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TMI Blog2020 (8) TMI 235X X X X Extracts X X X X X X X X Extracts X X X X ..... invoking the provisions of section 145(3) of the Act shall lead to the estimation of income of the assessee based on some reasonable and proper criteria. Adoption of GP rate of 4.5% on the turnover under the facts and circumstances of the case will meet the ends of justice. We hold and direct accordingly. The AO is directed to recomputed the addition accordingly. The grounds raised by the assessee are accordingly partly allowed. - ITA No.3552/Del/2018 - - - Dated:- 7-8-2020 - Shri R.K. Panda, Accountant Member And Shri Sudhanshu Srivastava, Judicial Member For the Assessee : Shri P.C. Yadav, Advocate For the Revenue : Shri Saras Kumar, Sr. DR ORDER PER R.K. PANDA, AM: This appeal filed by the assessee is directed against the order dated 16th March, 2018 of the CIT(A)-28, New Delhi relating to assessment year 2013-14. 2. Although a number of grounds have been raised by the assessee, these all relate to the order of the CIT(A) in sustaining the addition of ₹ 1,43,88,769/- as against addition of ₹ 1,55,39,870/- made by the AO by directing the AO to adopt the GP rate of 25% as against 30% taken by him. 3. Facts of the case, in brief, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,00,000/- 28.10.2015 Reply not received 09 Kangaroo industries ltd 56,29,703/- 7,23,833/- 28.10.2015 Reply not received Total 5,75,55,073/- 2,31,18,624/- 4. He, therefore, asked the assessee to give the current and complete address of the above parties to which the assessee filed its submissions and provided copies of a few purchase bills in support of address of these parties. Therefore, again, notice u/s 133(6) were issued to find out the true picture. However, all these notices were returned back or no reply was received. Thereafter, the AO deputed the Inspector to conduct field inquiry at the addresses provided by the company. The Inspector reported that the premises of BM-125, West Shalimar Bagh, Delhi-88 is a residential area and no registers of the company were found from there. Further, the house is 100 sq. yard and consists of two floors. The ground floor contains 1 hall and 2 rooms, doors were of normal size and house is situ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tice of the CIT(A) substantiating that the purchases are genuine. It was submitted that the creditors have filed their confirmations and the assessee had made purchases from some of those parties in the past and subsequent years. Further, the assessee had made the payments in subsequent year and since the assessee has closed down its business, the Inspector could not find any business activity. It was further submitted that most of the parties were old parties and genuineness of the purchases has been accepted in the previous year. Relying on various decisions, it was submitted before the CIT(A) that the action of the AO is not justified. 6. However, the ld. CIT(A) was also not satisfied with the arguments advanced by the assessee. Relying on various decisions, he restricted the GP rate to 25% of the bogus purchases of ₹ 5,75,55,703/- thereby giving a relief of ₹ 11,55,101/-. 7. Aggrieved with such order of the CIT(A), the assessee is in appeal before the Tribunal. 8. The ld. counsel for the assessee, strongly challenged the order of the CIT(A) in directing to adopt the GP rate of 25% of the purchases of ₹ 5,75,55,703/-. The ld. Counsel for the assesseee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugh u/s 143(1). It was submitted that by the time the Inspector was deputed by the AO, the assessee had closed down its business. Further, the directors of the assessee company appeared before the AO in response to summons u/s 131(1) and their statements were recorded and they have confirmed the business activity of the assessee company. So far as the various allegations made by the AO in the body of the assessment order is concerned, the ld. Counsel rebutted each of the allegations. So far as the report of the Inspector that no business activity was noticed at the premises of the company is concerned, he submitted that the report of the Inspector is without any local witness. Further, the Inspector visited the spot on 25th January, 2016 and, by that time, the company had already closed its business and this fact was brought to the notice of the CIT(A). So far as the allegation of the AO that the report of the Inspector was confronted to the directors and they could not reply satisfactorily is concerned, the ld. Counsel, referring to the copy of the statement recorded of the directors which are placed in the paper book, submitted that this is factually incorrect since no such re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accepted and without purchases there could not have been any sales. Referring to various decisions, the ld. Counsel for the assessee submitted that the AO, without bringing on record any comparable instance and without considering the past records had made huge addition by estimating the profit at 30% on purchases which is highly an absurdity and without any basis and the ld.CIT(A) also was not justified in reducing the same to 25%. The ld. Counsel filed the following chart to substantiate the GP of the preceding and succeeding year which is as under: A.Y Gross Turn over Gross Profit G.P 2012-13( Immediately previous year) 3,48,63,147/- 7,29,765 2.9% 2013-14( Impunged Year) 9,93,23,196/- 30,75,363/- (better results) 3.10% accepted by AO 2014-15(nextyea) 8,62,24,688/- 36,92,457 1- 4.28% 11. The ld. Counsel for the assessee, referring to the decision in the case CIT vs. Cavinkare Pvt. Ltd., 263 taxma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e order of the AO. Referring to the assessment order, he drew the attention of the Bench to various defects pointed out by the AO. He submitted that the purchases shown by the assessee from various parties were proved by the AO to be non-genuine and bogus. Further, he has only made estimated addition of the GP at 27% which has been reduced by the CIT(A) to 25%. He submitted that under the peculiar facts and circumstances of this case, the addition sustained by the CIT(A) is fully justified and, therefore, the same should be upheld and the grounds raised by the assessee should be dismissed. 15. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and CIT(A) and the paper book filed on behalf of the assessee. We have also considered various decisions cited before us. We find, the AO, in the instant case, on the basis of non-reply to notice u/s 133(6) by the trade creditors and the report of the Inspector, found that the purchases to the tune of ₹ 5,75,55,703/- is unverifiable. Since, according to the AO, the entire purchase cannot or should not be added back and only the profit element embedded in such purchases sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such huge addition especially when purchases from those parties were accepted in the preceding year and no reopening of assessment u/s 147 or 263 has taken place. 17. We find, the Jaipur Bench of the Tribunal in the case of Kedia Exports Pvt. Ltd. (supra), has held that once the past year results have attained finality and not in dispute, the same can form the basis for estimating the GP rate for the current year. The rejection of books of account by invoking the provisions of section 145(3) of the Act shall lead to the estimation of income of the assessee based on some reasonable and proper criteria. The relevant observation of the Tribunal at para 14 reads as under:- 14. We have heard the rival contentions and perused the material available on record. For the year under consideration, the assessee has declared total turnover of ₹ 3,17,37,004/- with a gross profit of 10.04%. The A.O. has considered the purchases to the tune of ₹ 50,79,735/- made from these three parties as unverifiable. The A.O. consequently rejected the books of account of the assessee by invoking provisions of Section 145(3) of the Act and made disallowance of 25% of the aforesaid purchases. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lared for the year under consideration at 10.04% is lower than the average GP declared by the assessee in preceding three years by 0.18%. The rejection of books of account by invoking provisions of Section 145(3) of the Act shall lead to estimation of income of the assessed based on some reasonable and proper criteria. Since the average of past history of GP declared by the assessee is considered as a proper and reasonable basis for estimation of income for the year after rejection of books of account, therefore, the GP is estimated at 10.22% as against GP declared by the assessee at 10.04% for the year under consideration and differential trading addition equivalent to GP rate of 0.18% on declared turnover is upheld and the appeal of the assessee is partly allowed. 18. Considering the totality of the facts of the case, we are of the considered opinion that adoption of GP rate of 4.5% on the turnover of ₹ 9,93,23,196, under the facts and circumstances of the case will meet the ends of justice. We hold and direct accordingly. The AO is directed to recomputed the addition accordingly. The grounds raised by the assessee are accordingly partly allowed. 19. In the result, t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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