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TMI Blog2020 (7) TMI 462X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. AO was not based on any material. In the said background, the bench directed Ld.AO to restrict the estimation to 0.11% on purchases made from M/s RTIPL. This rate was nothing but the GP rate earned by the assessee on other purchases. Drawing analogy from the same keeping in view the GP rates reflected by assessee in preceding as well as in succeeding years, we direct Ld. AO to estimate the additions against suspicious / unverified purchases @1% on net basis, without any other benefit. The additions would come to 3,81,027/-. The balance additions would stand deleted. Accordingly, the revenue s appeal stands dismissed whereas the assessee s appeal stands partly allowed. X X X X Extracts X X X X X X X X Extracts X X X X ..... penalty u/s 271(l)(c) is premature in nature. Ground nos. 2 & 3 relating to interest & penalty, being mandatory and consequential in nature, would not require any specific adjudication on our part. 2.2 The grounds raised by the revenue read as under: - 1. On the facts and circumstances of the case and in law, the ld CIT(A) has erred in restricting the addition to the extent of 12.5% of the bogus purchases of ₹ 3,81,02,747 booked by the assessee related to purchases from M/s Ragini Trading and Investments Pvt. Ltd. after setting off the GP shown by the assessee. 2. On the facts and circumstances of the case and in law, the Id CIT(A) has erred in restricting the addition to the extent of 12.5% of the bogus purchases of ₹ 3,81,02,747 booked by the assessee related to purchase from M/s Ragini Trading and Investments Pvt. Ltd. without considering the decision of Hon'ble Apex Court in the case of CIT-vs-Durga Prasad 82 ITR 540 in the case N K Proteins Ltd. Vs DCIT SLP CC No 769 of 2017 even when the assessee failed to prove the genuineness of transaction or produce the purchase parties. It is apparent that the only substantive ground that arises for our considerati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchases made from M/s RTIPL were not to be treated as non-genuine purchases. In defense, the assessee submitted ledger extracts, copies of bills, details of sales and corresponding profit booked on these purchases, bank statements etc. But the assessee failed to submit the inward-outward register for traded goods and also failed to establish the movement / delivery of goods. A plea was also raised that sales made by M/s RTIPL were not doubted by the revenue. The account confirmation from M/s RTIPL was placed on record. 3.6 However, Ld. AO opined that the assessee failed to discharge the primary onus of proving the genuineness of the transactions and therefore, these purchases remained unverified. Weighing the factual matrix in the light of various judicial pronouncements, the books of accounts were rejected u/s 145(3). A conclusion was drawn that it was a case of inflation of expenses and routing of cash through hawala parties and therefore the entire amount of suspicious purchases was to be disallowed and added to the income of the assessee. Accordingly, adding the same to the income of the assessee, an assessment was framed determining the income at ₹ 385.07 Lacs. 4.1 A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ute about a well settled legal proposition that tax can be levied only on real income. It is an elementary rule of accountancy as well as of taxation laws that profit from business cannot be ascertained without deducting cost of purchase from sales, otherwise it would amount to levy of income tax on gross receipts or sales. Such a recourse is not permissible unless it is specifically authorized to do so under any particular provisions contained in the Act. The Hon'ble Jurisdictional High Court in the case of Hariram Bhambhani (ITA No. 313 of 2013) has held that only the profit attributable to the unaccounted sales can be brought to tax. The relevant portion of the order of the Hon'ble Jurisdictional High Court is reproduced as under: "5. Being aggrieved, Respondent-Assessee filed an appeal before the CIT(A). In its order, the CIT(A) recorded that during the course of survey, no unaccounted invoices were impounded. Although, there was unaccounted sale bills which were not recorded in the books of account on the date of survey, no document was impounded. However, later in its return filed with the Revenue, it declared turn over at ₹ 3.27 crores, showing a net pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere tallying and hence, only the profit margin embedded in such amount would be subject to tax. The Hon'ble Gujarat High Court held that whether purchases themselves were bogus or whether parties from whom such purchases were made were bogus, is essentially a question of fact and the Tribunal having examined the evidence on record and concluded that the assessee did procure cloth and sell finished goods, the entire amount covered under such purchase cannot be subjected to tax and only the profit element embedded therein was to be taxed, no interference is called for in the order of the Tribunal. While coming to the above conclusion, the Hon'ble Gujarat High Court also relied on the decision in the case of Sanjay Oil Cake Ind. 316 ITR 274 (Guj). 5.9 From the aforesaid discussion, it is clear that in view of the business model followed by the assessee wherein there is one to one co-relation between the purchases and the sales and also considering the legal position on the issues as discussed, it is only the profit embedded in the transaction which can be brought to tax and not the entire purchases from M/s. Ragini Trading & Investment P. Ltd. (RTIPL). 5.10 It is well kn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the coordinate bench pronounced on identical circumstances, we hereby direct that the disallowance is required to be sustained at 12.5% of the purchase from those parties. With these directions, we hereby decide the grounds of the rival parties which are partly allowed." 5.13 Similarly, the Hon'ble ITAT, Mumbai had an occasion to adjudicate this issue in the case of M/s Ratnagiri Steels (80 taxmann.com 265) which was engaged in the business of trading in steel. During the year, information was received from the Sales Tax Authorities about purchases from alleged hawala/bogus suppliers. After due consideration of all the relevant facts, the Hon'ble ITAT confirmed the addition of profits arising from the alleged hawala/bogus purchases by adopting a rate of 12.5%. It was further held by the Hon'ble ITAT that the AO should give credit for the book GP shown by the assessee in respect of the alleged hawala/bogus purchases against the said rate of 12.5%. The relevant portion of the order of the Hon'ble ITAT is reproduced as under: "The authorities below in the instant case did not make any industry comparisons to arrive at fair, honest and rational estimation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and rational keeping in view the factual matrix of the case, while the assessee shall be granted credit of GP ratio declared on this bogus purchases in the return of income filed with the Revenue. The assessee gets part relief. We order accordingly." 5.14 From the aforesaid two decisions, it can be observed that the appropriate percentage for computing the unaccounted profits from the purchases from the suspicious suppliers should factor the savings of taxes etc due to the unaccounted sales and the GP already shown in the regular books. The ratio of the decision of the Gujarat High Court in the case of Simit P Sheth (supra) cannot be squarely applied since the sales tax rate prevalent in Gujarat was 10% as against only 4% applicable in Maharashtra for the relevant period. However, the facts of the case of the assessee are quite similar to that of Ratnagiri Steels (supra) since the sales tax rate of 4% of Maharashtra itself is applicable. In the case of Ratnagiri Steels(supra), the Hon'ble ITAT directed the AO to allow set off of the book GP against the rate of 12.5% for computing the additional profits from the purchases from the alleged hawala/bogus suppliers. Therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h attracts lower VAT rate, the estimation of 12.5% with set-off of already declared GP was on higher side. The coordinate bench in the cited decision of assessee's son, on identical facts and circumstances, found merits in the contentions of the assessee and observed that the assessee took all possible steps and produced relevant documents to prove the genuineness of the purchases made from M/s RTIPL. The evidences furnished by Ld.AO were not disproved by Ld.AO and therefore, the view taken by Ld. AO was not based on any material. In the said background, the bench directed Ld.AO to restrict the estimation to 0.11% on purchases made from M/s RTIPL. This rate was nothing but the GP rate earned by the assessee on other purchases. Drawing analogy from the same & keeping in view the GP rates reflected by assessee in preceding as well as in succeeding years, we direct Ld. AO to estimate the additions against suspicious / unverified purchases @1% on net basis, without any other benefit. The additions would come to ₹ 3,81,027/-. The balance additions would stand deleted. Accordingly, the revenue's appeal stands dismissed whereas the assessee's appeal stands partly allowed. Cross-App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siderable period of time. The situation created by pandemic covid-19 could be termed as unprecedented and beyond the control of any human being. The situation, thus created by this pandemic, could never be termed as ordinary circumstances and would warrant exclusion of lockdown period for the purpose of aforesaid rule governing the pronouncement of the order. Accordingly, the order is being pronounced now after the re-opening of the offices. 7.3 Faced with similar facts and circumstances, the co-ordinate bench of this Tribunal comprising-off of Hon'ble President and Hon'ble Vice President, in its recent decision titled as DCIT V/s JSW Limited (ITA Nos. 6264 & 6103/Mum/2018) order dated 14/05/2020 held as under: - 7. However, before we part with the matter, we must deal with one procedural issue as well. While hearing of these appeals was concluded on 7th January 2020, this order thereon is being pronounced today on 14th day of May, 2020, much after the expiry of 90 days from the date of conclusion of hearing. We are also alive to the fact that rule 34(5) of the Income Tax Appellate Tribunal Rules 1963, which deals with pronouncement of orders, provides as follows: (5) The pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Let us in this light revert to the prevailing situation in the country. On 24th March, 2020, Hon'ble Prime Minister of India took the bold step of imposing a nationwide lockdown, for 21 days, to prevent the spread of Covid 19 epidemic, and this lockdown was extended from time to time. As a matter of fact, even before this formal nationwide lockdown, the functioning of the Income Tax Appellate Tribunal at Mumbai was severely restricted on account of lockdown by the Maharashtra Government, and on account of strict enforcement of health advisories with a view of checking spread of Covid 19. The epidemic situation in Mumbai being grave, there was not much of a relaxation in subsequent lockdowns also. In any case, there was unprecedented disruption of judicial wok all over the country. As a matter of fact, it has been such an unprecedented situation, causing disruption in the functioning of judicial machinery, that Hon'ble Supreme Court of India, in an unprecedented order in the history of India and vide order dated 6.5.2020 read with order dated 23.3.2020, extended the limitation to exclude not only this lockdown period but also a few more days prior to, and after, the lockdown by obs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the letter and spirit of rule 34(5) but is also a pragmatic approach at a time when a disaster, notified under the Disaster Management Act 2005, is causing unprecedented disruption in the functioning of our justice delivery system. Undoubtedly, in the case of Otters Club Vs DIT [(2017) 392 ITR 244 (Bom)], Hon'ble Bombay High Court did not approve an order being passed by the Tribunal beyond a period of 90 days, but then in the present situation Hon'ble Bombay High Court itself has, vide judgment dated 15th April 2020, held that directed "while calculating the time for disposal of matters made timebound by this Court, the period for which the order dated 26th March 2020 continues to operate shall be added and time shall stand extended accordingly". The extraordinary steps taken suo motu by Hon'ble jurisdictional High Court and Hon'ble Supreme Court also indicate that this period of lockdown cannot be treated as an ordinary period during which the normal time limits are to remain in force. In our considered view, even without the words "ordinarily", in the light of the above analysis of the legal position, the period during which lockout was in force is to excluded for the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X
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