Paras Arora, New Delhi vs Assessee
- CitationITA No.4368/Del/2012
Ratio decidendi
The rule this decision rests on
Where a purchase invoice is shown by the assessee to be fictitious, and the seller cannot be produced or shown to exist at the stated address or telephone number, the addition to be made under the Income-tax Act is not the entire invoice value; rather, where goods are shown to have moved, the excess of the invoiced price over the true price represents the concealed income, and that excess is to be computed by applying the assessee's gross profit rate of the preceding year to the total turnover, in the absence of independent reasons justifying a decline in the current year's gross profit rate. A transit pass issued by a sales tax authority certifies only the movement of goods and does not certify the correctness of the seller's particulars or the genuineness of the transaction. Where the assessee's audit report shows that no stock register was maintained in the regular course of business, so that opening stock quantity and value cannot be verified, the assessee cannot rely on a stock register first produced in appellate proceedings to rebut the inference that purchases are bogus; the general principle that no addition lies for bogus purchases where stock registers are properly maintained and the value of goods is undisputed applies only where such registers exist.
Written by Miss Lucy from the judgment below, not taken from a headnote.
Judgment
As delivered
Assessee By : Shri K.V.S. Gupta, Advocate Department By : Shri Vikram Sahay, Sr. DR
ORDER PER R.S. SYAL, AM:
This appeal by the assessee is directed against the order passed by
the CIT(A) on 04.06.2012 in relation to the assessment year 2007-08.
2. The only issue raised through various grounds is against the
confirmation of addition of Rs.15,34,416/- by treating the purchases
from M/s Ankit Electronics as bogus.
ITA No.4368/Del/2012
3. Briefly stated, the facts of the case are that the assessee is engaged
in the business of trading of electrical/electronic accessories. On perusal
of the records, the Assessing Officer (AO) noticed that the assessee had
made purchases amounting to Rs.15,34,416/- from M/s Ankit
Electronics, 9/2830, Kailash Nagar, Delhi-31 in the months of May and
June, 2006. This amount was seen to have been paid in cash in small
installments between July, 2006 to March, 2007. No payment was made
through cheques or drafts. To ascertain the genuineness of these
purchase transactions, the AO issued summons u/s 131 of the Income-
tax Act, 1961 (hereinafter called 'the Act') on M/s Ankit Electronics for
personal attendance along with books of account. The summons were
received back with the postal remarks to the effect that no person by that
name exists on the given address. Vide order sheet entry dated
23.11.2009, the assessee was asked to produce the partner/proprietor of
M/s Ankit Electronics along with their books of account. The assessee
submitted that the invoices were issued by M/s Ankit Electronics along
with Transit passes (F-3) issued by Sales-tax Department, Ghaziabad. It
was also stated that the purchases made from M/s Ankit Electronics 2 ITA No.4368/Del/2012
were only 2.5% of total purchases made during the year. However, no
representative of M/s Ankit Electronics was produced before the AO for
verification. The AO also observed that the so called bills issued by M/s
Ankit Electronics were not proper inasmuch as the first invoice dated
11.5.2006 bore invoice No.345; the second invoice dated 17.5.06 bore
invoice No.346; third invoice dated 19.5.2006 bore invoice No.347;
fourth invoice dated 25.5.2006 bore invoice No.384; fifth invoice dated
30.5.2006 bore invoice No.386; sixth invoice dated 3.6.2006 bore
invoice No.387; seventh invoice dated 06.06.2006 bore invoice No.388;
and the eighth invoice dated 12.6.2006 bore invoice No.389. By
considering the sequence nos. of the invoices issued by M/s Ankit
Electronics, the AO observed that the sales were allegedly made by this
party only to the assessee inasmuch as there was no invoice issued by
this party between 11.5.2006 to 19.5.2006 and then from 23.5.2006 to
12.6.2006. Since all the payments to this concern were made in cash
ranging from Rs.15,000/- to 19,500/- and no Permanent account of this
party was given, the AO proceeded to conduct further inquiry. On going
through the invoices claimed to have been issued by Ankit Electronics, it 3 ITA No.4368/Del/2012
was seen that phone no. 22544222 was mentioned thereon. On inquiry
from MTNL, it transpired that this phone no. belonged to M/s Cipla
Industries and was installed at a different address. When a call was
made at this phone number, the respondent confirmed that it belonged to
M/s Cipla Industries and not to M/s Ankit Electronics. Considering all
these facts, the AO held the purchases amounting to Rs.15.34 lac as
bogus and made addition for the above sum. The ld. CIT(A) sustained
the addition. The assessee is aggrieved against this addition.
4. We have heard the rival submissions and perused the relevant
material on record. There is no denial of the fact that the assessee
miserably failed to show that these invoices were in any manner
genuine. All the inquiries conducted by the AO amply proved that the
assessee dejectedly failed to either produce any representative of this
concern or substantiate its identity. Summons issued on the given
address divulged that this party never existed at the address given on
invoices. The telephone number mentioned on the invoices turned out to
be fake. When M/s Ankit Electronics filed some confirmation before the
4 ITA No.4368/Del/2012
AO at the later stages of the assessment through post, a copy of which is
available on record, interestingly, telephone number was conspicuously
absent this time from the letter pad of this party. All these facts lead to
the only irresistible conclusion that the Invoices recorded by the assessee
in its books of account were fake and bogus.
5. The ld. AR largely harped on Form No.3, being Transit passes
issued by Competent authority, to bring home the genuineness of the
purchase transactions. A perusal of these Passes and on a further query
to the ld. AR, it emerges that the Authority issuing such passes simply
certified the movement of goods. It did not certify either the correctness
of the particulars of the seller of goods or the genuineness of
transactions. So, these Passes, in themselves, simply show the movement
of goods and do not in manner certify the genuineness of seller/invoices.
6. The next plank of the arguments of the ld. AR was that the assessee
maintained its stock register and when the stock registers are properly
maintained, then, no addition can be made even if the purchases are
bogus. To buttress this contention, he relied on certain decisions. In
5 ITA No.4368/Del/2012
principle, we agree with this view that when stock registers are
maintained and value of the goods is not in dispute, then no addition can
be made on this score. However, we find that the position obtaining in
this case is quite at variance. It is manifest from the audit report of the
assessee that no stock registers were maintained. The auditor has
qualified his report by giving remarks against column no. 28(a): "It is
not possible to verify the stock since firm is trading in number of small
items." From the audit report, it is clear that the assessee did not
maintain any stock register. It can also be noticed from the assessment
order/proceedings that no stock register was produced before the AO. It
is only during the course of first appellate proceedings that the assessee
came out with some stock register to substantiate its claim of
genuineness of purchase transaction. Since the assessee was not
maintaining stock records in the regular course of its business, there can
be no way to ascertain quantity-wise and value-wise break-up of
opening stock. Once the quantity of opening stock is not
ascertainable/verifiable, there can be no way to go ahead. Under such
circumstances, we refuse to accept the veracity of such stock register. 6 ITA No.4368/Del/2012
7. Having come to the conclusion that transactions with M/s Ankit
Electronics were fake and that there was, in fact, some movement of
goods to the assessee, the only possible inference which can be drawn is
that the assessee arranged bogus bills with higher invoice value and
actually made purchases at some lower price from some undisclosed
party. Under such circumstances, the question arises as to whether the
entire amount of invoices should be added or some profit element. In our
considered opinion, in such a scenario, it is the excess price shown,
which should be added rather than the invoice value itself. When we
consider the overall gross profit rate of the assessee, it comes to the fore
that the current year's GP rate at 3.96% dipped from the preceding
year's gross profit rate of 4.41%. In the absence of any independent
reasons to justify decline in the GP rate, it is such reduction in the profit,
which was sought to be achieved by over-invoicing transactions through
fictitious bills raised in the name of M/s Ankit Electronics. Considering
the totality of facts and circumstances of the instant case, we are of the
considered opinion that the preceding year's gross profit rate of 4.41%
be applied on the total turnover of the assessee at Rs.5,99,54,644/- for 7 ITA No.4368/Del/2012
making addition towards the income which the assessee sought to
conceal by raising fake invoices. This would mean sustenance of
addition for a sum of Rs.2,69,796/-. We order accordingly.
8. In the result, the appeal is partly allowed.
The order pronounced in the open court on 11.02.2015.
Sd/- Sd/-
[C.M. GARG] [R.S. SYAL] JUDICIAL MEMBER ACCOUNTANT MEMBER Dated, 11th February, 2015. dk Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT (A) 5. DR, ITAT
AR, ITAT, NEW DELHI.
8
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