER: This is an appeal

filed by the assessee against the order of the CIT(A), Valsad dated 31.1.2011

2. The assessee had filed an application on 6.5.2015 for admission of following grounds as additional ground of appeal:

"1. On the facts and in the circumstances of the case, the ld.CIT(A) has grossly erred in sustaining the addition of Rs.11,46,000/- on account of alleged bogus purchases, when ITA No.2031/Ahd/2011 2

he ought to have deleted the same, as no such addition is warranted/justified.

2. Without prejudice to the above, having regard to the ratio of jurisdictional Tribunal in the case of Smt. Megha S. Shah Vs. DCIT I ITA No.159 & 1668/Ahd/2010, the ld.CIT(A) ought to have directed the AO to tax only the net profit, as against entire purchases."

3. DR did not have any objection to the admission of the above cited additional grounds of appeal, therefore, the same were admitted and the parties were allowed to make their submissions thereof.

4. The brief facts of the case are that the assessee is engaged in the business of trade in steel and cement. The AO observed that the assessee has entered sales/purchase transactions with Shri Vijaykumar Manubhai Patel, proprietor of P. Babulal & Co., Mehsana. A survey operation under section 133A of the Act was conducted in the case of P. Babulal & Co., during which Shri Vijaykumar M. Patel admitted in his sworn statement that he has involved in issuing of bogus sales bills without delivery of goods. Therefore, the AO held that purchases made by the assessee from party are bogus. Further, the AO also observed that the assessee failed to produce quantitative details for opening stock, purchases and sales. The assessee was unable to co-relate the purchases vis-à-vis sales. The AO also observed that Shri Vijaykumar M. Patel further admitted in his statement that he was issuing the bogus sale bills to various persons in Gujarat including the assessee, M/s.Mehsana Steel Syndicate. The AO also observed that on perusal of freight paid vouchers for transportation of steel, he observed that the vouchers are self-fabricated by the assessee ITA No.2031/Ahd/2011 3

himself and they are not signed by either giver or receiver of such freight. Thus, the purchase transaction made by the assessee i.e. Shri Vijaykumar M. Patel are non-genuine, and made addition on account of purchases made from P. Babubhai & Co. of Rs.11,46,000/- by treating the same as bogus purchases.

5. On appeal, the CIT(A) held that the case was posted for several times, but nobody responded to the notice. He, therefore, held that there is nothing on record to controvert the findings of the AO, and therefore, in the circumstances, he had no alternative, but agree with the findings of the AO, hence he confirmed the addition made by the AO.

6. Before us, the AR of the assessee submitted that the entire sales of the assessee are accepted by the AO, as genuine. Book results of the assessee are also accepted by the AO, and no mistake therein has been pointed out. The accounts of the assessee are audited and the same are placed at paper book, page nos.12 to 32. Therefore, it was his submission that making addition on account of bogus purchases after accepting the sales of the assessee was no justified by the AO.

7. In the alternate, it was the submission of the AR of the assessee that the entire purchase of Rs.11,46,000/- cannot be made in the hands of the assessee, and only the net profit embedded in the same can be added to the income of the assessee He submitted that the assessee has shown net profit at 0.66%, and therefore, at best, the addition of 0.66% of Rs.11,46,000/- can be made in the hands of the assessee.

ITA No.2031/Ahd/2011 4 8. On other hand, the DR supported the orders of the lower authorities.

9. We have heard rival submissions and perused the orders of the lower authorities and material available on record. In the instant case, the assessee is a trader in steel and cement. The assessee claimed to have purchased goods worth Rs.11,46,000/- from M/s.P.Babulal & Co., Mehsana. According to the AO, a survey was conducted in the case of said M/s.P. Babulal & Co. on 30.8.2005, in which Shri Vijaykumar M Patel had admitted that he was in the business of issuing of bogus bills. In view of the said statement, the AO treated the purchases of Rs.11,46,000/- claimed by the assessee from M/s.P. Babulal & Co. as bogus. Thereafter, the AO added the entire amount of Rs.11,46,000/- to the income of the assessee.

10. On appeal, the CIT(A) confirmed the action of the AO.

11. Before us, the AR of the assessee submitted that the AO was not justified in adding the entire amount of purchases to the income of the assessee. He pointed out that the sale disclosed by the assessee was accepted by the AO as genuine and correct. Without purchases, the assessee could not have achieved sales. He also pointed out that the GP of the year under considerations comes to 5.44%, which is the same as was accepted by the Department in the case of the assessee in the immediately preceding year. He contended that if the AO's contention is accepted that the entire amount of Rs.11,46,000/- is to be added to the GP of the assessee, then the GP works out to 15.08%, ITA No.2031/Ahd/2011 5

which is not possible, as evidenced from the past accepted position of GP, in the case of the assessee.

12. On the other hand, the DR relied upon the order of the AO.

13. We find that the sale of the assessee was accepted by the department. It is obvious that without purchases, there cannot be sales. Even otherwise, when the books of accounts of the assessee are found to be unreliable, the income of the assessee is to be estimated to the best of the judgment of the AO. In such assessment also, the judgment has to be based on some material, and it cannot be at the whims of the AO. In such assessment also, the addition cannot be made to the income of the assessee by the AO without any material.

14. In the instant case, the GP of the year disclosed by the assessee comes to 5.44%, and the same compares favourably with the past accepted position in the case of the assessee itself. We, therefore, do not find any good reason for enhancement in the income of the assessee without bringing any material on record to show that the assessee actually earned any income more than the income disclosed in the return. We find that no material has been brought to show that the market value of the goods claimed to have been purchased by the assessee from M/s.P. Babulal & Company was less than the value at which, the assessee claimed to have purchased these goods on those dates. In the absence of any such material, and keeping in view the entire facts and circumstances of the case, in our considered view, the addition of Rs.11,46,000/- made by the AO is not sustainable.

ITA No.2031/Ahd/2011 6 We, therefore, delete the addition of Rs.11,46,000/- and allow ground of appeal of the assessee.

15. The assessee has also raised following grounds of appeal in the memo of appeal:

"1. The ld.CIT(A) has grossly erred in deciding the appeal ex party particularly in view of the fact that there was no effective service of the alleged notice of hearing to the appellant which tantamount to render the appeal order as passed against the principle of natural justice and equity and therefore perverse.

2. In view of the Ground No.1 above that there was no effective service of the notice of hearing by the ld.CIT(A), the ld.CIT(A) erred in confirming addition of Rs.11,46,000/- on account of alleged bogus purchases.

3. In view of the Ground No.1 above that there was no effective service of hearing by the ld.CIT(A), the ld.CIT(A) erred in confirming the disallowance of Rs.7,945/- @ 20% office expenses."

16. At the time of hearing, the AR submitted that he will be arguing only on the additional grounds raised before the Tribunal, and was not pressing the above stated grounds of appeal-memo, therefore, they are dismissed.

17. In the result, the appeal of the assessee is partly allowed.

Order pronounced in the Court on Friday the 8th May, 2015 at Ahmedabad.

Sd/- Sd/- (S.S. GODARA) ( N.S. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER

Ahmedabad; Dated 08/05/2015