Income Tax Appellate Tribunal - Mumbai
Emgee Foils P.Ltd, Mumbai vs Assessee
आयकर अपील य अ धकरण,
धकरण, मंुबई यायपीठ 'ई
ई' मंुबई
IN THE INCOME TAX APPELLATE TRIBUNAL
"E" BENCH, MUMBAI
ी बी.
बी रामकोट
रामकोट य,
य लेखा सद य,
य एवं ी अ मत शु ला, या यक सद य के सम
BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND
SHRI AMIT SHUKLA, JUDICIAL MEMBER
आयकर अपील सं. / ITA no. 7744/Mum./2010
( नधारण वष / Assessment Year : 2004-05)
आयकर अपील सं. / ITA no. 7745/Mum./2010
( नधारण वष / Assessment Year : 2005-06)
M/s. Emgee Foils Pvt. Ltd. .................... अपीलाथ /
301, The Angel, 2, Krishna Sanghi Path
Appellant
Gamdevi, Mumbai 400 007
बनाम v/s
Dy. Commissioner of Income Tax ................... यथ /
Circle-47, Mumbai Respondent
थायी लेखा सं./ Permanent Account Number - AAACE3990N
आयकर अपील सं. / ITA no. 9229/Mum./2010
( नधारण वष / Assessment Year : 2004-05)
आयकर अपील सं. / ITA no. 9230/Mum./2010
( नधारण वष / Assessment Year : 2005-06)
Dy. Commissioner of Income Tax .................... अपीलाथ /
Circle-47, Mumbai
Appellant
बनाम v/s
M/s. Emgee Foils Pvt. Ltd. ................... यथ /
301, The Angel, 2, Krishna Sanghi Path Respondent
Gamdevi, Mumbai 400 007
थायी लेखा सं./ Permanent Account Number - AAACE3990N
राज व क ओर से / Assessee by : Mr. Rakesh Joshi a/w
Mr. Sharad Shah
नधा रती क ओर से / Revenue by : Mr. Girija Dayal
M/s. Emgee Foils Pvt. Ltd.
2
सनवाई
ु क तार ख / आदे श घोषणा क तार ख /
Date of Hearing - 18.04.2013 Date of Order - 30.04.2013
आदे श / ORDER
पीठ के अनसार ु / Per Bench By way of these cross appeals, the assessee as well as the Revenue have challenged the impugned orders of even date 15th October 2009, passed by the learned Commissioner (Appeals)-XXXVI, Mumbai, for the quantum of assessment passed under section 143(3) r/w section 153C of the Income Tax Act, 1961 (for short "the Act"), for the assessment years 2004- 05 and 2005-06 respectively. Since all these appeals pertain to the same assessee involving common issues, except variation in figures, which are arising out of identical set of facts and circumstances, therefore, as a matter of convenience, these appeals were heard together and are being disposed off by way of this consolidated order. However, in order to understand the implication, it would be necessary to take note of the facts of one appeal. Accordingly, we proceed to narrating the facts, as they appear in assessee's appeal in ITA no. 7744/Mum./2010, for assessment year 2004-05. The grounds raised by either party for the years under appeal, read as follows:-
Grounds raised by the assessee for assessment year 2004-05
1. On the facts and circumstances of the case as welt as in Law, the Learned CIT(A) has erred in confirming an addition to the extent of Rs.57,36,000/- without according any opportunity of being heard to the Appellant.
2. On the facts and circumstances of the case as well as in Law, the Learned CIT(A) has erred in confirming an addition of Rs.57,36,000/- ® 6% on the total turnover of Rs.9.56 cr by holding that the GP ratio shown by the assessee is lower, without appreciating the facts and circumstances of the case.
3. On the facts and circumstances of the case as well as in Law, the Learned CIT(A) has erred in treating the Gross Profit Ratio @ 6.50% for a trader in 'Steel Industry' and adding the difference in the Gross Profit margins of the Appellant as against the presumed Rate of Gross Profit without considering the facts & circumstances of the case.
M/s. Emgee Foils Pvt. Ltd.
34. The Learned CIT(A) erred in adding the sum on account of Gross Profit on the entire Sates without appreciating the fact that the entire Purchases were not even doubted by the AO."
Grounds raised by the Department for assessment year 2004-05 "1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) was not justified in deleting the addition of Rs. 5,01,88,500!-, being sundry creditor for goods, made uls. 68 of the Act ignoring his own conclusion that the assessee was not reporting true and correct state of affairs particularly when assessee had no delivery details, lorry receipts and the alleged creditors had admitted that the transaction were only on paper."
"2. On the facts and in the circumstances of the case, and in law, the CIT(A) was not justified in deleting the addition of Rs. 5,01,88,500!-, being sundry creditor for goods, made u!s. 68 of the Act without appreciating that the creditor did not confirm the balance and further in the remand proceedings no evidence as regards the movement of goods between sale I purchase party was furnished.
"3. On the facts and in the circumstances of the case, and in law, the CIT(A) was not justified in deleting the addition of Rs. 5,01,88,500/-, being sundry creditor for goods, made u/s. 68 of the Act without appreciating that the transactions were only paper transactions in the nature of accommodation entries and the creditworthiness of the parties and genuineness of the transactions as required u/s. 68 of the Act was not proved even during remand Proceedings."
Grounds raised by the assessee for assessment year 2005-06
1. On the facts and circumstances of the case as welt as in Law, the Learned CIT(A) has erred in confirming an addition to the extent of Rs.2,06,12,982/- without according any opportunity of being heard to the Appellant.
2. On the facts and circumstances of the case as well as in Law, the Learned CIT(A) has erred in confirming an addition of Rs.2,06,12,982/- ® 6% on the total turnover of Rs.41,64,23,882 by holding that the GP ratio shown by the assessee is lower, without appreciating the facts and circumstances of the case.
3. On the facts and circumstances of the case as well as in Law, the Learned CIT(A) has erred in treating the Gross Profit Ratio @ 6.50% for a trader in 'Steel Industry' and adding the difference in the Gross Profit margins of the Appellant as against the presumed Rate of Gross Profit without considering the facts & circumstances of the case.
4. The Learned CIT(A) erred in adding the sum on account of Gross Profit on the entire Sates without appreciating the fact that the entire Purchases were not even doubted by the AO."
Grounds raised by the Department for assessment year 2005-06 "1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) was not justified in deleting the addition of Rs.8,47,24,837/-, being sundry creditor for goods, made uls. 68 of the Act ignoring his own conclusion that the assessee was not reporting true and correct state of affairs particularly when assessee had no delivery details, lorry receipts and the alleged creditors had admitted that the transaction were only on paper."
M/s. Emgee Foils Pvt. Ltd.
4"2. On the facts and in the circumstances of the case, and in law, the CIT(A) was not justified in deleting the addition of Rs.8,47,24,837/-, being sundry creditor for goods, made u!s. 68 of the Act without appreciating that the creditor did not confirm the balance and further in the remand proceedings no evidence as regards the movement of goods between sale I purchase party was furnished.
We first take up assessee's appeal in ITA no.7744/Mum./2010, for assessment year 2004-05.
2. The sole issue arising out of the aforesaid assessee's appeal is with regard to the direction of the learned Commissioner (Appeals) in confirming the addition on account of gross profit rate on total turnover, whereas the issue arising out of the Revenue's appeal is against the deletion of addition made under section 68 of the Act on account of unexplained balance in the account of sundry creditors for the goods.
3. Facts in brief:- A search and seizure operation under section 132 of the Act was conducted on 22nd November 2006 in the case of Orbit Corp. Ltd. The assessee company being one of the group concerns of Orbit Group, was issued noticed under section 153C of the Act. The assessee had filed original return of income on 3rd October 2007, declaring income of ` 6,37,860. In response to notice under section 153C also, some income was shown. During the year, the assessee had purchased materials like H.R. Coils, M.S. Angles, M.S. Bars, M.S. Pipes, M.S. Round, etc., from various companies and had sold that to different parties. The details of purchase and sales for the year 2004-05 have been incorporated at Page-2 of the assessment order. From the examination of such details, the Assessing Officer noted that purchases and sales have been made on the same day. On verification of the balance sheet, he noticed that one party M/s. Epsilon Industries Ltd., have been shown as sundry creditors for goods wherein outstanding balance was ` 5,01,88,500, as at 31st March 2004. The Assessing Officer observed that since no confirmation from the creditors regarding transactions have been filed by the assessee, therefore, he came to the conclusion that these are only paper transactions and are in the M/s. Emgee Foils Pvt. Ltd.
5nature of accommodation entries. Accordingly, he treated the said amount of ` 5,01,88,500, standing against the said party to be added as income of the assessee under section 68.
4. Before the learned Commissioner (Appeals), it was submitted that the account of Epsilon Industries Ltd. was a running account and purchases and payments thereof were made throughout the year. The balance outstanding with this party as on 31st March 2005, i.e., in the next year was only ` 10,00,486, which means major payments have been made in the next year. Moreover, the Assessing Officer has accepted the sales made against these purchases and, hence, there was no reason to doubt the purchases. It has also been stated that before the Assessing Officer a letter was filed on 25th March 2008, wherein the confirmation and details of all sundry creditors were filed as Annexure-G to the said letter. The assessee also produced copies of the bank statements / bank pass book for the relevant period to demonstrate that the transactions were undertaken only through account payee cheques. Details of itemwise, quantitywise and valuewise purchases made from Epsilon Industries Ltd., were filed and also the sales made for the same items matchingwise to M/s. Clariant India Pvt. Ltd. and M/s. Shree Mahalaxmi Techno Engg. Pvt. Ltd. was also given. The learned Commissioner (Appeals), to substantiate this claim, called for the remand report specifically with regard to the letter dated 25th March 2008, along with Annexure-G, wherein confirmation with the parties were filed before the Assessing Officer and to verify the actual facts. The Assessing Officer, vide remand report dated 13th May 2010, however, did not refer to any such addition made on account of Epsilon Industries Ltd. in assessment year 2004-05 but restricted his comment to the addition made in assessment year 2005-06. He also objected to the filing of fresh evidence. Again the remand report was called for from the Assessing Officer to clarify same point, however, this time also, the Assessing Officer did not make any comment on account of addition made in the assessment year 2004-05.
5. The learned Commissioner (Appeals) accepted the entire assessee's contentions, however, upheld the addition after applying gross profit rate of M/s. Emgee Foils Pvt. Ltd.
66.5% to the total turnover and confirmed part of the addition after observing and holding as under:-
"9. I have considered the submissions of the appellant and the order of the A.O. The appellant has made total purchase in this year of 3571.647 MT valued at ` 9,51,58,794. The exact quantity was sold for ` 9,56,34,588 deriving a gross profit of ` 4,75,794. The GP ratio is only 0.50%. This is in line with the GP shown by the appellant in the past years. The AO has not rejected the books of accounts and accepted the sales turnover shown by the appellant. Firstly, if the sales figures are accepted then the corresponding purchases also have to be accepted. Since, the AO has accepted the sales turnover; there is apparently no reason to reject the corresponding purchases.
10. The AC has mentioned in the assessment order that the confirmations were not filed and hence he made the addition u/s 68. The appellant has in this year made purchases from two parties and made sales to two parties. These transactions are done as a trader and hence neither there is any opening stock nor any closing stock. The appellant has shown GP which is in line with the GP shown in earlier years. The appellant had filed a letter with the AO on March 25, 2008 wherein the confirmations and details of all the sundry creditors were filed as Annexure 'G' to the said letter. The appellant had also produced the copies of bank statements; bank books etc of the relevant period to show that the transactions were through only account payee cheques. The appellant also filed the details of itemwise, quantity wise and value wise purchases from M/s Epsilon Industries Limited and how the same were sold to M/s Clairant India Private Limited and M/s Shree Mahalaxmi Techno Engg. Pvt. Ltd. along with the details of item wise, quantity wise and value wise sales which matched with the corresponding purchase. On this issue, remand report was called for from the AC as already mentioned above. Both the remand reports, as mentioned above, are silent on whether the AC indeed received this letter with all the annexure. Further, in the remand report, the AO has objected to acceptance of this additional evidence. This is not a case of the intimations and copies of accounts filed at the appellate stage being additional evidence. In fact, they were filed before the AO but were not considered by him. The letter bears the stamped receipt of the office of the A.O. dated March 25, 2008. The remand was sought for verifying the confirmations and also examining the parties to ascertain the truth. The remand report has not commented adversely about the addition made for AY 2004-05 t of M/s Epsilon Industries Limited. Therefore, it is presumed that the AO has nothing to say on the same. Further, it is pertinent to note that in AY 200 5-06 also the appellant had purchased from M/s Epsilon Industries Limited, but the same AO has allowed the same and made addition only on account of the outstanding amount of Phoenix Aluminum Foils and Allied Products and Medigold Global Limited. The appellant and the two parties from whom the purchases were made have shown the transactions in the Sales Tax Return and the tax on the same has also been paid. There is no instance of cash being withdrawn and returned to the appellant and vice versa.
M/s. Emgee Foils Pvt. Ltd.7
11. The following facts show that the appellant is also not reporting the true and correct state of affairs for the following reasons:
• The appellant does not have the delivery details, particularly the lorry receipt, etc. • The appellant has shown GP of only 4.98% • There are some instances of cash withdrawal but the same cannot be tracked back to the appellant.
12. Therefore, the stand of the A.O. needs to be amended and cannot be sustained in the present form.
13. In view of the above, the GP shown by the appellant was compared to the GP shown by the Traders in the steel Industry and it is gathered that the average GP in case of pure trader ranges between 6-9%. Considering the facts of this case and taking judicious view, the appellant should have shown GP of at least 6.5% of the sales. During the year under consideration the sales shown by the appellant is Rs. 9.56cr and the GP offered by the appellant is only 0.50% therefore after giving credit for the GP already offered the balance (6.5% (-) 0.50%) being 6% of the turnover of Rs.9.56 cr comes to Rs.57,36,000/- which is treated as additional income of the appellant.
Therefore, the ground of the appellant is partly allowed."
6. Before us, the learned Counsel, representing the assessee, submitted that once the learned Commissioner (Appeals) has accepted the most crucial fact that firstly, there is no dispute regarding the sale made on account of purchases made by the assessee, secondly the gross profit ratio of 0.5% was in line with the gross profit shown by the assessee in the past years; and lastly the books of account have not been rejected, therefore, he could not have applied the gross profit rate of 6.5%. Moreover, the entire purchases and sales have been made through banking channels i.e., through account payee cheques for which bank statements and pass books were given. The confirmation letters which have been filed, have also not been disputed by the Assessing Officer in his remand report. Thus, there was no occasion to apply the gross profit rate of 6.5% on the total turnover of ` 9,56,00,000 so as to make addition of ` 57,37,000.
7. On the other hand, the learned Departmental Representative relied upon the findings of the Assessing Officer and submitted that during the course of search, it was gathered that these purchase and sales are nothing but paper transactions for the purpose of accommodation entry, therefore, the addition made by the Assessing Officer is fully justified.
M/s. Emgee Foils Pvt. Ltd.
88. We have carefully considered the rival contentions, perused the findings of the Assessing Officer and the learned Commissioner (Appeals) as well as the material placed on record. In the present case, we find that the Assessing Officer has made the addition on account of entire purchases done with M/s. Epsilon Industries Ltd. on the ground that the entire amount of purchases aggregating to ` 5,01,88,500 was shown under the head "Sundry Creditors"
and no confirmation from the said party has been filed. The learned Commissioner (Appeals) though has accepted the entire transactions of purchase and sales made by the said party but have proceeded to confirm part of addition after applying gross profit rate of 6.5% on the entire turnover. The assessee is basically engaged in trading of various items like H.R. Coils, M.S. Angles, M.S. Bars, M.S. Pipes, M.S. Round, etc. The purchase and sales are made on the same day and during the year, the assessee had made total purchase of 3571.647 MTs valued at ` 9,51,58,794. The same quantity has been sold for ` 9,56,34,588, from which gross profit of ` 4,75,794, has been derived which in terms of percentage comes to 0.5%. As per the own findings of the learned Commissioner (Appeals), this gross profit rate was in consonance with the gross profit rate shown by the assessee in the earlier years. It is also not disputed that the Assessing Officer has not rejected the books of account or the sales turnover and even the learned Commissioner (Appeals) has also not rejected the books of account. Once the learned Commissioner (Appeals) has accepted that the sales and purchases are verifiable for the reasons that firstly, the entire purchase and sales have been made through account payee cheques and are fully verifiable from the bank statements and pass books, secondly, the confirmation letters which were filed before the Assessing Officer and also before him has not been disapproved even after calling for two remand reports and lastly, the gross profit shown by the assessee is also in consonance with the earlier years, then he could not have proceeded to apply the higher gross profit rate. The gross profit rate is the balancing figure in the trading account and if none of the variables on debit side and credit side are disturbed, the gross profit also cannot be disturbed. While coming to the conclusion of application of gross profit rate of 6.5%, he has M/s. Emgee Foils Pvt. Ltd.9
made observation that the traders in steel industries generally disclose gross profit rate between the range of 6% and 9%. This conclusion is without any material on record or based on any comparable case. Thus, the application of such a gross profit rate cannot be upheld once he himself has found that the gross profit ratio shown by the assessee is in line with the earlier years. Under these circumstances, once the books of account have not been rejected, sales have been accepted, we hold that no addition on account of gross profit rate or any addition on account of unexplained purchases can be made. Accordingly, we set aside the impugned orders passed by the learned Commissioner (Appeals) and delete the addition of ` 57,36,000, made in the for assessment year 2004-05 by the learned Commissioner (Appeals).
9. The ground taken by the Revenue on account of addition made under section 68 for the amount shown under the sundry creditors of goods, also cannot be sustained for the reason that firstly, sales made on account of the purchases made from the said party has been accepted, secondly, in the next year, the payment has been made to this party by account payee cheques as it was a running account and for which there is no dispute in the next year and lastly, confirmation letter from the said party has not been rebutted. Therefore, there is no case of any addition on account of balance shown under the head "Sundry Creditors". Thus, the ground raised by the assessee for the year under appeal is treated as allowed and Revenue's appeal is treated as dismissed.
10. The grounds for the assessment year 2005-06, both in assessee's appeal as well as in Revenue's appeal are similar to those of assessment year 2004-05. The findings of the learned Commissioner (Appeals) in assessment year 2005-06 are similar. Therefore, the finding given in the aforesaid appeals for assessment year 2004-05 will apply mutatis mutandis in this year also. Accordingly, assessee's appeal is allowed and Revenue's appeal is dismissed.
M/s. Emgee Foils Pvt. Ltd.
1011. प रणामतः नधा रती क अपील वीकत ृ मानी जाती है एवं राज व क अपील खा रज मानी जाती है ।
11. In the result, assessee's appeals are allowed and Revenue's appeals are treated as dismissed.
आदे श क घोषणा खले
ु यायालय म दनांकः 30th April 2013 को क गई ।
th
Order pronounced in the open Court on 30 April 2013
Sd/- Sd/-
बी.
बी. रामकोट
रामकोट य अ मत शु ला
लेखा सद य या यक सद य
B. RAMAKOTAIAH AMIT SHUKLA
ACCOUNTANT MEMBER JUDICIAL MEMBER
मंुबई MUMBAI, दनांक DATED : 30th April 2013
आदे श क त ल प अ े षत / Copy of the order forwarded to:
(1) नधा रती / The Assessee;
(2) राज व / The Revenue;
(3) आयकर आयु (अपील) / The CIT(A);
(4) आयकर आयु / The CIT, Mumbai City concerned;
(5) वभागीय त न ध, आयकर अपील य अ धकरण, मंुबई / The DR, ITAT, Mumbai;
(6) गाड फाईल / Guard file.
स या पत त / True Copy
आदे शानसार
ु / By Order
द प जे. चौधर / Pradeep J. Chowdhury
वर नजी स चव / Sr. Private Secretary
उप / सहायक पंजीकार / (Dy./Asstt. Registrar)
आयकर अपील य अ धकरण, मंुबई / ITAT, Mumbai